The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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UK Regulators Consult on Digital Securities Sandbox
04/15/2024
On April 3, 2024, the Bank of England and U.K. Financial Conduct Authority published a joint consultation paper on proposed rules for the incoming digital securities sandbox. The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowered HM Treasury to establish sandboxes to facilitate the use of digital assets in financial markets. HM Treasury confirmed its approach to the DSS, which is the first such sandbox, in December 2023. The DSS will offer eligible firms a modified set of rules and regulations for a period of five years, enabling them to test out services using technology such as distributed ledger technology and give the regulators time to finesse a regulatory regime. It is hoped that digital securities could bring advantages, such as streamlining processes and reducing settlement risk and settlement times.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Financial Market Infrastructure, FinTech, Securities -
Bank of England Consults on Revisions to Statement of Policy on Enforcement
04/15/2024
On March 28, 2024, the Bank of England published a consultation paper on revisions to its Statement of Policy and Procedure on its approach to enforcement, published in January 2024, to reflect enhancements to the BoE's enforcement powers granted under the Financial Services and Markets Act 2023.
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UK Conduct Regulator Proposes Payment Optionality for Investment Research
04/11/2024
The U.K. Financial Conduct Authority has opened a consultation setting out proposals for allowing firms to use joint (bundled) payments for third-party research and execution services, subject to certain requirements being met. The proposals follow the recommendations made by the U.K. Investment Research Review in July last year, and which both the U.K. government and FCA accepted. This also follows the removal by the U.S. Securities and Exchange Commission of its temporary exemption on the need for U.S. firms to register as investment advisors if they sell research separately from execution. Responses to the consultation may be submitted until June 5, 2024. Depending on the scope of feedback received, the FCA is aiming to publish its final rules or guidance by the end of June 2024.
The FCA is proposing to introduce a new option that facilitates bundled payments for third-party research and execution services. The new option would be available alongside the existing methods of a firm making direct payments out of its own resources or from a separate research payment account.
Firms that opt to make bundled payments will need to satisfy certain conditions.
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UK To Move to T+1 Settlement by Latest End 2027
04/11/2024
The recently published Accelerated Settlement Taskforce report makes several recommendations to the U.K. government for moving to faster settlement of securities trades in the U.K. The main recommendation is that the U.K. should move to T+1 settlement by no later than the end of 2027. India is already on T+1 and the U.S will move to T+1 on May 28 this year (we discuss the U.S. move in our client note, "T+1 Settlement Coming May 28, 2024"). The Taskforce also recommends that the U.K. continues to explore the potential for alignment with the EU and other European jurisdictions (e.g., Switzerland). However, if that is not attainable, the U.K. should proceed in any event. Another recommendation is that certain operational changes be mandated from a date in 2025, including the establishment of market standards.
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Court of Justice of the European Union Annuls Sanctions Measures
04/11/2024
The Court of Justice of the European Union has decided that the reasons for the EU sanctions measures designating Mr Fridman and Mr Aven (two of the shareholders of LetterOne) were not sufficiently substantiated and their inclusion on EU sanctions lists was not justified (Judgments T-301/22 and T-304/22). The ECJ has annulled the acts that subjected Mr Fridman and Mr Aven to sanctions for the period from February 28, 2022 to March 15, 2023.
Despite this judgment, these two individuals remain subject to EU sanctions. This is because they have also been sanctioned under Council Decision (CFSP) 2023/572 and Council Implementing Regulation (EU) 2023/571, which are more recent and so were not at issue in these proceedings. The two individuals have now separately challenged their designations under that legislation, but those cases remain to be heard (pending cases, Aven v Council, T-283/23, and Fridman v Council, T-296/23).
This ECJ judgment does not impact the U.K. sanctions regime, under which the two individuals remain sanctioned. -
EU MiFID II Review Package Published
04/04/2024
On March 8, 2024, legislation amending the EU's Markets in Financial Instruments Directive and Regulation were published in the Official Journal of the European Union. The amending Directive and amending Regulation aim to enhance the availability of information on trading and companies for investors. Some of the proposed changes are similar to those that the U.K. has made or is contemplating making as part of the Wholesale Markets Review.
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New UK Requirements for Payment Account Contract Terminations
04/04/2024
HM Treasury has published a policy note and a draft statutory instrument—The Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024—on strengthening requirements in the Payment Services Regulations 2017 on contract terminations. These policy changes follow the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.
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Draft UK Legislation to Address Push Payment Fraud
04/04/2024
HM Treasury has published a policy note and a draft statutory instrument—The Payment Services (Amendment) Regulations 2024—on a risk-based approach to payments to mitigate against authorized push payment fraud. HM Treasury confirms its policy for allowing payment service providers to delay payments processing when there are reasonable grounds to suspect fraud or dishonesty. The draft statutory instrument amends the Payment Services Regulations 2017 to allow PSPs to delay executing an outbound payment transaction by up to four business days from receipt of the order where there are reasonable grounds to suspect fraud or dishonesty by someone other than the payer and the payer's PSP requires the time to contact the payer (its customer) or a third party (e.g., law enforcement) to determine whether to execute the payment.
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HM Treasury Consults on Amending the Money Laundering Regulations
04/04/2024
HM Treasury has launched a consultation with proposals to improve the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs). The consultation is wide-ranging, covering proposals to:- Ensure customer due diligence is more proportionate and effective.
- Strengthen system coordination to ensure continued coordination in the face of new and emerging threats, technological change and legislative changes.
- Clarify the scope of the MLRs, including as regards changing thresholds from Euro to Pound Sterling.
- Revise registration requirements for the Trust Registration Service to enhance transparency of higher risk trusts.
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HM Treasury Publishes Policy Statement on Next Phase of Smarter Financial Services Regulatory Framework
03/21/2024
On March 21, 2024, HM Treasury published a paper on the next phase of its Smarter Financial Services Regulatory Framework, the U.K.’s program of post-Brexit regulatory reforms for financial services. The original policy statement on the smarter regulatory framework was published in December 2022 as part of the so-called Edinburgh Reforms (discussed in our client note, “UK Government Publishes Edinburgh Reforms for Financial Services”). This described the U.K.'s new model for regulation and set out how the U.K. would prioritize the repeal and reform of retained EU law for financial services. In July 2023, HM Treasury published a further policy statement, dividing the review of REUL into tranches, and detailing anticipated dates for reform. Further details of the U.K.'s future financial regulatory framework can be found on our website, Future of Financial Services Regulation in the UK.
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UK Public Offers and Admissions to Trading Regulations Published
03/06/2024
On January 29, 2024, the Public Offers and Admissions to Trading Regulations 2024 (SI 2024/105) were published. The Regulations implement the new Public Offers and Admission to Trading Regime, part of the new designated activities regime, and revise the existing prospectus regime inherited from the EU that currently sits in the U.K. Prospectus Regulation. The designated activities regime (DAR) is a new U.K. concept to give the Financial Conduct Authority rulemaking powers over financial sector activities, such as public offers and listing, which are not necessarily carried out by regulated firms such as banks (we discussed the DAR in our client note, "A Boost For UK Financial Services"). The new Regulations introduce a general prohibition on public offers of securities, coupled with a collection of exceptions from this prohibition. Many of the existing exemptions in the U.K. Prospectus Regulation, such as offers solely to qualified investors and offers made to fewer than 150 persons, are retained. Certain provisions, such as those establishing the new designated activities and provisions enabling the FCA to make rules, came into force on January 30, 2024. Most of the other provisions will enter into force once the U.K. Prospectus Regulation is revoked using powers under the Financial Services and Markets Act 2023. The FCA has engaged with stakeholders regarding many of the changes that will be housed in its rulebook in the future. It is expected to publish a consultation paper in Summer 2024 on its detailed proposals.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Consumer Protection, Financial Market Infrastructure, Securities -
UK Fifth Commencement Regulations Under the Financial Services and Markets Act 2023 Published
03/04/2024
The Fifth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 5) Regulations 2024 (SI 2024/250)- under the Financial Services and Markets Act 2023 were made on February 29, 2024. One of the major reforms in the Financial Services and Markets Act 2023 related to regulatory accountability, especially of the Financial Conduct Authority and Prudential Regulation Authority. The Fifth Commencement Regulations now provide, among other things, for the coming into effect of certain provisions relating to the accountability of the Payment Systems Regulator, including:- Starting March 1, 2024, a requirement on the PSR to take certain steps in advance of taking an action where there is a material risk such action would be incompatible with the U.K.'s international trade obligations.
- Starting August 1, 2024, requirements for the PSR's consultations, requiring the PSR to keep general requirements under review, HM Treasury's powers to require the PSR to impose a requirement for a specified activity or for specific firms, detailing the cost-benefit analysis obligations and panel appointment statements of policy.
- Starting January 1, 2025, the remaining provisions on the PSR's accountability that are not already in force.
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UK Securitisation Regulations Published
03/04/2024
The Securitisation Regulations 2024 (SI 2024/102) were made on January 29, 2024, and will come into force for the most part when the Securitisation Regulation 2017 is revoked. This is part of HM Treasury's Smarter Regulatory Framework. The Securitisation Regulations 2024 designate, under the incoming designated activities regime, certain securitization activities when undertaken by a firm in the U.K. These are:- Acting as originator, sponsor, original lender or securitisation special purpose entity in a securitization.
- Selling a securitization position to a U.K. retail client.
The Securitisation Regulations 2024 introduce a new definition of "institutional investor," removing non-U.K. Alternative Investment Fund Managers that market or manage AIFs in the U.K. from due diligence requirements.
In addition, the Securitisation Regulations 2024 repeal detailed legislative firm-facing requirements. These requirements will be moved to the regulator rulebooks. Both the Prudential Regulation Authority and the Financial Conduct Authority consulted last year on their proposed approach and rules, and are expected to publish their final rules in Q2 this year. -
UK Conduct Authority Consults on New Approach to Enforcement and Publication of Enforcement Investigations
02/27/2024
On February 27, 2024, the U.K. Financial Conduct Authority published a consultation on revisions to its Enforcement Guide, setting out proposals which aim to simplify the guidance and increase transparency around the FCA's enforcement actions. Responses to the consultation may be submitted until April 30, 2024.
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Law Commission Publishes Consultation on Digital Assets as Personal Property
02/22/2024The Law Commission, a U.K. body which makes suggestions for legislative reform, is consulting on wording for a possible draft piece of legislation establishing a third category of personal property that would encompass "digital assets". English law currently recognizes "things in possession" (i.e., physical assets) and "things in action" (i.e., intangible assets). In case law to date, for example AA v Persons Unknown [2019] EWHC 3556 (Comm) and at least 23 other cases, the English courts have had no trouble in identifying, or accepting, various kinds of crypto-assets as constituting property, despite the fact they are neither things in possession nor things in action. However, coverage for asset classes is somewhat patchy, leading to some legal uncertainties. The Law Commission consulted on potential reforms to the law surrounding digital assets in July 2022, publishing a final report in June 2023 which found that, while the common law should be the primary forum for law reform in this area, it should be supplemented with legislation confirming that digital assets are capable of attracting personal property rights. This follows the approach in certain other jurisdictions, which have legislated on the topic - Japan, for example, has arguably brought crypto-tokens within the sphere of property law via amendments to its Payment Services Act, while Liechtenstein has enshrined tokens in legislation as a new form of legal object. A number of other jurisdictions, including Hong Kong, Singapore and New Zealand, have developed case law finding digital assets can attract property rights but have not so far confirmed this in legislation.
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Law Commission Publishes Call for Evidence on Digital Assets and Electronic Trade Documents in Private International Law
02/22/2024
The Law Commission, a U.K. body which makes suggestions for legislative reform, has published a call for evidence on the operation of English private international law (conflicts of law rules) in relation to digital assets and "electronic trade documents" (trade documents like bills of lading and bills of exchange that are in electronic form).
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EU Eases EMIR 3 Clearing Mandate
02/19/2024
The Council of the European Union and European Parliament have reached provisional political agreement on the latest revisions to the European Market Infrastructure Regulation, publishing on February 14, 2024, the agreed text of the EMIR 3 Regulation and EMIR 3 Directive. The controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products, has been substantially watered down from the European Commission's December 2022 proposal (we discussed the Commission's proposals in our client note, "Clearing in the EU After EMIR 3").
According to the final draft text, in-scope counterparties for the new "active account" requirement will be required to open and maintain accounts with EU CCPs and clear some transactions through EU CCPs for in-scope products. However, the Commission's (and some member states') ambitious and misguided attempt to force market relocations into Europe seem to have faltered. Even the largest EU derivatives traders (with EUR 6 billion + of open positions) need only clear a minimum of five (5) trades per annum for sub-categories each of the in-scope categories of products. In-scope products are interest rate derivatives denominated in euro and Polish zloty; and Short-Term Interest Rate Derivatives (STIR) denominated in euro. It had previously been proposed for CDS denominated in euro to be included, but this product is no longer in scope.
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UK Data Reporting Services Regulations 2024 Published
02/19/2024
On January 29, 2024, the Data Reporting Services Regulations 2024 (SI 2024/107) were made. The Data Reporting Services Regulations 2024 will enter into force on the same day that the Data Reporting Services Regulations 2017 are revoked, which is April 5, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023. The Data Reporting Services Regulations 2024 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content.
The Financial Services and Markets Act 2023 granted the FCA power to make rules for data reporting service providers (DRSPs), of which there are three types- Approved Publication Arrangements, Approved Reporting Mechanisms and Consolidated Tape Providers. DRSPs generally facilitate compliance by investment firms of their regulatory reporting obligations, ensuring that market data is accessible and supporting effective price formation and best execution.
The Data Reporting Services Regulations 2024 set the regulatory perimeter of the U.K.'s regime for DRSPs, set out the authorization regime for providing a data reporting service, and restate the FCA's supervisory and enforcement powers. The FCA is also given powers to run a tender process to select U.K. CTPs for a particular asset class. No CTP is yet established in the U.K. or the EU. The FCA published its final framework for a consolidated tape for bonds in December 2023, and the tender process for the bond CTP will progress through 2024. -
European Securities and Markets Authority Consults on Guidelines on Reverse Solicitation and Cryptoassets as Financial Instruments under the EU Markets in Crypto Assets Regulation
02/08/2024
The European Securities and Markets Authority has published two consultation papers on proposed guidelines under the EU Markets in Crypto Assets Regulation, one on reverse solicitation and the other on the classification of crypto-assets as financial instruments. Responses to the consultation papers should be submitted by April 29, 2024. ESMA plans to publish final reports on each of the guidelines by the end of 2024 at the latest.
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UK Prudential Regulation Authority Publishes Review of Bank Ring-Fencing Rules
02/08/2024
The U.K. Prudential Regulation Authority has published a Review of the PRA ring-fencing rules for U.K. banks. The ring-fencing regime came into force in 2019 and the PRA is required to review the rules it has made under the regime every five years. This is the PRA's first such review. The PRA found that most rules have performed satisfactorily and are generally well understood by industry. Some areas for improvement include:- Better aligning the rules relating to the provision of services to ring-fenced banks from non-ring-fenced parts of a group with other PRA rules on operational continuity in resolution and operational resilience.
- Reducing the frequency with which banks must review their internal policies on arm's length transactions.
- Potentially extending the duration of modifications to rules relating to governance arrangements for individual RFBs, where needed.
- Removing the requirement for RFBs to deliver annual regulatory reports on certain tax exposures, given the immateriality of the amounts reported so far.
The PRA plans to consult on potential changes to its rules after more detailed analysis.
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Amendments Proposed to Global Standard for Banks’ Exposures to Crypto-Assets
01/25/2024
Following publication of the final bank prudential requirements for exposures to crypto-assets, the Basel Committee on Banking Supervision is consulting on proposed amendments to the requirements for exposures to stablecoins. The consultation closes on March 28, 2024. The Basel Committee does not state whether these proposals, if they proceed, would need to be implemented by January 1, 2025, which is the implementation date for the final standard for banks' exposures to crypto-assets.
The Basel Committee's final requirements for exposures to crypto-assets apply different prudential approaches depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as "Group 1 crypto-assets&" and, within that group, stablecoins fall within Group 1b. The Basel Committee is proposing changes to the requirements that determine whether a bank can include a stablecoin exposure in the Group 1b category. First, the Committee is proposing changes to the composition of reserve assets of stablecoins that will enhance the asset quality criteria for reserve assets under the redemption risk test and provide additional safeguards for reserve assets. Secondly, the Committee proposes that banks should be required to perform due diligence, at the point of acquisition and regularly thereafter, that provides the bank with an adequate understanding of the stabilization mechanism and its effectiveness. Statistical tests will be required as part of the due diligence. A regulator would be capable of overriding a bank's categorization of its exposure on the basis of those test results.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
UK Seeks to Enhance Resolution Regime for Small Banks Following SVB Failure
01/18/2024
HM Treasury has launched a consultation that sets out proposals for enhancing the Special Resolution Regime by introducing a new means for the Bank of England, as the U.K. resolution authority, to use stabilization powers to manage the failure of a smaller bank. The proposal arises from the lessons learned from the failure of SVB, which resulted in its U.K. subsidiary, SVB UK, becoming unviable. SVB UK was transferred to HSBC using the resolution powers of the Bank of England.
The government does not intend to remove the Bank Insolvency procedure from the SRR. However, it is believed that the SRR could be enhanced to better manage the failure of smaller banks which are not identified as systemically important but which may be collectively impacted so as to create a systemic risk for the U.K. financial markets.
Instead of insolvency, the current regime allows for a failing bank to be transferred to a bridge bank or a private owner. However, there is concern about the potential risk to taxpayers as the bank may need to be recapitalized. HM Treasury is proposing that the Bank of England should be permitted to use funds provided by the banking sector to cover the costs linked to a resolution, including those related to recapitalizing and operating the failed bank. The funds would be levied on the banking sector.
Responses to the consultation may be submitted until March 7, 2024. The government will issue its response once it has analyzed feedback to the proposals and, if appropriate, legislate to bring the proposals into effect. If the proposal proceeds, changes will also be made to the Special Resolution Regime Code of Practice. -
Fourth Commencement Regulations Under Financial Services and Markets Act 2023 Published
01/18/2024
The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023. The Fourth Commencement Regulations provide, among other things, for:- The repeal of HM Treasury’s obligation to review legislation in various financial services legislation, including but not limited to, the Short Selling Regulation, the Securitization Regulation, the Alternative Investment Fund Managers Regulations and the U.K. version of the European Market Infrastructure Regulation. These repeals took effect on December 15, 2023.
- The revocation from April 5, 2024 of the Data Reporting Services Regulations 2017 and related implementing legislation such as (i) the provisions in the onshored Markets in Financial Instruments Regulations that provide HM Treasury and the regulators with powers to specify further detail relating to data reporting services; and (ii) the provisions in the MiFIR Delegated Regulation on the provision of data on reasonable commercial basis. The revocation of these provisions on this date aligns with HM Treasury's aim of the draft Data Reporting Services Regulations 2023 entering into force on April 5, 2024. The draft Data Reporting Services Regulations 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The FCA has confirmed the final framework for a consolidated tape for bonds, which will also enter into force on April 5, 2024.
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UK Financial Conduct Authority Publishes Rule Review Framework
01/16/2024
The U.K. Financial Conduct Authority has published its Rule Review Framework, setting out how it will set, measure and monitor the outcomes of its Handbook rules. The Rule Review Framework was mandated under the Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services). The FSM Act 2023 transferred responsibility for making detailed rules to the U.K.'s regulators, significantly increasing their powers. To ensure proper oversight of the use of those powers, the FSM Act 2023 provides for an enhanced regulatory accountability framework, which includes requiring the FCA (and the Prudential Regulation Authority, which consulted on its proposed in 2023) to keep their rules under review and publish a statement of policy on how they conduct those reviews.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Services -
HM Treasury Publishes Special Resolution Regime Code of Practice for Central Counterparties
01/16/2024
HM Treasury has published the Central Counterparties Special Resolution Regime Code of Practice, setting out guidance on the operation of the expanded resolution regime for CCPs established under the Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services). The FSM Act 2023 replicates some, but not all, aspects of the EU's CCP Recovery and Resolution Regulation (which came into effect post-Brexit), granting powers to the Bank of England, as the U.K. resolution authority, to safely resolve a CCP. The expanded U.K. regime came into effect on December 31, 2023 (by virtue of The Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023), applying to any resolution that commences from that date. The Code applies to the Bank of England as well as HM Treasury, the Prudential Regulation Authority and the Financial Conduct Authority (all of which have roles in the operation of the special resolution regime).
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UK Legislates to Implement the Digital Securities Sandbox
01/12/2024
Legislation implementing the U.K.'s first digital sandbox – the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 – came into force on January 8, 2024. The DSS Regulations enable the Digital Securities Sandbox to be established. The regulators are expected to consult soon on the proposed application process and rule changes.
U.K. recognized investment exchanges, recognized central securities depositories and investment firms that are licensed to operate a multilateral trading facility or organised trading facility, as well as any other U.K. firms identified by the Financial Conduct Authority or Prudential Regulation Authority, may participate in the FMI sandbox as a "sandbox entrant". Sandbox arrangements carried out by a sandbox entrant must relate to either the activity of operating a trading venue or carrying on maintenance, notary or settlement functions in relation to in-scope instruments, or be ancillary to those activities. In addition to the ability of the primary sandbox entrant to carry out those activities within the sandbox, the following classes of firms may participate in FMI sandbox arrangements: firms using the services provided by the sandbox entrant; firms providing services to the sandbox entrant or its users; and firms carrying on activities or providing services in connection with an in-scope instrument used in connection with the FMI sandbox arrangements. By including this third class of firms, firms would be allowed to provide services that are ancillary or complementary to trading and settlement activities, such as clearing, within the sandbox.
Read more.ATTORNEYS: Thomas Donegan, Elias Allahyari, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Securities -
Payment Systems Regulator Publishes New Rules for Mandatory Reimbursement of Authorized Push Payment Scams
01/11/2024
The Payment Systems Regulator has published its Final Policy Statement on its new regime for fighting authorized push payment scams. The Financial Services and Markets Act 2023 (discussed in our client note, “A Boost for UK Financial Services”) imposed a new obligation on the PSR to require payment service providers to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty.
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UK Conduct Authority Sets Out Detailed Changes to Listing Rules
01/11/2024
The U.K. Financial Conduct Authority is consulting on detailed proposals to reform its listing rules which are focused on a single listing segment, a more disclosure-based regime and changes to the sponsor regime. The FCA is proceeding with its original proposal to introduce a single listing segment, which it put forward in its consultation last year, discussed in our client note, "FCA Moves Ahead with a Single Equity Listing Category". Taking into account feedback to its consultation, the FCA sets out how the proposed 'commercial companies' equity share listings framework would work, including eligibility, significant and related party transactions, dual/multiple class share structures and sponsors. The 'commercial companies' category would replace the existing 'premium' and 'standard' listing segments. The FCA also describes details of the other listing segments changes it is proposing to make.
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International Organization of Securities Commissions Publishes Recommendations on Decentralized Finance
01/10/2024
Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Decentralized Finance on December 19, 2023. The nine recommendations are intended to promote consistency of global regulatory frameworks for DeFi in the interests of market integrity and investor protection.
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International Organization of Securities Commissions Publishes Recommendations for Crypto and Digital Assets Markets
01/08/2024Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Crypto and Digital Asset Markets on November 16, 2023. The 18 recommendations are intended to promote consistency of regulatory frameworks for cryptoasset service providers. The recommendations apply to both cryptoassets and stablecoins, although regulators are encouraged to consider any particular issues posed by stablecoin arrangements when applying the recommendations.
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UK Conduct Regulator Consults on Bond and Derivatives Markets Transparency Requirements
01/08/2024
The U.K. Financial Conduct Authority has opened a consultation on proposals for improving transparency for bond and derivatives markets. Following the Wholesale Markets Review, the Financial Services and Markets Act 2023 grants powers to the FCA to make rules which will replace the current pre-trade and post-trade disclosure rules for bonds, structured finance products, emission allowances and derivatives set out in the U.K. Markets in Financial Instruments Regulation. The FCA's rules must ensure efficient price formation and the fair evaluation of financial assets. This consultation sets out the FCA's proposed approach to those rules. Responses to the FCA's consultation may be submitted until March 6, 2024.
The FCA is proposing that trading venues and investment firms dealing OTC will be subject to minimum harmonized transparency requirements for sovereign bonds, corporate bonds and certain derivatives subject to the clearing obligation. For these financial instruments, there will be large in scale thresholds. Pre-transparency waivers will be available for orders above the threshold and deferrals for post-trade requirements. For other financial instruments, the FCA is proposing to set the standards and criteria to which trading venues should refer in order to meet the FCA's transparency expectations. Investment firms dealing in other financial instruments will not be required to report their transactions to the public.
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UK Finalizes Framework for Consolidated Tape for Bonds
01/08/2024
Following its consultation last year, the U.K. Financial Conduct Authority has published its final framework for a consolidated tape for bonds. MiFID II introduced requirements for a CT for transactions in equity and non-equity instruments. It requires a consolidated tape provider to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the U.K. or the EU. The Financial Services and Markets Act 2023 gave the FCA rule-making powers for Data Reporting Service Providers, enabling it to set a framework for the development of a CT.
The FCA's policy statement sets out its rules and guidance on the bond CT, which are due to come into force on April 5, 2024, which is the anticipated date that the draft Data Reporting Services Regulations 2023 are expected to enter into force, subject to Parliamentary process. The DRSRs 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The tender process for the bond CTP will kick-off in 2024.
The FCA's final policy is set out in a paper that also gives the FCA's response to feedback on a CT for equities and sets out proposals on payments to data providers by the bond CTP and forms for a Data Reporting Service Provider, adapted to reflect the DRSRs 2023 and the FCA's Handbook amendments. Responses to the FCA's proposals may be submitted until February 9, 2024. The FCA is aiming to finalize those rules and forms for April 5, 2024 too. -
UK Extends Transitional Period for Third-Country Benchmarks
01/08/2024
The Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 were enacted on December 19, 2023. The Regulations amend two pieces of legislation that are set to be repealed by the Financial Services and Markets Act 2023, both of which are subject to a transitional period until that repeal takes place. HM Treasury is able to amend the legislation during the transitional period to ensure that it remains up to date.
The Regulations amend the U.K. Capital Requirements Regulation to reintroduce the inadvertently removed "discount factor" that reduces the amount of capital that small- and medium-sized firms must hold for their trading and derivative activities. The amendment took effect on December 20, 2023. This move is in line with the approach of other leading jurisdictions and aligns with the government's policy to enhance the competitiveness of the U.K. markets. It also accords with the Prudential Regulation Authority's introduction of a simpler prudential regime for Small Domestic Deposit Takers.
The Regulations also amend the U.K. Benchmarks Regulation to extend the transitional period for third-country benchmarks from the end of 2025 to the end of 2030. This change is in line with HM Treasury’s policy announced in November 2023. The extension took effect on January 1, 2024. -
UK Consultation on the Emissions Trading Scheme’s Free Allocation Methodology
01/08/2024
The U.K. Emissions Trading Scheme Authority has launched a consultation on its approach to free allocations. The ETS is proposing options to amend the free allocation methodology, focusing on its approach to accounting for activity levels, benchmarking and the manner in which carbon leakage risk is assessed. Carbon leakage occurs when production and associated emissions are transferred from one country to another by a business in order to benefit from lower carbon pricing and climate regulation in other jurisdictions. The free allocation policy is intended to reduce a firm's exposure to the carbon price in the U.K.
Responses to this consultation may be submitted until March 11, 2024. A government response is expected to be published in 2024, with changes implemented in the lead up to the next free allocation period in 2026. The ETS Authority is also consulting on changes to the U.K. ETS markets policy. -
UK Consultation on Revisions to Emissions Trading Scheme Markets Policy
01/08/2024
The U.K. Emissions Trading Scheme Authority has launched a second consultation on the review of the ETS markets policy. Feedback to the first consultation has been taken into account to prepare the proposals discussed in this second consultation. Responses to this second consultation may be submitted until March 11, 2024. The ETS Authority is also consulting on changes to the U.K. ETS free allocation framework.
The ETS Authority identifies the most significant risks to effective market functioning and proposes various policy options to address those risks as well as how individual market stability policies could address market risks while minimizing intervention and disruption in the market. The ETS Authority is proposing to: (i) introduce a quantity-triggered Supply Adjustment Mechanism to mitigate the risk of demand shift with long-term market impacts; (ii) retain a re-designed Auction Reserve Price, as well as possible additional mechanisms, to alleviate the risk of sudden, significant and sustained price decreases; and (iii) retain the Cost Containment Mechanism to mitigate against sudden, significant and sustained price increases, including whether to maintain the use of discretion to act upon the trigger or whether some automation could be introduced. -
UK Statutory Instrument Made to Ensure Legislation Remains Consistent with Latest Repeals
01/08/2024
The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023 make consequential amendments to various pieces of legislation arising from the repeal by the Financial Services and Markets Act 2023 of certain retained EU financial services laws. The Regulations took effect on January 1, 2024. The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 provided for the repeal of 98 statutory instruments on August 29, 2023, and further revocations from January 1, 2024, including the European Long-Term Investment Funds Regulation (and related SI and tertiary legislation) and a provision from the Capital Requirements Regulation so as to allow the Bank of England more flexibility to set internal Minimum Requirements for Own Funds and Eligible Liabilities for U.K. subsidiaries of non-U.K. global systemically important banks. These latest Regulations make consequential amendments to ensure that legislation remains consistent with the January 2024 repeals.
Consequential amendments are also made to account for the removal of the double volume cap from the U.K.'s Markets in Financial Instruments regime. The DVC limited the level of dark trading to a certain proportion of total trading in an equity. Instead, the Financial Conduct Authority must monitor trading and has new powers to direct that transparency waivers should be suspended if the ongoing use of the waiver would impact market integrity. In addition, consequential amendments are made following the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 which amended payments-related REUL.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Funds, MiFID II, Payment Services -
UK Finalizes Amendments to Financial Promotions Regime High-Net-Worth and Sophisticated Investors Exemptions
01/08/2024
The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 implements the governments' policy to reform the high-net-worth and sophisticated investor exemptions under the financial promotions regime. The changes are brought in to mitigate the misuse of the exemptions by some firms marketing inappropriate products to ordinary retail customers and to update certain aspects that were introduced about 20 years ago. The Treasury Select Committee's report on the failure of London Capital & Finance recommended that the exemptions be rethought to ensure greater consumer protection.
The Financial Services and Markets Act 2000 restricts the communication of an "invitation or inducement to engage in investment activity" either in the U.K. or in a way that could have an effect in the U.K., such that these can be made only by regulated firms, subject to certain exemptions. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 provides for exemptions from the restriction, including exemptions for financial promotions of unlisted companies to be made to high-net-worth individuals and self-certified sophisticated investors. The Order makes several changes to the FPO exemptions, including increasing the financial thresholds for high-net-worth individuals, amending the eligibility criteria for the self-certified sophisticated investor exemption and requiring businesses to provide details of themselves in communications made in reliance on the exemptions.
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Bank of England Publishes Policy Statement on Implementation of Basel 3.1 Standards
01/03/2024
The Bank of England has published a Policy Statement on the Implementation of the Basel 3.1 standards in the U.K., taking account of responses to its Consultation Paper 16/22 published in November 2022. The Basel 3.1 changes introduce the as yet unimplemented Basel reforms to banks' regulatory capital frameworks, intended to restore credibility in the calculation of risk-weighted assets and improve the comparability of banks' capital ratios.
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UK Government Signs Agreement with Switzerland on Mutual Recognition for Wholesale Financial Services
01/03/2024
The U.K. Government has signed the Berne Financial Services Agreement with Switzerland, confirming mutual recognition of aspects of the financial services regulatory and supervisory regimes in each jurisdiction. The Agreement permits specified financial services providers in one jurisdiction to supply specified services to wholesale or sophisticated clients in the other jurisdiction in various sectors (including asset management, banking, investment services activities and insurance) on the basis of deference, domestic law or other arrangements.
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Retained EU Law and EU Interpretive Principles Revoked from UK Statute Book
01/03/2024
The Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023 (with related Explanatory Memorandum) came into force on January 1, 2024, clarifying that certain changes provided for under the Retained EU Law (Revocation and Reform) Act 2023 have come into effect.
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UK Prudential Regulator's Rules for Small Banks Coming at Start of 2024
12/22/2023
The U.K. Prudential Regulation Authority has published a policy statement and rules for implementing the Strong and Simple Framework. The framework is intended to simplify the prudential regulation of non-systemic banks and building societies that are not internationally active, reducing costs for firms, but maintaining their resilience. Up until now, the regulatory approach has broadly applied the same requirements to all banks and building societies, irrespective of their size and activities. Certain prudential rules are simplified for smaller banks and building societies, but to a lesser extent than in some other jurisdictions.
The policy statement sets out the scope criteria, liquidity and disclosure requirements, and confirms certain timings. The PRA has decided to rename Simpler-regime Firms to Small Domestic Deposit Takers (SDDTs), and Simpler-regime consolidation entities to SDDT consolidation entities. The rules providing for eligible firms to become SDDTs, definitions and disclosure requirements take effect on January 1, 2024. The other rules covered by the policy statement will apply from July 1, 2024. The PRA will consult in Q2 2024 on amending the Pillar 2 and buffer requirements for SDDTs.
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UK Legislates on Differentiating Risk of Domestic Politically Exposed Persons
12/22/2023
The Money Laundering and Terrorist Financing (Amendment) Regulations 2023, which amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (known as the MLRs), come into force on January 10, 2024. The Financial Services and Markets Act 2023 imposed on HM Treasury a duty to use its powers under the Sanctions and Anti-Money Laundering Act 2018 to amend the MLR customer due diligence measures required where a customer is a domestic (U.K.) politically exposed person (i.e., a PEP entrusted with prominent public functions by the U.K. government, as opposed to a foreign government). The Amendment Regulations fulfil that obligation, providing that unless there are other enhanced risk factors, the due diligence measures applicable to a domestic PEP are reduced compared to those applicable to a non-domestic PEP. The change follows concerns by many members of Parliament that banks and other financial institutions were imposing overly burdensome requirements for information and, in some instances, denying accounts to U.K. politicians and their family members, and also follows the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.
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HM Treasury Confirms Equivalence of US Commodity Futures Trading Commission Regime for Central Counterparties
12/18/2023
A U.K. statutory instrument has been published specifying that the US Commodity Futures Trading Commission regime for central counterparties is equivalent to the U.K. regime (which is set out under the U.K. European Market Infrastructure Regulation). The new SI — The Central Counterparties (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2023 (with accompanying explanatory note) — will take effect from December 28, 2023. The CFTC equivalence decision will only apply to CCPs that are registered with the CFTC and have either been classified as systemically important by the CFTC or otherwise voluntarily comply with the CFTC requirements for systemically important CCPs.
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New UK Retail Disclosure Framework for Consumer Composite Investments
12/13/2023
Following its July response to its consultation, HM Treasury has published a draft of the statutory instrument that will implement the U.K.'s revised retail disclosure framework. The draft Consumer Composite Investments (Designated Activities) Regulations 2024 will replace the existing onshored Packaged Retail and Insurance-Based Investment Products Regulation which contains rules on disclosures for complex retail investment and insurance products. The PRIIPs Regulation is often cited as an example sine qua non of poorly conceived, poorly drafted, ill-thought through EU legislation with unintended consequences. In particular, it is aimed at packaged retail products, such as FTSE-trackers and insurance-wrapped investments, but was drafted so as to impose onerous and unnecessary disclosure rules on bonds and other standardized securities, effectively foreclosing retail activity in a broad range of "vanilla" investments in the EU (and, when it was in the EU, the U.K.), as well as largely frustrating the EU's "capital markets union" project. These issues are discussed in our client note, "PRIIPS and Capital Markets Transactions: A Better Way Forward?". Replacing the PRIIPs Regulation was therefore identified as a post-Brexit U.K. priority under HM Treasury's Smarter Regulatory Framework. The new rules will allow for a revised U.K. retail disclosure regime that is applicable only to more complex products, suitable to the U.K.'s capital markets and encourages informed retail investor participation in those markets.
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HM Treasury Confirms Approach to Digital Securities Sandbox
12/12/2023
Following its consultation earlier this year, HM Treasury has published a response to its consultation on the Digital Securities Sandbox, confirming that it will mostly adopt the approach consulted on to establish the DSS. The DSS, which will be the first sandbox to be established using new powers granted by the U.K. Financial Services and Markets Act 2023, is intended to facilitate the use of digital assets in financial markets. The DSS is designed to allow firms to: (i) establish and operate FMIs using digital asset technology; and (ii) perform the activities of central securities depositories and trading venues in relation to existing security classes.
HM Treasury intends to lay before Parliament draft legislation to implement the DSS, which will be run by the Financial Conduct Authority and the Bank of England. The regulators will be consulting soon on their proposed approaches to the DSS, including the application process and proposed rule changes.
Read more.ATTORNEYS: Thomas Donegan, Wilf Odgers, Elias Allahyari, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Securities -
First Commencement Regulations under UK's REUL Act Published
12/12/2023
The Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 1) Regulations 2023 were made on December 12, 2023. These Regulations brought into force from January 1, 2024, provisions of the Retained EU Law (Revocation and Reform) Act to the effect that:- From January 1, 2024, the legislation set out in Schedule 1 of the REUL Act 2023 is revoked. The revocation of financial services legislation is being implemented under the Financial Services and Markets Act 2023.
- All remaining references to “retained EU law” (and related terms) are replaced with the term "assimilated law" (or a similar term). Assimilated law is U.K. law that was previously retained EU law or "REUL". The REUL Act provides that from January 1, 2024, REUL (and related terms) will be known as assimilated law.
- References to the recognition of EU rights that were retained under the European Union (Withdrawal) Act 2018 are removed. The REUL Act repealed the principle of the supremacy of EU law from January 1, 2024, meaning there is no supremacy for assimilated law over other pieces of U.K. statute.
- References to general principles of EU law (established by the Court of Justice of the European Union) are removed.
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UK Regulators Propose Rules for Supervising Critical Third Parties
12/12/2023
Following feedback to their July discussion paper, the U.K. regulators—the Bank of England, Prudential Regulation Authority and Financial Conduct Authority—have launched a joint consultation proposing rules and regulatory expectations for critical third parties. This follows concerns that the financial sector relies heavily on unregulated service providers, particularly in the IT sector, for critical infrastructure whose failure could cause systemic issues or customer issues. The Financial Services and Markets Act 2023 gave HM Treasury powers to designate an entity as a "critical third party" if its failure would pose financial stability or confidence risk to the U.K. and the regulators will have new direct powers over third parties that provide critical services to authorized firms, their service providers and financial market infrastructures. The regulators' rules would only apply to the services provided by a CTP to one of those firms. Responses to the consultation may be submitted until March 15, 2024.
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UK Regulator Consults on Proposed Reforms to the Commodity Derivatives Regulatory Framework
12/08/2023
The U.K. Financial Conduct Authority has launched a consultation on proposals for reforming the commodity derivatives regulatory framework, which covers position limits, the exemptions from those limits, position management controls, the reporting regime and the ancillary activities test. Responses to the consultation may be submitted until February 16, 2024.
The Financial Services and Markets Act 2023 has already made several reforms to the U.K.'s commodity derivatives regulatory regime. The MiFID II requirement for commodities position limits to be applied to all exchange-traded contracts and over-the-counter, or non-venue traded ("OTC"), contracts that are economically equivalent to exchange-traded commodity derivatives was revoked. Instead, the FCA will decide the scope of the commodity derivates to which position limits will apply. In addition, the powers for setting position controls were transferred from the FCA to the operators of trading venues. This contrasts with the EU approach, where position limits are not just set by the regulators, but actually in formulae in legislation, which have proven ill-thought-through and problematic for numerous markets. The FCA has retained the power to set position limits if certain conditions are satisfied, and has new rulemaking powers to establish how trading venues should set and apply position limits and what position management controls they should operate. Generally, the reversion of position limit controls to exchanges as self-regulatory organisations reflects the U.K.'s status quo ante, i.e., prior to MiFID II.
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UK Future of Payments Review Report Published
11/29/2023
HM Treasury has published the Future of Payments Review report, setting out the Review's recommendations for HM Treasury, the regulators and industry that aim to improve the U.K.'s existing payments landscape for consumers. The report follows the July 2023 call for evidence. The main recommendation is for the government to develop a National Payments Vision and Strategy, which will provide high-level guidance on priorities and define guiding principles on safety, simplification, coordination, responsiveness, inclusivity and accountability.
The Review makes several other recommendations.
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UK Acts to Extend Transitional Period for Third-Country Benchmarks
11/29/2023
HM Treasury has published a policy paper and draft legislation for extending the transitional period for third-country benchmarks under the U.K. Benchmarks Regulation. The transitional period will be extended from the end of 2025 to the end of 2030.
The U.K. Benchmarks Regulation provides that no financial instruments and financial contracts in the U.K. may start to reference a benchmark provided by a third-country benchmark administrator unless that benchmark administrator has approval through equivalence, recognition or endorsement. However, the applicability of these provisions to third-country benchmark providers has been extended numerous times. The government will consider whether the third-country benchmarks regime should be revised as part of the Smarter Regulatory Framework. The extension to 2030 is intended to provide certainty to market participants while that assessment and related work is carried out. The draft legislation is intended to come into force on January 1, 2024.
In October this year, the EU extended to the end of 2025 the transitional period for third-country benchmarks under the EU Benchmarks Regulation. -
HM Treasury Seeks Views on Clearing Exemption for Pension Schemes
11/29/2023
U.K. EMIR (the onshored European Market Infrastructure Regulation) generally requires the clearing at a central counterparty of all interest rate swaps and credit default swaps. As announced earlier this year, HM Treasury has launched a review of an applicable exemption for pension funds, with the publication of a call for evidence. Currently, pension schemes meeting certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR due to the difficulty that pension funds would find in funding margin calls; nominally, to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. In June, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 extended the temporary exemption for pension schemes to June 18, 2025.
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UK Draft Short Selling Regulations Published
11/29/2023
The U.K. government has published a draft version of the Short Selling Regulations 2024. The draft SSR 2024 will replace the existing U.K. Short Selling Regulation, which was onshored from the EU and which is being repealed under the Financial Services and Markets Act 2023. Alongside the draft legislation, HM Treasury has published a Policy Note, which sets out the final policy following the consultations on the short selling regime and on the regulation of sovereign debt and credit default swaps. The response to the first consultation was published in July this year, and the response to the second consultation was published in November 2023.
The draft SSR 2024 provides that the following are designated activities under the Financial Services and Markets Act 2000 (and so fall under the Financial Conduct Authority's remit whenever any regulated or unregulated person carries them out):- Entering into a short sale of a share.
- Entering into a transaction which creates or relates to a financial instrument other than a share, where an effect of the transaction is to confer a financial advantage on the person entering into that transaction in the event of a decrease in the price or value of a share.
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Bank of England Proposes Regulatory Regime for Systemic Payment Systems Using Stablecoins
11/27/2023
The Bank of England has published a discussion paper on its proposed approach to developing a regulatory regime for systemic payment systems using stablecoins and related service providers. The BoE’s paper follows the government’s recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins which confirmed that these types of stablecoins will be brought into the U.K. regulatory perimeter.
This is part of HM Treasury’s plan to regulate cryptoassets, focusing first on fiat-backed stablecoins. The BoE will be responsible for the financial stability of systemic payment systems using stablecoins. The Financial Conduct Authority will supervise non-systemic fiat backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only, and has published a discussion paper alongside the BoE's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the bank' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems using fiat backed stablecoins.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
UK Prudential Regulator Sets Out Expectations for Banks Innovating in Digital Money
11/27/2023
The U.K. Prudential Regulation Authority has published a Dear CEO letter, addressed to CEOs of banks, setting out its expectations of banks (deposit-takers) regarding the risks that arise from innovations in digital money and money-like instruments available to retail customers. The letter focuses on innovations in the use of deposits (and tokenized deposits), e-money and regulated stablecoins used for payment (which are being brought into the regulatory perimeter).
The PRA sets out how banks are expected to limit contagion arising from confusion regarding the different protections available to retail holders of bank deposits, e-money and regulated stablecoins. Where a bank or its group want to issue e-money or regulated stablecoins, that activity should be carried out from an insolvency-remote entity that is separate to the bank, with different branding from the bank to ensure that any failure of the e-money or stablecoin issuer would not impact the bank and the continuity of its deposit-taking services. The PRA also expects any tokenized deposit-taking to be undertaken in a way that ensures protection under the Financial Services Compensation Scheme. An e-money or stablecoin issuer that decides to accept traditional deposits would first need to establish a separate entity to obtain permission to operate as a bank.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
UK Conduct Authority Consults on Regulating Fiat-Backed Stablecoins
11/27/2023
The U.K. Financial Conduct Authority has published a discussion paper regarding potential future proposals for regulating fiat-backed stablecoins, including when used as a means of payment. The FCA's paper follows the government's recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, which confirmed that changes to legislation would bring these types of stablecoins into the U.K. regulatory perimeter. This is part of HM Treasury's plan to regulate cryptoassets, focusing first on fiat-backed stablecoins.
The FCA will supervise non-systemic fiat-backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only. The Bank of England is responsible for the financial stability of systemic payment systems using fiat-backed stablecoins and has published a discussion paper alongside the FCA's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the banks' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems that use fiat-backed stablecoins.
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HM Treasury Publishes Consultation Response on Financial Promotions Regime High Net Worth and Sophisticated Investors Exemptions
11/08/2023
HM Treasury has published a consultation response and draft statutory instrument on reforms to the high net worth and sophisticated investor exemptions under the financial promotions regime. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services") made amendments to the Financial Promotion Restriction, banning authorized firms from approving the financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or in part. The gateway will apply from February 7, 2024. However, the restriction does not apply where exemptions exist, such as those for high net worth or sophisticated investors.
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HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
11/03/2023
HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:- Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
- Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
- Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, MiFID II, Payment Services -
HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins
11/03/2023
HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.
The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, Payment Services -
HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
11/03/2023
HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Financial Market Infrastructure, FinTech, Recovery & Resolution -
EU Proposes Reducing Scope of the EU Benchmark Regulation
11/01/2023
The European Commission has published a legislative proposal for reducing the scope of the EU Benchmark Regulation. The EU BMR provides 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 Commission's proposal, designed to ease the burdensome requirements for smaller benchmark administrators, is to change the scope of the BMR by removing the requirement for non-significant benchmark administrators to obtain authorization or registration (EU administrators) or endorsement or recognition (third-country administrators). This will mean that the requirements for governance and control of administrators would no longer apply to these benchmark administrators.
The approval and governance requirements would continue to apply to significant benchmark administrators, critical benchmark administrators and, irrespective of significance, to administrators of the EU Paris-aligned Benchmark or EU Climate Transition Benchmarks.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Securities -
UK Regulators Confirm Bonus Cap Being Scrapped
11/01/2023
The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint policy statement confirming the "bonus cap" will be removed. Banks are subject to compensation requirements for staff who have a material impact on the bank's risk profile, and there is a cap on the ratio of variable to fixed compensation for identified staff – known as the bonus cap.
The changes are relevant to banks, building societies, and PRA-designated investment firms, including third-country branches that are subject to the Remuneration Part of the PRA Rulebook and to the FCA Remuneration Code for dual-regulated firms. The amendments will take effect from October 31, 2023, applying to a firm's performance year which is ongoing on that date, and to future performance years. Firms have flexibility as to when to make changes to compensation structures.
In their policy statement, the regulators remind firms of the existing rules that will continue to apply to a firm's compensation structure to ensure prudent risk-taking, such as the requirements that all variable compensation must be subject to risk adjustment and that the fixed and variable components of total remuneration must be appropriately balanced. The regulators have added guidance on how firms can set an appropriate ratio between the fixed and variable components. -
EU Extends Use of Third-Country Benchmarks Until End 2025
11/01/2023
A Commission Delegated Regulation extending the transitional period laid down for third-country benchmarks has been published in the Official Journal of the European Union.
The EU Benchmark Regulation limits the use by EU supervised entities of benchmarks provided by third-country benchmark administrators. Under transitional provisions, no financial instruments and financial contracts in the EU may start to reference a benchmark provided by a third-country administrator on or after December 31, 2023 (extended in 2022 from January 1, 2021), unless the benchmark and administrator are included in the register maintained by the European Securities and Markets Authority following an equivalence decision by the European Commission, or recognition or endorsement by a national regulator. However, a benchmark provided by a third-country administrator that is already being referenced in financial instruments and financial contracts in the EU on January 1, 2024, may continue to be referenced in those contracts and financial instruments.
The Delegated Regulation, which takes effect on October 26, 2023, extends the transitional date from December 31, 2023 to December 31, 2025. The transitional provision does not apply to any EU benchmark whose administrators relocate to a third country during the transitional period.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Securities -
Basel Committee Report on 2023 Banking Turmoil
10/20/2023
The Basel Committee on Banking Supervision published a press release in early October in which it announced:- That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
- The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
- That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.
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UK Government Publishes Draft Regulations on CCP Recovery & Resolution
10/20/2023
The draft Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023 were laid in Parliament on October 16, 2023. The draft Regulations provide for corporate law modifications and other amendments to ensure that the U.K. CCP resolution regime functions effectively. The Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for U.K. Financial Services") expanded the CCP resolution regime, giving the Bank of England, as resolution authority, additional powers to safely resolve a failing CCP. Most of the provisions of the expanded regime entered into force on August 29, 2023, under the first commencement regulations made under the FSM Act. Using powers conferred by the FSM Act, HM Treasury, through the draft Regulations, aims to ensure legal certainty and coherence by amending provisions of existing legislation, such as the Companies Act 2006 and the Bank Recovery and Resolution (No.2) Order 2014. The draft Regulations are intended to enter into force on December 31, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Financial Market Infrastructure, Recovery & Resolution -
Draft Legislation Published for Implementing UK's Retained EU Law (Revocation and Reform) Act 2023
10/20/2023
The draft Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023, laid before Parliament on October 16, 2023, will implement certain aspects of the Retained EU Law (Revocation and Reform) Act 2023 (which we discuss in our client note, "UK Government Publishes Brexit Freedoms Bill Setting Deadline for Revocation of EU Law"). The aim of the draft Regulations is to provide enhanced legal certainty in U.K. statutes.
The draft Regulations make provision for amending U.K. primary legislation (listed in the schedule to the draft Regulations) by replacing references to "retained EU law" with the term "assimilated law." This implements section 5 of the REUL Act, which provides that in-force REUL will become "assimilated law" or "assimilated case law" from January 1, 2024.
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UK Jurisdiction Taskforce Publishes Consultation on Digital Assets and Insolvency Law
10/20/2023
The U.K. Jurisdiction Taskforce has published a consultation relating to its proposed Legal Statement offering guidance on the application of English insolvency law principles to digital assets. The proposed Legal Statement will cover a range of areas which are listed in an Annex to the paper. Respondents are invited to submit comments on these areas, which include: (i) whether digital assets would constitute "property" under English insolvency legislation; (ii) which jurisdictional rules apply to determine the location of digital assets; and (iii) whether any difficulties can be perceived in applying English insolvency legislation to the avoidance of prior transactions to pre-insolvency dealings with digital assets. In addition, respondents are encouraged to inform the UKJT of any material issues of concern to stakeholders in relation to the application of English insolvency law to digital assets, other than those listed in the paper's Annex. Responses should be submitted by December 4, 2023.
The consultation paper follows a series of other publications by the UKJT on legal issues surrounding digital assets, including its Statement on the Issuance and Transfer of Digital Securities under English Law, published in February 2023. -
EU Authority Seeks Feedback on Potential Shorter EU Settlement Cycle
10/16/2023
The European Securities and Markets Authority has opened a call for evidence on shortening the settlement cycle in the EU. The existing EU settlement cycle for trades in transferable securities executed on trading venues is by no later than the second business day after the trade takes place, known as T+2. Responses to the call for evidence may be submitted by December 15, 2023. ESMA will report to the European Commission during 2024, although an earlier report may be produced if ESMA considers that regulatory action is needed in response to the move to T+1 or T+0 in other jurisdictions.
ESMA is asking for feedback from financial market participants on the impact on their operations of a reduced securities settlement cycle to T+1 or T+0, what benefits and costs it would bring, and how and when a shorter settlement cycle could be achieved. ESMA considers that the EU landscape is more complex than that in other jurisdictions because there is no centralized EU post-trade financial markets infrastructure and no harmonized securities law. Finally, ESMA seeks input on the impact of developments in other jurisdictions, such as the intended move by the U.S. and Canada to T+1 in mid-2024 and the U.K.'s assessment of changing to T+1 or T+0, an initial report on which is expected by the end of this year (announced as part of the Edinburgh Reforms which are discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services").ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Securities -
Draft UK Legislation on Revised Payment Service Contract Termination Rules Expected Before 2024
10/13/2023
HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:- A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
- A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, Consumer Protection, Payment Services -
Consultation on Near-Term UK Ring-Fencing Regime Reforms
10/10/2023
HM Treasury has launched a consultation on proposed near term reforms to the U.K. ring-fencing regime—"A Smarter Ring-Fencing Regime"—and published its response to its call for evidence on the practicalities of aligning the ring-fencing and resolution regimes for banks. These potential changes to the four-year-old ring-fencing regime were announced in the government's Edinburgh Reforms, which we discuss in our client note: "UK Government Publishes Edinburgh Reforms for Financial Services."
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UK Regulator Consults on Rules for Ring-Fenced Banks to Establish Overseas Entities
10/10/2023
The U.K. Prudential Regulation Authority is consulting on a proposed rule and policy changes relating to the establishment and maintenance of third-country branches and subsidiaries within ring-fenced banking groups. The PRA's consultation comes out of HM Treasury's Smarter Ring-Fencing Regime consultation, in which it is proposing, among other things, to remove the ban on RFBs that prevents them from operating in or servicing customers outside the U.K. and European Economic Area. Responses to the PRA's consultation may be submitted until November 27, 2023.
The PRA is proposing to require an RFB to ensure that risks from its overseas subsidiary or branch are not material to its safety and soundness, including its ability to continue to provide core services in the U.K. and its resolvability. It also proposes to update its existing Supervisory Statement on RFBs to set out its proposed approach to assessing compliance with the new rule and determining whether there is a material risk to a RFB's stability. -
UK Extends Temporary Recognition Regime for Third Country Central Counterparties and Transitional Regime for Qualifying Central Counterparties
09/21/2023
The Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2023 were made on September 13, 2023 and will enter into force on November 1, 2023, extending the U.K.'s temporary recognition regime for third-country CCPs to December 31, 2025. The TRR allows third-country CCPs to continue offering clearing services in the U.K., pending full recognition or equivalence decisions being granted. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") granted the Bank of England new rulemaking powers over CCPs and provides for the future framework for market access for overseas CCPs. The extended TRR will enable the current regime for overseas CCPs to continue while the U.K.'s new regime is developed, and ensures that certain overseas CCPs for whom recognition decisions have not yet been granted can continue to offer services in the U.K.
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UK Financial Conduct Authority Publishes Policy Statement on Financial Promotions Gateway
09/20/2023
The U.K. Financial Conduct Authority published a Policy Statement on 12 September 2023 setting out how it intends to implement the new regulatory gateway for financial promotions. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or part. The gateway will apply from February 7, 2024, with authorized firms able to apply to the FCA for permission from November 6, 2023 until February 6, 2024. There are exemptions from the gateway, entering into force on September 27, 2023, which permit the approval of financial promotions by authorized firms, for communication by unauthorized firms, in certain circumstances.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Consumer Protection, Financial Services, FinTech -
UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
09/14/2023
The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : AML/CTF, Insider Trading and Sanctions, Financial Market Infrastructure, FinTech -
FCA Reviews Treatment of Politically Exposed Persons
09/14/2023
The U.K. Financial Conduct Authority has launched a review of the treatment by regulated financial services firms of Politically Exposed Persons based in the U.K. Firms are currently obliged, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, to conduct enhanced due diligence when dealing with PEPs. The FCA has existing Guidance on the treatment of PEPs for these purposes, which makes clear (amongst other things) that firms should adopt a proportionate and risk-based approach to the application of the MLRs. The FCA has been mandated to review this guidance under the Financial Services and Markets Act 2023, including an investigation into how firms are applying the guidance and consideration as to whether any amendments are needed. We discuss this mandate and the FSMA 2023 more generally in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : AML/CTF, Insider Trading and Sanctions, Conduct & Culture, Consumer Protection -
Revocation of the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 is Postponed
09/14/2023
The Financial Services and Markets Act 2023 (Commencement No. 3) (Amendment) Regulations 2023 were made on August 25, 2023, postponing the revocation of the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013.
The Commencement No. 3 Regulations amend the Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023, which were made on July 10, 2023 and provide for the entry into force of certain provisions of the Financial Services and Markets Act 2023 (which we discuss in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023). This included provisions revoking retained EU legislation relating to financial services, including the CITS Regulations. The CITS Regulations establish a fund vehicle for the U.K. investment management industry which makes U.K. domiciled funds for collective investment in transferable securities more competitive. The CITS Regulations will now be revoked on a day appointed by the Treasury in a later instrument.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Services, Funds -
Proposed Global Policy Recommendations for Decentralized Finance
09/13/2023
On September 7, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations on market integrity and investor protection issues in decentralized finance (DeFi). IOSCO is proposing that the final recommendations, which it aims to finalize before the end of 2023, will help IOSCO members to establish compliant markets. Responses to the consultation may be submitted until October 19, 2023.
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UK Conduct Regulator Offers Small Reprieve for Cryptoasset Marketing
09/13/2023
The U.K. Financial Conduct Authority announced on September 7, 2023, that firms may avail themselves of a delay to the application of some rules applying to cryptoasset financial promotions. The FCA published rules for cryptoasset financial promotions in June this year, which will apply from October 8, 2023 (the same date that the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 brings the promotion of cryptoassets within scope of the U.K. regulatory regime). The reprieve is available, on application, to:- firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 that intend to communicate cryptoasset financial promotions; and
- authorized firms that intend to communicate or approve cryptoasset financial promotions.
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Exemptions from UK Financial Promotions Gateway Published
09/11/2023
The Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023, which come into force on September 27, 2023, set out the exemptions to the new U.K. regulatory gateway for the approval by authorized firms of financial promotions of unauthorized firms. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the Financial Conduct Authority to have the prohibition removed in whole or part. The prohibition will apply from February 7, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, which also set out the following timeline for the new regime to come into effect:- September 6, 2023: provisions will apply that enable the FCA to give directions and guidance and to make rules.
- November 6, 2023: provisions will apply that allow the FCA to receive (but not determine) applications to approve financial promotions that are made during the application period (November 6, 2023 to February 6, 2024).
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UK Regulatory Gateway for Financial Promotions Applies from February 2024
08/29/2023
The Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, made on August 22, 2023, bring into force certain provisions of the Financial Services and Markets Act 2023 and create a number of transitional regimes. We discuss the FSM Act in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023."
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Financial Services -
UK Joint Money Laundering Steering Group Proposed Cryptoasset Travel Rule Guidance
08/14/2023
The U.K. Joint Money Laundering Steering Group opened a consultation on July 28, 2023 on guidance on the U.K. travel rule for cryptoasset transfers. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 introduced the cryptoasset travel rule by amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and firms will need to comply with the requirements from September 1, 2023. The travel rule requires certain identification information on the sender (originator) and recipient (beneficiary) to accompany a transfer of a cryptoasset. The JMLSG is proposing to add a new annex setting out guidance on the U.K. travel rule for cryptoassets, covering scope, information requirements, batch transfers, returns, unhosted wallet transfers, wallet attribution, linked transactions and use of a layer-2 solution such as the Lightning Network. The guidance also states that firms should consider communications from the Financial Conduct Authority on the sunrise issue, which refers to the impact of jurisdictions implementing the travel rule at different times. Firms may encounter issues when dealing with counterparties in jurisdictions that have not implemented the travel rule for cryptoassets, for example, when dealing with EU counterparties for which the EU travel rules for cryptoasset transfers will only apply from December 30, 2024. Responses to the JMLSG consultation may be submitted until August 25, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
Financial Stability Board Issues Recommendations for Regulating Cryptoasset Activities and Markets
08/14/2023
The Financial Stability Board has finalized its global regulatory framework for cryptoasset activities and markets and revised the framework for global stablecoin arrangements. Both frameworks, based on the principle of "same activity, same risk, same regulation" aim to provide a basis for consistent regulation across the globe that is proportionate to the risks.
Comprising nine high-level recommendations for the regulation, supervision and oversight of cryptoasset activities and markets, the cryptoasset framework sets out the key objectives for implementation of an effective regulatory and supervisory regime for mitigating the risks posed by cryptoassets. The recommendations are:
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HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation
08/14/2023
HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.
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UK Financial Conduct Authority Consults on Securitization Rules
08/14/2023
The U.K. Financial Conduct Authority is consulting on its proposed rules for securitization markets, which will replace many of the firm-facing requirements under the existing U.K. Securitization Regulation. The U.K. Prudential Regulation Authority is separately consulting on its own equivalent rules for PRA-authorized firms, which together with the FCA's rules will create a coherent regime for securitizations. The regulators are being handed the power to make these rules under HM Treasury's proposed reforms to the U.K. securitization regime, which will repeal the existing U.K. Securitization Regulation, keeping part of the regime in new legislation and the remainder in the regulators' rulebooks.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Securities -
HM Treasury Consults on First Financial Market Infrastructure Sandbox – the Digital Securities Sandbox
08/07/2023
HM Treasury has published a consultation on the establishment of a financial market infrastructure sandbox, known as the Digital Securities Sandbox. The sandbox will be established using new powers granted by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"), empowering HM Treasury to set up individual FMI sandboxes. The sandboxes are designed to enhance understanding of the use cases for emerging digital asset technologies, including distributed ledger technology. HM Treasury can modify or disapply legislation and rules within the sandbox to permit different technologies to be tested that would not be possible under the existing legislative and regulatory framework, with the potential to make permanent changes to legislation based on the findings of the sandbox.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Market Infrastructure, FinTech, Securities -
HM Treasury Publishes Response on UK Retail Disclosure Consultation
08/07/2023
HM Treasury has published a response to its consultation on the future of U.K. retail disclosures. HM Treasury's consultation (which we discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services") identified various problems with the Packaged Retail and Insurance-Based Investment Products Regulation which currently governs disclosures for complex retail investment products. These included that the PRIIPs regime could be overly prescriptive and potentially misleading in its attempts to make PRIIPs products comparable and that the rules were spread across a mixture of legislation and regulatory rules which led to a complex environment for firms.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Consumer Protection, Securities -
UK Regulators Publish Revised Complaints Scheme
08/04/2023
The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have jointly published their revised Complaints Scheme, which governs how complaints against the U.K. regulators should be made and handled. The changes include:- The introduction of specific discretionary compensation bands for non-financial loss arising from the regulators' actions or inactions. The bands range from £100 for a relatively low level of stress or inconvenience, up to over £2,500 in exceptional circumstances, for example, where the consequences of the regulators' failings are particularly severe.
ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Conduct & Culture, Consumer Protection, Financial Services -
HM Treasury Consults on UK Future of Payments Review
08/04/2023
HM Treasury has published a Call for Input on the U.K. Future of Payments Review, an investigation into how future payments are likely to be made and how the U.K. can offer world-leading retail payments. The review is focused on consumer needs — specifically, those of individuals and businesses processing retail payments. Input is sought on the following issues:- What are the most important consumer retail payment journeys, both today and in the next five years?
- How does the experience of these journeys by U.K. consumers (individuals and businesses) compare with those of other leading countries?
- How likely are the existing plans and initiatives across the payments landscape to deliver world-leading payment journeys for U.K. consumers?
ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Consumer Protection, Payment Services -
UK Government Consults on Revised Securitization Regime
08/04/2023
HM Treasury has published a near-final draft statutory instrument and related Policy Note setting out its proposed reforms to the U.K. securitization regime. Comments on the draft S.I. can be submitted until August 21, 2023. The final S.I. will be laid before Parliament before the end of 2023.
The PRA is separately consulting on proposed rules to replace its retained EU law securitization requirements for PRA-authorized firms. Responses to the PRA's consultation should be submitted by October 30, 2023. The FCA will publish a consultation on its securitization rules on August 7, 2023.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Securities -
UK Regulatory Guidance on Trading Venue Regulatory Perimeter
08/04/2023
The U.K. Financial Conduct Authority has issued final guidance to clarify the scope of the regulatory perimeter for trading venues and the regulatory approvals needed to conduct their business. The guidance caters for new platforms emerging from technological developments. The guidance is one of the outcomes of HM Treasury's Wholesale Markets Review (which we discuss in our client note, "UK Wholesale Markets Review"). Other aspects of the Review are being implemented through the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") or by amendments to FCA rules.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins, Elias Allahyari
TOPICS : Financial Market Infrastructure, MiFID II -
UK Regulator Issues Statement on New Growth and International Competitiveness Objective
08/03/2023
The U.K. Financial Conduct Authority has published a statement setting out how its work to support the 'key drivers' of productivity will facilitate delivery of its new secondary objective and how it intends to report on progress embedding the new objective. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") introduces a new secondary statutory objective, obliging the FCA and U.K. Prudential Regulation Authority in carrying out their functions to support the long-term growth and international competitiveness of the U.K.'s economy in the medium and long term. This obligation enters into force on August 29, 2023, under Commencement Regulations made on July 10, 2023. Each regulator must report at two intervals to HM Treasury setting out how it has complied with its duty to advance the new objective. The reports are due 12 and 24 months after the new objective applies (August 29, 2024 and August 29, 2025 respectively).ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Brexit for Financial Services, Financial Services -
UK Regulator Proposes Framework for a Consolidated Tape
08/03/2023
On July 5, 2023, the U.K. Financial Conduct Authority launched a consultation on a proposed U.K. consolidated tape for bonds. MiFID II introduced requirements for a "consolidated tape" for transactions in equity and non-equity instruments. It requires a consolidated tape provider to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the U.K. or the EU. The EU announced at the end of June 2023 that political agreement had been reached on the proposals to introduce an EU consolidated tape.
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First Commencement Regulations Under UK Financial Services and Markets Act 2023
08/03/2023
The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 were made on July 10, 2023 and will bring into force provisions under the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") from either July 11, 2023, August 29, 2023 or January 1, 2024.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Brexit for Financial Services, Financial Services -
UK Investment Research Review Signifies Further EU-UK Divergence on Unbundling Research Rules
08/02/2023
The report and recommendations of the UK Investment Research Review were published on July 10, 2023. The recommendations have been accepted by the government and the Financial Conduct Authority has committed to prioritizing consulting on proposed rule changes with a view to revised rules applying in H1 2024.
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UK Government Sets Out Plan for Revoking EU Financial Services Laws
08/02/2023
Following finalization of the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023"), HM Treasury published a Delivery Plan for the Building a Smarter Financial Services Regulatory Framework for the UK. The Delivery Plan compliments the Policy Paper published as part of the Edinburgh Reforms (discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services").
Read moreATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Brexit for Financial Services, Financial Services -
UK Prudential Regulation Authority Consults on Approach to Reviewing Rules
08/02/2023
The U.K. Prudential Regulation Authority opened a consultation on June 30, 2023, on its proposed approach to reviewing its rules, including a proposed statement of policy. The Financial Services and Markets Act 2023 transfers responsibility for making detailed rules to the U.K.'s regulators, significantly increasing their powers, and provides for an enhanced regulatory accountability framework, subjecting the regulators to additional oversight by Parliament and HM Treasury. One of those regulatory accountability measures requires the PRA and Financial Conduct Authority to keep their rules under review and to publish a statement of policy on how they conduct such reviews.
The PRA's consultation sets out its proposed framework for conducting rule reviews, stakeholder engagements, transparency and communicating the outcomes of reviews. Responses to the consultation may be submitted until September 29, 2023.
The FCA has also published a draft Rule Review Framework, for which feedback may be submitted until September 15, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Brexit for Financial Services, Financial Services -
UK Financial Conduct Authority Seeks Comment on Draft Rule Review Framework
08/02/2023
The U.K. Financial Conduct Authority launched a consultation on July 14, 2023, on its proposed Rule Review Framework. The Financial Services and Markets Act 2023 transfers responsibility for making detailed rules to the U.K.'s regulators, significantly increasing their powers. To ensure proper oversight of the use of those powers in practice, the FSM Act provides for an enhanced regulatory accountability framework, subjecting the regulators to additional oversight by Parliament and HM Treasury. Among other things, the FCA and Prudential Regulation Authority must keep their rules under review and publish a statement of policy on how they conduct such reviews.
The FCA is proposing a draft Rule Review Framework based on the use of data to assess the effects of a rule change. The draft Framework sets out three types of review that the FCA could conduct, describing their purpose. The three types of review are an evidence assessment, a post-implementation review and an ex post impact evaluation. The FCA's draft Framework also describes the steps it could take if the data shows that a rule is not working as had been intended. Comments on the FCA's draft Rule Review Framework may be submitted until September 15, 2023.
The PRA is also consulting on its proposed approach to reviewing its rules, including a proposed statement of policy. Responses to the PRA's consultation may be submitted until September 29, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : Brexit for Financial Services, Financial Services -
UK Government Consults on Revised UK Short Selling Regime
08/02/2023
HM Treasury has published its response to the Short Selling Regulation Review, which sought views on the proposed U.K. short selling regime. Once the new U.K. regime for short selling is finalized, the retained EU Short Selling Regulation will be revoked under the revocation framework established by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023"). A draft statutory instrument for the new U.K. regime is expected to be published before the end of 2023, with the final S.I. being delivered during the course of 2024. The U.K. Financial Conduct Authority will also consult on proposed rules for the new framework in 2024.
The proposed regime is intended to represent a "lighter-touch" approach that will facilitate short selling and its benefits while managing the associated risks. The changes will: (i) increase the net short position disclosure threshold from 0.1% to 0.2%; (ii) replace the current requirement to disclose all short positions over 0.5% with a new disclosures model, whereby the FCA will publish aggregated short positions in each company's shares (removing the need to reveal the identity of individual sellers); and (iii) empower the FCA to make rules on areas such as exempt share arrangements, the market maker exemption requirements and prohibitions on uncovered short selling.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Services -
UK Financial Services and Markets Act 2023
08/02/2023
Following rigorous debate in Parliament, the U.K.'s latest Financial Services and Markets Act (FSM Act) received royal assent on June 29, 2023. The FSM Act significantly changes the U.K.'s regulatory framework for financial services, implementing the government's post-Brexit Future Regulatory Framework Review and the Edinburgh Reforms. The existing regulatory model under the Financial Services and Markets Act 2000 has been enhanced with the introduction of a new "Designated Activities Regime" for the regulation of activities related to the financial markets, transfer to the U.K. regulators of responsibility for making and reviewing detailed firm rules, subject to enhanced oversight by Parliament and HM Treasury, and the establishment of a regulatory framework for oversight of third parties that provide critical services to financial institutions.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Thomas Donegan, Sandy Collins, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Services -
UK Government and Regulators Consult on Revised UK Prospectus Regime
08/02/2023
HM Treasury has published a near-final draft statutory instrument and related Policy Note setting out its proposed reforms to the U.K. prospectus regime. The U.K. Financial Conduct Authority has also published a series of six Engagement Papers seeking views on its proposed rules under the new regime.
Once the new U.K. regime is finalized, the retained EU Prospectus Regulation will be repealed under the revocation framework established by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023").
Read moreATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Services, Securities -
EU and UK Sign Memorandum of Understanding on Financial Services Cooperation
07/11/2023
On June 27, 2023, the EU and U.K. signed a Memorandum of Understanding on Financial Services Cooperation, a high-level agreement on future cooperation in the regulation of financial services. The MoU provides for:- exchange of views between the EU and U.K. on regulatory developments and other issues of common interest;
- transparency and communication in adopting, suspending and withdrawing equivalence decisions;
- exchange of views between the EU and U.K. on market developments and financial stability; and
- enhanced cooperation and coordination, including in international bodies.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Thomas Donegan, Chloe Barrowman
TOPIC : Brexit for Financial Services -
EU Publishes New Sustainable Finance Package
07/11/2023
The EU published a new Sustainable finance package 2023 on June 13, 2023. The package includes:- A Proposed Regulation on the transparency and integrity of ESG rating activities, which aims to enhance the quality of ESG ratings. The Regulation will introduce an authorization and ongoing supervision regime for ESG rating providers along with certain obligations, e.g., disclosures on ratings methodologies. The proposal does not intend to harmonize the methodologies for the calculation of ESG ratings, but to increase their transparency. Third-country ESG rating providers may be able to offer their services in the EU under either equivalence, endorsement or recognition. The U.K. is currently consulting on making the provision of ESG ratings a regulated activity.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Climate & Sustainable Finance, Credit Ratings, Environmental, Social and Governance -
Law Commission Publishes Final Report on Digital Assets
06/28/2023The Law Commission, a U.K. body which makes suggestions for legislative reform, has published a final report in response to its July 2022 consultation on potential digital asset law reforms.
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UK Statutory Instrument Published to Bring Cryptoassets Within Financial Promotions Regime
06/12/2023
On June 7, 2023, the U.K. government published a statutory instrument (the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order) and related explanatory memorandum) amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The amendments broadly reflect HM Treasury's final proposals on cryptoasset financial promotions, published in January 2022. The expanded financial promotions regime will apply from October 8, 2023, an implementation period of four months as opposed to the originally proposed six, given recent market volatility. The new regime will capture promotions for "qualifying cryptoassets" with respect to the following (existing) controlled activities:- dealing in securities and contractually based investments;
- arranging deals in investments;
- managing investments;
- advising on investments; and
- agreeing to carry on any of the above activities.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman, Sandy Collins
TOPICS : Consumer Protection, FinTech, Securities -
UK Financial Conduct Authority Publishes Final Rules on Cryptoasset Financial Promotions
06/12/2023
On June 8, 2023, the U.K. Financial Conduct Authority published its final Policy Statement setting out detailed rules for the U.K.'s cryptoasset financial promotions regime. The Policy Statement follows the publication on June 7, 2023 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order), which will bring the promotion of certain cryptoasset activities within the U.K.'s financial promotions regime. The FCA's rules will apply from October 8, 2023 (the same date that cryptoassets are brought within the financial promotions regime under the FP (Amendment) Order).
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman, Sandy Collins
TOPICS : Consumer Protection, FinTech, Securities -
Proposed Policy Recommendations for Crypto and Digital Asset Markets
06/05/2023
On May 23, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations for crypto and digital asset markets. IOSCO is proposing that the final recommendations, which it expects to publish in Q4 2023, will help IOSCO members to apply the IOSCO Objectives and Principles for Securities Regulation to crypto asset activities. Responses to the consultation may be submitted until July 31, 2023.
IOSCO is proposing 18 recommendations that cut across the following areas:- Conflicts of interest arising from vertical integration of activities and functions.
- Market manipulation, insider trading and fraud.
- Cross-border risks and regulatory cooperation.
- Custody and client asset protection.
- Operational and technological risk.
- Retail access, suitability and distribution.
The proposed recommendations do not cover decentralized finance activities, products or services. IOSCO will consult on recommendations for DeFi activities later this year. -
European Commission Publishes Retail Investment Strategy
06/05/2023
On May 24, 2023, the European Commission published a Retail Investment Strategy package aimed at enhancing retail investor protections across the EU and encouraging participation in the EU capital markets. The package comprises an amending Directive, which makes changes across a range of EU legislation, and an amending Regulation, which revises the EU's Packaged Retail and Insurance-based Investment Products Regulation.
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UNIDROIT Publishes Principles on Digital Assets and Private Law
06/05/2023
On May 18, 2023, the International Institute for the Unification of Private Law (UNIDROIT), the intergovernmental organization for modernizing and coordinating private law, published a set of draft Principles on Digital Assets and Private Law. The 19 Principles provide high-level guidelines with which States (including UNIDROIT Member States) would be encouraged to align their own legislation on digital assets. The U.K., U.S. and EU Member States are among the members of UNIDROIT. The Principles have been designed to be neutral as to jurisdiction, technology and their manner of implementation, making them flexible and easy to incorporate into national legal systems. If the draft Principles are accepted by UNIDROIT's Governing Council, they are expected to be finalized and published in 2023.
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UK Publishes Insider Dealing Offence Legislation
06/05/2023
On May 25, 2023, the final Insider Dealing (Securities and Regulated Markets) Order 2023 and its related explanatory memorandum were published. The Order will enter into force on June 15, 2023.
The legislation aligns the scope of trading venues covered by the U.K.'s criminal insider dealing regime under the Criminal Justice Act 1993 with the civil regime under the U.K.'s Market Abuse Regulation, and updates the criminal regime. Details of the amendments are discussed in our separate blog. -
UK Ancillary Activities Test On Track For Simplification From 2025
05/18/2023
The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 was made on May 17, 2023. The Order, which enters into force on January 1, 2025, paves the way for the Financial Conduct Authority to develop a simpler test for determining which firms need to be authorized as investment firms as a result of their commodities and emission allowances trading business, known as the "ancillary activities test". The final Order is substantively the same as the draft SI, which we discuss in our related blog: "UK Government Publishes Draft Legislation Revising Application of The Ancillary Activities Test for Commodity Derivatives and Emission Allowances".
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UK Government Consults on Regulatory Accountability and Transparency Metrics
05/12/2023
On May 9, 2023, the U.K. government published a Call for Proposals on which metrics the Financial Conduct Authority and the Prudential Regulation Authority should be required to publish for the new secondary growth and competitiveness objectives. The new secondary objectives, which will be brought in under the Financial Services and Markets Bill, will compel the FCA and PRA in carrying out their functions to support long-term growth and international competitiveness. For the PRA, the new growth and international competitiveness objective will operate in conjunction with its existing secondary objective to facilitate effective competition in the markets for services provided by PRA-authorized firms (banks, large investment firms, insurers and credit unions). For the FCA, the new objective will go together with the FCA's three existing operational objectives of consumer protection, market integrity and competition.
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UK Criminal Insider Dealing Offence Legislation to be Updated
05/10/2023
On April 20, 2023, the draft Insider Dealing (Securities and Regulated Markets) Order 2023 was published (the draft Order). The draft Order will generally align the scope of the U.K.'s criminal insider dealing regime under the Criminal Justice Act 1993 with that of the civil regime under the U.K.'s Market Abuse Regulation and update the criminal regime. The draft Order, which will come into effect 21 days after it is made, will revoke the outdated Insider Dealing (Securities and Regulated Markets) Order 1994 (the 1994 Order).
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UK Financial Conduct Authority Finalizes Improvements to Equity Secondary Markets
05/09/2023
On May 3, 2023, the U.K. Financial Conduct Authority published a Policy Statement on Improving Equity Secondary Markets, following its consultation last year. These changes are part of the response to the Wholesale Markets Review led by HM Treasury. Some of the changes from the WMR require legislative changes and are being progressed in the Financial Services and Markets Bill. We discuss these changes, and others proposed by the Bill in our client note, "UK Financial Services and Markets Bill". The changes that the FCA is bringing in do not require legislation or new powers for the FCA. The FCA confirms that it will consult this year and next on further reforms to the requirements for equity markets once the detailed firm-facing obligations are transferred to its Handbook.
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UK Extends Clearing Obligation Exemption for Pension Funds and Intragroup Transactions
05/03/2023
On April 28, 2023, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 were published, with an explanatory memorandum. These Regulations come into effect on June 12, 2023, and will extend the expiry date of the:- Exemption from the clearing obligation for pension schemes from June 18, 2023, to June 18, 2025. This means that U.K. and EEA pension funds will remain exempt from the U.K. clearing obligation. This change is made by amending U.K. EMIR, as provided for in the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
- Temporary intragroup exemption provisions from December 31, 2023, to December 31, 2026. This means that the U.K. clearing obligation and risk mitigation measures will not apply to OTC derivative contracts between U.K. firms and their overseas group entities.
This is the first time that HM Treasury has used its powers to extend these dates. -
Proposed EU Regulation on Markets in Crypto-Assets Approved by European Parliament
05/02/2023
On April 20, 2023, the agreed text of the proposed European Markets in Crypto-Assets Regulation was given final approval by the European Parliament. The Regulation is intended to improve legal certainty in the regulatory treatment of crypto-assets, to preserve consumer protection and market integrity in crypto-asset markets and to ensure financial stability. The text must now be formally endorsed by the Council of the European Union and will then be published in the Official Journal of the European Union. It will enter into force 20 days after publication. The majority of the Regulation is expected to apply from around January 2025, with the exception of the provisions regarding asset-referenced token issuers and e-money token issuers, which should apply from around July 2024.
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EU Travel Rule for Crypto-Assets Set to Apply from January 2025
05/02/2023
On April 20, 2023, the European Parliament announced that it had formally endorsed the draft Regulation on information accompanying transfers of funds and crypto assets (referred to here as the EU Travel Rule Regulation). The draft Markets in Crypto-Assets (MiCA) Regulation has also been adopted.
The existing EU Wire Transfer Regulation (EU WTR) requires EU Payment Service Provider to ensure that information on the payer and the payee accompanies a transfer of funds. The funds can be in any currency, and comprise banknotes and coins, scriptural money and electronic money.
The EU Travel Rule Regulation will extend the requirements to crypto assets and crypto-asset services providers (CASPs), (both as defined under the draft MiCA Regulation) with information on the originator and the beneficiary being required to accompany any transfers in crypto assets, regardless of whether they are domestic or cross-border. The requirements will not apply to person-to-person transfers of crypto assets where a CASP is not involved, or when both the originator and the beneficiary are providers of crypto-asset transfers acting on their own behalf.
The EU Travel Rule Regulation must still be published in the Official Journal of the European Union before it comes into effect. This is likely to be around July this year. At that time, the EU Travel Rule Regulation will repeal the EU WTR, however, the existing requirements on information accompanying transfers of funds will carry over to the new Regulation. The EU Travel Rule Regulation will apply from the same date that the MiCA Regulation applies, which is expected to be January 2025.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
UK Launches 2023 Review of Senior Manager's and Certification Regime
04/06/2023
Following the Edinburgh Reforms announcement in December 2022, the review of the Senior Managers and Certification regime has been kicked off with HM Treasury publishing a call for evidence and the U.K. Financial Conduct Authority and Prudential Regulation Authority publishing a joint discussion paper. Both reviews should be considered alongside each other and responses to both may be submitted until June 1, 2023. The U.K.'s Senior Managers Regime has been criticized in imposing a close-to-strict level of liability on individuals, including for any problems which arise in their designated area of responsibility, potentially making the U.K. a less attractive place for senior financial services professionals to operate.
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UK Investment Research Review Call for Evidence Published
04/05/2023
The U.K. Investment Research Review call for evidence was published on April 3, 2023. Relevant background to these issues is set out in our recent client note, “MiFID II: An Update on the Rules for Unbundling of Research,” in which we discussed the MiFID II requirements, the actions of the U.S. SEC, potential changes to the U.K. and EU MiFID II rules and the implications for broker-dealers that receive “hard dollars” for research. In summary, the research that investment managers typically receive from brokers is, under MiFID II, generally classified as a prohibited “inducement,” unless the investment manager pays for the research either: (a) directly from its own resources; (b) from a “Research Payment Account” (RPA) funded, with the client’s prior approval, with an advisory client’s money; or (c) a combination of the two methods. These requirements only apply directly to U.K.-regulated investment firms. However, brokers outside of the U.K. are affected by the legislation. Before the U.S. Securities and Exchange Commission granted exemptive relief, U.S. broker-dealers faced challenges because receiving MiFID II-compliant direct payments for research from U.K. investment managers would have amounted to accepting “hard dollar” payments, vitiating an important exclusion from being regulated as investment advisers.
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EU Opinion on Trading Venue Perimeter
04/03/2023
On February 2, 2023, the European Securities and Markets Authority published a final report and an Opinion on the trading venue perimeter. The Opinion clarifies the definition of multilateral systems under the EU's revised Markets in Financial Instruments Directive and sets out guidance on when systems should be considered as multilateral such that authorization as a trading venue would be required. In issuing the Opinion, ESMA is seeking to address the regulatory inconsistencies that have arisen because there is no EU-wide homogenous view as to what constitutes a multilateral system and to provide more certainty about when a system will be considered multilateral, and therefore should apply for authorization as a trading venue. The U.K.'s Financial Conduct Authority recently consulted on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA is expected to publish its final guidance in Q2 2023.
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UK Mulls Aligning its Ring-Fencing and Resolution Regimes for Banks
03/31/2023
On March 2, 2023, HM Treasury issued a Call for Evidence requesting views on the practicalities of aligning the ring-fencing and resolution regimes for banks. The potential to align the U.K. ring-fencing and resolution regimes was announced on December 9, 2022 as part of the Edinburgh Reforms, in response to the recommendations of Independent Review on Ring-fencing and Proprietary Trading, published in March 2022. We discussed the Edinburgh Reforms in our client note: "UK Government Publishes Edinburgh Reforms for Financial Services." Responses to the Call for Evidence may be submitted until May 7, 2023.
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UK Government Publishes Draft Legislation Revising Application of the Ancillary Activities Test for Commodity Derivatives and Emission Allowances
03/30/2023The U.K. government has published a draft statutory instrument (and related explanatory memorandum), which will be known as the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023. The draft SI will simplify the process for determining when a firm satisfies the “ancillary activities” test and reduce the burden on firms that apply the test. The changes were discussed under the Wholesale Markets Review and announced as part of the Edinburgh Reforms.
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UK Government Publishes 2023 Green Finance Strategy
03/30/2023
The U.K. Government has published the 2023 Green Finance Strategy, its latest plan for mobilizing finance to support the shift to a greener financial system. The U.K. has committed to becoming a net zero economy by 2050.
The action points in the Strategy are based on two pillars: ‘Align’, which focuses on aligning financial markets with U.K. and global climate targets; and ‘Invest’, which encourages green investment. The proposals will have significant implications for corporates, financial institutions and investment firms, asset managers and financial market infrastructure providers.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Climate & Sustainable Finance, Environmental, Social and Governance -
UK Government Consults on Regulation of ESG Ratings Providers
03/30/2023
As part of its new Green Finance Strategy, HM Treasury has published a consultation paper on proposals to regulate providers of environmental, social and governance ratings. Such ratings providers offer assessments on a firm’s exposure to ESG risks or a firm’s impact on ESG matters. HM Treasury has found that these assessments increasingly trigger responses in financial markets and should therefore be subject to regulation. Responses to the consultation should be submitted by June 30, 2023.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Climate & Sustainable Finance, Environmental, Social and Governance -
UK Legal Statement on the Issuance and Transfer of Digital Securities under English Law
02/28/2023
Following its consultation in 2022, on February 9, 2023 the U.K. Jurisdiction Taskforce published a Legal Statement on the issuance and transfer of digital securities under English private law.
Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets. Seeking to provide legal certainty on the use of digital securities, the Legal Statement concludes that English law can support the issuance and transfer of digital bonds on a public blockchain without custodians, and the on-chain transfer of digital equity securities.
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UK Government Publishes its Proposals for Cryptoasset Regulation
02/14/2023
The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.
The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.
The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.
We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation". -
Bank of England Publishes Consultation Paper on Digital Pound
02/08/2023
The Bank of England has published a joint consultation paper with HM Treasury on the possibility of a digital pound in the U.K. It is envisaged that the digital pound would be a retail central bank digital currency, to be used in day-to-day payments by individuals and businesses. It would operate alongside, instead of replacing, cash. The BoE has also published a Technology Working Paper that explores the technological requirements of a U.K. CBDC. At this stage, the BoE is seeking input on the need for the digital pound and its early-stage proposals for the currency's form and function. As in previous communications on the subject, the BoE and HM Treasury emphasize that no decision has been made on whether to introduce a U.K. CBDC. The introduction of a CBDC would take years to implement, with the design phase expected to last until 2026. Responses to the consultation and Technology Working Paper should be submitted by June 7, 2023.
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EU EMIR 3 Proposals Published
01/19/2023
The European Commission published proposals to amend the EU's European Market Infrastructure Regulation (EMIR) in December 2022 (EMIR 3). According to the Commission, some of these measures are aimed at improving the competitiveness of EU CCPs and of EU clearing activities, and to reduce existing reliance by EU counterparties on U.K. CCPs. Since the Brexit referendum, the EU has been grappling with the bloc's continued reliance on U.K. CCPs. The most controversial aspect is a new mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products.
EMIR 3 would also bring in several technical changes relating to the clearing thresholds and how these operate for non-EU exchange trade derivatives (ETDs) and the exemption for certain intragroup transactions. Other proposals seek to mitigate some of the issues arising from the strain on the energy market, in particular the difficulties in fulfilling margin obligations.
Our client note, "Clearing in the EU After EU EMIR 3" describes the EMIR 3 proposals in more detail. -
UK Independent Review of Net Zero Recommendations for Carbon Markets and Financial Services
01/13/2023
The final report of the independent review of net zero has been published: "Mission Zero: Independent Review of Net Zero". The review was established in September 2022 to assess the government's approach to achieving its target of net zero greenhouse gas emissions by 2050. The government published its Net Zero Strategy in October 2021. The review's report makes numerous recommendations across a variety of sectors. Below are those most relevant to the financial services sector.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan, Barnabas W.B. Reynolds
TOPIC : Climate & Sustainable Finance -
Final Global Prudential Requirements for Banks' Exposures to Crypto-Assets
12/16/2022
The Basel Committee on Banking Supervision has published its final bank prudential requirements for exposures to crypto-assets. The Basel Committee consulted on these requirements in 2021 and 2022 and has now set the minimum standards based on the principle of "same risk, same activity, same treatment." These standards will be implemented by January 1, 2025. The Basel Committee has maintained the different prudential approaches depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as "Group 1 crypto-assets" and are generally tokenized crypto-assets and stablecoins. Group 2 crypto-assets are all other crypto-assets, which are deemed to present additional and higher risks than Group 1 crypto-assets. The capital requirements for Group 1 crypto-assets will be based on the risk weights for exposures under the existing Basel framework. Exposures to Group 2 crypto-assets will attract a higher capital charge.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
Edinburgh Reforms: Changes to the Laws of the UK Financial Services Sector
12/09/2022
The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:- Reforms to Ring-Fencing Regime;
- Implementation of Post-Brexit Financial Regulatory Framework;
- Growth and Competitiveness Remit for U.K. Regulators;
- Reforms to Wholesale Markets;
- Faster Settlement;
- Senior Manager's and Certification Regime;
- Changes to Promote Investment and Growth in Financial Services;
- Sustainable Finance;
- FinTech and Digital Assets; and
- Consumer Credit.
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EU Publishes Final Amendments to Cash Penalty Process for Cleared Trades
11/15/2022
The European Securities and Markets Authority has published its Final Report and draft Regulatory Technical Standards amending the cash penalty process for cleared transactions under the EU Central Securities Depositories Regulation. The settlement discipline regime under the EU CSDR, supplemented in EU Regulatory Technical Standards, provides measures for preventing settlement fails. CSDR and the RTS also provide measures for monitoring and addressing settlement fails when they do occur, such as a mechanism for cash penalties (which has applied since February 1, 2022) and a mandatory buy-in process.
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International Organization of Securities Commissions Publishes Consultation and Discussion Paper on Carbon Markets
11/09/2022
The International Organization of Securities Commissions has published a consultation on Compliance Carbon Markets and a separate discussion paper on voluntary carbon markets. Compliance Carbon Markets involve the issuance of carbon allowances by regional, national or state bodies. Companies are obligated to participate in the schemes to "pay" for their emissions. These markets are governed by regulations set at regional, state and international levels. The U.K., EU, Switzerland and California, for example, each have national Emissions Trading Schemes (as do some other countries or states). VCMs, on the other hand, involve participants who wish to offset their carbon emissions by buying carbon credits issued in relation to climate change mitigation or greenhouse gas reduction projects. VCMs are largely unregulated and, unlike Compliance Carbon Markets, are not mandatory. Instead, independent certification bodies usually check projects underlying credits for carbon reduction projects. Those credits can then be traded, either over-the-counter (which accounts for the majority of trades) or on exchanges.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Climate & Sustainable Finance, Environmental, Social and Governance -
FCA Publishes Consultation Paper on Sustainability Disclosure Requirements
10/25/2022
Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).
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UK Financial Conduct Authority Consults on Regulatory Perimeter Guidance for Trading Venues
09/22/2022
The U.K. Financial Conduct Authority has published a consultation paper on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA's consultation follows proposals made in HM Treasury's July 2021 U.K. Wholesale Markets Review, the response to which was published in March 2022. Responses to the FCA's consultation should be submitted by November 11, 2022. The FCA plans to finalize the draft guidance and publish a policy statement in Q2 2023.
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UK Conduct Authority Warns Buy Now Pay Later Firms on Compliance with Financial Promotion Requirements
08/19/2022
The U.K. Financial Conduct Authority has issued a warning to Buy Now Pay Later firms about financial promotions that potentially breach the FCA's rules. The Financial Services and Markets Act 2000 prohibits the communication of an "invitation or inducement to engage in investment activity" either in the U.K. or in a way that could have an effect in the U.K. Firms authorized in the U.K. are exempt from this Financial Promotion Restriction; however, they must still comply with the rules governing financial promotions when making any promotion or when approving a financial promotion of an unauthorized firm. All financial promotions must be fair, clear and not misleading.
The FCA is concerned about the promotion of unregulated BNPL agreements where the advert does not include a warning about the risks involved in BNPL products, and that only refer to the benefits. These financial promotions do not satisfy the FCA's rule that a balanced view must be included in all financial promotions (i.e., it must cover the benefits and the risks). The FCA is also concerned that the promotion of certain unregulated BNPL products is being carried out by unauthorized firms that have not sought or obtained the approval of their financial promotion by an authorized firm.
The FCA has written to the CEOs of several BNPL firms raising these concerns and warning the firms that it will act if corrective steps are not taken.
Earlier this year, the FCA secured changes to the contracts of four Buy Now, Pay Later firms —Clearypay, Klarna, Laybuy and Openpay. Certain terms, including contract cancellations, continuous payment authorities and right of set-off terms, were fairer and easier to understand. -
European Commission Call for Advice on Greenwashing Monitoring and Supervision
08/15/2022
The European Commission has published a call for advice addressed to the European Supervisory Authorities on the monitoring and supervision of "greenwashing" across the EU. Greenwashing can broadly be understood as the misleading marketing of a company or product as being environmentally friendly or sustainable, when that is not (or not substantially) the case. The EU has introduced legislation to preserve the reliability and transparency of ESG disclosures, including the Taxonomy Regulation and Sustainable Finance Disclosure Regulation. However, the Commission considers it important to continue monitoring greenwashing risks and assess the effectiveness of supervisory activities.
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Global Regulators Publish Discussion Paper on Central Counterparty Practices to Address Non-Default Losses
08/04/2022
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a discussion paper on the practices that central counterparties use to manage losses arising from non-default events, e.g., operational risk, investment risk, custody risk and legal risk.
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UK Conduct Regulator Publishes Policy Statement on Improvements to Appointed Representatives Regime
08/03/2022
The U.K. Financial Conduct Authority has published a Policy Statement and final rules on improvements to the Appointed Representatives regime. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA consulted on proposed changes to the regime in December 2021. The changes will take effect from December 8, 2022, although there is a transitional period for some of the rules (e.g., those relating to on-going submission of information and annual self-assessments), giving firms longer to comply. Principal firms will be required to provide data on their existing ARs within 60 days of the rules coming into force – the FCA will be sending out section 165 requests for information towards the end of 2022.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Conduct & Culture, Corporate Governance, FinTech -
UK Regulator Proposes Extending Long-Term Asset Fund to Certain Retail Investors
08/01/2022
Following the introduction of a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund, the U.K. Financial Conduct Authority has opened a consultation on extending the LTAF to more retail investors. The LTAF enables investors to invest in long term illiquid assets through an authorized fund vehicle. The LTAF may currently only be marketed to professional investors, certified and self-certified sophisticated investors, and certified high net worth individuals. The FCA is proposing to categorize the LTAF as a Restricted Mass Market Investment as per its recent Policy Statement on revising the financial promotion rules for high-risk investments. Opening the LTAF to more retail investors would be accompanied by additional investor protections rules, such as those that apply to other retail authorized funds. Responses to the consultation may be submitted by October 10, 2022. The FCA intends to publish a policy statement and final rules early in 2023.ATTORNEYS: Barnabas W.B. Reynolds, Thomas Donegan, Sandy Collins
TOPICS : Consumer Protection, Funds -
UK Jurisdiction Taskforce Publishes Consultation on Transfer of Digital Assets
08/01/2022
The U.K. Jurisdiction Taskforce has published a consultation on the issuance and transfer of "digital securities" under English law. Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets, but a question arises as to whether English law can support the issuance and transfer of digital securities. The UKJT intends to publish a legal statement on the subject in December 2022.
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Stricter UK Financial Promotion Rules Going Ahead
08/01/2022
The U.K. Financial Conduct Authority has published its final Policy Statement and Rules on financial promotions of high-risk investments and firms approving financial promotions. Many of these changes address or build upon recommendations of the Gloster Report or are otherwise related to the fallout from the London Capital & Finance plc scandal. The rules on risk warnings for financial promotions of high-risk investments will apply from December 1, 2022, and all other rules will apply from February 1, 2023. The FCA's related guidance (which is included in Annex 2 of the Policy Statement) will also apply from February 2023.
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UK Law Commission Consults on Law Reforms for Digital Assets
07/28/2022
Following the Call for Evidence on digital assets in 2021, the U.K. Law Commission has issued a consultation on proposals to reform the law of England and Wales to recognize and protect the rights of users of digital assets. The Law Commission believes that the law of England and Wales is sufficiently resilient, flexible and iterative to adapt to digital assets, including cryptoassets and stablecoins. However, the law Commission considers that law reforms are needed to ensure that digital assets gain from consistent legal recognition and protection. Responses to the consultation may be submitted until November 4, 2022.
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UK Financial Conduct Authority Publishes Final Rules and Guidance for New Consumer Duty
07/27/2022
The U.K. Financial Conduct Authority has published its final rules and guidance for the new Consumer Duty, which is intended to establish clearer standards for consumer protection across the financial services industry. The FCA conducted two consultations, one in May 2021 and another in December 2021 (following its earlier Discussion paper and Feedback Statement in 2018/2019). The final rules and guidance take account of the feedback received to those consultations.
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UK Regulators Propose Requirements for Critical Third Parties' Services to UK Regulated Firms
07/21/2022
The Bank of England, Prudential Regulation Authority and Financial Conduct Authority (together, the supervisory authorities) have published a discussion paper proposing measures to supervise and enhance the resilience of critical third parties (CTPs) to the U.K. financial sector. Responses to the discussion paper may be submitted until December 23, 2022. The supervisory authorities intend to consult on proposed requirements for CTPs in 2023.
Currently, the supervisory authorities' direct powers over entities providing critical services to U.K. authorized firms, their service providers (authorized e-money institutions, payment institutions and registered account information services) and financial market infrastructures (together, U.K. regulated firms) are limited. The Financial Services and Markets Bill, introduced to Parliament yesterday, would grant HM Treasury and the supervisory authorities' new express powers to oversee such third parties. HM Treasury will be able to designate an entity as a CTP if it provides services to U.K. regulated firms and its failure would pose financial stability or confidence risk to the U.K.
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UK Proposals for Regulating Systemic Payment Activities
07/21/2022
HM Treasury has opened a consultation on payments regulation and the systemic perimeter. The consultation arose out of the Payments Landscape Review and the government’s commitment to consult on bringing systemically important entities within payment chains under Bank of England regulation. Market developments and innovation have changed how risks are dispersed across payment networks. It is therefore likely, according to HM Treasury, that some entities operating in the payments space are not subject to systemic supervision by the Bank of England and as a result pose systemic risks to the U.K. financial system or even to those entities that are subject to Bank of England supervision. This consultation makes various proposals to address such risks or issues. Responses to the consultation may be submitted until October 11, 2022. The government will respond to that feedback in 2023.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
UK Government Publishes Financial Services and Markets Bill
07/20/2022
The U.K. government has published the much anticipated Financial Services and Markets Bill. Following its exit from the EU, the U.K. has undertaken a fundamental review of how financial regulation policy and rules should be made, reviewed and established in law, particularly in light of the return of the U.K.'s sovereignty. Furthermore, there has been a substantial assessment of the U.K.'s financial services rules and regulations, with some areas warranting further consideration. The Bill implements the outcomes of the Future Regulatory Framework Review, which assessed whether the U.K. financial services regulatory framework is fit for purpose and able to support future growth, particularly in light of challenges such as Brexit and climate change. On the same day, HM Treasury published its response to the final consultation in the FRF Review. The FSM Bill establishes a revised blueprint for financial services regulation by revamping the existing model under the Financial Services and Markets Act 2000 and revoking retained EU law in financial services. The regulators will be delegated powers for detailed rulemaking, and as a result, become subject to enhanced Parliamentary oversight.
Read more.ATTORNEYS: Sandy Collins, Barnabas W.B. Reynolds
TOPICS : Brexit for Financial Services, FinTech, MiFID II, Payment Services, Securities -
HM Treasury Publishes Final Policy Following Financial Services Future Regulatory Framework Review
07/20/2022
HM Treasury has published its final response to the Financial Services Future Regulatory Framework Review in which it sets out the government's policy approach to reforming the U.K.’s regulatory architecture post-Brexit. The response is published on the same day as the Financial Services and Markets Bill is introduced to Parliament, which will implement in legislation these significant reforms.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan, Wilf Odgers
TOPICS : Brexit for Financial Services, Financial Services -
Final UK Policy on Regulation of Central Counterparties and Central Securities Depositories Post-Brexit
07/20/2022
HM Treasury has published its final policy approach to the regulation of central counterparties and central securities depositories under the Financial Services Future Regulatory Framework Review. The response is published on the same day as the Financial Services and Markets Bill is introduced to Parliament, which will implement these changes as well as the reforms to the U.K.’s regulatory architecture post-Brexit. HM Treasury has also published its final response to the Financial Services Future Regulatory Framework Review in which it sets out the government's final policy approach to reforming the U.K.’s regulatory architecture post-Brexit.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan, Wilf Odgers
TOPICS : Brexit for Financial Services, Financial Market Infrastructure -
International Bodies Confirm Application of Principles for Financial Market Infrastructures to Systemically Important Stablecoin Arrangements
07/13/2022
The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.
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UK Treasury Commitee Publishes Inquiry Into Crypto-Assets
07/13/2022
The UK Treasury Commitee has launched an inquiry into the role of crypto-assets in the U.K. and their regulatory framework. The inquiry poses questions on a range of subjects, including the likelihood of digital currencies (e.g., stablecoins) replacing traditional fiat currencies, the risks and opportunities posed by crypto-assets and the environmental implications of crypto-asset technology, as well as a range of questions on the optimal approach to regulation for the industry. Responses should be submitted by September 12, 2022. The inquiry comes in the wake of another period of volatility in the crypto markets, which has drawn attention to some of the risks of investing in these products.
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UK Regulators Propose Changes to Margin Requirements for Non-Centrally Cleared Derivatives
07/12/2022
The U.K. Prudential Regulation Authority and Financial Conduct Authority have issued a joint consultation paper on proposals to amend the U.K. Binding Technical Standards on margin requirements for non-centrally cleared derivatives (i.e., the U.K. version of Commission Delegated Regulation (EU) 2016/2251 on risk mitigation techniques). The BTS on risk mitigation techniques were onshored for Brexit, and the PRA and FCA are responsible for setting the requirements and are empowered to make adjustments, subject to approval from HM Treasury. The BTS supplement the European Market Infrastructure Regulation as onshored for Brexit, which requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The BTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. Responses to the consultation may be submitted until October 12, 2022. The regulators will consider the feedback and then send their proposed draft amending BTS to HM Treasury for approval. It is proposed that the changes would take effect on publication by the regulators of the revised BTS.
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EU Proposes to Amend Cash Penalty Process for Cleared trades
07/11/2022
The European Securities and Markets Authority has opened a consultation in which it proposes to amend the cash penalty process for cleared transactions under the EU Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The settlement discipline regime, set out in EU Regulatory Technical Standards, provides measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. CSDR and the RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a mandatory buy-in process. The settlement discipline rules have applied since February 1, 2022.
ESMA is proposing to amend the RTS to remove the obligation on CCPs to collect and distribute penalties for cleared transactions. Instead, CSDs will operate the entire collection and distribution process for penalties (i.e., for cleared and uncleared trades). In terms of timing, ESMA is considering a six-month implementation delay to give industry time to test arrangements in their cash penalties processes. Responses to the consultation may be provided by September 9, 2022. -
Crypto-Asset Market Turmoil: Financial Stability Board Issues Statement
07/11/2022
The Financial Stability Board has issued a statement on international regulation and supervision of crypto-asset activities. The statement is made in light of the crypto-asset market turmoil. The statement warns crypto-asset service providers to comply with existing legal obligations in the countries in which they operate, which would include anti-money laundering obligations. FSB members are implementing the Financial Action Task Force's recommendations for crypto-asset service providers to be registered for AML purposes and to comply with the so-called travel rule, which requires relevant originator and beneficiary information to accompany crypto-asset transactions.
The FSB reiterates that an effective regulatory framework should adopt the "same risk, same outcome/regulation" approach. The FSB is progressing work with other international standard-setting bodies to tackle potential financial stability risks presented by crypto-assets, including stablecoins. This includes reviewing existing applicable standards, identifying gaps, and adjusting those standards or developing new standards. The FSB's view is that stablecoins that are used as a means of payment potentially present significant risks to financial stability and should be subject to robust regulations and supervision, including transparency obligations and, importantly, holding sufficient reserves to mitigate financial stability risks. The FSB will report to the G20 Finance Ministers and Central Bank Governors in October this year on the adoption of regulatory approaches to stablecoins. -
LIBOR Transition: Further Proposed Changes to EU Clearing and Derivatives Trading Obligations
07/11/2022
The European Securities and Markets Authority has opened a consultation on proposals to amend the EU clearing and trading derivative obligations to reflect recent benchmark transitions from LIBOR to so-called risk-free rates. The scope of the EU derivatives clearing and trading obligations for interest rate derivatives based on LIBOR denominated in EUR, GBP, JPY and USD were amended earlier this year. Amendments to the Regulatory Technical Standards, which took effect on May 18, 2022, removed interest rate derivative classes referencing GBP and USD LIBOR from the clearing and trading obligations, removed IRD classes referencing EONIA and JPY LIBOR from the clearing obligation, and introduced a clearing obligation for IRD classes referencing three new risk-free rates, namely €STR, SONIA and SOFR.
ESMA is proposing to further amend the RTS to:- introduce a clearing obligation for overnight index swaps referencing TONA (JPY);
- expand the maturities in scope of the clearing obligation for OTC interest rate swaps referencing SOFR (USD); and
- introduce a derivatives trading obligation for certain classes of OTC interest rate swaps referencing €STR (EUR).
Responses to the consultation may be submitted by September 30, 2022. ESMA will consider the feedback before submitting for approval by the European Commission final draft amending RTS. -
EU Consultation on Guidelines for Applications to Operate DLT Market Infrastructures under the EU Pilot Regime
07/11/2022
The European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:- the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
- the method that applicants should use to provide the requested information and documents to their competent authorities.
Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, MiFID II -
Ashley Alder to Chair UK Financial Conduct Authority
07/08/2022
HM Treasury has announced the appointment of Ashley Alder as Chair of the U.K. Financial Conduct Authority. Mr Alder will succeed interim chair Richard Lloyd, who has served as interim Chair since Charles Randell stepped down from his post in May 2022. Mr Alder, a former lawyer who is currently CEO of the Securities and Futures Commission of Hong Kong and Chair of the International Organisation of Securities Commissions, will take up his post from January 2023. -
Basel Committee on Banking Supervision Consults Further on Capital Requirements for Banks' Exposures to Crypto-Assets
06/30/2022
Following its consultation last year, the Basel Committee on Banking Supervision has launched a second consultation on bank prudential requirements for exposures to crypto-assets. The first consultation set out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the 2019 discussion paper and other input from stakeholders. This second consultation proposes revisions to the initial proposals based on the feedback received and sets out proposed minimum standards based on the principle of "same risk, same activity, same treatment". Responses to the consultation may be submitted until September 30, 2022. The Basel Committee intends to publish final standards before the year-end; standards may be stricter than those presented in this consultation if feedback indicates any deficiencies.
The Basel Committee is maintaining its approach of adopting different prudential treatments depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as Group 1 crypto-assets and will be subject to the existing Basel framework. Group 2 crypto-assets are those that do not meet the conditions and are therefore deemed to present additional and higher risks than Group 1 crypto-assets. Group 2 crypto-assets will be subject to an adapted prudential regime, with netting and a 100% capital charge. Group 1 and Group 2 crypto-assets could be tokenized crypto-assets and stablecoins; Group 2 could also include unbacked crypto-assets.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech -
UK Parliament Creates New Sub-Committee on Financial Services Regulations
06/23/2022
The House of Commons Treasury Committee has announced the creation of a new sub-committee that will scrutinize financial services regulatory proposals and has published a report setting out the approach that Parliament will take to its scrutiny role now that the U.K. has left the EU. The new sub-committee will be called the Sub-Committee on Financial Services Regulations, and its members will initially be all the members of the Treasury Committee. The sub-committee has been set up because Parliament's examination of regulatory proposals is likely to increase when existing EU regulations are moved to the rulebooks of the U.K. regulators, resulting in an assessment by the regulators as to whether those rules are appropriate for the U.K. Among other things, the new Sub-Committee on Financial Services Regulations will have powers to "send for persons, papers and records", to seek and take evidence and report on its findings. -
UK Treasury Committee Makes Recommendation for Future Regulatory Framework Review
06/16/2022
The House of Commons Treasury Committee has published a report on the Future of Financial Services Regulation setting out its view on the priorities for regulatory change in the U.K. now that the U.K. has left the EU. The report considers some of HM Treasury's proposals in the Future Regulatory Framework Review and presents its related recommendations. It also makes specific recommendations for the Financial Conduct Authority and the Prudential Regulation Authority.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Financial Services, FinTech, Payment Services -
UK Money Laundering Regulation Changes Announced for September 2022
06/15/2022
Following its 2021 consultation on targeted amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), the U.K. government has published a consultation response which summarises the feedback to the consultation and sets out the government's approach to making changes to the statutory instrument. The amendments will be made in the draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which are intended, for the most part, to take effect from September 1, 2022. A summary of the changes is set out below. The government will also soon publish its response to the call for evidence on the U.K.'s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which covered the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
European Securities and Markets Authority Publishes Regulatory Technical Standards on Revised Commodity Derivative Clearing Threshold
06/03/2022
The European Securities and Markets Authority has published a final report and Regulatory Technical Standards on its proposed increase to the commodity derivative clearing threshold under the European Market Infrastructure Regulation. ESMA published a discussion paper on the EMIR clearing thresholds in November 2021. Following feedback, ESMA's proposed RTS will increase the clearing threshold for commodity derivatives from €3bn to €4bn.
Read more.TOPIC : Derivatives -
EU Distributed Ledger Technology Pilot Regime Published
06/02/2022
The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Cyber Security, Financial Market Infrastructure, FinTech, MiFID II -
UK Government Consults on Managing Systemic Stablecoin Firm Failures
05/31/2022
HM Treasury has opened a consultation on managing the failure of systemic digital settlement asset firms, including stablecoin firms. In April 2022, the U.K. government confirmed that it will bring the issuing of or the facilitating of the use of stablecoins used as a means of payment into the U.K. regulatory perimeter. Issuers of stablecoins for payments as well as other entities providing related services, including wallet providers and firms providing custody services, will be subject to regulation by the Financial Conduct Authority. The government also noted that, to manage the failure of systemic stablecoin firms, it would be considering extending the definition of a payment system to include arrangements that facilitate or control the transfer of "digital settlement assets" (DSAs). Such firms that are deemed systemically important will also be subject to supervision by the Bank of England, meaning that they will be authorized by the FCA and recognized by the Bank of England, and the Bank will be the lead prudential regulator.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : FinTech, Payment Services, Recovery & Resolution -
Access to Cash Designation Measures Confirmed
05/19/2022
HM Treasury has published a summary of responses it received to its consultation on protecting access to cash across the U.K. In the response, HM Treasury confirms that it will be proceeding with the proposal to designate which firms will have obligations to ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The measures will be provided for in the Financial Services and Markets Bill, which was announced in the Queen's Speech.
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UK Government Publishes UK Infrastructure Bill
05/12/2022
The U.K. Government has published the U.K. Infrastructure Bill, a piece of legislation designed to put the U.K. Infrastructure Bank on a statutory footing. The Bank was launched in interim form in June 2021 as part of the Chancellor of the Exchequer's plan to "level up" the U.K. and help achieve the U.K.'s target of net zero emissions by 2050. It will operate in partnership with private and public sector institutions to invest in projects which promote regional growth across the U.K. and support efforts to tackle climate change. The bank will have £22bn of financial capacity (via a mixture of equity and debt capital and the ability to issue guarantees) and it is hoped that its investments will help to generate over £40bn of overall investment for its projects.
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Government Details Proposed Financial Services and Markets Bill
05/10/2022
Following the Queen's speech yesterday, the government has published a briefing pack setting out details of the bills that it intends to introduce, including the so-called Brexit Freedoms Bill as well as key legislation relevant to financial services. The government will introduce a Financial Services and Markets Bill, which will, among other things:- Introduce new statutory objectives for the financial services regulators to support growth and international competitiveness.
- Implement the changes to the wholesale markets arising out of the Wholesale Markets Review. HM Treasury confirmed in March of this year that the changes that will be made by legislation and where powers will be delegated to the financial services regulators for rules to be made. Among the changes are the removal of the share trading obligation and the double volume cap, changes to the derivatives trading obligation, taking OTC derivatives that are economically equivalent to exchange traded commodity derivatives out of the position limits regime, and the establishment of a consolidated tape.
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UK Payment Systems Regulator Panel Publishes Report on Digital Payments Initiative
05/10/2022
The U.K. Payment Systems Regulator Panel has published a report on its Digital Payments Initiative, which investigated potential barriers to the take-up of digital payments and possible solutions. The Panel advises the PSR on a continuous basis but undertook the Digital Payments Initiative as a special project to address the issue of consumers failing fully to embrace the benefits of digital payments.
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European Commission Consults on Revised EU Payment Services Directive and Open Finance
05/10/2022
The European Commission has published three consultations on the revised EU Payment Services Directive and on open finance. The results of the consultations will help inform the Commission's review of PSD2 and proposed legislation on a broader open finance framework, as part of plans developed under the 2020 EU Digital Finance Strategy and EU Retail Payments Strategy. The review of PSD2 will take stock of the impact that the Directive has had on the EU payments market and whether its objectives have been achieved. The open finance review will gather evidence on the current state of open finance, its further development and effective consumer protection. The EU is proposing to develop an open finance framework, as outlined under the EU's 2021 communication on the Capital Markets Union.
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Queen’s Speech Confirms Government Will Proceed with Brexit Freedoms Bill
05/10/2022
Prince Charles, Prince of Wales, delivered the Queen’s speech in which he announced that the government will be introducing the so-called Brexit Freedoms Bill, which was first announced by Prime Minister Boris Johnson on January 31, 2022, and is intended to make it easier to amend or remove retained EU laws to better suit the U.K.’s circumstances and policies. The Brexit Freedoms Bill will work in tandem with a government drive to reform, repeal and replace EU laws that are seen as outdated, cumbersome or otherwise not in the U.K.’s national interest.
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European Banking Authority Publishes Report on Non-Bank Lending Sector
05/04/2022
The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.
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UK Conduct Regulator Publishes Results of Review of Investment Platforms Market
05/04/2022
The U.K. Financial Conduct Regulator has published a statement on the results of its review of the investment platforms market. The FCA launched its Investment Platforms Market Study in 2017 to investigate whether competition between investment platforms was working in the interests of consumers. Investment platforms enable consumers and financial advisers to review investment opportunities across a range of funds and execute and change their investments. In 2019, the FCA published a Final Report which concluded that consumers should be able to switch more easily between investment platforms, and proposed a series of measures to help achieve this. It also announced that it would review the industry's progress in adopting these measures in 2020/2021. The FCA's statement sets out the results of that review.
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UK Conduct Regulator Makes Three Senior Appointments
05/03/2022
The U.K. Financial Conduct Authority has made three appointments to its senior leadership team:
Mel Gunewardena has been appointed to Senior Advisor, and will join the FCA from his role as Chief Market Intelligence Officer at the US Commodities and Futures Trading Commission;
- Graeme Reynolds has been appointed Director of Competition and will move from his current role as an FCA deputy chief economist; and
- Simon Walls has been appointed Interim Wholesale Director and will take up the role from his current position of Head of Wholesale Markets. The FCA is recruiting two permanent Wholesale Directors.
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European Supervisory Authorities Publish Consultation Paper on Sustainability Disclosures for Simple, Transparent and Standardized Securitizations
05/02/2022
The European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority have published a consultation on draft Regulatory Technical Standards for disclosures on sustainability indicators in simple, transparent and standardized securitizations. Responses to the consultation should be submitted by July 2, 2022.
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European Banking Authority Publishes Discussion Paper on Role of Environmental Risks in the Prudential Framework
05/02/2022
The European Banking Authority has published a discussion paper on whether, and how, environmental risks should be incorporated into the EU prudential frameworks for EU credit institutions and investment firms. The feedback received will help the EBA to determine (in accordance with its mandates under the EU Capital Requirements Regulation and EU Investment Firm Regulation) whether the EU should introduce specific prudential treatment for certain exposures and assets that are substantially linked to environmental and/or social objectives and impacts. Responses should be submitted by August 2, 2022.
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UK Prudential Regulator Proposes Definition of "Simpler-Regime" Firm
04/29/2022
The U.K. Prudential Regulation Authority has opened a consultation in which it proposes introducing a definition of a "Simpler-regime Firm". This is the PRA's first step in developing a strong and simple prudential framework for non-systemic banks and building societies that are not internationally active following the 2021 discussion paper and feedback paper. Responses to the consultation may be submitted until July 22, 2022. The PRA wants to create a graduated framework for U.K. prudential supervision with simpler rules applying to the smallest firms. The applicable rules would increase in sophistication as the size and complexity of firms increased.
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HM Treasury Publishes Policy Statement on Protecting UK Wholesale Cash Infrastructure
04/26/2022
HM Treasury has published a Policy Statement on its plans for protecting the U.K.'s wholesale cash infrastructure. In recent years, use of cash has diminished in favour of cashless transactions but the U.K. government is aware of the need to continue supporting cash transactions, particularly for elderly and vulnerable groups. The government has been investigating the use and protection of cash payments in the retail sector, including a consultation on protecting access to cash launched in 2021. The results of that consultation are under consideration.
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UK Financial Conduct Authority Acts to Improve Financial Crime Issues at Challenger Banks
04/22/2022
The U.K. Financial Conduct Authority has published the findings of its multi-firm review into financial crime controls at challenger banks. The FCA undertook the review in 2021 in response to the 2020 National Risk Assessment of money laundering and terrorist financing, which highlighted the risk that quick onboarding processes advertised by challenger banks could appeal to criminals. The FCA's review revealed that technology is being used well to identify and verify customers quickly and that there are not many differences between the financial crime risks facing challenger banks and those posed to traditional retail banks. However, there are several areas where improvements can be made, at the onboarding stage and beyond. The FCA has requested all challenger banks to review its findings and implement the changes necessary to mitigate the risk of financial crime. As firms grow, their financial crime control resources, processes and technology should be appropriately adapted.
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UK Task Force Publishes Recommendation for Improving Post-Trade Processes
04/21/2022
report on the Future of Post-Trade. The Taskforce is made up of financial market industry individuals involved in post-trade processing activities and was set up as part of the Bank of England's response to the "Future of Finance" report, which set out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that.
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UK Securities Regulator Finalizes Diversity & Inclusion Rules for Listed Companies
04/20/2022
The U.K. Financial Conduct Authority has published its final policy and rules to implement diversity and inclusion requirements for listed company boards and executive committees. The new FCA rules, which will apply as an ongoing listing obligation, will require issuers to include a statement in their annual financial report on whether they have met specific board diversity targets on a ‘comply or explain’ basis.
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Financial Action Task Force Publishes Report on Effectiveness of FATF Standards
04/19/2022
The Financial Action Task Force has published a report on the effectiveness of FATF member states' efforts to tackle money laundering and counter terrorism financing. The report is part of the FATF's 2019 Strategic Review which aims to improve the FATF's processes to make FATF mutual evaluations more effective. Mutual evaluations assess the extent to which FATF member countries have implemented the FATF's 40 Recommendations.
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UK Conduct Regulator Commits to Three-year Strategy of Improving Outcomes of Regulation
04/07/2022
The U.K. Financial Conduct Authority has published a three-year Strategy on improving outcomes of regulation and its 2022/23 Business Plan. In the 2022-2025 Strategy, the FCA outlines its expectations of financial services across all sectors, with a view to the overall outcomes that firms should achieve. There are three outcomes for both the wholesale and retail markets, which are fair value, access and confidence. An additional outcome of suitability and treatment applies for the retail markets, to ensure that consumers are treated well and are sold products and services that are suitable for them. The 2022/23 Business Plan sets out the detailed work that the FCA will undertake over the next year to meet the commitments made in its Strategy.
Read more.ATTORNEYS: Sandy Collins, Barnabas W.B. Reynolds
TOPICS : Consumer Protection, Financial Services, FinTech, MiFID II -
International Organization of Securities Commissions Seeks Feedback on Reports on Corporate Bond Markets and Regulation of Exchange Traded Funds
04/06/2022
The International Organization of Securities Commissions is seeking feedback on two IOSCO reports: the first on drivers of liquidity in corporate bond markets during COVID-19 induced market stresses and the second on good practices for the regulation of exchange traded funds.
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UK Financial Conduct Authority Makes New Senior Appointments
04/05/2022
The U.K. Financial Conduct Authority has made three new appointments:
- Laura Dawes will be appointed to one of two newly created Director of Authorisations roles. The new Director roles are part of the FCA's commitment to create a more robust and efficient authorisation process, where more decisions will be made by individual senior managers as opposed to committees. Laura currently works within the FCA's Enforcement and Market Oversight Division.
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European Commission Consults on Potential Digital Euro
04/05/2022
The European Commission has launched a targeted consultation on a possible digital euro. The EU is considering introducing a digital euro for retail payments, which would be available alongside cash. A decision has not yet been made. The European Central Bank, responsible for the design and implementation of the digital euro, launched a project in July 2021 to get ready for the potential issuance of a digital euro. The introduction of a digital euro would require an EU regulation based on a proposal by the European Commission and agreed through the co-legislative process. Legislative changes would also be needed for existing legislation (e.g., under the revised Payment Services Directive). Central banks from non-euro area Member States also envisage issuing digital currencies.
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European Securities and Markets Authority Publishes Report on Short Selling Regulation Review
04/04/2022
The European Securities and Markets Authority has published a report on its review of certain aspects of the EU Short Selling Regulation. The review was prompted by the volume of short selling that occurred around the outbreak of the COVID-19 pandemic and national regulators' responses to it. ESMA also considered the possibility in Europe of high volatility in so-called "meme-stocks" (stocks which gain popularity through social media.
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UK Financial Regulators' Statement on Suspension of Nickel Trading on London Metal Exchange
04/04/2022
The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have published a joint statement on the London Metal Exchange's suspension of nickel trading between March 8-16, 2022. Trading was suspended due to challenging commodity market conditions following Russia's invasion of Ukraine.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : AML/CTF, Insider Trading and Sanctions, Financial Market Infrastructure -
UK To Bring Stablecoins Used for Payments Under Regulation
04/04/2022
Following the call for evidence issued in January 2021, the U.K. government has confirmed that it will bring the issuing or facilitating the use of stablecoins used as a means of payment into the U.K. regulatory perimeter, in an announcement by John Glen, MP, at U.K. Fintech Week. The details were published in a response to the consultation.
Consistent with the proposals under the Future Regulatory Framework Review, the government will set the regulatory perimeter, objectives and principles and the regulators - the Financial Conduct Authority, the Bank of England and the Payment Systems Regulator - will set out the detailed requirements in rulebooks. The government also confirms that it intends to consult later in 2022 on regulating a wider set of crypto activities, including trading of cryptocurrencies such as Bitcoin and Ether.
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UK Regulators Publish Statement on Sberbank CIB (UK) Limited Administration
04/01/2022
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UK Regulator Finalizes Rules On Scope Of PRIPPs
03/25/2022
Following its consultation last year, the U.K. Financial Conduct Authority has published its final policy and rule amendments on the scope of the rules governing packaged retail and insurance-based investment products (or PRIIPs). The FCA had aimed to bring in the new rules by January 1, 2022. Instead, the final rules and Regulatory Technical Standards will apply from March 25, 2022. Firms will have until December 31, 2022 to apply the new requirements. These changes are designed to bring legal certainty to the scope of the PRIIPs regime, as it applies to corporate bonds, and mitigate risks relating to misleading performance scenarios and summary risk indicators and concerns about the transaction costs calculation methodology. It is hoped that the amendments will promote liquidity and improve choice in the retail corporate bond market, and also reduce the complexity of key information documents (or KIDs), the key information disclosure documents that must accompany PRIIPs when they are made available to retail investors.
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Economic Crime (Transparency and Enforcement) Act 2022
03/15/2022
The Economic Crime (Transparency and Enforcement) Act 2022 has received Royal Assent. The Act is designed to increase transparency and enhance the U.K.'s mitigation of money laundering and sanctions evasion. The Act will establish a register for overseas entities and their beneficial owners who own land in the U.K., enhance the sanctions regime and reform measures on unexplained wealth orders. The government has also published a white paper, "Corporate Transparency and Register Reform", setting out its proposals for enhancing the Registrar's powers with a view to improving the transparency and accuracy of the Companies House Register.
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UK Amends License for 30-Day Wind Down of VTB Bank Positions
03/07/2022
The U.K. Office of Financial Sanctions Implementation has published a revised General License under the Russia (Sanctions) (EU Exit) Regulations 2019. The License was first published on February 25, 2022, and allows individuals and entities to wind down transactions involving VTB Bank, including by closing out any positions. In addition, the License permits regulated financial institutions (authorized banks and investment firms, authorized or registered payment services firms and e-money institutions) and financial market infrastructure (recognized U.K. CCPs and CSDs and U.K.-recognized overseas CCPs and CSDs) to take reasonably necessary steps to effect such wind-downs. The revised license expands the definition of "subsidiary of VTB Bank" from VTB Capital plc (and any entity owned or controlled by VTB Capital plc incorporated in the U.K.) to include "an entity owned or controlled by" VTB Bank.
The License took effect from February 25, 2022, and expires on March 27, 2022. HM Treasury has power to amend, vary or revoke the License. OFSI has the power to issue General Licenses for country sanctions regimes under the Sanctions and Anti-Money Laundering Act 2018. -
UK Prospectus Review: Government Confirms Policy for Reforms to Boost London's Capital Markets
03/01/2022
Following its consultation last year, HM Treasury has set out its policy approach to amending the U.K. Prospectus regime. The current U.K. Prospectus Regulation will be replaced by legislation when parliamentary time allows. The changes will, among other things, separate the regulation of public offers of securities from the regulation of admissions of securities to trading, as Lord Hill recommended. In addition, the Financial Conduct Authority will be granted greater responsibility for the detail of the new regime through rules. The complete set of reforms will only apply once those rules are implemented. The main changes are set out below.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Consumer Protection, Financial Market Infrastructure, Securities -
HM Treasury Confirms Policy Approach on Wholesale Markets Review
03/01/2022
HM Treasury has published its consultation response to the Wholesale Markets Review, setting out summaries of responses received to its proposals and how changes will be progressed. There are certain areas that HM Treasury will not progress at this stage, and which will be subject to further consideration.
For the proposals that are being taken forward, implementation may be by legislation or pursuant to the Financial Conduct Authority's rules. HM Treasury states that legislation will be brought forward when Parliamentary time allows. In certain instances, where details are currently set out in legislation, but would sit better in regulatory rules, the government intends to legislate to delegate responsibility to the FCA for preparing detailed rules, which it states will be part of the implementation of the Future Regulatory Framework review. The FCA is expected to consult on its proposals for existing rule amendments in the first half of this year.
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UK Economic Crime Bill Introduced to Parliament
03/01/2022
The Economic Crime (Transparency and Enforcement) Bill has been introduced into Parliament, following the initial publication yesterday. The Bill is designed to increase transparency and enhance the U.K.'s mitigation of money laundering and sanctions evasion. The Bill will establish a register for overseas entities and their beneficial owners who own land in the U.K., enhance the sanctions regime and reform measures on unexplained wealth orders. On the same day, the government published a white paper, "Corporate Transparency and Register Reform", setting out its proposals for enhancing the Registrar's powers with a view to improving the transparency and accuracy of the Companies House Register.
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UK Payment Systems Regulator Highlights Potential Cyber Security Risks Arising from the Situation in Ukraine
03/01/2022
The U.K. Payment Systems Regulator has issued a statement on the situation in Ukraine. The PSR encourages firms to reflect on how they are managing their risks related to the situation, in particular:- the ability of the firm to bear an attack from a sophisticated state actor;
- whether staff are available to handle an elevated cyber risk from state sponsored and other actors; and
- implications of sanctions for third-party suppliers, and the resilience of those suppliers.
The PSR highlights the guidance issued by the National Cyber Security Centre on actions to take in response to the Ukraine situation, and it warns firms to remain vigilant of any cyber security threat. -
European Commission Publishes Proposed Directive on Corporate Sustainability Due Diligence
02/23/2022
The European Commission has published a proposed Directive on Corporate Sustainability Due Diligence. The proposed Directive is designed to encourage the conduct of due diligence by major companies (including regulated financial institutions) on their value chains to identify risks linked to human rights or environmental impacts. This in turn is intended to support the objectives of the European Green Deal and assist in the transition to a climate-neutral and green economy.
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European Securities and Markets Authority Publishes Call for Evidence on Climate Risk Stress Testing for Central Counterparties
02/23/2022
The European Securities and Markets Authority has published a Call for Evidence on climate risk stress testing for EU central counterparties. Responses should be submitted by April 21, 2022.
Read more. ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Environmental, Social and Governance, Financial Market Infrastructure -
UK Conduct Regulator Publishes Dear CEO Letter to Credit Rating Agencies
02/23/2022
The U.K. Financial Conduct Authority has published a Dear CEO letter to Credit Rating Agencies setting out its expectations on the actions CRAs should undertake to minimize risks to consumers, market integrity and competition.
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Financial Stability Board Publishes 2022 Work Priorities
02/17/2022
The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors outlining its work priorities for 2022, which are:
- Supporting financial market adjustment to a post-COVID-19 world: the FSB observes vulnerabilities in the financial system, such as embedded leverage in some parts of the system and rising real estate and other asset valuations, which could pose risks to stability in the event of tightening financial conditions. Uneven unwinding of pandemic support measures is also a risk and the FSB will prepare an interim report in July and final report in October on policy considerations to support a more even global pandemic recovery.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Environmental, Social and Governance, Financial Services, FinTech, Payment Services -
Financial Stability Board Publishes Report on Risks to Financial Stability from Crypto-Assets
02/16/2022
The Financial Stability Board has published a report on the risks that crypto-assets pose to global financial stability. The FSB observes that the crypto-assets market is growing rapidly and could reach a point where it poses a threat to global financial stability. The market's rapid evolution also raises the risk of regulatory gaps and the opportunity for arbitrage by market players.
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UK Complaints Commissioner Upholds Complaints Against UK Financial Conduct Authority's Compensation and Complaints Scheme
02/15/2022
The U.K. Financial Regulators' Complaints Commissioner has published its final report upholding complaints from over 400 complainants concerning: (i) the U.K. Financial Conduct Authority's failures of regulation concerning London Capital & Finance; and (ii) the FCA's subsequent refusal to compensate bondholders for its role in their losses.
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UK Regulator Drives Changes to Terms of Buy Now, Pay Later Firms
02/14/2022
The U.K. Financial Conduct Authority has secured changes to the contracts of four Buy Now, Pay Later firms – Clearypay, Klarna, Laybuy and Openpay. Certain terms, including contract cancellations, continuous payment authorities and right of set-off terms, will be made fairer and easier to understand. This was done under the FCA's powers as an unfair terms regulator under the Consumer Rights Act 2015 to ensure that firms comply with consumer protection legislation. Clearpay, Laybuy and Openpay have also offered voluntarily to refund customers who were inappropriately charged late payment fees (Klarna does not charge late payment fees so no refunds were due).
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HM Treasury Publishes Responses to Review of UK Funds Regime
02/10/2022
HM Treasury has published a summary of responses to its consultation on the U.K. funds regime. The consultation forms part of the U.K. Government's plans to make the U.K. a more attractive location for asset management.
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UK Payment Services Regulator Announces Closure of Phase 1 Technical Environment for Confirmation of Payee Services
02/10/2022
The U.K. Payment Systems Regulator has announced a phase-out of the Phase 1 technical environment that enables certain U.K. payment services providers to provide confirmation of payee services. The PSR's Specific Direction 11, which comes into effect on February 11, 2022, requires existing Phase 1 CoP participants to operate within the Phase 2 technical environment from May 1, 2022. The Phase 1 technical environment will then permanently close on May 31, 2022. Phase 1 participants are expected to provide information, including their intended switchover date and a description of their progress towards achieving switchover, to Pay.UK, the body responsible for maintaining Phase 1 standards, on a monthly basis.
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European Securities and Markets Authority Publishes Sustainable Finance Roadmap for 2022-2024
02/10/2022
The European Securities and Markets Authority has published its Sustainable Finance Roadmap for 2022-2024. The Roadmap sets out ESMA's priorities for sustainable finance over the next two years, which include: (i) tackling greenwashing and promoting transparency; (ii) building the capacity of national regulators and ESMA to understand and address the supervisory implications of new legislation and market practices; and (iii) monitoring emerging trends in environmental, social and governance markets and related risks and vulnerabilities.
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UK Conduct Regulator Appoints Interim Chairs
02/09/2022
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EU Grants Further Time-Limited Equivalence for UK CCPs
02/09/2022
An EU Commission Implementing Decision extending the equivalence of U.K. CCPs to June 2025 has been published in the Official Journal of the European Union. The equivalence decision applies to U.K. CCPs already established and authorized in the U.K. on December 31, 2020 and will apply from July 1, 2022, which is when the existing equivalence decision expires. Andrew Bailey, in his speech at TheCityUK Annual Dinner in February 2022, questioned why the equivalence decisions are time-limited. Most equivalence decisions for CCPs in other jurisdictions are not time-limited, although the EU is able to revoke a decision if a jurisdiction is deemed not to maintain equivalence with the EU regime.
The Decision follows the announcement yesterday by the Commission on the extension and the launch of a targeted consultation on the review of the central clearing framework in the EU. The consultation is seeking views on ways to improve the competitiveness of EU CCPs and clearing activities while also ensuring the appropriate supervision of their risks. The consultation closes on March 8, 2022.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Brexit for Financial Services, Derivatives, Financial Market Infrastructure -
European Supervisory Authorities Publish Report on Digital Finance
02/07/2022
The European Supervisory Authorities (the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority) have published a joint report on digital finance and related issues, in response to the European Commission's Call for Advice on digital finance, which was published in February 2021. The Call for Advice sought input to advance the EU Digital Finance Strategy, which was launched in September 2020 and set out the EU's plan to review the EU financial services legislative framework in light of developments in digital finance in order to safeguard financial stability and protect consumers.
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UK Government Announces "Brexit Freedoms Bill"
01/31/2022
U.K. Prime Minister Boris Johnson has announced that a "Brexit Freedoms Bill" will be put before Parliament. Upon Brexit taking effect, all then in force EU Regulations were "on-shored" automatically into U.K. laws, pursuant to the European Union (Withdrawal) Act 2018, and then subject to (mostly only technical) amendments. The new bill is intended to make it easier to amend or remove retained EU laws, to better suit the U.K.'s circumstances and policies. The EUWA also replicated the then-status quo, that EU laws prevailed over conflicting national laws. The government is now also seeking to remove the supremacy of EU laws. At the same time, the government published a policy paper on the benefits of Brexit.
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EU Consultation on CCP Procyclicality of Margin Requirements
01/27/2022
The European Securities and Markets Authority has opened a consultation in which it proposes to amend the requirements on EU CCPs relating to an additional charge related to the procyclicality of margin. Responses to the consultation should be submitted by March 31, 2022. The European Market Infrastructure Regulation requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions considering any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. Generally, the EU imposes higher (more costly) margin charges than most other jurisdictions, including the U.S. and other major financial centres, which have essentially no extra procyclicality charge for CCPs.
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European Systemic Risk Board Publishes Recommendation on Pan-European Systemic Cyber Incident Coordination Framework
01/27/2022
The European Systemic Risk Board has published a Recommendation on a pan-European systemic cyber incident coordination framework for EU national regulators. The ESRB observes that major cyber incidents may pose a systemic risk to the financial system, as they are capable of disrupting critical financial services and operations. This could in turn lead to contagion or an erosion of confidence in the financial system. The COVID-19 pandemic has also brought the threat of cyber incidents to the fore, as the number of cyber incidents reported to the ECB increased by 54% between 2019 and 2020. The Recommendation aims to build on the proposed roles of the European Supervisory Authorities under the EU's proposed Regulation on digital operational resilience for the financial sector. DORA is intended to strengthen digital operational resilience considering the risks arising from the increase in digital opportunities within the financial sector.
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European Banking Authority Publishes Final Draft Implementing Technical Standards on Prudential Disclosures of ESG Risks
01/24/2022
The European Banking Authority has published final draft Implementing Technical Standards on Pillar 3 prudential disclosures of environmental, social and governance risks under the EU Capital Requirements Regulation. The ITS specify the type and format of information to be published in accordance with the new CRR requirements on disclosure of prudential information on ESG risks.
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UK Conduct Authority Consults on Wide-Ranging Change to Financial Promotion Rules
01/19/2022
The U.K. Financial Conduct Authority has launched a consultation on proposed changes to the financial promotion rules. The proposals range from rules relating to the approval by authorized firms of financial promotions of unauthorized firms and the new regime for qualifying crypto-assets and other high-risk investments. Many of this suite of changes address or build upon recommendations of the Gloster Report or are otherwise related to the fall-out from the London Capital & Finance plc scandal. Responses to the consultation may be submitted until March 23, 2022. The FCA intends to publish its final rules in Summer 2022.
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HM Treasury Confirms Tightening of Rules for Crypto-Asset Financial Promotions
01/18/2022
Following its July 2020 consultation, HM Treasury has published a consultation response on its proposals to amend the U.K.'s financial promotion rules. These include changes to subject unregulated crypto-assets to the financial promotions regime. The response summarizes the feedback to the consultation and outlines how relevant crypto-asset promotions will be regulated. The government is proceeding with its proposal to bring qualifying crypto-assets within the scope of the Financial Promotion Order as controlled investments. Qualifying crypto-assets will be fungible (freely replaceable by another of a similar nature or kind) and transferable (which excludes crypto-assets in closed systems). E-money and central bank digital currencies will be excluded from the definition. In a change from the original proposal, the government has decided to remove the reference to distributed ledger technology from the definition of a qualifying crypto-asset. The aim of this change is to future-proof the definition for technological innovation.
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UK Government Consultation on Regulation of Central Counterparties and Central Securities Depositories
01/17/2022
HM Treasury has released a further consultation under the Future Regulatory Framework Review concerning the regulation of central counterparties and central securities depositories. The Future Regulatory Framework Review is designed to assess whether the U.K. financial services regulatory framework is fit for purpose, considering the U.K.'s exit from the EU, climate change and other global and technological challenges. HM Treasury has published a series of consultations on different aspects of the future framework, including the Phase II consultation in October 2020 and the Proposals for Reform paper published in November 2021. Responses to HM Treasury's latest consultation on CCPs and CSDs may be submitted until February 28, 2022.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Market Infrastructure -
Permanent Lower Threshold for Notification of Net Short Positions Under EU Short Selling Regulation Announced
01/11/2022
A Commission Delegated Regulation, published in the Official Journal of the European Union, amends the EU Short Selling Regulation to make permanent the lower notification threshold for notifying national regulators of net short positions held in the shares of companies traded on EU regulated markets. The threshold for notification will be 0.1% of the issued share capital of the company in question and each 0.1% above that. The lower threshold will apply from January 31, 2022.
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UK Financial Conduct Authority Publishes Feedback Statement on Access to Wholesale Data
01/11/2022
The U.K. Financial Conduct Authority has published a feedback statement relating to the call for input on accessing and using wholesale data. In the feedback statement, the FCA summarizes the responses received and the FCA's findings on whether data are being priced and sold competitively. The FCA confirms that it will undertake the following work to gain a deeper understanding of the potential harm and, where appropriate, take steps to mitigate any harm. In particular, the FCA will focus on the following:
- Trading data: in Spring 2022, the FCA will run an information gathering and analysis exercise that concentrates on the pricing of trading data, underlying costs and the terms for the sale of trading data. The FCA's findings will be published later in 2022.
- Benchmarks: in Summer 2022, the FCA will launch a market study into how competition operates between benchmarks, which will include the pricing of benchmarks, contractual terms and obstacles to switching between benchmarks.
- Credit Rating Agencies: by the end of 2022, the FCA will begin a market study on the competition in the sale of credit rating data, including pricing, contractual relationships, difficulties in entry to the credit rating data market and innovation.
- Alternative data and advanced analytics: the FCA has commissioned research on the nature and scale of alternative data.
ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Competition, Consumer Protection, Credit Ratings, Financial Market Infrastructure -
European Securities and Markets Authority Publishes Final Report on Guidelines for Disclosure of Inside Information and Interactions with Supervisors
01/05/2022
The European Securities and Markets Authority has published its final Market Abuse Guidelines on the disclosure of inside information and interactions with national prudential regulators under the EU Market Abuse Regulation. The final guidelines implement the changes to the existing guidelines as proposed in ESMA's July 2021 consultation, with minor amendments.
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European Banking Authority Publishes Opinion on Detrimental Impact of De-Risking by Financial Institutions
01/05/2022
The European Banking Authority has published an Opinion and related report on the detrimental impact of financial institutions' "de-risking" decisions under the EU Fourth Money Laundering Directive. De-risking involves financial institutions refusing to enter into, or terminating, business relationships with counterparties who are associated with higher money laundering or terrorist financing risk, in order to comply with requirements under MLD4. MLD4 mandates that financial institutions should establish policies and procedures to manage the risks to which they are exposed, including ML/TF risks. However, the EBA has found evidence of de-risking of entire categories of customers, without considering individual risk profiles. This can have detrimental effects, including on the EU's objectives on fighting financial crime and the stability of financial systems of EU Member States, as well as reducing financial inclusion.
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European Securities and Markets Authority Publishes Call for Evidence on Distributed Ledger Technology Pilot Regime and MiFIR Standards on Transparency and Reporting
01/04/2022
The European Securities and Markets Authority has published a call for evidence on the need to amend existing Regulatory Technical Standards under the EU Markets in Financial Instruments Regulation to accommodate the upcoming distributed ledger technology pilot regime, which is expected to be published in spring 2022 and will begin to apply 9 months after its publication (i.e. the beginning of 2023). Responses to the call for evidence should be submitted by March 4, 2022.
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European Securities and Markets Authority Publishes Guidelines on MiFID II Appropriateness and Execution-Only Requirements
01/03/2022
The European Securities and Markets Authority has published new Guidelines on the appropriateness and execution-only requirements under the revised Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field, to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. ESMA's new Guidelines are designed to enhance convergence across the EU on the application of these requirements.
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UK Conduct Regulator's Rules for Use of Synthetic Sterling and Yen LIBOR Enter Into Force
01/01/2022
The U.K. Financial Conduct Authority's new rules permitting legacy use of certain synthetic sterling and yen LIBOR settings enter into force today. The FCA has published its final notice confirming that ICE Benchmark Administration will publish synthetic 1-month, 3-month and 6-month sterling and Japanese yen LIBOR rates until the end of 2022. These synthetic rates will not be representative of the market or economic reality previously measured by the benchmark. No substantive changes have been made to the draft version of the FCA's notice, which was published in November 2021. The synthetic rates will be permitted to be used for legacy LIBOR-referencing contracts, other than cleared derivatives, that have not been changed or updated ahead of December 31, 2021. They may not be used by U.K.-supervised entities in new regulated financial contracts, instruments and/or investment fund performance measurement.
The FCA has also published a notice to ICE Benchmark Administration confirming the methodology to be adopted in calculating the synthetic rates. -
UK Regulator Issues Statement on Extension of Exemption for UCITS From PRIIPs Disclosure Requirements
12/29/2021
The U.K. Financial Conduct Authority has published a statement in which it confirms that it will amend the Technical Standards and related Handbook provisions to align with the extended exemption from the requirements of the U.K. Packaged Retail and Insurance-based Investment Products Regulation for investment companies and persons advising on, or selling, units in UCITS from December 31, 2021, to December 31, 2026. The FCA states that it will not take enforcement action against firms that offer UCITS funds to U.K. retail investors and that provide either a key information document under the PRIIPs Regulation or a UCITS key investor information document. Following the government's announcement in June 2021, the Financial Services Act 2021 extended the exemption for UCITS. -
UK Financial Conduct Authority Confirms Approach to Supervision of Commodity Derivatives Position Limits Regime
12/20/2021
The U.K. Financial Conduct Authority has published a statement confirming its approach to supervising commodity derivatives position limits. The statement follows the FCA's Supervisory Statement on the operation of the Markets in Financial Instruments regime after the end of the EU withdrawal period published in December 2020 in which the regulator stated that until January 1, 2022, it would not take any supervisory or enforcement action for positions that exceed limits where the position is held by a liquidity provider to fulfill its obligations on a trading venue. In its latest statement, the FCA confirms that it will extend that approach pending the outcome of HM Treasury's Wholesale Market Review and subject to any indications of market abuse arising. The FCA states that firms should make their own assessment of whether the positions they take are positions resulting from their actions as a liquidity provider. Firms do not need to report their assessments to the FCA; however, a firm may need to explain an assessment to the FCA on request. -
EU Amending Technical Standards Improve PRIIPs Regulation Requirements
12/20/2021
An EU Commission Delegated Regulation (2021/2268) amending the Regulatory Technical Standards supplementing the EU Packaged Retail Investment and Insurance-based Products Regulation has been published in the Official Journal of the European Union. The amending RTS include provisions to:- Introduce new methodologies to calculate appropriate performance scenarios and a revised presentation of these scenarios.
- Revise the summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs.
- Modify the methodology to calculate transaction costs.
- Clarify the rules for PRIIPs offering a range of options for investment (known as MOPs), in particular, to identify the products' full cost implications.
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European Securities and Markets Authority Provides Regulatory Forbearance for EU CSDR Buy-In
12/17/2021
The European Securities and Markets Authority has issued a public statement on the supervisory approach to the implementation of the buy-in regime under the EU Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The settlement discipline regime is set out in EU Regulatory Technical Standards. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. CSDR and the RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a mandatory buy-in process. The application date of the settlement discipline rules has been postponed several times, most recently, citing the coronavirus pandemic, to delay the application date to February 1, 2022.
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FCA Publishes Policy Statements on Climate-Related Disclosures for Standard Listed Companies and FCA-Regulated Firms
12/17/2021
The FCA has published two policy statements introducing new rules and guidance on climate-related disclosures for standard listed issuers and certain other FCA-regulated firms. The Policy Statements mirror the rule imposed under the FCA's Policy Statement on climate-related disclosures for premium listed issuers.
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New UK Financial Services Director General
12/17/2021
HM Treasury has announced that Gwyneth Nurse has been appointed as Director General, Financial Services. She will replace Katharine Braddick from January 2022. -
European Securities and Markets Authority Provides Regulatory Forbearance for EU Clearing and Derivatives Trading Obligations in Support of LIBOR Transition
12/16/2021
The European Securities and Markets Authority has issued a statement in which it states that EU national regulators should not, from January 3, 2022, prioritize supervisory action for any failures by firms to comply with the mandatory clearing obligation under the European Market Infrastructure Regulation, for interest rate derivatives referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and the derivatives trading obligation for IRD classes referencing GBP LIBOR or USD LIBOR. On November 18, 2021, ESMA submitted final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations in support of the benchmark transition to risk-free rates. However, ESMA is aware of the time that the approval process may take and therefore considers that regulatory forbearance is appropriate.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
HM Treasury Proposes Amendments to the UK Financial Promotion Exemptions
12/15/2021
HM Treasury has launched a consultation on proposed changes to the financial promotion exemptions for high net worth individuals and sophisticated investors. The aim of the proposals is to mitigate the misuse of the exemptions by some firms marketing inappropriate products to ordinary retail customers and to update certain aspects that were introduced about 20 years ago. The Treasury Select Committee's report on the failure of London Capital & Finance recommended that the exemptions be rethought to ensure greater consumer protection. The consultation closes on March 9, 2022.
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Feedback Published on Initial UK Discussion Paper 'Strong and Simple' Prudential Framework
12/15/2021
The U.K. Prudential Regulation Authority has published a feedback statement to the discussion paper published earlier this year in which it proposed introducing a "strong and simple" prudential framework for non-systemic banks and building societies that are not internationally active. The discussion paper concerned the possibility of introducing a graduated framework for U.K. prudential supervision with simple rules applying to the smallest firms. The applicable rules would increase in sophistication as the size and complexity of firms increased. The PRA discussed the possible approaches to identifying firms that would be in scope of the first threshold by looking at, for example, their activities, cross-border business and risk exposures. The introduction of such a framework would represent a major policy change for the U.K.
The feedback statement summarizes the responses to the discussion paper and sets out broad themes emerging. Overall, respondents were supportive of the idea to introduce a strong and simple framework, although concerns were expressed about the number of layers that the framework would involve. The PRA would welcome any comments on the feedback statement. Further consultations on the potential framework will follow in 2022 and/or 2023. -
HM Treasury Identifies Areas for Improving the UK Securitization Framework
12/13/2021
Following its call for evidence earlier this year, HM Treasury has published its report on the review of the U.K. Securitization Regulation. HM Treasury was required to conduct a review of the functioning of the Regulation and report to Parliament on its findings by January 2022. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Funds, Securities -
UK Conduct Regulator Consults on Improvements to Appointed Representatives Regime
12/03/2021
The U.K. Financial Conduct Authority has published a consultation paper on proposed improvements to the Appointed Representatives regime. The AR regime allows authorized firms to appoint third parties to conduct certain regulated activities on their behalf. The FCA has identified shortcomings in principals' use of the regime, including a lack of proper oversight over ARs and poor controls over the regulated activities for which ARs had accepted responsibility. The collapse of Greensill Capital (UK) Limited in 2021 highlighted some of these issues, as one of Greensill's subsidiaries had acted as an appointed representative for another firm and its business had arguably grown to be far more substantial than was intended under the AR regime.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Conduct & Culture, Corporate Governance, FinTech -
UK Finalizes Primary Markets Effectiveness Review Changes
12/02/2021
The U.K. Financial Conduct Authority has published a Policy Statement and final changes to the Listing Rules following its Primary Market Effectiveness Review consultation. The changes become effective on December 3, 2021 and mark a significant step in the reform of the U.K.'s listing regime. The amendments follow on from the changes to the listing rules made in August 2021 to remove from SPACs the automatic suspension of listing that they previously faced when undertaking their de-SPAC transaction. The amendments follow the Lord Hill Listing Review and Kalifa FinTech Review, both of which urged the U.K. Government implement significant reform to the U.K.'s listing regime, to make it more attractive to issuers (especially tech startups) and investors and to bring it into line with recent changes and the capital markets flexibility that its competitors - in Asia and the U.S. - already offer. We discussed the broad range of the Listing and FinTech Reviews' proposals in our UK Listing Regime Reform briefing.
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UK Conduct Regulator Publishes Feedback and Further Consultation on New Consumer Duty
12/01/2021
The U.K. Financial Conduct Authority has published feedback and a further consultation on its new proposed Consumer Duty. The FCA's previous consultation was published in May 2021 and set out the FCA's proposed rules for a new duty of care that firms would owe to retail clients when conducting regulated activities. The proposed duty will consist of an overarching Consumer Principle, three cross-cutting rules and four outcomes that firms should aim to achieve when conducting regulated activities. The latest consultation responds to feedback received on the original consultation and seeks input on the FCA's proposed final version of the rules.
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UK Financial Conduct Authority Announces New Approach to Speed Up Issuing Statutory Notices
11/26/2021
The U.K. Financial Conduct Authority has published a policy statement setting out its new approach to issuing statutory notices, which will take effect from November 26, 2021. The FCA publishes statutory notices when exercising certain enforcement and supervisory powers, such as varying or cancelling a firm’s authorization, refusing an application for authorization or approval of an individual, and imposing requirements on firms.
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European Commission Proposes Revisions to MIFID II
11/25/2021
The European Commission has published legislative proposals to amend the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The proposals are part of the Commission's package of proposals to enhance the availability of information on trading and companies for investors. The main changes are set out in the proposed regulation to amend MiFIR. Some of the proposed changes are similar to those that the U.K. has made or is contemplating making as part of the Wholesale Markets Review.
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Law Commission Confirms England and Wales Law Can Accommodate Smart Contracts
11/24/2021The Law Commission has concluded that the existing law of England and Wales can accommodate smart contracts and there is no need for legislative reform. It has published advice to the U.K. Government and a separate summary of its conclusions on the subject. The Law Commission commenced its investigation into the ability of English law to accommodate both smart contracts and digital assets in September 2020. It has published a separate interim update on the digital assets project, which sets out the status and timing of the digital assets project. It anticipates publishing its digital assets consultation paper in mid-2022 as opposed to end-2021, as originally proposed.
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European Securities and Markets Authority Publishes Discussion Paper on Clearing Thresholds Under European Market Infrastructure Regulation
11/22/2021
The European Securities and Markets Authority has published a report and discussion paper seeking feedback on its review of the clearing thresholds under the European Market Infrastructure Regulation. Responses should be submitted by January 19, 2022.
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European Securities and Markets Authority Publishes Proposed EU Clearing and Derivatives Trading Obligations Changes for LIBOR Transition
11/18/2021
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations for the benchmark transition to risk-free rates. To support the transition away from EONIA and LIBOR to risk-free rates such as €STR, ESMA is proposing to amend the scope of the derivatives clearing and trading obligations for interest rate derivatives denominated in EUR, GBP, JPY and USD. In particular, ESMA is proposing to:- Remove IRD classes referencing GBP and USD LIBOR from the clearing and trading obligations.
- Remove IRD classes referencing EONIA and JPY LIBOR from the clearing obligation.
- Introduce a clearing obligation for IRD classes referencing €STR, SONIA and SOFR.
The draft RTS have been submitted to the European Commission for endorsement.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
UK Regulator Confirms Legacy Use of Synthetic LIBOR
11/16/2021
The U.K. Financial Conduct Authority has confirmed that the use of certain synthetic sterling and yen LIBOR settings will be permitted until the end of 2022 for legacy LIBOR-referencing contracts, other than cleared derivatives, that have not been changed or updated ahead of December 31, 2021. The synthetic rates cannot be used in any new contracts.
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Bank of England Drops Warning Against Profit Distributions for Financial Market Infrastructures
11/11/2021
The Bank of England has written to the CEOs of all regulated U.K. financial market infrastructures notifying them that they are no longer expected to discuss prospective shareholder distributions with the BoE.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Conduct & Culture, COVID-19, Financial Market Infrastructure -
European Commissioner Announces Proposed Extension of Equivalence for UK CCPs
11/10/2021
European Commissioner McGuinness has announced that in early 2022 the European Commission will be proposing an extension of the time-limited equivalence granted to U.K. CCPs. The existing equivalence decision is due to expire at the end of June 2022. The Commissioner reiterated that the EU would continue to build out the capability of EU CCPs to reduce the reliance on U.K. CCPs. Furthermore, the EU will seek to strengthen the supervisory powers for EU-level supervision of CCPs. -
Bank of England and HM Treasury Announce Next Steps for UK Central Bank Digital Currency
11/09/2021
The Bank of England and HM Treasury have announced the next steps in the development of a U.K. Central Bank Digital Currency.
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HM Treasury Proposes Reforms in Latest Financial Services Future Regulatory Framework Review Consultation
11/09/2021
HM Treasury has launched a consultation, the Financial Services Future Regulatory Framework Review: Proposals for Reform. The consultation paper presents the government's response to the feedback received to the October 2020 FRF Review consultation and numerous proposals to progress the approach. Responses to the consultation may be submitted until February 9, 2022.
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UK Financial Conduct Authority Publishes Environmental, Social and Governance Strategy
11/08/2021
The U.K. Financial Conduct Authority has published an environmental, social and governance strategy to support the financial sector in the transition to a "net zero", more sustainable and more inclusive economy.
The FCA's strategy is built on five themes supported by key actions that the FCA anticipates taking in the near future. U.K. regulated firms should expect significant engagement by the FCA on these issues.
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UK Announces Plans to be World's First Net Zero Financial Centre
11/03/2021
The U.K. Chancellor of the Exchequer, Rishi Sunak, has announced the U.K. Government's plans to make the U.K. the world's first net zero financial centre. Under the plans, U.K. financial institutions will need to have robust transition plans describing how they will support the transition to a carbon neutral economy. The U.K. Government intends to introduce legislative measures to make these requirements mandatory with a view to increased adoption by 2023 and will incorporate standards for these transition plans into its proposed Sustainability Disclosure Requirements, announced in October in its policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels
11/03/2021
The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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European Banking Authority Seeks to Address Divergence on Use of Strong Customer Authentication Exemption
10/28/2021
The European Banking Authority is consulting on draft Regulatory Technical Standards to amend the existing RTS on strong customer authentication and common and secure open standards of communication under the EU Payment Services Directive (known as PSD2). Responses to the consultation may be submitted until November 25, 2021.
PSD2 requires payment service providers to apply SCA each time a customer accesses their payment account online. The existing RTS govern the process by which payment service providers authenticate the identity of customers and provide exemptions to the SCA requirements. One of the exemptions is available, on a voluntary basis, when a customer accesses limited payment account information, provided that SCA is applied for the first access and at least every 90 days subsequently. The EBA is proposing to make the exemption mandatory for PSPs where the account information is accessed through an account information service provider, subject to certain conditions being met to ensure the safety of the user's data. The exemption would remain voluntary when a user directly accesses the account information. -
European Securities and Markets Authority Issues Statement on Investment Recommendations on Social Media
10/28/2021
The European Securities and Markets Authority has issued a statement on the requirements under the EU Market Abuse Regulation for firms and individuals that make investment recommendations on social media. ESMA is concerned about the potential harm to retail investors who may base their investment decisions on information made available on social media sites, in particular in situations such as the Gamestop case. The EU rules, which are designed to prevent the misleading of investors, apply to anyone based in or outside the EU that distributes information proposing an investment decision about EU financial instruments listed in the EU or financial instruments that depend on or effect the price or value of a listed financial instrument.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : AML/CTF, Insider Trading and Sanctions, Consumer Protection, Securities -
EU Publishes Proposed Banking Package 2021
10/27/2021
The European Commission has published three legislative proposals to amend the EU Capital Requirements Regulation and the EU Capital Requirements Directive, referred to as the Banking Package 2021. The proposals are subject to consultation, responses to which may be submitted until January 14, 2022.
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Revised Global Principles on Outsourcing for Regulated Participants in the Securities Markets
10/27/2021
The International Organization of Securities Commissions has published an updated Principles on Outsourcing for regulated market participants in the securities markets. The updated Principles are based on IOSCO’s 2005 Outsourcing Principles for Market Intermediaries and 2009 Outsourcing Principles for Markets. However, the updated Principles will also apply to trading venues, market intermediaries, market participants acting on a proprietary basis, and credit rating agencies. Financial market infrastructures may also choose to consider their application, although the Principles are not addressed to those entities.
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International Bodies Consult on Margin Practices
10/26/2021
An international consultation has been launched on the review of margining practices in the centrally and non-centrally cleared markets. The consultation is being run jointly by the Basel Committee for Banking Standards, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. In March 2020, around the start of the COVID pandemic, large increases in margin occurred in the centrally and non-centrally cleared markets, furthering the so-called "dash for cash".
The consultation is considering a range of potential changes to the international framework, such as:- increasing transparency in the centrally cleared market;
- enhancing liquidity preparedness of market participants as well as liquidity disclosures;
- identifying data gaps in regulatory reporting;
- streamlining variation margin processes in centrally and non-centrally cleared markets;
- further work on evaluating the responsiveness of centrally cleared initial margin models to market stresses with a focus on impacts and implications for CCP resources and the wider financial system; and
- evaluating the responsiveness of non-centrally cleared initial margin models to market stresses.
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European Supervisory Authorities Publish Final Report on Expanded Disclosures under the EU Sustainable Finance Disclosure Regulation
10/22/2021
The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a new final report and draft Regulatory Technical Standards on disclosures to be made under the EU Sustainable Finance Disclosure Regulation. The EU SFDR was published in December 2019 and the majority of its provisions have applied since March 10, 2021.
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EU Delegated Regulation on Ancillary Activity Criteria under MiFID II
10/21/2021
An EU Commission Delegated Regulation (2021/1833) on the criteria for when an activity will be considered as ancillary to the main business has been published in the Official Journal of the European Union. The changes to the EU’s Markets in Financial Instruments Directive, known as MiFID Quick Fix, include changes to the ancillary activity exemption. The exemption from authorization as an investment firm is available when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business at group level and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive.
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European Supervisory Authorities Launch Call for Evidence on the EU's Packaged Retail and Insurance-based Investment Products Regulation
10/21/2021
The European Supervisory Authorities have launched a call for evidence on the EU's Packaged Retail and Insurance-based Investment Products Regulation. The PRIIPs Regulation requires manufacturers of PRIIPs to produce a standardized Key Information Document in an official language of all EU countries into which offerings are made. It also requires those advising on or selling PRIIPs to provide retail investors with KIDs in good time before the investor enters into the investment. The call for evidence closes on December 16, 2021.
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UK Conduct Regulator Calls for Changes to Regulatory Perimeter
10/21/2021
The U.K. Financial Conduct Authority has published its annual Perimeter Report. The report discusses the FCA's existing remit and highlights areas where potential consumer harm could be mitigated if the regulatory perimeter is amended. The FCA cannot amend the perimeter, this can only be achieved through legislation.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Consumer Protection, Corporate Governance, Securities -
Verena Ross Appointed Chair of the European Securities and Markets Authority
10/15/2021
The European Securities and Markets Authority has announced that Verena Ross will take up the position of Chair of ESMA from November 1, 2021. Ms. Ross will replace Steven Maijoor, the former Chair. Her appointment is for a five-year term, renewable once.TOPIC : People -
Charles Randell CBE Stepping Down as Chair of UK Financial Conduct Authority
10/15/2021
The U.K. Financial Conduct Authority has issued a press release announcing that its current chair, Charles Randell CBE, will be resigning early from his position in Spring 2022. Mr. Randell wrote to the Chancellor informing him of the decision to step down as chair of the FCA and the Payment Systems Regulator. Mr. Randell has been Chair of the FCA and PSR since April 1, 2018. The resignation comes just 10 days after the FCA was provided with a preliminary report by the Financial Regulators Complaints Commission concerning the FCA's handling of the London Capital & Finance scandal, which is due to be published in the next month and has been reported by the press to be critical of the FCA.TOPIC : People -
UK Regulator Amends Derivatives Trading Obligation for LIBOR Transition Purposes
10/15/2021
Following its July 2021 consultation, the U.K. Financial Conduct Authority has published a Policy Statement amending the list of derivatives subject to the U.K. trading obligation for the purposes of the LIBOR transition.
The derivatives trading obligation under the U.K. version of the Markets in Financial Instruments Regulation requires U.K. investment firms to conclude transactions in certain derivatives on U.K. regulated markets, multilateral trading facilities, organised trading facilities or third-country venues in jurisdictions benefiting from U.K. equivalence decisions. In the absence of any equivalence decision, the FCA used its Temporary Transitional Power to provide transitional relief from December 31, 2020 (the end of the transition period) until March 31, 2022 for U.K. firms, EU firms using the U.K.'s temporary permissions regime and U.K. branches of overseas firms. The trading obligation currently applies to certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP, and to certain index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover).
Read more.ATTORNEYS: Thomas Donegan, Kristina Killick, Sandy Collins
TOPICS : Derivatives, LIBOR Transition, MiFID II -
UK Secondary Capital Raising Review Launched
10/12/2021
HM Treasury has announced the U.K. Secondary Capital Raising Review, requesting recommendations on improving the U.K. capital raising process for publicly traded companies. The Review stems from Lord Hill's recommendations in the U.K. Listing Review, published in March 2021, which proposed that consideration should be given to improving the efficiency of further capital raisings by listed issuers, including by re-establishing the Rights Issue Review Group and assessing capital raising models used in other jurisdictions.
A Call for Evidence has been issued, as the first step in the Review, calling for feedback on the key themes of the Review, including:- Reduction of the overall duration and cost of the existing U.K. rights issue process and how that could be achieved.
- The role that new technology plays in the process to ensure that shareholders receive relevant information in a timely fashion and can exercise their rights.
- Fund-raising models in other jurisdictions that should be considered for use in the U.K.
- Improved transparency introduced by the Short Selling Regulation.
- The potential for refining the undocumented secondary capital raising process.
Responses to the Call for Evidence may be submitted until November 16, 2021. -
UK Government Sets out Key Actions to Secure Its Vision for Payments
10/11/2021
HM Treasury has published a response to the Payments Landscape Review call for evidence. The government sets out the key areas and steps for government, regulators, and industry to achieve a payments sector at the vanguard of technology and innovation.
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Bank of England Proposes Introducing Clearing Obligation for TONA Overnight Index Swaps
09/29/2021
The Bank of England has launched a consultation proposing to subject Overnight Index Swaps (OIS) that reference the Tokyo Overnight Average rate (TONA) to the U.K. derivatives clearing obligation under the U.K. version of the European Market Infrastructure Regulation. The BoE has already decided to remove contracts referencing JPY LIBOR from the clearing obligation starting December 6, 2021. Following recent announcements made by the Japanese authorities, the BoE now considers it appropriate to replace contracts referencing JPY LIBOR with contracts referencing TONA. The planned change would apply from December 6, 2021 or shortly thereafter. Responses to the consultation may be submitted until October 27, 2021.
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Bank of England Confirms Changes to Derivatives Clearing Obligation to Reflect Benchmark Reforms
09/29/2021
The Bank of England has published a Policy Statement and final changes to the contracts subject to the derivatives clearing obligation under the U.K. version of the European Market Infrastructure Regulation. The U.K. onshored European Market Infrastructure Regulation imposes a clearing obligation on U.K. 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 details are set out in three sets of Binding Technical Standards—Commission Delegated Regulation (EU) 2015/2205, Commission Delegated Regulation (EU) 2016/592 and Commission Delegated Regulation (EU) 2016/1178.
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European Securities and Markets Authority Recommends Changes to EU Algorithmic Trading Rules
09/29/2021
The European Securities and Markets Authority has published a review report on algorithmic trading under the EU's Markets in Financial Instruments package. The Markets in Financial Instruments Directive requires the European Commission to review and report on the impact of the MiFID II requirements on algorithmic trading, including high frequency trading and direct electronic access. ESMA's report will assist the Commission with that remit, including determining whether any legislative changes are appropriate.
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European Commission Publishes Study on Banks’ and Prudential Supervisors’ Integration of ESG Factors
09/27/2021
The European Commission has published a study on EU banks’ integration of environmental, social and governance factors into their risk management processes, business strategies and investment policies. The study finds that, although banks have made efforts to pursue ESG agendas, the speed and degree of integration of ESG considerations must accelerate. In addition, it finds that prudential supervisors could take more action to integrate ESG factors into their supervision of banks. Further details of the challenges facing banks and supervisors in ESG integration are set out in the study.
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Proposed Amendments to the EU Best Execution Reporting Regime under MiFID II
09/24/2021
The European Securities and Markets Authority has launched a consultation on proposed amendments to the best execution reporting regime under the EU's Markets in Financial Instruments Directive. Responses to the consultation may be submitted by December 23, 2021. ESMA is expected to send its recommendations for amendments to the European Commission in H1 2022.
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European Securities and Markets Authority Supports Delay to Buy-In Regime under EU Central Securities Depositories Regulation
09/24/2021
The European Securities and Markets Authority has published a letter to the European Commission urging the Commission to delay the buy-in regime under the Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The Commission consulted in 2020 on proposals to improve securities settlement in the EU and on central securities depositories, and legislative proposals are expected before the end of 2021.
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HM Treasury Publishes Amendments to UK Capital Requirements Regulation
09/23/2021
HM Treasury has made certain amendments under the U.K. Capital Requirements Regulation (Amendment) Regulations 2021 to the U.K. Capital Requirements Regulation. The UK CRR is the U.K. version of the corresponding EU regulation, as applicable after Brexit. The new regulations introduce some new provisions and revoke certain others. The related explanatory memorandum describes the changes in further detail. The changes will come into force on January 1, 2022.
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Proposed Amendments to the EU Short Selling Regulation
09/21/2021
The European Securities and Markets Authority is consulting on proposed amendments to the EU Short Selling Regulation. ESMA is reviewing the SSR provisions following two occurrences of market volatility. The first is the market reactions to the impact of the COVID-19 pandemic and the related regulatory response where numerous and varied short sale bans were imposed by various EU member states. The second is the market turmoil in the U.S. markets and elsewhere for so-called meme stocks, such as Gamestop. Responses to the consultation may be submitted by November 19, 2021, and ESMA is expected to publish its report to the European Commission early in 2022.
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Bank of England Publishes Dear CEO Letters to Central Counterparties, Central Securities Depositories and Payment System Operators on Supervisory Expectations for Material Outsourcing to the Public Cloud
09/17/2021
The Bank of England has written to the CEOs of Central Counterparties, Central Securities Depositories, Recognised Payment System Operators and Specified Service Providers subject to the BoE’s supervision, drawing their attention to the BoE’s expectations of material outsourcing arrangements, including the use of the public cloud.
The letters observe that in Q2 2021, the BoE’s Financial Policy Committee found that financial institutions had scaled up their reliance on cloud service providers since the start of 2020, leading to an increasing reliance on a small number of providers and a potential increase in financial stability risk. Reliance on third parties by CCPs, CSDs, RPSOs and SSPs is subject to existing legislation and the Principles for Financial Markets Infrastructure, which the BoE expects firms to comply with. Firms are also expected to have regard to the BoE’s policy on operational resilience and any relevant international standards.
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UK Financial Conduct Authority Publishes Proposals to Revamp its Decision-Making Process
07/29/2021
The U.K. Financial Conduct Authority has published a consultation paper on proposals to change its decision-making process. The objective of these proposals is to make the FCA a nimbler regulator that can make faster and more effective decisions. Responses to the consultation may be submitted until September 17, 2021. The FCA intends to publish a Policy Statement before the end of the year, likely in November, and envisages that the revised decision-making framework would start in November, too. Any cases that are being considered by the Regulatory Decisions Committee would remain with the RDC under the existing processes.
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UK Listings Regulator Consults on Tightening Diversity Requirements for Listed Companies
07/28/2021
The U.K. Financial Conduct Authority has opened a consultation on proposals to amend the requirements on diversity and inclusion on listed company boards and executive committees. The proposals include changes to the Listing Rules and the Disclosure and Transparency Rules, including guidance. The consultation closes on October 20, 2021. The FCA intends to publish final rules before the end of 2021 and for the new requirements to apply to accounting periods starting on or after January 1, 2022. This means that annual financial reports published for 2022 in spring 2023 would include the reporting changes.
Read more.ATTORNEYS: Chloe Barrowman, Sandy Collins
TOPICS : Corporate Governance, Environmental, Social and Governance, Securities -
UK Conduct Regulator Consults on Changes to Listing Rules For SPACs
07/27/2021
Following its consultation earlier this year, the U.K. Financial Conduct Authority has published final changes to its listing rules for special purpose acquisition companies that will come into effect on August 10, 2021. SPACs are companies set up for the purpose of raising money from investors to fund the acquisition of an operating business. They have attracted much attention over the last year as an alternative way for target companies to go public without going through the traditional initial public offering process. The initial decision to adjust the U.K. approach to SPACs was one of the recommendations made by Lord Hill in the U.K. Listings Review.
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Bank of England Publishes MREL Consultation and Operational Guide to Bail-In
07/22/2021
The Bank of England has published two documents on the U.K.’s bank recovery and resolution regime: a consultation on its approach to setting minimum requirements for own funds and eligible liabilities and an operational guide to the execution of bail-in in the U.K. In a statement on the publications, the BoE’s Deputy Governor for Markets and Banking explained that, while progress has been made in ensuring the resolvability of U.K. firms, there is more work to do to address resolvability risks. The consultation paper and operational guide form part of the U.K.’s maturing recovery and resolution regime.
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UK Government Launches Review of UK’s Anti-Money Laundering and Counter Terrorist Financing Regime
07/22/2021
The U.K. government has launched a review of the U.K.’s anti-money laundering and counter terrorist financing regulatory and supervisory regime with the publication of a call for evidence. The government is assessing the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime. On the same day, the government also published a consultation on proposed targeted changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, referred to as the MLRs. That consultation is focused on the changes needed to ensure the U.K. regime meets international standards. Responses to the call for evidence may be submitted until October 14, 2021. A final report on the findings of the review and, where relevant, possible reform will be published no later than June 26, 2022, in line with the review requirement in the MLRs.
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UK Government Consults on Targeted Amendments to the Money Laundering Regulations
07/22/2021
The U.K. government has opened a consultation on proposed targeted changes to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, referred to as the MLRs. The consultation focuses on the time-sensitive changes that are needed to ensure that the U.K. requirements meet international standards set by the Financial Action Task Force and to strengthen the overall requirements. The government has also opened a call for evidence on the U.K.’s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which is considering the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime. Responses to the MLRs’ consultation may be submitted until October 14, 2021. These MLR amendments will be implemented through secondary legislation due to be laid in Spring 2022.
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UK Regulator Consults on Scope of PRIIPs
07/20/2021
The U.K. Financial Conduct Authority has published proposals to amend the scope of the rules governing packaged retail and insurance-based investment products (or PRIIPs). The FCA's proposals are designed to bring legal certainty to the scope of the PRIIPs regime, as it applies to corporate bonds. The consultation also addresses issues of misleading performance scenarios and summary risk indicators and concerns about the transaction costs calculation methodology. It is hoped that the amendments will promote liquidity and improve choice in the retail corporate bond market and also reduce the complexity of key information documents (or KIDs), the key information disclosure documents that must accompany PRIIPs when they are made available to retail investors.
Responses to the FCA's PRIIPs consultation should be submitted by September 30, 2021. The FCA is aiming to finalize the amendments by the end of this year and for the changes to take effect on January 1, 2022.
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HM Treasury Consults on Extension of Senior Managers’ Regime to Financial Market Infrastructures
07/20/2021
HM Treasury has published a consultation paper seeking feedback on its proposals for the extension of the Senior Managers’ and Certification Regime to certain U.K. financial market infrastructures. The SMCR was originally implemented for U.K. banks in 2016, extended to all U.K. authorized firms in December 2019, and further extended to U.K. benchmark administrators in December 2020. The government is seeking views on whether and, if so, how the SMCR should be extended to FMIs as well as the proportionate application of it to FMIs. Responses to the consultation on the SMR for FMIs should be submitted by October 22, 2021.
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European Commission Consultation on Improving the EU Secondary Markets for Markets for Non-Performing Loans
07/16/2021
The European Commission is consulting on improving transparency and efficiency in the EU secondary markets for non-performing loans. The objective is to provide a more liquid market by improving the quantity, quality and comparability of NPL data. The consultation was announced in December 2020 as part of the Commission’s Strategy for post-Covid-19 NPLs. Responses to the consultation may be submitted until September 8, 2021.
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UK has established a new Green Technical Advisory Group
07/09/2021
HM Treasury has announced a new independent group, called the Green Technical Advisory Group, to help tackle “greenwashing” and create a U.K. green taxonomy. “Greenwashing” refers to unsubstantiated or exaggerated claims that an investment is environmentally friendly. GTAG’s main remit is to advise HM Treasury on developing and implementing a U.K. green taxonomy, comprising technical screening criteria. GTAG consists of financial services industry representatives, non-financial services representatives, taxonomy and climate experts. HM Treasury, the U.K. Financial Conduct Authority and the Bank of England will be observers. GTAG is expected to provide initial recommendations to HM Treasury as early as September of this year.
View the GTAG Terms of Reference. -
European Securities and Markets Authority Launches Consultation on Revised Guidelines for Disclosure of Inside Information Under EU Market Abuse Regulation
07/08/2021
The European Securities and Markets Authority has launched a consultation on proposed revisions to the Guidelines for when issuers can delay the disclosure of inside information in accordance with the EU Market Abuse Regulation. Responses to the consultation should be submitted by August 27, 2021. ESMA intends to publish a final report including its amended Guidelines at the end of 2021.
Issuers of financial instruments that fall within the scope of the EU MAR must publicly disclose, as soon as possible, inside information that directly concerns them. "Inside information" is information that: (i) is not public; (ii) directly or indirectly relates to one or more issuers of financial instruments; (iii) is of a precise nature; and (iv) is likely, if made public, to have a significant effect on the relevant prices of those financial instruments or related derivative financial instruments.
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UK Regulators Open Discussion on Accelerating Diversity and Inclusion in the Financial Services Sector
07/07/2021
The U.K. Financial Conduct Authority, Prudential Regulation Authority and the Bank of England (as regulator for financial market infrastructure) have published a discussion paper on diversity and inclusion in the financial sector. Feedback to the discussion paper may be submitted until September 30, 2021. It is expected that the FCA and PRA will consult on detailed proposals in Q1 2022 and aim to issue final Policy Statements in Q3 2022. The regulators aim to develop policy, rules and guidance that set clear minimum expectations and note that they will be prepared to use their regulatory powers where a firm fails to meet those expectations. The regulators intend to introduce any new requirements proportionately.
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Financial Stability Board Publishes Roadmap on Climate-Related Financial Risks
07/07/2021The Financial Stability Board has published a series of three climate-related reports as part of its roadmap for addressing climate-related financial risks. The global risks to financial stability posed by climate change are being addressed by a number of international initiatives and the FSB hopes to utilize its diverse membership to coordinate efforts internationally. The FSB's reports are:
- a Roadmap for Addressing Climate-Related Financial Risks, which sets out a plan to address climate-related financial risks;
- a report on The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, which reviews the availability of data to monitor and assess climate-related risks to financial stability and outlines priorities to address gaps in data; and
- a report on Promoting Climate-related Disclosures, which provides recommendations to financial regulators in developing frameworks for climate-related disclosures.
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UK Listing Regulator Proposes Changes to UK Listings Regime
07/05/2021
The U.K. Financial Conduct Authority has launched a consultation on changes to the U.K. listing regime. This consultation follows the recommendations made by Lord Hill in the U.K. Listing Review as well as the Kalifa Review of FinTech. Responses to the consultation may be submitted until September 14, 2021.
The U.K. government is currently consulting on changes to the U.K. prospectus regime, having launched the U.K. Prospectus Review last week.
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UK Prospectus Review: Proposed Reforms to Boost London's Capital Markets
07/02/2021
The U.K. government has begun a consultation on proposals to reform the U.K. prospectus regime. This much anticipated consultation sets out proposals based on the important recommendations made in the U.K. Listing Review, which was chaired by Lord Hill. Responses to the consultation should be submitted by September 24, 2021.
The final changes to the prospectus regime will be made through legislation and the rules of the Financial Conduct Authority, following consultation. The existing U.K. Prospectus Regulation will be replaced, in whole or part, by FCA rules.
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UK Wholesale Market Review
07/01/2021
The U.K. government has launched a consultation, the Wholesale Markets Review, on proposals to amend the U.K.'s Markets in Financial Instruments regime. This regime is based upon the Markets in Financial Instruments Directive and related Regulation, as well as several pieces of delegated legislation thereunder, collectively and colloquially known as MiFID II, which the U.K. on-shored with minor amendments following its exit from the European Union. HM Treasury is now seeking feedback on how the U.K.’s approach to regulating secondary markets should be adapted now that the U.K. has left the EU. The intention is to amend the regime to reflect that the U.K. market is one of the largest capital markets globally. Changes are also proposed where it is clear that the rules have had unintended outcomes, are duplicative or excessive or have curbed innovation. The consultation is open until September 24, 2021.
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UK Government Proposes Measures to Protect Direct Access to Cash
07/01/2021
HM Treasury has opened a consultation on policy proposals for geographic access requirements upon designated firms to protect access to cash across the U.K. The consultation follows the Access to Cash: Call for Evidence, published in October 2020, which sought views on the considerations on how to maintain a sustainable network of retail cash infrastructure in the U.K. and support the use of cash by people and businesses over time. Responses to the consultation may be submitted until September 23, 2021.
The main proposal is the introduction of geographic requirements based on cash access (e.g. ATM) facilities being available within maximum distances of a minimum percentage of the population. Geographic parameters are already used in cash provision - LINK's ATM scheme, for example, has committed to protecting free-to-use ATMs more than 1km away from the next nearest free-to-use source of cash and protecting free access to cash on high streets that do not have a free-to-use source of cash within 1 km. The Post Office Network is obliged to ensure that 99% of the total population must be within 3 miles of their nearest Post Office and 95% must be within 1 mile. HMT's proposals for designated firms would impose minimum requirements that ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The government does not intend to consider further factors, such as local needs, deprivation, vulnerability, and service levels, which will be for the industry to address. Flexibility would be built in to the legislative provisions to allow the government to adjust the requirements over time.
Read more.TOPIC : Payment Services -
UK Government Opens Review of Securitization Regulation
06/24/2021
HM Treasury has opened a Review of the U.K. Securitization Regulation with the issue of a call for evidence. The Review is required under the Regulation, and HM Treasury must report to Parliament on its findings by January 2022. Responses to the consultation may be submitted until September 2, 2021. HM Treasury also asks respondents to consider whether any changes are needed that are time-sensitive so that consideration can be given to whether a change is implemented through legislation or regulator rules. In the context of the Future Regulatory Framework Review, the responsibility for making and implementing rules will be transferred to the regulators. The FRF Review is ongoing, with a second consultation expected later this year.
The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
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UK Conduct Regulator Consults on Enhancing Climate-Related Disclosures for Listed Companies and Certain Regulated Firms
06/22/2021
The U.K. Financial Conduct Authority has published two consultation papers that set out new proposals on climate-related disclosure rules for listed companies and certain regulated firms. The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020 that are aligned with the recommendations of the global Taskforce on Climate-related Financial Disclosures. Responses to the consultations may be submitted until September 10, 2021. The FCA is aiming to publish its final rules and policy statements for these proposals by the end of the year.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Environmental, Social and Governance, Securities -
UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
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Basel Committee on Banking Supervision Proposes Capital Requirements for Banks' Exposures to Crypto-Assets
06/10/2021
The Basel Committee on Banking Supervision has launched a consultation on bank prudential requirements for exposures to crypto-assets. The consultation follows the Basel Committee's 2019 discussion paper on the prudential treatment of crypto-assets. This latest consultation sets out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the discussion paper and other input from stakeholders. The Basel Committee believes that setting the policy will be an iterative process and that a further consultation will be needed. Responses to this consultation may be submitted until September 10, 2021.
The Basel Committee considers that the increasing growth of crypto-assets raises financial stability concerns and is increasing the risks encountered by banks. Certain crypto-assets are highly volatile and may pose risks for banks as exposures increase, including liquidity risk, credit risk, market risk, operational risk, money laundering/terrorist financing risk, and legal and reputation risks.
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UK Discussion Paper on Systemic Stablecoins Published
06/07/2021
The Bank of England has published a discussion paper on new forms of digital money that are potentially systemically important, focusing on systemic stablecoins. HM Treasury recently consulted on bringing certain crypto-assets into the U.K. regulatory perimeter and proposed that the BoE would regulate systemic stablecoins (under the Banking Act 2009) and that the Financial Conduct Authority would be responsible for consumer protection and conduct regulation. Feedback to the discussion paper can be submitted until September 7, 2021. The feedback will inform the BoE's next steps and it will consult on a specific regulatory framework for stablecoins, pending the finalization of the anticipated legislation.
According to the BoE, systemic stablecoins would be those that have the potential to scale up and grow rapidly and become widely used for payments by individuals and non-financial businesses. Non-systemic stablecoins would be those that are not widely used for payments and would not be subject to regulation by the BoE. Systemic stablecoins would be: (i) denominated in sterling; (ii) backed by assets that make them stable in value, unlike crypto-assets that have no safeguard, such as Bitcoin; and (iii) would not be created by lending to the real economy, unlike commercial bank money.
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UK Government Proposes Power to Block Listings on National Security Grounds
06/07/2021
Following the commitment by the government in its 2019 Economic Crime Plan to investigate the links between listings and national security, HM Treasury has launched a consultation in which it proposes to introduce a power for it to block listings on national security grounds. The government has assessed that there is a "remote but possible risk" that a company listing in the U.K. could harm the nation's security and that this risk needs to be addressed. Responses to the consultation may be submitted until August 27, 2021.
It is proposed that the scope of this power will include all initial equity listings and admissions on U.K. public markets. The power would not apply to secondary trading and would not include listed debt, other than certain convertible securities. Therefore, the power could be applied to: (i) shares, securities representing equity such as Global Depositary Receipts and convertible securities; (ii) regulated markets and MTFs, including the SME Growth Markets, that allow primary equity listings; and (iii) initial public offerings and non-traditional listings structures, such as introductions and Special Purpose Acquisition Companies (SPACs). The power would also not apply to delisting already listed companies.
Read more.TOPIC : Securities -
UK to Remove Open Access Regime for Exchange-Traded Derivatives
06/05/2021
The U.K. Government has announced that it will permanently remove the open access regime for exchange-traded derivatives. The regime, established under the EU Markets in Financial Instruments Regulation and onshored into U.K. laws in preparation for the end of the Brexit transitional period, requires a trading venue to provide open and non-discriminatory access to a CCP, with a reciprocal requirement for CCPs to provide access for trading venues, when clearing transferable securities, money market instruments and ETDs. In the EU, a temporary opt-out from the regime was made available and then extended for trading venues and CCPs in relation to ETDs, but that is due to expire on July 3, 2021 (having been extended for a period of one year due to difficulties surrounding COVID-19).
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UK Announces Extension of Exemption for UCITS from PRIIPs Disclosure Requirements
06/01/2021
HM Treasury has announced that the current exemption for Undertakings for Collective Investment in Transferable Securities funds from the requirements of the U.K. Packaged Retail Investment and Insurance-based Products Regulation will be extended by five years to December 31, 2026.
The U.K. PRIIPs Regulation, which was on-shored in the U.K. after Brexit and is based upon the corresponding and much-criticized EU regulation, requires "manufacturers" of PRIIPs to produce a standardized "key information document," designed to improve U.K. retail investors' understanding of the financial products they are purchasing. Technical Standards govern the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide a KID. Under the U.K. PRIIPS Regulation, management companies, investment companies and persons advising on, or selling, units in UCITS are exempt from the requirements of the PRIIPs Regulation until December 31, 2021. UCITS funds still need to prepare a key investor information document (KIID) as required by the UCITS Directive, with different but broadly similar content requirements. The EU PRIIPs regime, which the U.K. has now adopted without material modifications, was intended to improve investor disclosures for more complex retail products such as index-tracking investments and insurance-wrapped products. However, it has resulted in deleterious impacts in other industries and has been widely criticized for its vagueness of scope and wide application, with particularly difficult consequences for bond issuers, listed derivatives and funds. The U.K. has announced that it is undertaking a broader review.
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Financial Stability Board Consults on Global Targets for Addressing the Four Challenges of Cross-Border Payments
05/31/2021
The Financial Stability Board has launched a consultation on proposed global targets for addressing the four challenges to cross-border payments. The G20 is prioritizing the enhancement of cross-border payments and the FSB states that public authorities have an important role to play in leveraging opportunities and addressing challenges in both existing and new arrangements supporting cross-border payments. In November 2020, the G20 endorsed the FSB's Roadmap and the related 19 Building Blocks. The Roadmap presents a high-level plan for tackling the issues and sets both short-term and longer-term goals and milestones. The Building Blocks indicate where further public and private sector work would enhance cross-border payments and address the frictions ascertained by the FSB. The consultation closes on July 16, 2021. The FSB will publish its final recommendations to the G20 in October 2021.
Read more.TOPIC : Payment Services -
EU Technical Experts Make Recommendations on Improving Access for SMEs to Capital Markets
05/25/2021
The EU's Technical Expert Stakeholder Group on SMEs has published a report, including a set of recommendations to improve the capacity of SMEs to access the capital markets. It remains to be seen how much of these the Commission and other legislative bodies will take on board. Some of the recommendations echo those of the report by Lord Hill on the U.K. Listings Review, the focus of which was how to amend the U.K.'s listing regime to ensure the continued attractiveness of the U.K. as a capital markets hub (rather than focusing on SME's).
Read more.TOPIC : Securities -
European Securities and Markets Authority Issues Call for Evidence on Digital Finance
05/25/2021
Following the publication by the Commission of its Digital Finance Strategy in September 2020, the Commission has asked the European Supervisory Authorities for technical advice on the regulatory and supervisory challenges of three areas, namely the growing fragmentation of value chains in finance, digital platforms and bundling of various financial services, and groups combining financial and non-financial activities.
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European Securities and Markets Authority Publishes Recommendations to Reform the EU Central Securities Depositories Regulation
05/20/2021
The European Securities and Markets Authority has published a letter addressed to the European Commission making recommendations for inclusion in the Commission's Review of CSDR. The EU Central Securities Depositaries Regulation provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. There is a single market for CSD services across the EU and a third-country equivalence regime for CSDs. ESMA's recommendations include:
- That the Target2-Securities system, a systemically important common settlement platform, providing settlement services in central bank money for the majority of EEA CSDs, be brought within the scope of CSDR.
- Amendment of the supervision arrangements for T2S. Currently, the European Central Bank oversees T2S, alongside a cooperative framework based on a memorandum of understanding between the ECB, ESMA, the national competent authorities of the CSDs participating in T2S, and the central banks overseeing the CSDs. ESMA considers that CSDR should provide for a cooperative arrangement for supervision/oversight of T2S in the form of a college of supervisors, with clear roles for the participating authorities.
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UK Conduct Regulator Warns E-Money Firms on Misleading Customers
05/18/2021
The U.K. Financial Conduct Authority has written to the CEOs of electronic money firms asking them to ensure that their customers are aware of how their money is protected. According to the FCA, many e-money firms (some of which are start-ups and FinTechs) compare their services to traditional bank accounts and portray in their financial promotions their services as an alternative to a bank account, but do not adequately disclose the differences in protections between e-money accounts and bank accounts. In particular, e-money firms do not make it clear enough that Financial Services Compensation Scheme protection does not apply to e-money accounts. The warning follows the FCA's publication in summer last year of a letter to CEOs and guidelines on safeguarding which set out the FCA's expectations of e-money firms in light of the increased use of e-money accounts during the pandemic.
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UK Financial Conduct Authority Consults on New Consumer Duty
05/14/2021
The U.K. Financial Conduct Authority has launched a consultation on proposed rules for a new duty of care that firms would owe to retail clients when conducting regulated activities. The duty would apply to authorized firms directly providing regulated services to retail clients but would also extend to other authorized firms involved in the supply and manufacture of regulated products, even where they have no direct contact with the end client. The FCA has been mandated to consult on the duty under the Financial Services Act 2021. The FSA 2021 implements changes to various aspects of U.K. financial services regulation following the U.K.'s exit from the EU. Responses to the consultation on the new consumer duty are due by July 31, 2021. The FCA must consult and publish an analysis of responses before January 1, 2022 and make general rules before August 1, 2022.
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UK Regulator's Feedback Statement to Consultation on Liquidity Mismatch in Authorized Open-Ended Property Funds
05/07/2021
Following its consultation last year, the U.K. Financial Conduct Authority has published a feedback statement to its consultation on liquidity mismatch in authorized open-ended property funds. In the consultation, the FCA proposed introducing a notice period of up to 180 days for U.K. authorized property funds that are non-UCITS retail schemes (known as NURS) that invest directly in property. The aim is to mitigate the potential for harm arising from the structure of funds that may lead to a mismatch between a fund holding illiquid assets and offering daily redemptions.
The FCA confirms that it will not make a final policy decision until Q3 2021 at the earliest and that if mandatory notice periods for property funds are introduced, there will be an appropriate implementation period before the rules come into force so as to allow firms to make operational changes.
Noting some cross-over between these proposals and the FCA's more recent proposals to introduce a long-term asset fund framework, the FCA also confirms that it will consider feedback to that consultation before finalizing its position. The FCA launched its consultation on proposals on LTAFs on the same day as this feedback was published. The aim of the LTAF framework is to establish a fund that would facilitate authorized funds to be set up to invest efficiently in long-term, illiquid assets. In the feedback statement, the FCA states that if notice periods are introduced then fund managers of LTAFs might have the same operational challenges.
View the FCA's feedback statement (FS21-8).
View details of the FCA's consultation on a LTAF framework.
View details of the FCA's consultation (CP20/15).TOPIC : Funds -
UK Regulator Consults on a New Authorised Fund Regime for Investing in Long Term Assets
05/07/2021
The U.K. Financial Conduct Authority has opened a consultation on proposals to establish a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund. The aim is to establish a fund that would facilitate authorized funds to be set up to invest efficiently in long-term, illiquid assets, such as venture capital, private equity, private debt, real estate and infrastructure. The consultation closes on June 25, 2021.
The consultation paper sets out the details of the proposed framework, including increased governance requirements, clear disclosure rules and discusses the proposals on rules on the purpose of an LTAF, borrowing levels, valuation, redemption and subscription, due diligence and reporting. The FCA is proposing to restrict distribution of LTAFs to professional investors and sophisticated retail investors. However, the consultation asks for feedback on whether, and how, future wider retail access to such funds could be safely supported. LTAFs will be an alternative investment fund. As the LTAFs would invest in potentially complex and risky assets, the FCA proposes that only a firm authorized as a full-scope U.K. alternative investment fund manager could manage an LTAF. This will ensure that LTAFs have appropriate resources as well as good systems and controls.
Read more.TOPIC : Funds -
International Bodies Launch Survey on Margin Calls
05/05/2021
The Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions has published a survey on margin calls as part of an investigation into liquidity shortfalls during the early stages of the COVID-19 pandemic. The combined effect of government measures to contain the pandemic in March 2020, together with market uncertainty, job losses and travel restrictions triggered a pullback in economic activity and stress on market liquidity. The non-bank financial intermediation sector was found to be particularly vulnerable to the liquidity shock.
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European Central Bank Publishes Amendments to Systemically Important Payment Systems Regulation
05/05/2021
An amending Regulation (Regulation (EU) 2021/728) and two amending Decisions (Decision 2021/729 and Decision 2021/730) have been published in the Official Journal of the European Union, introducing certain changes to the SIPS Regulation on oversight requirements for systemically important payment institutions. The SIPS Regulation applies to systemically important large-value and retail payment systems and is designed to improve their safety and efficiency. Draft versions of the amending Regulation and Decisions were consulted on between November 2020 - January 2021 and proposed: (i) changes to the criteria for determining which of the Eurosystem central banks should be the competent authority for oversight of a SIPS; (ii) introduction of an additional methodology for identifying a payment system as a SIPS; and (iii) introduction of a phasing-out period for the reclassification of a SIPS as a non-SIPS.
Read more.TOPIC : Payment Services -
UK Digital Regulation Cooperation Forum Publishes Report on Strengthening Digital Regulatory Cooperation
05/04/2021
The U.K. Digital Regulation Cooperation Forum has published a report on the measures that the U.K. Government may take to strengthen cooperation between digital regulators. The DRCF consists of the Competition and Markets Authority, Ofcom, the Information Commissioner's Office and the U.K. Financial Conduct Authority (although the FCA's views are not represented in this report because it only joined the DRCF in April 2021, after the report was commissioned). The U.K. Government asked the DRCF to produce the report to determine whether further measures were needed to support cooperation between regulators.
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European Banking Authority Publishes Report on EU National Regulators' Mystery Shopping Activities
05/03/2021
The European Banking Authority has published its first report on the "mystery shopping" activities of EU national regulators. In this context, mystery shopping involves national regulators conducting undercover research to measure the quality of customer service and gather information about financial products and services at EU financial institutions. The EBA was mandated to coordinate the mystery shopping activities of national regulators from January 1, 2020. The report is the first stage in fulfilling that mandate. It focuses on activities conducted in relation to retail banking products and services (e.g. consumer credit, mortgage credit, basic payment accounts, payment services and car loans), as these are the products that fall within the EBA’s consumer protection mandate. The EBA will use the information to inform its coordination of mystery shopping activities going forward.
Read more.TOPIC : Consumer Protection -
UK Conduct Regulator Consults on Changes to Listing Rules for SPACs
04/30/2021
The U.K. Financial Conduct Authority has launched a consultation on proposed changes to its listing rules for special purpose acquisition companies. SPACs are companies set up for the purpose of raising money from investors to fund the acquisition of an operating business. They have attracted much attention over the last year as an alternative way for target companies to go public without going through the traditional initial public offering process.
Read more.TOPIC : Securities -
UK Law Commission Consults on Digital Assets and Electronic Trade Documents
04/30/2021
The U.K. Law Commission has launched two consultations, one on digital assets and the other on electronic trade documents. Responses to the consultations can be submitted until July 30, 2021.
Digital Assets
The Law Commission has issued a Call for Evidence on digital assets following a request from the government for recommendations for reforms to U.K. laws that will ensure that the laws can accommodate both cryptoassets and other digital assets. The Call for Evidence will be followed by a consultation at the end of 2021 with proposals for law reforms.
The existing laws of England and Wales do not provide legal certainty as to the legal status of digital assets. Providing certainty would encourage the use of the laws of England and Wales and jurisdiction in digital asset transactions. The Call for Evidence requests feedback about, and evidence of, the ways in which digital assets are being used, treated and dealt with by market participants. It also seeks views on the potential consequences of digital assets being "possessable."
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UK Prudential Regulator Consults on "Strong and Simple" Prudential Framework for Small Banks
04/29/2021
In what would be a significant policy change, the U.K. Prudential Regulation Authority has published a discussion paper in which it proposes introducing a "strong and simple" prudential framework for non-systemic banks and building societies that are not internationally active. The aim is to simplify the prudential regulation of these firms, reducing costs for firms, but to maintain their resilience. The consultation closes on July 9, 2021, and will be followed by a consultation with proposals.
The existing regulatory approach broadly applies the same requirements to all banks and building societies, irrespective of their size and activities. Certain prudential rules are simplified for smaller banks and building societies, but to a lesser extent than in some other jurisdictions. The PRA notes that a graduated framework may take years to implement. Therefore, it is starting with the smallest firms and will consider how it might be built out for larger, non-systemic U.K. domestic firms. The plans follow the principles of the Basel Standards and consider how other jurisdictions have implemented similar regimes, such as Australia, Canada and the U.S.
The discussion paper sets out what the simpler regime might look like, including:- the possible approaches to identifying firms that will be in scope by looking at, for example, their activities, cross-border business and risk exposures;
- the possible requirements under the regime; and
- ways in which firms might transition in and out of the regime, such as by using an intermediate stage or PRA waivers.
View the PRA's discussion paper. -
UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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UK Conduct Regulator Publishes Discussion Paper on Strengthening the Financial Promotion Rules for High-Risk Investments
04/29/2021
The U.K. Financial Conduct Authority has published a discussion paper seeking feedback on how the U.K. financial promotion rules might be strengthened to reduce consumer harm arising from investing in inappropriate high-risk investments that do not meet a customer's needs. Feedback to the paper can be submitted until July 1, 2021. The feedback will help the FCA to develop the proposed rules on which it intends to consult later this year.
According to the FCA, one of the main ways a consumer gains an understanding of the risks and regulatory protection associated with an investment is from the information included in a financial promotion. However, although the financial promotion might meet the FCA's requirement to be fair, clear and not misleading, the investment may still be inappropriate for that investor. High-risk investments are those to which marketing restrictions apply under the rules and include non readily realizable securities (NRRSs), peer to peer (P2P) agreements, non mainstream pooled investments (NMPIs) and speculative illiquid securities (SISs). Since January 2020, the marketing of speculative illiquid securities to retail investors has been banned, first under a temporary product intervention measure, then made permanent from January 1, 2021. The measure restricts the mass-marketing of non-transferable bonds (sometimes colloquially termed "mini-bonds") and preference shares to retail investors and requires improved disclosure to be made to high net worth and sophisticated investors.
Read more.TOPIC : Consumer Protection -
UK Proposals to Ease Unbundling of Research and Best Execution Rules
04/28/2021
The U.K. Financial Conduct Authority has launched a consultation on certain proposed changes to the U.K. rules on the unbundling of research and best execution reporting, which are part of the Markets in Financial Instruments Directive (as inherited from the EU). The consultation closes on June 23, 2021, and the FCA is expected to publish its response and final rules in the second half of this year. The proposals are set out in brief below. Some of these are in the same areas covered by the EU MiFID II Quick Fix Regulation, but the FCA is not copying those rules, and it goes further in most areas.
Read more.TOPIC : MiFID II -
UK Chancellor Responds to Kalifa Review of UK FinTech
04/26/2021
The Chancellor of the Exchequer Rishi Sunak has published a written statement on the U.K. Government's response to the Kalifa Review of U.K. FinTech. The Kalifa Review made a series of recommendations to ensure the U.K.'s competitiveness in fintech globally. HM Treasury welcomed the Review at the time. The Chancellor's statement describes the following actions that the U.K. Government has committed to in response.
Read more.TOPIC : FinTech -
HM Treasury Publishes Response to Consultation on Insolvency Changes for Payment and Electronic Money Institutions
04/26/2021
HM Treasury has published its response to feedback on its December 2020 consultation on a proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR is designed to address shortcomings of the existing insolvency regime and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Key objectives of the regime will include returning customer funds as soon as reasonably practicable, facilitating timely cooperation with payment systems and authorities and rescuing the institution as a going concern or winding it up in the best interests of creditors.
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UK Government Announces Boost to UK FinTech and Financial Services
04/19/2021
The U.K. Government has announced plans to boost the U.K.'s fintech and financial services sectors. Chancellor of the Exchequer Rishi Sunak outlined the plans at U.K. FinTech Week, describing the government's vision for a greener and more technologically advanced financial services sector. The Government's announcement builds on the recommendations in the recent Kalifa Review of U.K. Fintech and Lord Hill's Review of the U.K. Listing Regime.
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Bank of England and HM Treasury Announce Central Bank Digital Currency Taskforce
04/19/2021
The Bank of England and HM Treasury have announced a joint central bank digital currency Taskforce. The Taskforce will be chaired by Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England and Katharine Braddick, Director General of Financial Services at HM Treasury, with other U.K. authorities involved as and when required.
The Taskforce's primary function is to oversee investigations into a possible U.K. CBDC. At present, the U.K. has not yet decided whether to issue a CBDC.
Read more.TOPIC : FinTech -
HM Treasury Statement on UK Listing Review
04/19/2021
Chancellor of the Exchequer Rishi Sunak has published a statement responding to Lord Hill's Review of the U.K. Listing Regime. Lord Hill's U.K. Listings Review was published in March 2021 and assessed how, following Brexit, the existing U.K. listing regime could be reformed to attract more companies, particularly technology and life sciences companies, to raise capital in London. The Review made 14 specific recommendations, including some requiring consultations by the U.K. Financial Conduct Authority and HM Treasury.
Read more.TOPIC : Securities -
HM Treasury Launches Consultation on Regulation of Non-Transferable Debt Securities
04/19/2021
HM Treasury has launched a consultation on the regulation of non-transferable debt securities, colloquially known as "mini-bonds". The consultation was prompted by the collapse of London Capital & Finance PLC, an FCA- regulated issuer of bonds which stated on their face that they were non-transferable, issued primarily to retail investors, which fell into administration in January 2019. An investigation into regulatory failings in the supervision of LC&F was subsequently launched and chaired by Dame Elizabeth Gloster, culminating in a report that was highly critical of the U.K. Financial Conduct Authority's supervision of LC&F and included policy recommendations for HM Treasury. HM Treasury is now consulting on possible changes to the regulatory regime governing NTDS. Responses to the consultation should be submitted by July 12, 2021.
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UK Conduct Regulator Appoints New Leaders for ESG and Technology
04/19/2021
The U.K. Financial Conduct Authority has appointed Sacha Sadan as its Director of Environment, Social and Governance, a new role which will develop the FCA's approach to sustainable finance domestically and internationally. Ms Sadan was formerly Director of Investment Stewardship at Legal and General Investment Management.
Read more.TOPIC : People -
UK Regulators Publish Dear CEO Letter for Banks and Building Societies on Deposit Aggregators
04/14/2021
The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint Dear CEO letter addressed to CEOs of U.K. banks and building societies on the risks of accepting deposits from deposit aggregators.
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Financial Stability Board Publishes FAQs on Securities Financing Data Collection and Aggregation
04/12/2021The Financial Stability Board has published a series of FAQs to assist FSB member jurisdictions in their implementation of standards for the handling of securities transactions financing data.
The FSB introduced its SFT Data Standards in 2015 for the collection and aggregation of data on SFTs. The Standards were intended to improve understanding on trends and developments in the SFT markets given the risks they pose to global financial stability. The FAQs offer technical guidance for FSB members on the reporting and collection of information regarding SFTs.
View the FSB's FAQs.TOPIC : Securities -
HM Treasury Published Response to Phase I of UK's Financial Services Future Regulation Framework Review
03/11/2021
HM Treasury has published its response to the call for evidence on Phase I of the U.K. Financial Services Future Regulatory Framework Review. The FRF Review was announced in March 2019 and will assess whether the U.K. financial services regulatory framework is fit for purpose, taking into account the U.K.'s exit from the EU, climate change and other global and technological challenges. The call for evidence on Phase I of the Review focussed on how the Government and regulators work together to ensure the best outcome for the financial services sector.
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LIBOR Panel Bank Submission Cessation Dates Confirmed
03/05/2021
The U.K. Financial Conduct Authority has announced the dates for future cessation and unrepresentativeness for all LIBOR settings. The FCA's statement follows its confirmation in November 2017 that the 20 panel banks for the LIBOR benchmark had agreed to support LIBOR until at least the end of 2021 and the regulator's position that the future of LIBOR could not be guaranteed because the underlying markets (the markets for unsecured wholesale term lending to banks) are no longer sufficiently active.
Read more.TOPIC : LIBOR Transition -
UK Benchmark Regulator Publishes Policy on Exercising New Powers Under the Financial Services Bill
03/05/2021
The U.K. Financial Conduct Authority has published Statements of Policy for exercising its new benchmark powers that are being introduced into U.K. law under the Financial Services Bill. Among other things, the Financial Services Bill includes potential enhanced powers for the FCA to wind-down a critical benchmark and deal with tough legacy contracts. The increased powers are being introduced in response to concerns and uncertainty about liability issues for industry participants related to the transition from LIBOR to risk free rates by the end of 2021. The FCA has also announced today the dates for future cessation and unrepresentativeness for all LIBOR settings.
Read more.TOPIC : LIBOR Transition -
European Banking Authority Publishes Opinion on Money Laundering Risks
03/03/2021
The European Banking Authority has published its latest biennial opinion on money laundering and terrorist financing risks affecting the EU financial sector. Key risks relate to: (i) virtual currencies; (ii) the provision of financial products and services through FinTech firms; (iii) weaknesses in counter-terrorism financing systems and controls; (iv) "de-risking" by firms which leads to riskier customers resorting to alternative payment channels; (v) supervisory divergence; (vi) crowdfunding platforms; (vii) divergent approaches to tackling tax-related crimes; and (viii) the COVID-19 pandemic.
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UK Listings Review Recommends Major Overhaul of the UK’s Listing and Capital Markets Rules
03/03/2021
The U.K. Government has published the report by Lord Hill on the U.K. Listings Review. The report assesses how, following Brexit, the existing U.K. listing regime could be reformed to attract more companies, particularly innovative technology and life sciences companies, to raise capital in London. In the context of Brexit, the U.K. is considering the challenges to London's position as a global capital markets hub. The Review makes 14 specific recommendations to address these challenges, including changes to the Financial Conduct Authority's premium and standard segment listing rules on which the FCA will be asked to consult and more general changes in relation to prospectuses on which HM Treasury will need to consult. In addition, the Review identifies longer- term areas for reform, such as secondary capital raises and the greater empowerment of retail investors.
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European Securities and Markets Authority Proposes Improvements to Transparency Directive
03/03/2021
The European Securities and Markets Authority has written to the European Commission proposing a series of improvements to the EU Transparency Directive, taking account of lessons learned in the Wirecard case. Wirecard, a German payments group, collapsed in 2018 when it was revealed that €1.9bn was missing from its public accounts. Several of its senior managers remain under police investigation for alleged crimes including fraud and market manipulation. In ESMA's view, the case has highlighted the need for timely and effective enforcement of financial information and proposes the following amendments to the EU Transparency Directive to help achieve this.
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European Central Bank Publishes Guide to Pecuniary Penalties for Prudential Regulatory Breaches
03/02/2021
The European Central Bank Banking Supervision division has published a guide to its method for setting pecuniary penalties for breaches of prudential regulatory requirements by Eurozone banks that are directly prudentially supervised by the ECB. The ECB will adopt a two-stage approach, first determining the base amount, and then deciding whether to adjust that amount by reference to a range of factors.
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FICC Markets Standards Board Appoints Ed Davey as Chief Operating Officer
03/02/2021
The FICC Markets Standards Board has appointed Ed Davey as its Chief Operating Officer. The FMSB is responsible for setting standards for the wholesale, fixed income, currencies and commodities markets.
View the FMSB's announcement.TOPIC : People -
European Banking Authority Publishes Revised Guidelines on Risk Factors for Money Laundering and Terrorist Financing
03/01/2021
The European Banking Authority has published revised Guidelines on money laundering and terrorist financing risk factors for credit and financial institutions to consider when conducting business relationships and occasional transactions. The Guidelines will enter into force three months after their publication in all official EU languages and will replace the EBA's existing ML/TF Guidelines.
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European Banking Authority Publishes Opinion on Disclosure Indicators and Methodology Under Taxonomy Regulation
03/01/2021
The European Banking Authority has published an opinion and a report on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.
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Financial Action Task Force Launches Consultation on Guidance on Proliferation Financing Risk Assessment and Mitigation
03/01/2021
The Financial Action Task Force has launched a consultation on its proposed non-binding Guidance on proliferation financing risk assessment mitigation. The FATF updated its Guidance for proliferation financing risks under Recommendation 1 and its Interpretive Note of the FATF Recommendations in October 2020. The new proposed Guidance is intended to provide a common understanding about how countries and firms can implement the new requirements.
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European Banking Authority Publishes Draft Regulatory Technical Standards Under EU Capital Requirements Regulation
03/01/2021
The European Banking Authority has published draft Regulatory Technical Standards under the revised EU Capital Requirements Regulation, designed to harmonize the methodology for calculating certain technical elements of the standardized approach to counterparty credit risk across the EU.
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European Securities and Markets Authority Publishes Final Report and Advice on KPIs and Disclosure Methodology Under Taxonomy Regulation
03/01/2021
The European Securities and Markets Authority has published a final report and advice addressed to the European Commission on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.
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Kalifa Review of UK Fintech Published
02/26/2021
HM Treasury has published the highly-anticipated Independent Strategic Review of U.K. Fintech, led by Ron Kalifa OBE. The aim of the recommendations is to, among others, ensure the U.K.'s competitiveness, attract investments for individual fintechs and raise the U.K.'s status as a global hub. The Kalifa Review makes recommendations in five key areas: (i) policy and regulation; (ii) skills and talent; (iii) investment; (iv) international attractiveness and competitiveness; and (v) national connectivity. The delivery of these recommendations is to be led by the Centre for Finance, Innovation and Technology, which is mandated by the Government but led by the private sector. This post focuses on the policy and regulation discussion.
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UK Financial Conduct Authority Makes Four Appointments to Executive Team
02/25/2021
The U.K. Financial Conduct Authority has made four new appointments to its executive team:
- Stephanie Cohen will be the FCA's Chief Operating Officer, responsible for the FCA's operations and business performance, systems and infrastructure and finances;
- Jessica Rusu will be the FCA's Chief Data, Information and Intelligence Officer, leading the transformation of the FCA's data intelligence and information;
- Sarah Pritchard will be the FCA's Executive Director for Markets, delivering the FCA's statutory market integrity objective within the Supervision, Policy and Competition division; and
- Emily Sheppherd will be the Executive Director for Authorizations, overseeing authorizations for firms and individuals applying to undertake regulated financial services activity in the U.K.
Read more.TOPIC : People -
UK Prudential Regulation Authority Identifies Error in "Higher Paid Material Risk Taker" Definition
02/25/2021
The U.K. Prudential Regulation Authority has identified an error in the definition of "Higher Paid Material Risk Taker" within Rule 1.3 of the Remuneration Part of the PRA Rulebook, implementing part of the EU's Fifth Capital Requirements Directive in U.K. laws before the end of the Brexit transitional period. The definition currently requires an individual to be treated as a Higher Paid Material Risk Taker when: (a) their annual variable remuneration exceeds 33% of their total remuneration; and (b) their total remuneration exceeds £500,000. Instead, an individual should be treated as a Higher Paid Material Risk Taker when either condition (a) or (b) are satisfied.
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European Commission Launches Consultation on EU Crisis Management and Deposit Insurance Framework
02/25/2021
The European Commission has launched a consultation to aid its review of the EU crisis management and deposit insurance framework. The framework consists of the EU Bank Recovery and Resolution Directive, the EU Single Resolution Mechanism Regulation and the EU Deposit Guarantee Scheme Directive. It was introduced in the aftermath of the financial crisis and has applied across the EU since 2015 (in the case of BRRD and DGSD) and 2016 (in the case of SRMR). A number of problems have been identified with the framework, as described in the European Commission's November 2020 roadmap for this consultation. Key issues include: (i) incentivization of the use of tools other than resolution by Member States; (ii) discrepancy in the use and availability of insolvency tools across Member States, leading to inconsistent application of the framework; (iii) limited legal certainty and predictability as to when the framework will be used; and (iv) variation in the scope of depositor protection and payout processes across Member States.
Read more.TOPIC : Recovery & Resolution -
UK Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Ending New Use of GBP LIBOR-Linked Derivatives
02/24/2021
The U.K. Working Group on Sterling Risk-Free Reference Rates has published a paper on how market participants can meet the Working Group's intended deadlines for cessation of GBP LIBOR in derivatives.
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UK HM Treasury Consults on an Expanded Resolution Regime for CCPs
02/24/2021
HM Treasury has opened a consultation seeking views on an expanded resolution regime for CCPs. The existing U.K. CCP recovery and resolution regime was established by the Financial Services Act 2012, which extended to CCPs (with modifications) the special resolution regime for banks and investment firms. Since then, there have been international and EU developments. In particular, the Financial Stability Board published guidance on financial resources for CCP resolution and the EU has published the EU CCP Recovery and Resolution Regulation. The U.K., when it was an EU member state, supported and helped develop the EU Regulation. HM Treasury is proposing to amend the U.K. regime to bring it into line with international standards and the proposals, bar a few technical exceptions, follow the EU Regulation. Responses to the consultation may be submitted until May 28, 2021.
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Bank of England Publishes Dear CEO Letter on Resolvability Assessment Framework
02/24/2021
The Bank of England has published a Dear CEO letter addressed to the CEOs of eight major U.K. banks, emphasizing the importance of the BoE's Resolvability Assessment Framework and the BoE's expectation that banks will take responsibility for their resolvability. The eight banks are in scope of the first RAF reporting and disclosure cycle.
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Bank of England Publishes Plan for UK Financial Sector Data Collection
02/23/2021
The Bank of England has published a plan to transform its ability to collect data from the financial services sector over the next decade. Three key principles of the plan are: (i) defining and adopting common data standards that are consistent across the financial sector; (ii) modernizing reporting instructions to improve how they are written and implemented; and (iii) integrating reporting to facilitate a more efficient approach to data collection. The Transformation Plan was prompted by Huw Van Steenis' 2019 report on the "Future of Finance", which highlighted the importance of data standards and protocols and the value of harnessing data. The BoE published a response to the "Future of Finance" report, in which it undertook to deliver a world-class data strategy.
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European Securities and Markets Authority Consults on 2021 Supervisory Fees for EU Trade Repositories
02/22/2021
The European Securities and Markets Authority has published a consultation on its proposals for recalibrating the 2021 annual supervisory fees to be charged by ESMA to EU trade repositories. ESMA's annual fees are intended to cover its costs for supervising EU trade repositories, and to be proportionate to the turnover of the trade repository concerned.
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European Banking Authority Publishes Opinion on Removal of Obstacles to Account Access Under Revised Payment Services Directive
02/22/2021
The European Banking Authority has published an Opinion requiring EU national regulators to assess the steps taken by account servicing payment services providers to remove obstacles to the provision of account information services and payment initiation services by third-party providers.
Read more.TOPIC : Payment Services -
EU Final Draft Technical Standards on the Determination of Indirect Exposures Published
02/19/2021
Following its consultation last year, the European Banking Authority has published a final report and final draft Regulatory Technical Standards on the determination of indirect exposures to underlying clients of derivative and credit derivative contracts. The EU Capital Requirements Regulation, as amended by CRR 2, requires firms to add to the total exposures to a client the exposures arising from derivative contracts listed in Annex II of the CRR and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client. The final draft RTS will form part of the EU's large exposures framework. The final draft RTS include a methodology for the calculation of indirect exposures for different classes of derivative contracts and credit derivative contracts with a single underlying debt or equity instrument and a methodology for calculating exposures arising from contracts with multiple underlying reference names.
The final draft RTS have been submitted to the European Commission for endorsement.
View the final report and final draft RTS on the determination of indirect exposures.
View details of CRR 2.
View details of the EBA's consultation. -
Final Draft EU Technical Standards on Disclosures of Indicators of Global Systemic Importance Published
02/18/2021
The European Banking Authority has published a final report and final draft Implementing Technical Standards on the disclosure of indicators of global systemic importance by Global Systemically Important Institutions. The EU Capital Requirements regulation requires G-SIIs to disclose annually the values of the indicators used for determining their score in accordance with a set identification methodology. The final draft ITS set out the uniform disclosure formats and associated instructions for the disclosures to be made. The provisions of these final draft ITS will be incorporated into the existing comprehensive ITS on firms' public disclosures and, to facilitate comparability. The format has been aligned with the format set out in the Basel III standards - the "Disclosure of G‐SIB indicators".
The final draft ITS have been submitted to the European Commission for endorsement.
View the EBA's final report and final draft ITS on G-SII disclosures. -
EU Delays Derivatives Margin for Brexit Novations
02/17/2021
An EU Commission Delegated Regulation amending Regulatory Technical Standards on the application of EU bilateral margining requirements under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The amendments to the RTS further extend the temporary exemptions from bilateral margining requirements for the following products and transactions.
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EU Delays Clearing Obligation for Third-Country Intragroup Derivatives and Brexit Novations
02/17/2021
An EU Commission Delegated Regulation delaying the clearing obligation under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The Delegated Regulation amends the three Regulatory Technical Standards on the clearing obligation, which provide for the application of the clearing obligation to interest rate swaps and credit default swaps. In particular, for intra-group derivatives transactions conducted with a third-country entity, the exemption from the clearing obligation will be extended until June 30, 2022. The EU has failed to determine whether many third countries are "equivalent" for these purposes, meaning that another delay is necessary to avoid penal charges on intra-group exposures of EU financial groups.
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UK Government Consults on Legal Safe Harbor for Legacy Contracts to Support the Wind-Down of a Critical Benchmark
02/15/2021
HM Treasury has opened a consultation on supporting the wind-down of critical benchmarks. The Financial Services Bill includes potential enhanced powers for the Financial Conduct Authority to wind-down a critical benchmark and deal with tough legacy contracts. The increased powers are being introduced in response to concerns and uncertainty about the transition from LIBOR to risk free rates by the end of 2021. The Financial Services Bill includes provisions granting the FCA the power to designate a critical benchmark (such as LIBOR) as an "Article 23A" benchmark if its representativeness is lost or at risk, unless representativeness can reasonably be restored and maintained and there are good reasons to do so. This designation would mean that use of the benchmark by supervised entities in relation to particular types of contracts would be prohibited, subject to certain exemptions.
Read more.TOPIC : LIBOR Transition -
EU Launches Review of the Financial Collateral Directive
02/12/2021
The European Commission has launched a targeted consultation related to post-trade services, which considers the EU Financial Collateral Directive. The Commission is also consulting on the Settlement Finality Directive, combining the review of these two Directives since they are closely related. The consultations close on May 7, 2021. The FCD establishes a harmonized EU framework for the use of financial collateral to secure transactions. It provides for close-out netting provisions to be enforceable under their terms and ring-fences the operation of financial collateral arrangements should one of the parties become insolvent, creating protections from the usual insolvency laws of a Member State. The FCD consultation does not cover the re-use of financial collateral given under a security financial collateral arrangement by a collateral taker as this issue has recently been addressed in the Securities Financing Transactions Regulation. The consultation focuses on issues relating to the recognition of close-out netting provisions and its impact on SFD systems.
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EU Launches Review of the Settlement Finality Directive
02/12/2021
The European Commission has launched a targeted consultation related to post-trade services, which considers the EU Settlement Finality Directive. The Commission is also consulting on the Financial Collateral Directive, combining the review of these two Directives since they are closely related. The consultations close on May 7, 2021. The SFD establishes various insolvency carve-outs for designated market infrastructure systems and provides for finality of transactions within such systems. Under the protections currently afforded by the SFD, transfer orders which enter into designated systems within certain deadlines are guaranteed to be finally settled and cannot be unwound at the behest of insolvency officials, regardless of whether the sending participant has become insolvent or transfer orders have been revoked in the meantime. The SFD essentially excludes "insolvency claw-back" rules, such as those for transactions at an undervalue or trading by insolvent or near-insolvent entities, from applying to holdings in designated systems and modifies the timing of "moratorium" rules which prevent transactions by insolvents. This also gives certainty as regards holdings in central securities depositories and as to the finality of transactions in some clearing and payment systems. Under the SFD, each EU Member State automatically recognizes systems that have been designated by other Member States. However, there is no EU regime for third country systems, a lacuna which has already been fixed by the U.K. in its SFD laws after Brexit.
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European Supervisory Authorities Publish Joint Response on Proposed EU Digital Operational Resilience Act
02/09/2021
The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a letter to the European Parliament, the Council of the European Union and the European Commission, setting out responses to the proposed EU Digital Operational Resilience Act, a new piece of EU regulation on digital operational resilience for the financial sector. The European Commission first published the draft DORA in September 2020. It forms part of the European Commission's digital finance strategy, which aims to embrace digital finance for the benefit of consumers and businesses while ensuring digital transformation is soundly regulated. The DORA is particularly focused on combatting risks arising from information and communication technologies in order to protect operational resilience and the performance of the financial system.
Read more.TOPIC : FinTech -
UK Conduct Regulator Sets Out Supervision Strategy of Retail Banks
02/05/2021
The U.K. Financial Conduct Authority has published a letter addressed to the CEOs of retail banks setting out the FCA's approach to retail bank supervision in light of the COVID-19 pandemic.
In the letter, the FCA identifies the key risks of harm that retail banks' activities may pose over the next two years, sets out its expectations of the actions retail banks need to take to mitigate the risks and discusses the work that the FCA will undertake to ensure firms are meeting the expectations. The risks are grouped into the following four priority supervisory areas:
- ensuring fair treatment of borrowers, including those in financial difficulties;
- ensuring good governance and oversight of customer treatment and outcomes during business change over the next two years;
- ensuring operational resilience over the next two years and beyond; and
- minimizing fraud and other financial crime.
View the FCA's letter. -
UK Conduct Regulator Publishes Recommended Practices for Technology Change Implementation
02/05/2021
The U.K. Financial Conduct Authority has published a report on a multi-firm review setting out recommended practices for regulated firms to take to reduce consumer harm when technology change implementation fails. The FCA's review considered how financial firms manage technology change, the impact of technology change failures and the practices used across the industry that help to reduce the impact on consumers and market disruption of such failures. The FCA's report sets out the practices used by firms that contribute to change success and those that lead to change failure, the impact of change failures, governance and management arrangements, build and deployment of technology changes and the impact of the infrastructure used, in particular, the use of legacy systems and of public cloud-based infrastructure.
View the FCA's report on the implementation of technology change. -
UK Payment Services Regulator Consults on Delivery and Regulation of the UK's New Payments Architecture
02/05/2021
The U.K. Payment Systems Regulator has opened a consultation on the delivery and regulation of the U.K.'s New Payments Architecture. The NPA will reorganize the clearing and settlement of most of the U.K.'s domestic interbank payments, including payments that currently use the BACS and Faster Payments systems. The PSR consulted last year on issues relating to competition and innovation in payment services and remains concerned about these issues. The PSR is also concerned that the current NPA programme will not provide value for money and will delay the achievement of the benefits of the NPA. The PSR is therefore seeking views on its proposals to reduce these risks to the successful delivery of the NPA. The proposals include narrowing the scope of the initial contract for delivery to those services that support the replacement and upgrade of Faster Payments and on ways to mitigate the risks to competition and innovation, including procurement, contractual provisions and governance provisions. Responses to the proposals on reducing the risk to delivery of the NPA may be submitted until March 19, 2021 and responses to the proposals on mitigating competition issues may be submitted until May 5, 2021.
View the PSR's consultation paper on delivery of the NPA.
View details of the PSR's consultation on competition and innovation. -
UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements
02/04/2021
The U.K. Government has opened a consultation on the implementation of the Investment Firms Prudential Regime and the remaining Basel III Standards in the U.K. The Financial Services Bill, once it is finalized, will introduce powers for the Financial Conduct Authority and the Prudential Regulation Authority to introduce the IFPR and outstanding Basel III prudential requirements for banks. The FCA has already launched a consultation on some aspects of the IFPR and will consult on the others throughout the year. The PRA is expected to consult on implementation of Basel III in Q1 2021. HM Treasury's consultation concerns those aspects of the two regimes that will require secondary legislation under the Financial Services Bill. The consultation closes on April 1, 2021.
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European Supervisory Authorities Publish Final Report on Disclosures Under the EU Regulation Sustainable Finance Disclosure Regulation
02/04/2021
The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a final report and draft Regulatory Technical Standards on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector. The EU SFDR was published in December 2019 and the majority of its provisions will apply from March 10, 2021. It is designed to encourage the financial services sector to disclose information about their approaches to sustainability risk and consideration of adverse sustainability impacts in the course of their businesses. The ESAs consulted on the draft RTS in April 2020. The ESAs propose that the draft RTS should apply from January 1, 2022.
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UK Conduct Regulator Publishes Approach to International Firms
02/03/2021
The U.K. Financial Conduct Authority has published its final Approach to international firms, setting out its approach to authorization and supervision of international firms providing or seeking to provide financial services that require authorization in the U.K. The FCA has also published a feedback statement summarizing its response to the submissions received in response to its consultation last year. The Approach Document sets out the conditions against which a firm will be assessed and discusses the circumstances in which firms may present higher risks and how the risks could be mitigated. It generally proposes that U.K.-authorized firms should have a U.K. place of business, so would not result in any new regime for EU firms which are currently using the "temporary permissions regime".
The FCA's Approach Document is not relevant to firms that are operating in the U.K., but do not need authorization to do so, for example, those firms using the Overseas Persons Exclusion. It is not also not relevant for payment services firms, e-money institutions, depositaries, trustees and managers of U.K. authorized funds, international alternative investment fund managers and international benchmark administrators.
Firms that are or would be subject to dual regulation, should also consider the approach of the Prudential Regulation Authority to the supervision and authorization of firms.
View the FCA's Approach to International Firms.
View the FCA's feedback statement.
View details of the PRA's consultation on its approach to supervising international banks. -
Final Draft EU Technical Standards Amending Requirements for PRIIPs Key Information Document
02/03/2021
The European Supervisory Authorities have published a final report and final draft amending Regulatory Technical Standards on amendments to the RTS on the presentation, content, review and revision of a standardized "key information document" and the conditions for fulfilling the requirement to provide a KID (Commission Delegated Regulation (EU) 2017/653). The RTS supplements the Packaged Retail and Insurance-based Investment Products Regulation, which introduced a requirement for manufacturers of PRIIPs to produce a KID with the intention of improving retail investors' understanding of the financial products they were purchasing.
The ESAs were asked to review the RTS and present proposals for amending the RTS. In July 2020, the ESAs wrote to the European Commission to explain that agreement among them had not been reached on all of the proposed changes and that, therefore, the final draft amending RTS could not be submitted to the Commission. The Board of the European Insurance and Occupational Pensions Authority did not approve with qualified majority all of the proposals.
Read more.TOPIC : Securities -
UK Equivalence Decision for Swiss Exchanges Enters into Force
02/03/2021
The U.K.'s Swiss share trading obligation equivalence decision has entered into force. The equivalence decision has been made under the U.K.'s Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which came into force on February 3, 2021, and means that U.K. investment firms will be able to comply with the share trading obligation under the U.K. Markets in Financial Instruments Regulation by trading shares on BX Swiss AG and SIX Swiss Exchange AG.
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European Securities and Markets Authority Proposes Changes to European Long-Term Investment Funds Regulation
02/03/2021
The European Securities and Markets Authority has written to the European Commission proposing a series of amendments to the European Long-Term Investment Funds Regulation. ESMA's letter comes in response to the Commission's consultation on the efficacy of the ELTIF Regulation, which was designed to increase long-term investments in the real economy (e.g. infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises). The consultation was launched in October 2020 and was designed to analyze why the ELTIF market has not developed to a large scale and how well it is contributing to the integration of European capital markets and smart, sustainable growth within the EU.
Read more.TOPIC : Funds -
EU Amends Rules to Address LIBOR Cessation and Extends Use of Third-Country Benchmarks to 2023
02/02/2021
The Council of the European Union has announced that it has adopted the final text of the regulation to address LIBOR cessation, which will amend the EU Benchmark Regulation. According to the Council, the amending Regulation will be published in the Official Journal of the European Union on February 12, 2021 and it will enter into force and apply from February 13, 2021.
The EU Benchmark Regulation 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.
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HM Treasury to Review Ring-Fencing and Proprietary Trading in UK Banks
02/02/2021
HM Treasury has published its terms of reference for a review of the operation of ring-fencing legislation and banks' proprietary trading activities in the U.K. The Treasury is required to conduct each review under the Financial Services (Banking Reform) Act 2013. The FS(BR)A introduced reforms based on recommendations made by the Independent Commission on Banking that was established in the wake of the 2008 financial crisis. The U.K. ring-fencing laws require U.K. banks which hold more than £25 billion in core deposits and banking groups whose members hold an average core deposit of more than £25 billion to separate their core retail banking business from their investment banking business. Restrictions limit the products that a ring-fenced bank can offer and where it can conduct business. Restrictions on proprietary trading (being the trading of financial instruments or commodities as principal by banks or investment firms) were introduced for ring-fenced retail banks and came into force in January 2019. The U.K. decided not to impose a complete ban on proprietary trading for all banks, as had been seen in other countries, such as the U.S. under the Volcker Rule. Among the purposes of this legislation is an attempt to limit taxpayer liability for bank bail-outs in future financial crises.
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European Commission Calls for Advice on Digital Finance from European Supervisory Authorities
02/02/2021
The European Commission has published a call for advice on digital finance and related issues from the three European Supervisory Authorities (the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority). The call for advice is in line with the Commission's 2020 digital finance strategy, which set out the Commission's intention to review existing financial services frameworks to protect consumers and the integrity of EU financial sectors.
Read more.TOPIC : FinTech -
EU Final Draft Standards on Information for Facilitating Cross-Border Distribution of Funds
02/01/2021
The European Securities and Markets Authority has published a final report and final draft Implementing Technical Standards setting out the forms, templates and procedures that national regulators should use to publish information on their websites to facilitate cross-border distribution of funds. The Regulation on facilitating cross-border distribution of funds aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. It was brought in at the same time amendments were made to the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive through an amending Directive. Member states are required to transpose the amending Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation applied directly across the EU from August 1, 2019, while the remaining provisions will apply from August 2, 2021.
The Regulation requires ESMA to draft Implementing Technical Standards on the standard forms, templates and procedures that national regulators should use to publish information on their websites that will facilitate the cross-border distribution of funds. The information must cover:- the national laws, regulations and provisions on marketing requirements for Alternative Investment Funds and UCITS; and
- the regulatory fees and charges applied by the national regulator for the activities of AIFMs, UCITS management companies and managers of European Venture Capital Fund and European social entrepreneurship funds.
The final draft ITS have been submitted to the European Commission for consideration.
View the final report and final draft ITS.TOPIC : Funds -
European Securities and Markets Authority Publishes Final Report on Proposed Fees for Benchmark Administrators
02/01/2021
The European Securities and Markets Authority has published its final report on proposed supervisory fees for EU benchmark administrators. In 2019, the EU Benchmarks Regulation was amended, granting ESMA new powers to act as competent authority for EU administrators of critical benchmarks and third-country benchmark administrators that have been recognized by ESMA from January 1, 2022. Before these amendments take effect, third-country benchmark administrators may seek recognition from a national regulator of an EU member state. Both the current and new provisions only apply in the absence of an equivalence decision for the relevant third-country where the benchmark administrator is located. The recognition allows EU supervised entities to use the benchmark, for example in financial contracts. The amendments require ESMA to charge fees to the administrators under its supervision. The European Commission tasked ESMA with producing technical standards on those fees.
Read more.TOPIC : Financial Market Infrastructure -
European Securities and Markets Authority Launches 2021 Common Supervisory Action on MiFID II Product Governance Rules
02/01/2021
The European Securities and Markets Authority has announced that during 2021 it will be conducting a common supervisory action with national competent authorities on the product governance rules under the Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients' best interests during all the stages of the life-cycle of products or services. The CSA will assess the progress of compliance with the requirements by manufacturers and distributors of financial products.
ESMA conducts CSAs to promote the convergence of application of EU rules across the EU. Following a CSA into the MiFID II appropriateness requirements, ESMA is considering introducing guidelines to promote further harmonization.
View ESMA's announcement.
View details of ESMA's proposed guidelines on appropriateness.TOPIC : MiFID II -
European Securities and Markets Authority Consults on Revised Fees for Credit Rating Agencies
01/29/2021
Following a request from the European Commission for technical advice on revising the rules on the calculation and payment of fees, the European Securities and Markets Authority has opened a consultation on proposed fees charged to credit rating agencies by it. Responses to the consultation may be submitted until March 15, 2021. ESMA is due to submit its final technical advice to the Commission by the end of June 2021.
The EU CRA Regulation provides that ESMA shall charge fees to CRAs to cover ESMA's costs relating to the registration, certification and supervision of CRAs. The different types of supervisory fees payable, the amount of fees payable, the modalities of payment and the reimbursement of fees to national competent authorities are set out in Commission Delegated Regulation 272/2012. ESMA is seeking feedback on its proposals, the key ones of which are to charge a single registration fee of €45,000 and annual supervisory fees of €20,000 to registered CRAs with annual revenues between €1 million and €10 million. In addition, ESMA is proposing an annual endorsement fee of €20,000 to all CRAs endorsing credit ratings for use in the EU and annual fees for all certified CRAs.
View ESMA's consultation paper.TOPIC : Credit Ratings -
Proposed EU Guidelines on MiFID II Appropriateness Requirements
01/29/2021
The European Securities and Markets Authority has opened a consultation on proposed guidelines on the appropriateness and execution-only requirements under the Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. Responses to the consultation may be submitted until April 29, 2021. ESMA is aiming to issue the final guidelines in Q3 2021.
ESMA is proposing these new guidelines to enhance convergence across the EU on the application of these requirements. The common supervisory action conducted in the second half of 2019, as well as other supervisory interactions, revealed that firms have different understandings of the appropriateness and execution-only requirements and that Member States apply them differently. The proposed guidelines will apply in full to all investment firms providing non-advised services, regardless of the means of interaction with clients.
View ESMA's consultation on proposed guidelines on the appropriateness and execution-only requirements under MiFID II.TOPIC : MiFID II -
EU Grants Equivalence to More US CCPs
01/28/2021
An EU equivalence decision for U.S. CCPs regulated by the U.S. Securities Exchange Commission that are "covered clearing agencies" under the SEC rules has been published in the Official Journal of the European Union. The decision paves the way for these U.S. CCPs to be recognized by the European Securities and Markets Authority upon which they will be able to provide clearing services to EU trading venues and businesses. Relevant U.S. CCPs that potentially would be covered by this designation but which were not previously granted equivalence include the Fixed Income Clearing Corporation, National Securities Clearing Corporation, The Depository Trust Company and The Options Clearing Corporation. ICE Clear Credit LLC also registered with the SEC, however, this CCP already benefits from EU equivalence as it falls within the previous EU equivalence decision for U.S. CCPs regulated by the Commodity Futures Trading Commission. ICE Clear Europe, which was an EU CCP until Brexit, is also recognized under the EU's temporary equivalence for U.K. CCPs. LCH SA is also registered with the SEC, but is an EU CCP and so the equivalence regime is not applicable to it.
Read more. -
UK Regulator Proposes Amendments to UK Technical Standards on Secure Customer Authentication
01/28/2021
The U.K. Financial Conduct Authority has launched a consultation on proposed changes to the U.K. Regulatory Technical Standards on secure customer authentication and common and secure methods of communication and on proposed payments-related amendments to the Perimeter Guidance Manual and the FCA Payment Services and Electronic Money Approach Document. The proposals are relevant for payment service providers, e-money issuers, payment institutions, e-money institutions and registered account information service providers (AISPs). Responses to the consultation may be submitted until February 24, 2021, for issues relevant to contactless payments, and until April 30, 2021 for the remaining proposals.
Read more.TOPIC : Payment Services -
EU Delays Securities Settlement Discipline Regime to February 2022
01/27/2021
EU Regulatory Technical Standards postponing the implementation deadline of the settlement discipline regime under the Central Securities Depositories Regulation have been published in the Official Journal of the European Union. The RTS delay the application date of the settlement discipline rules from February 1, 2021 to February 1, 2022, by amending the existing RTS (Commission Delegated Regulation (EU) 2018/1229). The settlement regime was originally due to apply from September 13, 2020. However, that date was changed to February 1, 2021, amid calls from industry associations and other stakeholders to delay the application date so that systems, procedures and measures could be put in place. The latest delay arises from the impact of the COVID-19 pandemic on the financial services industry. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process.
View the amending Delegated Regulation. -
Basel Committee on Banking Supervision Consults on Technical Amendments to Rules on Haircuts for Securities Financing Transactions
01/26/2021
The Basel Committee on Banking Supervision has launched a consultation on two proposed technical amendments to the Basel II Framework rules on minimum haircut floors for securities financing transactions. The proposals aim to address an interpretative issue relating to collateral upgrade transactions and correct a misstatement of the formula used to calculate haircut floors for netting sets of SFTs. Responses to the consultation may be submitted until March 31, 2021.
View the consultation paper.
View details of the FSB's delay to the framework for minimum haircuts for uncleared SFTs. -
HM Treasury Launches Consultation on UK Funds Regime
01/26/2021
HM Treasury has launched a consultation on a series of proposed reforms to the U.K.'s funds regime, as part of the U.K. Government's plans to make the U.K. a more attractive location for asset management. Responses to the consultation should be submitted by April 20, 2021.
Read more.TOPIC : Funds -
EU CCP Recovery and Resolution Regulation Published
01/22/2021
The EU Regulation on the recovery and resolution of CCPs has been published in the Official Journal of the European Union. The Regulation sets out the rules and procedures for the recovery and resolution of EU CCPs authorized under the European Market Infrastructure Regulation. The aim of the Regulation is the establishment of a framework for the orderly recovery of a CCP through implementation of recovery plans. A CCP's recovery plan will form part of its operational rules, which are agreed with its clearing members. A CCP's operating rules must also ensure the enforceability of the recovery measures outlined in the recovery plan, including to contracts or assets governed by the law of a third country or to third-country entities.
If the recovery measures do not restore the CCP's viability, the CCP's resolution authority will have the power to take action to ensure the continuity of the CCP's critical functions and, if needed, resolve the CCP. This includes setting up bridge CCPs. In the event of losses arising under a resolution, these will be borne by a CCP's owners, creditors and counterparties in line with the hierarchy of claims in insolvency. The CCP recovery and resolution framework would apply to all CCPs established in the EU. It is not proposed that the recovery and resolution framework would apply to the wider group of a CCP.
Read more. -
EU Consults on Potential Equivalence for Six Countries For Non-Centrally Cleared OTC Derivatives Risk Mitigation
01/20/2021
The European Commission has published for consultation draft equivalence decisions for six countries relating to the risk mitigation requirements for non-centrally cleared OTC derivatives under the European Market Infrastructure Regulation. EMIR requires counterparties to non-centrally cleared 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. To date, only the U.S. and Japan benefit from such decisions, both limited in scope. Each of the draft decisions for each country are detailed further below.
Read more.TOPIC : Derivatives -
EU Authority Issues Statement on Reverse Solicitation under MiFID II
01/13/2021
The European Securities and Markets Authority has issued a statement reminding firms of the rules on reverse solicitation under the Markets in Financial Instruments Directive and Regulation. MiFID II provides that EU retail or professional clients may reach outside the EU and acquire services and products from non-EU investment banks (known as "reverse solicitation") and that in these circumstances the third-country firm is exempt from the requirement to establish an EU branch. ESMA has issued the statement following what it describes as "questionable practices" materializing following the end of the Brexit transition period, where firms have purported to opt clients into "reverse solicitation" through either generic terms and conditions amendments or click-through "I agree" boxes online. It is clear from this guidance that ESMA's view is that more is needed than this to invoke the reverse solicitation regime. Notably, the ESMA report does not criticise more robust reverse solicitation protocols that are currently being seen in the market, such as a termination notice by the U.K. service provider of the existing agreement, sometimes with a covering note that the client could at its initiative reach out afresh to request entry into of a new agreement should it so desire.
View ESMA's statement on reverse solicitation.
You may like to view our client note, "On the Existence of a Pan-European Reverse Solicitation Regime Under MiFID II, and its Importance on a 'Hard' Brexit". -
UK Grants Equivalence to Swiss Exchanges for Purpose of UK Share Trading Obligation
01/13/2021
U.K. legislation has been made granting equivalence to Swiss exchanges under the U.K.'s Markets in Financial Instruments Regulation. The Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which enter into force on February 3, 2021, grant equivalence to two Swiss exchanges - BX Swiss AG and SIX Swiss Exchange AG. U.K. MiFIR requires U.K. investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue. U.K. investment firms will be able to comply with the U.K. MiFIR share trading obligation by trading shares on these Swiss exchanges.
Read more. -
UK Prudential Regulator Consults on its Approach to Supervising International Banks
01/11/2021
The U.K. Prudential Regulation Authority has launched a consultation on its proposed approach to supervising international banks. The proposals cover the U.K. activities of PRA-authorized banks and designated investment firms that are headquartered outside of the U.K. or are part of a group based outside of the U.K., including those firms operating in the U.K. through a branch. Responses to the consultation may be submitted until April 11, 2021. Implementation of the final policy is expected to occur in Q2 2021, except for those EEA firms that are in the Temporary Permissions Regime which are expected to meet the expectations "as soon as reasonably practicable" and at least by the time the firm is authorized and exits the TPR.
Read more. -
UK Government Proposes Extending Regulatory Perimeter to Capture Stablecoins
01/07/2021
HM Treasury has opened a consultation on the proposed U.K. approach to crypto-assets and stablecoins, in particular a proposal to bring stablecoins into the U.K. regulatory perimeter. Responses to the consultation may be submitted until March 21, 2021. The government will consider the responses to the consultation and publish a response with further details on how the approach would be implemented in law. If the policy approach is followed, the regulators would consult further on rules for firms.
Read more. -
UK Prudential Regulator Publishes Final Rules on Implementation of CRD V
12/28/2020
The U.K. Prudential Regulation Authority has published its final Policy Statement setting out the final rules for implementing CRD V in the U.K. The Policy Statement confirms the final rules set out in the PRA's near-final Policy Statement, published on December 9, 2020. The Policy Statement also confirms the PRA's proposed approach to enforcing compliance with consolidated prudential requirements for U.K. banking consolidation groups, as proposed in the PRA's consultation paper published on December 9, 2020. The Supervisory Statements and Statements of Policy attached to the Policy Statement should be read together with the PRA's Supervisory Statement, "Non-binding PRA materials: The PRA's approach after the UK's withdrawal from the EU", for guidance on how to interpret the materials after the end of the transition period.
Read more. -
Final Draft EU Technical Standards on Conditions of Impracticability of Bail-in Clauses
12/23/2020
The European Banking Authority has published a final report and final draft Regulatory Technical Standards and Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e., bail-in) under the EU Bank Recovery and Resolution Directive. BRRD requires certain firms to include contractual recognition of bail-in in their contractual agreements covering particular liabilities which are governed by the law of a third country. This is now a more significant issue than previously, given the prevalence of English law contractual documentation in European financial markets, including following Brexit. A new exemption to the contractual bail-in requirement was introduced under BRRD 2 (which EU member states must apply through national laws from December 28, 2020) where firms consider that it is legally or otherwise impracticable to include the contractual recognition. Liabilities subject to this waiver cannot count towards MREL, must be senior to unsecured claims arising from certain debt instruments and firms intending to take advantage of the exemption should notify their resolution authority.
Read more.TOPIC : Recovery & Resolution -
International Report on Educating Retail Investors about Crypto-Assets
12/22/2020
The International Organization of Securities Commissions has published a report on how regulators can inform retail investors about the risks and characteristics of crypto-assets. The report sets out the potential risks to retail investors, such as lack of market liquidity, volatility, partial or total loss of the invested amount, insufficient information disclosure and fraud. It then goes on to provide guidance on how regulators can develop educational content on crypto-assets and inform the public about unauthorized firms, the various communication channels available to inform the public and how partnerships might be forged to develop and distribute educational content.
View IOSCO's report on investor education of crypto-assets. -
UK Financial Conduct Authority Publishes Policy Statement on Climate-Related Disclosures by Listed Issuers
12/21/2020
The U.K. Financial Conduct Authority has published a policy statement introducing a new rule and guidance on climate-related disclosures for commercial companies with a U.K. premium listing.
The new rule, which will apply for accounting periods beginning on or after January 1, 2021, will require premium-listed commercial companies to state in their annual reports whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures and, if they have not done so, explain why that is the case. The first financial reports containing these disclosures are expected to be published in Spring 2022.
Read more. -
European Securities and Markets Authority Publishes Guidelines on Reporting Securities Financing Transactions
12/21/2020
The European Securities and Markets Authority has published guidelines on the reporting obligations under the EU Securities Financing Transactions Regulation. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The reporting obligation applies from January 11, 2021 for Non-Financial Counterparties. It has applied since July 13, 2020 for banks and investment firms (delayed from April 13, 2020 due to COVID-19), CCPs and central securities depositories and from October 12, 2020 for other Financial Counterparties.
The guidelines will apply to counterparties to SFTs, trade repositories and relevant EU financial regulators from the day after publication or the day from which the relevant obligation applies.
The guidelines cover:- the reporting start date when it falls on a non-working day;
- the number of reportable SFTs;
- the population of reporting fields for different types of SFTs, for margin data and for reuse, reinvestment and funding sources data;
- the approach used to link SFT collateral with SFT loans;
- the generation of feedback by trade repositories and its subsequent management by counterparties, in the case of rejection of reported data and reconciliation breaks; and
- the provision of access to data to authorities by trade repositories.
View the guidelines on reporting under SFTR.
View details of the delays to SFTR reporting due to COVID-19.TOPIC : Securities -
Bank of England Publishes Discussion Paper on its Approach to Setting MREL
12/18/2020
The Bank of England has published a Discussion Paper on its approach to setting the minimum requirement for own funds and eligible liabilities for relevant U.K. financial institutions. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution. The requirement applies to all U.K. banks, building societies and certain investment firms supervised by the U.K. Prudential Regulation Authority or Financial Conduct Authority, to financial or mixed financial holding parent companies of those firms, and to PRA or FCA-authorized financial institutions that are subsidiaries of those firms or parent companies. The U.K. first implemented interim MREL requirements (which were lower than the full, “end-state” MREL requirements) in 2016 in line with the EU’s Bank Recovery and Resolution Directive. The U.K.’s MREL policy was updated in 2018 and in June 2018 the BoE announced that it would review MREL calibration before final “end-state” MRELs were set. The Discussion Paper forms the first part of the BoE’s review.
Read more.TOPIC : Recovery & Resolution -
Bank of England Extends MREL and Resolvability Deadlines for Mid-Tier Banks
12/18/2020
The Bank of England has extended until January 1, 2023 the deadlines for “mid-tier” banks to comply with: (i) end-state minimum requirements for own funds and eligible liabilities; and (ii) resolvability assessment framework requirements. “Mid-tier” banks are those that do not qualify as global systemically important banks (as identified by the Financial Stability Board) or domestic systemically important banks (i.e. those that are subject to the U.K. Prudential Regulation Authority’s leverage ratio requirement or are designated as other systemically important institutions by the PRA and have a resolution entity in the U.K.). The term also includes U.K. material subsidiaries of such firms and certain U.K. subsidiaries of overseas groups for which the BoE has set internal MREL in excess of minimum capital requirements.
Read more.TOPIC : Recovery & Resolution -
European Securities and Markets Authority Renews Notification Requirement for Net Short Positions at or Exceeding 0.1%
12/17/2020
The European Securities and Markets Authority has renewed its decision requiring holders of net short positions in shares traded on an EU-regulated market to notify national regulators if the position reaches or exceeds 0.1% of issued share capital. ESMA originally introduced the requirement on March 16, 2020 for a period of three months and has extended it twice since then. This latest extension will apply the requirements from December 19, 2020 until March 19, 2021. The temporary transparency obligations are a response to perceived threats to market integrity arising from the COVID-19 pandemic. They apply to any natural or legal person, irrespective of their country of residence, but do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making activities, or stabilization activities.
The European Free Trade Association's Surveillance Authority published a decision on the same day renewing its decision imposing the same transparency obligations for shares admitted to trading on an EEA regulated market. The renewed requirements also apply from December 19, 2020 until March 19, 2021.
View ESMA's decision.
View the EFTA decision. -
HM Treasury Consults on Draft Rules for Insolvency Regime for Payment and Electronic Money Institutions
12/17/2020
HM Treasury has published a supplementary annex to its consultation on the U.K. Government's proposed Special Administration Regime for payment institutions and electronic money institutions. The SAR would address shortcomings of the existing insolvency regime for PIs and EMIs and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs.
Read more. -
European Commission Publishes New EU Cybersecurity Strategy
12/16/2020
The European Commission and High Representative of the Union for Foreign Affairs and Security Policy have published details of a new EU Cybersecurity strategy, which aims to enhance the EU's resilience to cyber threats and build a cybersecure digital transformation. The overall strategy is set out in a Communication, which is accompanied by two legislative proposals. The first legislative proposal is for a new EU Directive on the resilience of critical entities (the proposed CER Directive), which will enhance and repeal the existing 2008 European Critical Infrastructure Directive (Council Directive 2008/114/EC). The second proposal is for a new Directive on cybersecurity across the EU (NIS2), which would augment and repeal the existing NIS Directive (Directive (EU) 2016/1148). The Commission consulted earlier this year on proposals for each of these legislative proposals.
Read more. -
UK Financial Conduct Authority Establishes Temporary AML Registration Regime for Crypto-Asset Businesses
12/16/2020
The U.K. Financial Conduct Authority has established a temporary registration regime for crypto-asset businesses that were operating in the U.K. prior to January 10, 2020. The regime will allow crypto-asset firms to continue providing services in the U.K., notwithstanding that they have not yet been registered with the FCA.
Read more. -
UK Government Seeks Input on UK Framework for Cross-Border Financial Services
12/15/2020
HM Treasury has launched a call for evidence on the U.K.'s framework for cross-border financial services. HM Treasury is considering policy approaches for ensuring the U.K. framework is fit for the future given the U.K.'s exit from the EU, including consideration of how effective and proportionate regulation can support attracting investment and liquidity to the U.K. Responses to the consultation may be submitted until March 11, 2021.
Read more. -
UK Regulator Publishes Proposals for New Investment Firm Prudential Regime
12/14/2020
Following the discussion paper published earlier this year, the U.K. Financial Conduct Authority has launched its first consultation on the new U.K. Investment Firms Prudential Regime. The IFPR is a new prudential regime for U.K. firms authorized under the Markets in Financial Instruments Directive, which it is proposed will be introduced from January 1, 2022, subject to the progress of the Financial Services Bill. The IFPR is intended to simplify the prudential requirements applicable to solo-regulated U.K. investment firms. It will not apply to the larger investment firms that will remain dually regulated, that is, prudentially regulated by the Prudential Regulation Authority and regulated by the FCA for all other aspects. The consultation closes on February 5, 2021.
Read more. -
UK Central Securities Depository Granted Temporary Recognition by the European Securities and Markets Authority
12/11/2020
The European Securities and Markets Authority has announced that Euroclear UK & Ireland Limited, a central securities depository established in the U.K., will be granted recognition under the EU CSD Regulation. The recognition will allow Euroclear UK & Ireland Limited to continue to provide certain services to EU customers after the end of the Brexit transitional period until at least June 30, 2021. ESMA's recognition decision follows the November 2020 temporary equivalence decision granted to U.K. CSDs.
View ESMA's announcement.
View details of the EU's equivalence decision for U.K. CSDs. -
UK Conduct Regulator Makes Permanent Ban on Marketing Speculative Illiquid Securities to Retail Investors
12/10/2020
The U.K. Financial Conduct Authority has made permanent its temporary ban on the marketing of speculative illiquid securities to retail investors. A temporary product intervention measure was introduced on January 1, 2020 for a period of one year while the FCA consulted on making the ban permanent. The measure restricted the mass-marketing of non-transferable bonds (sometimes colloquially termed "mini-bonds") and preference shares to retail investors and required improved disclosure to be made to high-net-worth and sophisticated investors.
Read more. -
UK Prudential Regulator Publishes Policy Statement and Near-Final Rules on Implementation of CRD V
12/09/2020
The U.K. Prudential Regulation Authority has published a policy statement setting out responses to its consultations on the U.K. implementation of CRD V, as well as its near-final policy material. The final rule instruments will be published in time for the December 28, 2020 deadline for implementation of CRD V. The policy statement is relevant to U.K. banks, building societies, PRA-designated investment firms and U.K. financial holding companies and mixed financial holding companies.
Read more. -
UK Prudential Regulator Consults on Banking Consolidation Group Prudential Compliance During Brexit Transition Period
12/09/2020
The U.K. Prudential Regulation Authority has launched a consultation on which bank entities should be responsible for ensuring compliance with consolidated prudential requirements for U.K. banking consolidation groups for a transitional period between December 28, 2020 and the date on which the relevant group's parent holding company is approved or declared exempt from the requirements under the PRA's approval regime.
Read more. -
European Commission Consults on Central Securities Depositories Regulation
12/08/2020
The European Commission has launched a consultation on proposals to improve securities settlement in the EU and on central securities depositories. The EU Central Securities Depositaries Regulation provides a harmonized regulatory and prudential regime for CSDs and increases the robustness and resilience of securities settlement arrangements. There is a single market for CSD services across the EU and a third-country equivalence regime for CSDs. Responses to the consultation can be submitted until February 2, 2021.
Read more. -
EU Authorities Warn of Potential Loss of Preferential Capital Treatment for STS Securitizations
12/07/2020
The European Supervisory Authorities have issued a press release warning of the change in the status of "simple, transparent and standardized" securitization transactions at the end of the Brexit transition period on December 31, 2020. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related amendments to the EU Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations. For a securitization to qualify as an STS securitization, the EU Securitization Regulation requires the originator, sponsor and securitization special purpose entity to be established in the EU. The ESA's announcement highlights that securitizations that currently meet the STS criteria may not do so from January 1, 2021, if one or more of the originator, sponsor or SSPE are established in the U.K. The loss of STS status will mean that the EU CRR preferential capital treatment is no longer available.
The European Securities and Markets Authority will be working with EU national regulators to ensure that its database of STS securitizations is up to date as at January 1, 2021.
View the ESA's press release. -
HM Treasury Consults on Insolvency Changes for Payment and Electronic Money Institutions
12/03/2020
HM Treasury has launched a consultation on the U.K. Government's proposed Special Administration Regime for payment institutions and electronic money institutions that fall within the scope of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The SAR would address shortcomings of the existing insolvency regime for PIs and EMIs and would apply alongside Part 24 of the Financial Services and Markets Act 2000, which would also be extended to apply in full to PIs and EMIs. Responses to the consultation should be submitted by January 14, 2021.
Read more. -
European Central Bank Consults on Changes to Systemically Important Payment Systems Regulation
11/27/2020
The European Central Bank is consulting on revisions to the Regulation on oversight requirements for systemically important payment systems (known as the SIPS Regulation). The SIPS Regulation applies to systemically important large-value and retail payment systems. The Regulation is designed to improve the safety and efficiency of those payment systems.
Read more.TOPIC : Payment Services -
EU Grants Temporary Equivalence for UK Central Securities Depositories
11/26/2020
An EU equivalence decision has been published in the Official Journal of the European Union granting temporary equivalence for U.K. central securities depositories from the end of the Brexit transitional period (on December 31, 2020). The equivalence decision applies to CSDs already established in the U.K. and will apply from January 1, 2021 until June 30, 2021.
View the EU equivalence decision for U.K. CSDs. -
EU Markets Authority Confirms Position on Derivatives Trading Obligation Post-Brexit
11/25/2020
The European Securities and Markets Authority has confirmed its position, originally proposed in March 2019, that the derivatives trading obligation under the EU Markets in Financial Instruments Regulation will continue to apply without changes, and as things stand without any U.K. equivalency, after the end of the Brexit transition period on December 31, 2020.
The derivatives trading obligation requires EU investment firms to conclude transactions in certain derivatives on EU regulated markets, multilateral trading facilities, organized trading facilities or third-country venues in jurisdictions benefiting from an EU equivalence decision. The trading obligation applies to certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP and to certain index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover).
Read more. -
Financial Stability Board Report on Impact of Climate Change on Financial Stability
11/23/2020
The Financial Stability Board has published a report on the Implications of Climate Change for Financial Stability. The report breaks climate-related financial stability risks down into three key categories: (i) physical risks (i.e., risks of economic losses caused by natural catastrophes); (ii) transition risks (i.e., risks arising from the process of adjusting to a low carbon economy); and (iii) liability risks (i.e., risks arising from parties being held liable for losses caused by environmental damage).
Read more. -
European Central Bank Consults on EURIBOR Fallbacks
11/23/2020
The European Central Bank has published two consultation papers on fallback trigger events and fallback rates for EURIBOR. Responses to the consultations should be submitted by January 15, 2021.
Read more.TOPIC : LIBOR Transition -
Revised Final Draft EU Technical Standards Published for Derivatives Margin and Clearing Obligations
11/23/2020
The European Supervisory Authorities have published final draft amending Regulatory Technical Standards on the application of EU bilateral margining requirements and the clearing obligation under the European Market Infrastructure Regulation in light of Brexit. The draft RTS are set out in two separate reports – one published jointly by the ESAs (covering the bilateral margining requirements for uncleared derivatives), the other published by the European Securities and Markets Authority (covering the clearing obligation for certain derivatives).
Read more. -
Financial Stability Board 2020 Progress Report on Benchmark Reform
11/20/2020
The Financial Stability Board has published a 2020 progress report on Reforming Major Interest Rate Benchmarks.
Read more.TOPIC : LIBOR Transition -
UK Benchmark Regulator Consults on Exercise of New Powers under the Financial Services Bill
11/18/2020
The U.K. Financial Conduct Authority has launched a consultation on its proposed policy for exercising the new benchmark powers that are being introduced into U.K. law under the Financial Services Bill. Among other things, the Financial Services Bill includes potential enhanced powers for the FCA to wind-down a critical benchmark and deal with tough legacy contracts. The increased powers are being introduced in response to concerns and uncertainty about the transition from LIBOR to risk free rates by the end of 2021. Responses to the consultations may be submitted until January 18, 2021.
Read more.TOPIC : LIBOR Transition -
Financial Stability Board Issues Final Guidance on Financial Resources for CCP Resolution
11/16/2020
The Financial Stability Board has issued a final report and guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution. The FSB consulted on the guidance in 2018, stating that, in its view, further evidenced-based guidance was needed to develop the guidance, such as the practical experience of resolution planning that resolution authorities and Crisis Management Groups have gained.
Read more. -
HM Treasury and U.K. Regulators Publish Statement on Implementation Date for Prudential Reforms for UK Investment Firms
11/16/2020
HM Treasury has issued a joint statement with the U.K. Financial Conduct Authority and the Prudential Regulation Authority confirming a targeted implementation date of January 1, 2022 for the reforms to the prudential regulation of U.K. investment firms set out in the U.K. Financial Services Bill.
Read more.TOPIC : Brexit for Financial Services -
EU Authority Updates Statements on Reporting Obligations Post-Brexit Transitional Period
11/10/2020
The European Securities and Markets Authority has published updated statements regarding the end of the Brexit transition period on December 31, 2020.
Read more. -
UK Grants Equivalence to EEA CCPs
11/10/2020
The U.K. Central Counterparties (Equivalence) Regulations 2020 (SI No. 2020/1244) have been made, granting equivalence for EEA CCPs from 10:59 pm on December 31, 2020. The decision will enable U.K. businesses and trading venues to continue using the clearing services of EEA CCPs under the U.K. European Market Infrastructure Regulation after the end of the Temporary Recognition Regime, provided that the Bank of England grants the individual CCP concerned recognition status.
The EU has granted temporary equivalence for U.K. CCPs, which is set to expire in June 2022.
View the Central Counterparties (Equivalence) Regulations 2020, SI No. 2020/1244.
View details of the temporary equivalence decision for U.K. CCPs. -
European Commission Publishes Roadmap for EU Bank Crisis Management and Deposit Insurance Framework
11/10/2020
The European Commission has published a roadmap for its proposed review of the EU's crisis management and deposit insurance framework. The framework consists of the EU Bank Recovery and Resolution Directive, the EU Single Resolution Mechanism Regulation and the EU Deposit Guarantee Scheme Directive. It was introduced in the aftermath of the financial crisis and has applied across the EU since 2015 (in the case of BRRD and DGSD) and 2016 (in the case of SRMR).
Read more.TOPIC : Recovery & Resolution -
Final Draft EU Technical Standards for SME Growth Markets Under Market Abuse Regulation
11/05/2020
The European Securities and Markets Authority has published its final report and final draft Technical Standards on the amendments to the Market Abuse Regulation for the promotion of SME Growth Markets. SME Growth Markets were a new sub-category of multilateral trading facility introduced by the revised Markets in Financial Instruments package in January 2018 to facilitate access to capital for SMEs. ESMA is mandated to prepare: (i) Regulatory Technical Standards on liquidity contracts; and (ii) Implementing Technical Standards on insider lists and to submit those to the European Commission by September 1, 2020. Due to the impact of the COVID-19 pandemic, the delivery of the final draft RTS and ITS have been delayed and ESMA acknowledges that it is unlikely that they will be adopted in time for the application of the amendments to MAR, which is January 1, 2021. The final report outlines ESMA's proposals and provides the final draft RTS and ITS that ESMA has submitted to the European Commission for consideration.
Read more. -
European Securities and Markets Authority Reports on Implementation of EU Central Securities Depositaries Regulation
11/05/2020
The European Securities and Markets Authority has published two reports relevant to the EU Central Securities Depositaries Regulation. The CSDR provides a harmonized regulatory and prudential regime for CSDs and increases the robustness and resilience of securities settlement arrangements. There is a single market for CSD services across the EU and a third-country equivalence regime for CSDs. ESMA's reports, which will be considered as part of the upcoming review of CSDR by the European Commission, are on the following:
- Internalized settlement, which is the regime for settlement other than through an EU CSD. In the report, ESMA notes that no significant risks have been identified. National EU regulators have identified that operational risk and custody risk are evident, in response to which, ESMA recommends improved operational processes and enhanced identification of client accounts. According to ESMA, the issues involved in the internalized settlement reporting regime are normal in terms of any new reporting requirements. Noting the limited time period that the data covers, ESMA highlights that continued monitoring of the regime is important to assess whether the area warrants regulation. ESMA considers that custodian clients should at least be informed of the risks and costs of the place of settlement.
- Cross-border services and handling of applications. ESMA found that CSDR has had a limited impact on the provision of cross-border services in the EU by EU CSDs. ESMA states that future reports will need access to more detailed information and that they should consider whether most of the activity remains with global custodians as well as the impact of CSDR on costs and competition.
View ESMA's reports. -
Task Force on Climate-Related Financial Disclosures Publishes 2020 Status Report and Guidance
10/29/2020
The Financial Stability Board's Task Force on Climate-Related Financial Disclosures has published its 2020 Status Report, describing progress in the global adoption of the TCFD's recommendations.
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Global Financial Innovation Network Invites Applications for First Cross-Border Testing
10/29/2020
The U.K. Financial Conduct Authority has announced that it will be one of the 23 regulators participating in the cross-border testing initiative launched by the Global Financial Innovation Network. The other regulators involved are Abu Dhabi Global Market (ADGM), Australian Securities & Investments Commission (ASIC), Alberta Securities Commission (ASC), Astana Financial Services Authority (AFSA), Autorité des marchés financiers (AMF), Bank of Lithuania (LB), Bermuda Monetary Authority (BMA), British Columbia Securities Commission (BCSC), Capital Markets Authority (CMA, Kenya), Central Bank of Bahrain (CBB), Central Bank of United Arab Emirates (CB UAE), Consumer Financial Protection Bureau (CFPB), Ontario Securities Commission (OSC), Dubai Financial Services Authority (DFSA), Financial Services Commission Taiwan (FSC Taiwan), Guernsey Financial Services Commission (GFSC), Hong Kong Insurance Authority (HKIA), Hong Kong Monetary Authority (HKMA), Hong Kong Securities and Futures Commission (HKSFC), Jersey Financial Services Commission (JFSC), Magyar Nemzeti Bank (Central Bank of Hungary), Monetary Authority of Singapore (MAS).
The GFIN was launched at the start of 2019 and is a network of organizations committed to supporting financial innovation in the interests of consumers. One of GFIN's priorities is facilitating cross-border trials of emerging technologies across global jurisdictions (a global sandbox). GFIN has opened applications from firms to test innovative financial products, services or business models across more than one country or jurisdiction, and applications should be submitted by December 31, 2020.
View the GFIN cross-border testing site.
View the FCA's announcement.TOPIC : FinTech -
UK Conduct Regulator Extends Certification and Conduct Rules Implementation Deadlines
10/28/2020
Following its consultation earlier this year, the U.K. Financial Conduct Authority has published its final policy statement and rules to extend certain implementation deadlines for the Certification Regime and Conduct Rules. To assist firms impacted by the COVID-19 pandemic, the U.K. has made legislation—The Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) (Amendment) Regulations 2020— extending the deadline for completion of firms' first assessments of the fitness and propriety of their Certified Persons from December 9, 2020, to March 31, 2021. This applies only to solo-regulated firms (other than benchmark administrators).
In addition to extending that date, the FCA has also extended the following deadlines from December 9, 2020, to March 31, 2021:- the date the Conduct Rules come into force for staff that are not Senior Managers, Certification Staff or board directors;
- the date by which relevant employees must receive training on the Conduct Rules; and
- the deadline for submission of information about Directory Persons to the FS Register.
The FCA has reiterated that firms that are able to certify staff and submit information for the FS Register before March 31, 2021, should do so.
View the FCA's policy statement and amended rules. -
EU Moves to Ease Brexit Implications for Post-Trade Transparency and Position Limits Regime
10/27/2020
Following its statement at the start of October 2020, the European Securities and Markets Authority has announced that U.K. trading venues have been positively assessed for the purposes of the post-trade transparency obligations and position limits regime under the Markets in Financial Instruments package. From January 1, 2021, EU investment firms will not be required to make transactions public in the EU via an EU Approved Publication Arrangement if they are executed on a U.K. trading venue that appears on ESMA's transparency list. In addition, commodity derivative contracts traded on U.K. trading venues that are on ESMA's position limits list will not be considered as economically equivalent OTC contracts and will thus not be subject to the EU position limit regime.
View ESMA's announcements and lists.
View details of ESMA's earlier statement in October.
View details of the FCA's statement on the U.K.'s position. -
EU Publishes Further Statement on Endorsement by EU Credit Rating Agencies of UK Ratings After the Brexit Transition Period
10/27/2020
The European Securities and Markets Authority has published a further statement confirming that U.K. credit ratings can be endorsed by EU credit rating agencies from January 1, 2021, when the Brexit transition period ends. The EU CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may use credit ratings only 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. There is currently no equivalence decision for the U.K. CRA regime. Therefore, EU entities may use U.K. credit ratings only for regulatory purposes if the rating has been endorsed by an EU CRA. ESMA confirmed in March 2019 a positive assessment of the U.K.'s CRA regime for the purposes of endorsement. However, the final decision to endorse is for an EU CRA.
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EU Markets Authority Updates Post-Brexit Position on EU Share Trading Obligation
10/26/2020
The European Securities and Markets Authority has published an updated statement on the impact of Brexit on the trading obligation for shares where no decision on the U.K.'s equivalence as a third country market has been made. The EU Markets in Financial Instruments Regulation requires investment firms to conclude transactions in shares admitted to trading on a regulated market or traded on an EU trading venue, i.e., namely regulated markets, multilateral trading facilities, systematic internalisers and equivalent third-country trading venues. The U.K. has adopted this requirement in its onshored MiFID II legislation. Similarly, following its exit from the EU, the new U.K. onshored share trading obligation would restrict the trading of shares in the U.K. to trades on U.K. trading venues unless a third-country equivalence decision was made.
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ISDA Launches IBOR Fallbacks Protocol
10/23/2020
The Internationals Swaps and Derivatives Association has launched its IBOR Fallbacks Supplement to the 2006 ISDA Definitions and 2020 IBOR Fallbacks Protocol. Both will become effective on January 25, 2021. The fallbacks provide alternative risk free rates to be used in place of discontinued or non-representative IBORs referenced in derivative contracts.
Read more.TOPIC : LIBOR Transition -
Financial Action Task Force Updates Guidance for Proliferation Financing Risks
10/23/2020
Following its consultation earlier this year, the Financial Action Task Force has finalized amendments to Recommendation 1 and its Interpretive Note. Recommendation 1 provides guidance on assessing risks and applying a risk-based approach to money laundering and terrorist financing risks. The FATF has updated the Recommendation to require countries and the private sector to identify and assess risks of potential breaches, non-implementation or evasion of the targeted financial sanctions obligations referred to in Recommendation 7 linked to proliferation financing risks.
View the FATF's statement.
View the updated FATF Recommendations. -
ISDA Publishes Papers on Legal Issues for Smart Contracts and Distributed Ledger Technology
10/21/2020
The International Swaps and Derivatives Association, in conjunction with certain law firms, has published a series of papers analyzing key legal issues for smart contracts and distributed ledger technology across four jurisdictions: France, Ireland, Japan and New York. These are in addition to the papers covering England and Wales and Singapore, which ISDA published in January 2020.
Read more.TOPIC : FinTech -
UK Parliament Publishes Financial Services Bill for Post-Brexit Regulatory Framework
10/21/2020
The U.K. Government has published a Financial Services Bill setting out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The Bill is part of the U.K.'s wider initiative under the Future Regulatory Framework Review to re-frame its regulatory framework. Although Brexit has brought challenges to the financial sector, there may also be post-Brexit opportunities for the U.K. to seize. The aim of these reforms is to cement the U.K.'s position as a global financial centre of excellence. A core piece of that will be to set conditions that continue attracting business to the U.K. and to look for opportunities to cut "red tape" whilst at the same time maintaining the U.K.'s globally recognized high regulatory standards.
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UK Prudential Regulator Issues Further Consultation on Implementation of CRD V and CRR II
10/20/2020
The U.K. Prudential Regulation Authority has published a further consultation on its proposed implementation of the fifth Capital Requirements Directive. CRD V came into force in July 2019. EU Member States are required to implement the majority of CRD V provisions by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K. is obliged to transpose those provisions of CRD V that are applicable befor the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement.
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European Commission Launches Consultation on European Long-Term Investment Funds Regulation
10/19/2020
The European Commission has launched a public consultation on possible improvements to the European Long-Term Investment Funds Regulation. The ELTIF Regulation has applied across the EU since December 2015 and is designed to encourage investment in long-term projects in the real economy, such as infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises. However, only a small number of ELTIFs have been launched since the Regulation was introduced. In addition, in its 2020 report, the High Level Forum on the Capital Markets Union recommended that the ELTIF Regulation be reviewed in order to broaden the scope of eligible assets and reduce potential barriers to investment.
Read more.TOPIC : Funds -
HM Treasury Consults on Phase II of UK's Financial Services Future Regulation Framework Review
10/19/2020
HM Treasury has launched a consultation on Phase II of the U.K.'s Financial Services Future Regulatory Framework Review. Phase II focuses on how the U.K.'s financial services regulatory framework must be adapted to be fit for the future given the U.K.'s exit from the EU. The first part of Phase II, to which this consultation relates, seeks to establish a blueprint for financial services regulation. Responses to the consultation should be submitted by February 19, 2021. The second part of Phase II will constitute a final package of proposals and will be consulted on later in 2021.
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Financial Stability Board Publishes Global Transition Roadmap for LIBOR
10/16/2020
The Financial Stability Board has published a roadmap setting out a target timeline for firm's transition away from LIBOR benchmarks. The roadmap is aimed at financial and non-financial firms to ensure a successful transition away from LIBOR by the end of 2021.
Read more.TOPIC : LIBOR Transition -
HM Treasury Publishes Results of Consultation on CRD V Implementation
10/15/2020
HM Treasury has published a summary of the responses to its consultation on the U.K.'s implementation of the fifth Capital Requirements Directive, together with HM Treasury's proposed next steps. CRD V came into force in July 2019 and EU Member States are required to implement the majority of its provisions by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K. is obliged to transpose these provisions of CRD V that are applicable before the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement.
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EU Consultation on Proposed Revisions to the Guidelines on Major Incident Reporting for Payment Service Providers
10/14/2020
The European Banking Authority has opened a consultation on proposed revisions to the Guidelines on major incident reporting under the revised Payment Services Directive. PSD2 requires payment services providers to establish and maintain effective incident management procedures for, among other things, detecting and classifying major operational or security incidents. PSPs are required to notify their home state regulator if a major incident occurs. The Guidelines, which have applied across the EU since January 1, 2018, stipulate the criteria that PSPs should use to classify an operational or security incident as "major." Major incidents must be reported to a PSP's national regulator using the format provided in the Guidelines. The EBA is consulting on targeted amendments to the Guidelines. Responses to the consultation may be submitted until December 14, 2020. The EBA expects that the revisions to the Guidelines will become applicable by Q4 2021.
Read more.TOPIC : Payment Services -
Final Roadmap for Enhancing Cross-Border Payments Published by the Financial Stability Board
10/13/2020
The Financial Stability Board has published a Roadmap for enhancing cross-border payments. The Roadmap is the final stage in the G20's three-stage process to enable countries to enhance their cross-border payments systems. The FSB published the Stage 1 report in April 2020, which identified existing challenges in cross-border payments systems and specified key "frictions" in the cross-border payments system that contribute to these challenges. The Stage 2 report, published by the Committee on Payments and Market Infrastructures in July 2020, covered the 19 building blocks where further public and private sector work would enhance cross-border payments and address the frictions ascertained by the FSB.
Read more.TOPIC : Payment Services -
Financial Stability Board Publishes Final Recommendations on Global Stablecoins
10/13/2020
Following its consultation earlier this year, the Financial Stability Board has published a final report on the regulation, supervision and oversight of global stablecoin arrangements. In the report, the FSB discusses the characteristics of GSCs, the risks posed by GSCs, existing approaches to regulating and supervising GSCs and issues with cross-border supervision of GSCs. Alongside the report, the FSB has published a summary of the responses to its consultation.
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Bank for International Settlements Report on Central Bank Digital Currencies
10/09/2020
The Bank for International Settlements, together with seven central banks (Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England and Board of Governors Federal Reserve System) has released a report on the principles and core features of central bank digital currencies. The central banks concerned do not give any opinions on whether they intend to issue CBDCs. Instead, the report sets out three key principles for a hypothetical CBDC, namely: (i) that it should do no harm to central banks' public policy objectives or interfere with financial stability; (ii) that it should complement existing forms of central bank money; and (iii) that it should promote innovation and efficiency, to deter users from adopting other, less safe instruments or currencies.
Read more.TOPIC : FinTech -
ISDA Announces Upcoming Launch of IBOR Fallbacks Protocol
10/09/2020
The International Swaps and Derivatives Association has announced that it will launch its IBOR Fallbacks Supplement to the 2006 ISDA Definitions and its 2020 IBOR Fallbacks Protocol on October 23, 2020, although they will not take effect until January 25, 2021. The Supplement and Protocol implement fallbacks for derivatives contracts that reference discontinued or non-representative IBORs.
Read more.TOPIC : LIBOR Transition -
EU Technical Standards Published on Central Contact Points Under the Revised Payment Services Directive
10/09/2020
A Commission Delegated Regulation setting out Regulatory Technical Standards on central contact points under the revised Payment Services Directive has been published in the Official Journal of the European Union. The RTS apply where a payment institution or electronic money institution with its head office in one EU member state provides payment services on a cross-border basis, under the right of establishment, through agents in another (host) member state. PSD2 gives the national regulators in the host member state the option of requiring that payment institutions or electronic money institutions operating through agents must establish a central contact point in the host territory to ensure adequate communication and information reporting and effective supervision.
Read more.TOPIC : Payment Services -
Bank of England Financial Policy Committee Publishes Policy Summary
10/08/2020
The Bank of England's Financial Policy Committee has published its latest Policy Summary and the minutes of its meeting held on September 30, 2020. The FPC notes a range of near-term risks that could impact the U.K. economy, including the evolution of the COVID-19 pandemic, post-Brexit trading arrangements between the U.K. and EU and various other geopolitical risks.
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UK Conduct Regulator Bans Sale to Retail Clients of Derivatives Referencing Crypto-Assets from January 2021
10/06/2020
The U.K. Financial Conduct Authority has published a Policy Statement and final rules prohibiting the sale, marketing and distribution to retail clients of derivatives and exchange traded notes referencing certain types of unregulated, transferable crypto-assets by firms acting in, or from, the U.K. The ban will apply from January 6, 2021.
The prohibition will apply to the marketing, distributing or selling of crypto derivatives in, or from, the U.K. to retail clients by MiFID investment firms, MiFID optional exemption firms, U.K. branches of third-country investment firms and to EEA MiFID investment firms that currently passport into the U.K. and which will continue operating after the Brexit transitional period ends on January 1, 2021.
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EU Final Guidelines on Transfers of Information Between Securitization Repositories
10/05/2020
The European Securities and Markets Authority has published a final report and final guidelines on the portability of information between securitization repositories under the EU Securitization Regulation. ESMA is responsible for the registration and supervision of securitization repositories. It is required under the Securitization Regulation to develop guidelines for supervisory purposes and will apply them from January 1, 2021, except for those provisions that require securitization repositories to have policies for the orderly transfer of data to other securitization repositories, which apply from June 18, 2021. The guidelines will apply to transfers of information between repositories either at the request of a reporting entity or in the event of a securitization repository's registration being withdrawn. The guidelines set out the specific procedures and the content of policies for the orderly transfer of information by securitization repositories.
View ESMA's final report and guidelines. -
EU Report on the Potential for a Digital Euro
10/02/2020
The European Central Bank has published a report by the Eurosystem High-Level Task Force on a digital euro. The digital euro would be a form of central bank digital currency. No decision has been taken yet to issue a digital euro. The report sets out the reasons for having a digital euro, the potential impact of a digital euro, legal considerations, functional design possibilities and technical and operational approaches to digital euro services. A consultation on the potential launch of a digital euro is expected in October 2020.
The Bank of England issued a discussion paper in March 2020 on the opportunities, challenges and design of a potential U.K. CBDC. The ECB and the BoE are two of the central banks that are investigating the potential of CBDCs. Other central banks include the Bank of Canada, the Bank of Japan, the Sveriges Riksbank, the Swiss National Bank and the Bank for International Settlements.
View the ECB's report on a digital euro. -
UK Conduct Regulator Confirms Post-Brexit Position on Post-Trade Transparency and Position Limits
10/02/2020
The U.K. Financial Conduct Authority has issued a statement confirming the U.K. position from January 1, 2021, for post-trade transparency reporting obligations and position limit regime under the U.K. Markets in Financial Instruments package. The FCA confirms that:- U.K. firms trading on non-U.K. trading venues will not be required to publish details of those transactions through a U.K. Approved Publication Arrangement; and
- Commodity derivative contracts traded on trading venues are not considered by the FCA to be economically equivalent OTC contracts and will not be subject to the U.K. commodity derivatives position limits regime.
The FCA's statement follows the statement made the previous day by the European Securities and Markets Authority that it intended to assess U.K. trading venues for the purpose of the EU post-trade transparency obligations and position limits regime. If ESMA assesses a U.K. trading venue positively, then trades on the venue will not need to be reported by EU investment firms through an EU APA, and they will not be subject to the position limits regime.
View the FCA's statement.
View details of ESMA's statement. -
EU to Assess UK Trading Venues to Clarify Post-Brexit Position for Post-Trade Transparency and Position Limits Regime
10/01/2020
The European Securities and Markets Authority has published updated statements on the impact of Brexit on the application of the Markets in Financial Instruments package and the EU Benchmark Regulation. ESMA issued statements in 2019 to clarify the position in a no-deal scenario. These latest statements provide updates to take into account the Withdrawal Agreement and the end of the Brexit transition period on December 31, 2020.
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Final Technical Standards on Third-Country Investment Firm Registration and Reporting Requirements
09/28/2020
The European Securities and Markets Authority has published final draft Technical Standards on the provision of investment services and activities in the EU by third-country firms under the Markets in Financial Instruments package. Amendments that were made to the MiFID II package under the Investment Firm Regulation and Directive require, among other things, third-country firms providing services to all types of clients to provide ESMA with further information. In addition, ESMA has increased powers over third-country firms providing services to eligible counterparties and per se professional clients, such as the ability to conduct on-site inspections and impose product restrictions or prohibitions. The revisions will apply from June 26, 2021.
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EU Grants Temporary Recognition to UK CCPs For End of Brexit Transition Period
09/28/2020
The European Securities and Markets Authority has announced that it has granted temporary third-country recognition to three U.K. CCPs from January 1, 2021 under the European Market Infrastructure Regulation. ESMA's announcement follows the time-limited equivalence decision for the U.K.'s legal and regulatory supervision regime of U.K. CCPs, which was published on September 21, 2020. The third-country recognition for ICE Clear Europe Limited, LCH Limited and LME Clear Limited means that EU clearing members of these three CCPs will be able to continue to access the services and that the CCPs will be able to continue to provide their services in the EU at the end of the transition period on December 31, 2020, following the U.K.'s withdrawal from the EU.
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EU Securities Authority Recommends Changes to EU Market Abuse Regulation
09/24/2020
The European Securities and Markets Authority has published a final report on the review of the Market Abuse Regulation. MAR requires the European Commission to report on certain aspects of the operation of MAR, including where appropriate, making recommendations for legislative change. ESMA's final report and recommendations will support the work by the Commission on producing that report. The proposals will mostly affect issuers of financial instruments admitted to trading or trading on a trading venue, investment firms and asset management firms.
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European Commission Sets out Capital Markets Union Action Plan
09/24/2020
The European Commission has published a Communication to EU bodies on its Capital Markets Union Action Plan. The CMU is an EU initiative which aims to enhance and further integrate the capital markets of EU Member States. An action plan to develop the initiative was first adopted in 2015 and has been commented upon and updated since then. The Commission's Communication sets out the latest Action Plan, and is accompanied by a Q&A. It follows the recommendations of the High-Level Forum on the CMU, which proposed 17 key recommendations for the CMU, and the Commission's Roadmap on the CMU which set out details of the Commission's proposed Action Plan for comments by interested parties.
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European Commission Sets Out EU Digital Finance Strategy
09/24/2020
The European Commission has published a Communication on its EU digital finance strategy for the coming years. The global economy has been transformed by digital innovation, and this includes financial services. The Commission's strategic objective is to embrace digital finance for the benefit of consumers and businesses while ensuring digital transformation is soundly regulated. To achieve this objective, the Commission sets out four priorities for the digital transformation of the EU financial sector over the next four years and the actions it will take to achieve them.
Read more. -
European Commission Proposal for Pilot Distributed Ledger Technology Regime Regulation
09/24/2020
The European Commission has published a proposal for a new EU Regulation on a pilot regime for distributed ledger technology. The pilot regime is intended to promote legal certainty, to support innovation, to preserve market integrity and to ensure financial stability for the use of DLT in crypto-asset and e-money token markets. The Commission has simultaneously published a proposed Regulation on markets in crypto-assets and e-money tokens. The proposed Regulations follow the Commission's consultation on an EU framework for crypto-assets, which closed in January 2020.
Read more. -
European Commission Proposal for Crypto-asset Regulation
09/24/2020
The European Commission has published a proposal for a new EU Regulation on crypto-assets. The proposed Regulation is intended to improve legal certainty in the regulatory treatment of crypto-assets, to support the development of crypto-assets, to preserve consumer protection and market integrity in crypto-asset markets and to ensure financial stability. The Commission has simultaneously published a Regulation on a pilot regime for distributed ledger technology. The proposed Regulations follow the Commission's consultation on an EU framework for crypto-assets, which closed in January 2020.
Read more. -
European Commission Proposals for Digital Operational Resilience Regulation and Amending Directive
09/24/2020
The European Commission has published proposals for a new EU Regulation on digital operational resilience for the financial sector and a new EU Directive amending certain pieces of existing EU financial services legislation to strengthen digital operational resilience and provide legal certainty on crypto-assets. The new legislation has been proposed as a result of the risks arising from the increase in digital opportunities within the financial sector. There are currently no detailed rules at EU level on digital operational resilience, exposing the need for comprehensive and harmonized legislation governing this area.
Read more.TOPIC : Cyber Security -
European Commission Sets out EU Retail Payments Strategy
09/24/2020
The European Commission has published a Communication on its EU retail payments strategy for the coming years. The payments sector has experienced significant change in recent years. Retail payments are increasingly dematerialized and disintermediated, with large technology companies playing a more significant part in the payments sector. The EU payments market is also largely fragmented along national borders, leading to a small number of large firms providing cross-border services and inhibiting domestic FinTechs. The Commission's strategic objective is to establish a clear EU policy framework for retail payments that manages the risk of inconsistencies and market fragmentation across the EU.
Read more.TOPIC : Payment Services -
UK Conduct Regulator Consults on Post-Brexit Approach to Authorization for Non-UK Firms
09/23/2020
The U.K. Financial Conduct Authority has launched a consultation on its intended approach to international firms seeking to provide regulated financial services in the U.K. after the Brexit transition period ends on December 31, 2020 and the U.K.'s temporary permissions regime comes to an end three years later. The FCA intends to use the consultation responses to inform the publication of a document that would explain the FCA's general approach to regulating international firms. The consultation does not propose any changes to the FCA's existing rules or to the FCA Handbook. Responses should be submitted by November 27, 2020.
Read more.TOPIC : Brexit for Financial Services -
Bank of England Consults on Changes to Brexit Onshoring Legislation
09/22/2020
The Bank of England has launched a consultation on proposed changes to the BoE and Prudential Regulation Authority's Brexit onshoring legislation. The U.K. left the EU on January 31, 2020. Under the terms of the EU Withdrawal Agreement, the U.K. agreed that EU legislation continues to apply in the U.K. until the end of the transition or implementation period on December 31, 2020 (known as "IP completion day"). The existing Brexit onshoring legislation ensures that, after EU law ceases to apply in the UK at the end of the transition or implementation period, U.K. legislation remains functional. Further updates to the onshoring legislation and regulatory rules are needed, however, to take account of the transition or implementation period (which delayed the entry into force of the onshoring legislation) and of additional EU legislation that will apply in the U.K. prior to the end of that period.
Read more.TOPIC : Brexit for Financial Services -
UK Treasury Committee Seeks Answers from UK Bodies on FinCen Papers and Economic Crime
09/22/2020
The U.K. Treasury Committee has written to the U.K. Financial Conduct Authority, HM Revenue and Customs and the U.K. Department for Business, Energy and Industrial Strategy, seeking answers to a series of questions on the actions each of the bodies are taking to combat economic crime and the significance of the "FinCen files" leak. The FinCen files are essentially a series of leaked suspicious transaction reports originally sent by banks to the US Financial Crimes Enforcement Network between 2000-2017 notifying FinCen of suspicious transactions.
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European Banking Authority Phases Out COVID-19 Guidelines on Loan Repayments Moratoria
09/21/2020
The European Banking Authority has confirmed that it will phase out its Guidelines on legislative and non-legislative payment moratoria in accordance with its September 30, 2020 deadline. The EBA originally published the Guidelines in April 2020, stipulating that, for a period of three months, banks should not class payment moratoria that were based on national law or private-sector initiatives as forbearance or distressed restructuring practices, in light of the COVID-19 pandemic. The Guidelines were extended for a further three months on June 30, 2020 but the EBA now intends to comply with the September 30, 2020 phase out deadline in light of the success of the temporary moratoria and the need to return to the usual rescheduling of loans on a case-by-case approach. The treatment described in the Guidelines will continue to apply to payment holidays granted prior to September 30, 2020.
View the EBA's statement on the phase-out of its Guidelines.
View details of the EBA's Guidelines. -
UK Prudential Regulation Authority Publishes Proprietary Trading Review
09/21/2020
The U.K. Prudential Regulation Authority has published a report on the extent of proprietary trading by PRA-authorized deposit takers and investment firms incorporated in the U.K. Restrictions on proprietary trading (being the trading of financial instruments or commodities as principal by banks or investment firms) were introduced for ring-fenced retail banks in the wake of the 2008 financial crisis and came into force in January 2019. However, the U.K. decided not to impose a complete ban on proprietary trading for all banks, as had been seen in other countries, such as the U.S. under the Volcker Rule. Instead, the PRA was mandated to produce a report under the Financial Services (Banking Reform) Act 2013, with a view to informing the U.K. Parliament of the need for any further restrictions on proprietary trading.
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International Organization of Securities Commissions Publishes Guidance on Conflicts of Interest in Debt Capital Raising
09/21/2020
The International Organization of Securities Commissions has published guidance on how to address potential conflicts of interest and associated conduct risks for intermediaries involved in the issuance of debt securities. Intermediaries may perform a variety of roles on a debt capital raising transaction and may also have a proprietary interest in the transaction itself. In 2017, the IOSCO Board decided to examine conflicts of interest and other conduct risks in the capital raising process. IOSCO published guidance for the equity capital raising process in September 2018.
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UK Law Commission Announces Projects on Accommodating Smart Contracts and Digital Assets into English Law
09/21/2020
The U.K. Law Commission has announced two new projects designed to ensure that English law is able to accommodate smart contracts and digital assets.
Smart contracts are automated contracts such as distributed ledgers which are produced without human intervention. The Law Commission plans to investigate various questions arising from the use of smart contracts, including: (i) in what circumstances will contracts written in code be legally binding; (ii) how should smart contracts be interpreted by the courts; and (iii) what are the legal consequences of the code not performing as intended? The Law Commission is seeking input from the business and technology sectors and intends to publish a call for evidence in late 2020.
Read more.TOPIC : FinTech -
International Swaps and Derivatives Association Letter on Timing of ISDA IBOR Fallbacks Protocol
09/21/2020
The International Swaps and Derivatives Association has written to the Co-Chairs of the Financial Stability Board Official Sector Steering Group seeking input on its proposed timing for the launch of its IBOR Fallbacks Protocol and IBOR Fallbacks Supplement. The Protocol and Supplement will implement fallbacks for derivatives contracts that reference discontinued or non-representative IBORs. The launch of the Protocol and Supplement is subject to approvals from various international competition authorities, which are still pending. Once the approvals have been obtained, ISDA intends to provide market participants with roughly two weeks' notice of the launch and effective dates of the Protocol and Supplement, allowing market participants to adhere to the Protocol 'in escrow' prior to its launch date. ISDA expects the effective dates of the Protocol and Supplement to occur approximately three months after the launch date, and in any case not before the second half of January 2021.
View ISDA's letter. -
European Commission Decision Temporarily Establishes UK CCP Equivalence
09/21/2020
The European Commission has published a Decision temporarily determining that U.K. central counterparties will be deemed equivalent to EU standards under the European Market Infrastructure Regulation. The Decision will apply from January 1, 2021 until June 30, 2022. The U.K.'s Brexit transition period ends on December 31, 2020, after which it will cease to form part of the EU's arrangement for financial services. The Decision grants equivalence for a limited 18-month duration.
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EMIR 2.2 Secondary Legislation Published
09/21/2020
Three Commission Delegated Regulations have been published in the Official Journal of the European Union, supplementing the revised European Market Infrastructure Regulation. The Delegated Regulations contain provisions related to the changes introduced by EMIR 2.2, the amending EU Regulation that came into force on January 1, 2020 and introduced changes to the procedures and authorities involved in the authorization of central counterparties and the requirements for the recognition of third-country CCPs. EMIR 2.2 also introduced a new tiering system for third-country CCPs, making non-systemically important (or "Tier 1") third-country CCPs subject to less stringent requirements than systemically important (or "Tier 2") third-country CCPs. The Commission Delegated Regulations all relate to third-country CCP provisions of EMIR 2.2 and will enter into force on September 22, 2020. They have been published in the form adopted by the European Commission in July 2020.
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European Central Bank Decision Excluding Eurozone Central Bank Exposures from Total Exposure Measures
09/21/2020
The European Central Bank has published a Decision in the Official Journal of the European Union temporarily excluding certain central bank exposures from significant Eurozone banks' leverage ratio calculations for the purposes of the EU Capital Requirements Regulation. The Decision will enter into force on September 26, 2020 and the exclusion will apply until June 27, 2021.
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European Securities and Markets Authority Renews Notification Requirement for Net Short Positions at or Exceeding 0.1%
09/18/2020
The European Securities and Markets Authority has renewed its decision requiring holders of net short positions in shares traded on an EU-regulated market to notify national regulators if the position reaches or exceeds 0.1% of issued share capital. ESMA originally introduced the requirement on March 16, 2020 for a period of three months, extending it for a further three months on June 17, 2020. ESMA's latest decision means the measure will now apply from September 18, 2020 until December 18, 2020.
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European Central Bank Publishes Guide to Assessment Methodology for Counterparty Credit Risk and Credit Valuation Adjustment Risk Calculations
09/18/2020
The European Central Bank has published its final Guide on the assessment methodology it will use to examine: (i) the internal model methods banks use to calculate exposures to counterparty credit risk; and (ii) the advanced methods banks use to calculate own funds requirements for credit valuation adjustment risk. The EU Capital Requirements Regulation requires the ECB to permit banks to use internal models for counterparty credit risk purposes if those models comply with relevant CRR provisions. The ECB's Guide sets out how the ECB will determine banks' compliance.
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European Banking Authority Publishes Survey on Banks' Environmental, Social and Governance Risk Disclosure Frameworks
09/17/2020
The European Banking Authority has published a survey designed to collect information on large banks' disclosure practices on environmental, social and governance risks. The EU Capital Requirements Regulation implements the Basel Committee on Banking Supervision's Pillar 3 disclosure requirements, which require banks to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR, published in June 2019, incorporates the revised Basel Committee disclosure standards and mandates the EBA to produce draft Implementing Technical Standards to ensure comparability of the disclosures made with international non-EU active banks.
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Financial Action Task Force Highlights Red Flag Indicators Associated With Virtual Assets
09/14/2020
The Financial Action Task Force has published a report on red flag indicators of money laundering and terrorist financing in virtual assets. The FATF highlights that although virtual assets have the potential to create efficiencies and enhance innovation, they can also be used by money launderers and terrorist financers to launder proceeds or finance illicit activities. The FATF recognizes that virtual assets may be used outside of the regulated financial system and to hide the origins or destination of funds. These factors make it harder for financial entities and regulators to identify suspicious activities. The report is therefore intended to assist financial institutions, virtual asset service providers, regulators and authorities to overcome these challenges.
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European Banking Authority Publishes Advice on Steps to Strengthen the EU's AML/CTF Legislation
09/10/2020
The European Banking Authority has published an Opinion recommending that the European Commission establish a single rulebook on anti-money laundering and counterterrorist financing. The EBA’s Opinion, and report annexed to the Opinion, are in response to the Commission’s call for advice on defining the scope of application and the enacting terms of an AML/CTF regulation that is to be adopted. The EBA sets out how to address the gaps and vulnerabilities in the EU framework, mostly due to divergent national approaches across the EU. The EBA is proposing that in the areas where national differences and practices disadvantage the EU’s fight against AML/CTF, directly applicable rules should be introduced in a new EU regulation. According to the EBA, this would cover customer due diligence, AML/CTF systems and controls and certain key supervisory processes such as risk assessments, cooperation and enforcement.
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Financial Stability Board Further Delays Implementation Deadlines for Minimum Haircut Standards for Uncleared SFTs
09/07/2020
The Financial Stability Board has announced delays to the implementation of minimum haircut standards for non-centrally cleared securities financing transactions. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. In 2015, the FSB published its regulatory framework and recommendations for haircuts on uncleared SFTs, which included timelines for the implementation of the recommendations by FSB member jurisdictions. The deadline for implementation was extended in July 2019 by the FSB because of the delay to implementation of the Basel III framework, including the minimum haircut standards on bank-to-non-bank SFTs, which was postponed to January 2022. In March 2020, a further delay to the implementation of the Basel framework to 2023 was announced, with the objective of relieving the operational burden on banks impacted by the coronavirus pandemic. The FSB has decided to delay its framework again because it is expected to be implemented by many jurisdictions through the Basel III framework.
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EU Authority Allows Further Short Delay to Annual Transparency Calculations for Non-Equities
09/07/2020
The European Securities and Markets Authority has announced the delay of the publication dates by investment firms and trading venues of the annual transparency calculations for non-equity instruments (other than bonds) from September 15, 2020 to September 21, 2020. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, which became effective on January 3, 2018, introduced pre- and post-trade transparency requirements for equity and non-equity financial instruments. In April 2020, ESMA postponed the publication of the annual transparency calculation for derivatives, emission allowances and structured finance products from April 30, 2020 to July 15, 2020 and their application from June 1, 2020 to September 15, 2020 in response to the coronavirus pandemic. The latest delay is made in response to industry concerns that the revised application of the non-equity transparency calculations falls during the quarterly expiry week of many equity derivatives, which usually involves high trading volumes and high volatility. ESMA is also postponing to September 21, 2020 the mandatory systematic internaliser regime for derivatives, emission allowances and structured finance products.
View ESMA's announcement.
View details of ESMA's April 2020 announcement.TOPIC : MiFID II -
Confirmation on EU Securitization Disclosure Requirements
09/04/2020
The European Securities and Markets Authority has published a press release confirming that certain requirements under the Securitization Regulation will enter into force on September 23, 2020.
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EU Technical Standards Supplementing the Securitization Regulation
09/03/2020
Several EU Technical Standards supplementing the EU Securitization Regulation have been published in the Official Journal of the European Union. The Securitization Regulation has applied directly across the EU since January 1, 2019. It provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related amendments to the EU Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
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UK Government Consults on International Regulatory Cooperation Strategy
09/02/2020
The U.K. Government has launched a consultation on its future international regulatory cooperation strategy. The consultation has been prompted by a report published by the Organization for Economic Cooperation and Development. In its report, the OECD set out 25 recommendations for how the U.K. can improve its policies and practices in shaping and complying with international agreements and collaborating with international counterparts when designing and enforcing regulations. The report is intended to cover regulatory practices in general, meaning banking regulation falls within the scope of the recommendations. With the U.K. having left the EU on January 31, 2020, and the end of the U.K.'s transitional period due to end on December 31, 2020, the U.K. Government believes there is an opportunity to build new regulatory practices that support the future prosperity of the U.K.
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EU Publishes Draft Delegated Regulation on Changes to CCP Colleges under EMIR 2.2
09/01/2020
The European Commission has published a draft Delegated Regulation designed to amend existing Delegated Regulation (EU) No 876/2013, which supplements the European Market Infrastructure Regulation with regards to changes to the composition, functioning and management of colleges for central counterparties. Under EMIR, "colleges" are supervisory bodies made up of the regulators responsible for supervision of a given CCP. From January 2020, revisions to EMIR (known as "EMIR 2.2") took effect, which introduced changes to the procedures and authorities involved in the authorization of central counterparties and the requirements for the recognition of third-country CCPs. EMIR 2.2 required ESMA to develop draft Regulatory Technical Standards on: (i) which currencies were "most relevant" for the purposes of determining which central banks should be included in a CCP's college; and (ii) details of the practical arrangements for the functioning of the college that should be agreed in writing between the members of the college.
Read more.TOPIC : Financial Market Infrastructure -
UK LIBOR Working Group Publishes Recommendations on SONIA Conventions for the Sterling Loan Market
09/01/2020
The U.K.'s Working Group on Sterling Risk-Free Reference Rates has published a set of non-binding Recommendations on the conventions that market participants may wish to adopt to support their use of the Sterling Overnight Index Average as a replacement for LIBOR in sterling bilateral and syndicated loan facilities.
Read more.TOPIC : LIBOR Transition -
UK Prudential Regulator Reminds Firms of Need to Satisfy Temporary Permissions Regime Requirements
09/01/2020
The U.K. Prudential Regulation Authority has published a Dear CEO letter addressed to all PRA-regulated firms on operational readiness for the Temporary Permissions Regime. The U.K. left the EU on January 31, 2020 and the related transitional period, during which EU firms maintain their U.K. passporting rights, will expire at 11 pm on December 31, 2020. The TPR will take effect from after that time. The Dear CEO letter reminds firms of their obligations under the TPR and urges them to consider their firm's operational preparedness for entering the TPR, including satisfying their regulatory requirements.
View the Dear CEO letter.TOPIC : Brexit for Financial Services -
Certification Deadline Extended for UK-Solo-Regulated Firms
09/01/2020
A U.K. statutory instrument—The Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) (Amendment) Regulations 2020—has been published. This extends from December 9, 2020, to March 31, 2021, for solo-regulated firms (other than benchmark administrators) the deadline for completion of firms' first assessments of the fitness and propriety of their Certified Persons. HM Treasury agreed to the extension to assist firms impacted by the coronavirus pandemic.
The Financial Conduct Authority recently consulted on extending certain other implementation deadlines for the Certification Regime and Conduct Rules and intends to publish its Policy Statement in October 2020.
View The Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) (Amendment) Regulations 2020.
View details of the FCA's consultation. -
EU Draft Technical Standards Published for Further Delaying Securities Settlement Discipline Rules to 2022
08/28/2020
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards to further postpone the securities settlement discipline rules under the Central Securities Depositories Regulation to February 2022. ESMA announced on July 28, 2020 that it was preparing the draft RTS in response to a request from the European Commission to consider whether a further delay was needed due to the impact of COVID-19. The EU has already postponed the application date of the settlement discipline rules from September 13, 2020 to February 1, 2021 due to industry feedback that more time was needed to put in place the operational requirements for implementation of the rules. The draft RTS published today by ESMA would further delay the application date by a year from February 1, 2021 to February 1, 2022.
View the final report and final draft RTS.
View details of the amending RTS delaying the rules to February 2021. -
UK Prudential Regulator Announces Termination of Temporary Approach to VAR Back-Testing Exceptions
08/27/2020
The U.K. Prudential Regulation Authority has published a statement confirming that, following its review of the temporary approach that allows firms to offset increases in VAR back-testing exceptions through a reduction in risks-not-in-VAR capital requirements, it has decided to terminate the temporary approach from September 30, 2020. The PRA has made this decision because of the changes introduced to the EU Capital Requirements Regulation (known as the CRR Quick Fix package), which has applied directly across the EU since June 27, 2020.
From October 1, 2020, firms should no longer apply any commensurate reduction in risks-not-in-VAR capital requirements. Firms should apply to the PRA to exclude back-testing options that do not result from deficiencies in their internal model occurring between January 1, 2020 and December 31, 2021.
View the PRA's statement.
View details of CRR Quick Fix. -
Confirmation Announced of Revisions to EU Guidelines on Stress Testing of Money Market Funds
08/27/2020
The European Securities and Markets Authority has published a statement confirming that the 2019 Guidelines on stress test scenarios under the Money Market Funds Regulation will be updated by the end of 2020 to reflect COVID-19 market developments. The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds, and are often regarded as a short-term cash management function alternative to bank deposits. The MMF Regulation requires MMFs and MMF managers to measure the impact of the common reference stress test scenarios, as specified by ESMA in its guidelines, and to report the outcomes to their national regulators. ESMA is required to assess annually whether the Guidelines should be updated to reflect market developments. ESMA states that it intends to update the Guidelines published in July 2019 to reflect the impact of COVID-19 on the market, in particular, the liquidity challenges faced by MMFs. The 2019 Guidelines will continue to apply until the revised Guidelines apply—ESMA intends to publish the updated Guidelines in Q4 2020, following which they will be translated into EU national languages. The updated Guidelines will apply two months after the translations are published.
View ESMA's statement. -
UK Prudential Regulator Issues Updated Statement on IFRS 9 and Capital Requirements
08/26/2020
The U.K. Prudential Regulation Authority has published a further statement on IFRS 9 and capital requirements in the context of COVID-19. In line with the Financial Conduct Authority's guidance in relation to mortgage payments, firms should consider tailored forbearance arrangements where, at the end of the COVID-19 payment deferral period, a borrower is unable to resume payments in full immediately, with all deferred sums either paid in full or capitalized. The PRA states that the tailored forbearance arrangements may be as good an indicator of significant increases in credit risk, credit impairments or defaults as forbearance before the pandemic. Any loans subject to tailored forbearance should not be automatically treated as having experienced SICR or become credit impaired or in default, and firms will need to exercise judgment where the position is not clear.
The PRA also states that some of the guidance in its statement on March 26, and June 4, 2020 continues to be relevant, depending on the circumstances.
View the PRA's statement.
View details of the PRA's June statement.
View details of the PRA's March statement. -
EU Delays Securities Settlement Discipline Rules to 2021
08/24/2020
EU Regulatory Technical Standards postponing the implementation deadline of the settlement discipline regime under the Central Securities Depositories Regulation have been published in the Official Journal of the European Union. The RTS delay the application date of the settlement discipline rules from September 13, 2020 to February 1, 2021, by amending the existing RTS (Commission Delegated Regulation (EU) 2018/1229). The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process.
Read more.TOPIC : Securities -
UK Conduct Regulator Proposes to Extend Financial Crime Reporting Obligation
08/24/2020
The U.K. Financial Conduct Authority has launched a consultation proposing to extend the annual financial crime reporting obligation to regulated firms undertaking regulated activities that the FCA views to be potentially posing as a higher money laundering risk. Responses may be submitted until November 23, 2020. The FCA intends to publish its final policy and amended rules by Q1 2021.
The FCA introduced the annual financial crime reporting obligations in 2016 for banks, investment firms, building societies, mortgage lenders, large electronic money institutions, certain large consumer credit firms, life insurers and retail investment and mortgage intermediaries. Relevant firms must provide details annually on, among other things, the jurisdictions and types of customers as well as the number of suspicious activity reports to the FCA. The obligation only captures certain firms subject to FCA supervision under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations of 2017.
Read more. -
EU Considering Further Delaying Securities Settlement Discipline Rules to 2022
08/24/2020
The European Securities and Markets Authority has announced that it is preparing new Regulatory Technical Standards to further postpone the securities settlement discipline rules under the Central Securities Depositories Regulation. The move follows a request from the European Commission for ESMA to consider whether a further delay is needed in light of the impact of COVID-19. The Commission has adopted the draft RTS prepared by ESMA that will delay the application date of the settlement discipline rules from September 13, 2020 to February 1, 2021. Those RTS are now subject to scrutiny by the European Parliament and Council of the European Union and will only come into force once published in the Official Journal of the European Union. ESMA's announcement relates to a proposal for an additional delay until February 2022.
Read more. -
EU Review: Alternative Investment Fund Managers Directive
08/18/2020
The European Securities and Markets Authority has published a letter addressed to the European Commission on the upcoming review of the Alternative Investment Fund Managers Directive. In the letter, ESMA highlights areas that it considers would benefit from a review and potential amendments. ESMA considers these areas important because of the discussions it has had with national regulators on the practical difficulties involved in implementing the AIFMD. ESMA is proposing policy improvements and reporting recommendations, including harmonizing the AIFMD and UCITS regimes. The areas of focus include delegation and substance, liquidity management tools, leverage and the harmonization of supervision of cross-border entities. The Commission is likely to publish its proposals for amending AIFMD in Q3 2020.
View the letter.TOPIC : Funds -
European Banking Authority Revises 2020 Work Program in Response to COVID-19
08/14/2020
The European Banking Authority has published an updated work program as part of its response to the coronavirus pandemic. According to the EBA, it has only launched consultations that are critical, has kept interactions with industry to a minimum and has progressed work on technical standards according to the expected implementation timeline and degree of finalization.
View the EBA’s updated 2020 work program.TOPIC : COVID-19 -
Global Common Template Published to Aid Continuity of Access to Financial Market Infrastructures
08/14/2020
The Financial Stability Board has published a common template for gathering information about continuity of access to financial market infrastructures for firms in resolution. The template facilitates implementation of the FSB’s 2017 Guidance on continuity of access to FMIs for a firm in resolution. The aim of the common template is to streamline the process of gathering information, reduce the burden on FMIs who receive multiple requests for information and make more efficient the process of giving information by FMIs to participants and authorities. All FMIs are urged to complete the questions in the common template and to make those available to their participants and national resolution authorities by November/December 2020. The FSB intends, after 12 months, to assess how the common template has achieved its goals.
View the comment template.
View the FSB’s Guidance. -
European Banking Authority Seeks to Promote RegTech Use
08/12/2020
The European Banking Authority has opened a consultation on RegTech and supporting the use of RegTech across the EU. Responses may be submitted until September 30, 2020. The EBA intends to report on the use of RegTech in the first half of 2021. The survey is focused on financial institutions and ICT third party providers. The EBA is seeking to understand the extent and impact of RegTech for regulatory, compliance and reporting requirements of regulated firms. In particular, the EBA is looking at mapping and understanding existing RegTech solutions, identifying barriers and risks relating to the use of RegTech and analyzing how to facilitate the application of RegTech across the EU. The consultation covers ongoing monitoring of business relationships and transactions for anti-money laundering obligations, creditworthiness assessments, compliance with security standards, including information security, cybersecurity and payment services and supervisory reporting.
View the EBA's survey. -
Wolfsberg Group Statement on Developing an Effective Anti-Money Laundering and Counter Terrorist Financing Program
08/12/2020
The Wolfsberg Group has published a statement on how financial institutions can develop an effective anti-money laundering and counter terrorist financing program. The Wolfsberg Group was established in 2002 and comprises thirteen banks. Its objective is to develop frameworks and guidance for the management of financial crime risks, providing an industry perspective to effective financial crime risk management.
Read more. -
UK Conduct Regulator Urges Firms to Return Client Money if Reinvestment in Short Term is Unlikely
08/12/2020
The U.K. Financial Conduct Authority has published a Dear CEO letter sent to U.K.-regulated firms providing non-discretionary investment services. The FCA letter makes clear that, where firms’ clients have increased the level of client money held with a firm, the firm should return client money that is unlikely to be reinvested in the short term. Many firms have reported an increase in client money levels as clients respond to the COVID-19 situation. The FCA states that senior management at firms should consider whether it would be in the best interest of their clients to return money that isn’t likely to be reinvested in the short term.
View the Dear CEO letter.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Consultation on Draft Guidelines to Implement Alternative Internal Model Approach
08/12/2020
The European Banking Authority has opened a consultation on proposed guidelines on criteria for the use of data inputs in the risk measurement model under the Internal Model Approach for market risk, set out in the revised Capital Requirements Regulation, known as CRR2. The consultation closes on November 12, 2020.
CRR2 implements a revised framework for minimum capital requirements based upon market risk—the Fundamental Review of the Trading Book, published in January 2019 by the Basel Committee on Banking Standards. The revisions include an alternative IMA, one part of which is the expected shortfall risk measure used to determine capital requirements for those risk factors with sufficient available observable market data.
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European Banking Authority Provides Clarity on Application of CRR Quick Fix Package
08/11/2020
The European Banking Authority has published guidance on the impact on supervisory reporting and disclosure of the EU's CRR Quick Fix adjustments, which were made in response to COVID-19. The CRR Quick Fix introduced changes to a broad range of requirements on firms under the Capital Requirements Regulation. It has applied directly across the EU since June 27, 2020. The EBA's guidance consists of:
- Guidelines on supervisory reporting and disclosure requirements in compliance with the CRR "quick fix" in response to the COVID‐19 pandemic (EBA/GL/2020/11). These Guidelines aim to clarify how firms should report the Implementing Technical Standards on supervisory reporting versions 2.9 and 2.10, and on the existing ITS on disclosure of leverage ratio.
Read more. -
International Organization of Securities Commissions Reports on Liquidity Provision in the Equity Secondary Markets
08/11/2020
The International Organization of Securities Commissions has published a report on liquidity provision in the secondary markets for equity securities. The report sets out common themes for regulators to consider as the main elements of market making programs that promote liquidity provision enhance investor confidence and facilitate fair and efficient markets. These key elements are: (i) registration of market makers; (ii) obligations imposed on market makers; (iii) balancing the obligations and benefits of the programs; (iv) monitoring program compliance; and (v) public disclosure.
View the report.TOPIC : Securities -
Basel Committee on Banking Supervision Proposes Principles for Operational Risk
08/06/2020
The Basel Committee on Banking Supervision has opened a consultation on proposed principles for operational resilience and updated Principles for the Sound Management of Operational Risk (PSMOR). The consultation closes on November 6, 2020.
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UK Prudential Regulator Proceeds with Extension of Coverage under Financial Services Compensation Scheme
08/04/2020
The U.K. Prudential Regulation Authority has published a Policy Statement and final rules on the temporary high balances coverage extension under the Financial Services Compensation Scheme. The PRA has decided to implement the proposal, made in July this year and in response to the coronavirus pandemic, to extend coverage under the FSCS for temporary high balances, from six months to 12 months from the date of the deposit or the first date the balance becomes legally transferrable to the depositor. The change will be effected by changes to the PRA's depositor protection rules and the Statement of Policy on the Deposit Guarantee Scheme. The change will take effect from August 6, 2020. The coverage will revert to six months from February 1, 2021.
View the Policy Statement, updated rules and Statement of Policy. -
European Banking Authority Call for Input on De-Risking
08/04/2020
The European Banking Authority has launched a call for input on 'de-risking', whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The EBA is aiming to establish why financial institutions choose to de-risk instead of managing the related risks and to better understand the impact on access to financial services. Responses to the call for input can be provided until September 11, 2020. The feedback received will assist the EBA in preparing its next Opinion on the money laundering or terrorist financing risks impacting the EU which is due in Q1 2021.
View the call for input on de-risking. -
UK Regulator Consults on Addressing Liquidity Mismatch in Open-Ended Property Funds
08/03/2020
The U.K. Financial Conduct Authority has launched a consultation on liquidity mismatch in authorized open-ended property funds. The FCA wants to tackle the potential for investor harm that arises because the terms for dealing in units of some property funds are not aligned with the time that it takes to buy or sell the buildings that the funds invest in. Responses to the consultation may be submitted until November 3, 2020. The FCA intends to publish its final policy statement and rules as soon as possible in 2021.
The FCA's proposals seek to address the structural issues arising from the mismatch between holding illiquid assets and offering daily redemptions and the potential harm caused by the liquidity mismatch of U.K. authorized property funds that are non-UCITS retail schemes (known as NURS) that invest directly in property. The FCA is proposing to introduce a notice period of up to 180 days for these funds with the object of removing the potential for some investors to gain at the expense of others and to decrease the probability of liquidity runs on funds that lead to rapid sales of assets.
The FCA clarifies that the proposals in this consultation paper are only directly relevant to U.K.-authorized property funds that are NURS. The FCA is continuing its work with the Bank of England on illiquid assets in open-ended funds and will consult on additional solutions once the Financial Policy Committee has completed its work.
View the FCA's consultation paper (CP20/15).TOPIC : Funds -
EU Final Draft Technical Standards on TLAC and MREL Disclosure & Reporting
08/03/2020
The European Banking Authority has published a final report and final draft Implementing Technical Standards on disclosure and reporting of Minimum Requirement for Own Funds and Eligible Liabilities and Total Loss Absorbing Capacity. Revisions to the EU's Bank Recovery & Resolution Directive and the Capital Requirements Regulation, which were finalized in 2019, implement the Financial Stability Board's TLAC requirements in the EU as well as amend the EU's existing MREL requirements. The TLAC requirements will apply to all EU global systemically important institutions and the revised MREL requirements to G-SIIs and other relevant firms. The final draft ITS will supplement the Pillar 3 disclosure requirements and supervisory reporting requirements on TLAC and MREL introduced by BRRD2 and CRR2.
The EBA has submitted the final draft ITS to the Commission for endorsement. The ITS on TLAC disclosures will apply immediately on entry into force. The MREL disclosure requirements will apply either from January 1, 2024 (the expiration date of relevant transitional periods) or from the later deadline set by the relevant resolution authority.
View the EBA's report, final draft ITS and related annexes.
View details of BRRD2.
View details of CRR2. -
UK Prudential Regulator Consults on UK Implementation of CRD V
07/31/2020
The U.K. Prudential Regulation Authority has published a consultation on proposed changes to the PRA rules to implement the fifth Capital Requirements Directive. CRD V came into force in July 2019 and EU Member States are required to implement the majority of its provisions by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K. must transpose those provisions of CRD V that are applicable before the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement. Certain of those provisions (including those relating to capital buffers and holding company approval and supervision) must be implemented in the U.K. by HM Treasury. Those provisions are the subject of a separate consultation by HM Treasury consultation (published on July 16, 2020). HM Treasury has delegated responsibility for implementation of the remaining provisions to the PRA.
Read more. -
UK Climate Financial Risk Forum Publishes 2020 Guide
07/29/2020
The U.K. Climate Financial Risk Forum has published its first guide providing practical recommendations for the financial services sector on how to respond to climate-related financial risks. The CFRF was established by the U.K. Prudential Regulation Authority and Financial Conduct Authority and is made up of industry representatives from the banking, insurance and asset management sectors, as well as others such as the London Stock Exchange Group and the Green Finance Institute. The CFRF aims to build capacity and share best practice across the finance industry in order to improve the financial services sector's response to the financial risks arising from climate change.
Read more. -
EU Single Resolution Board Publishes Guidance on Bank Operational Continuity and FMI Contingency Plans
07/29/2020
The EU Single Resolution Board has published new guidance for Eurozone banks for which it is the resolution authority on: (i) operational continuity in resolution for Eurozone banks; and (ii) financial market infrastructure contingency plans. The guidance applies to "significant" Eurozone banks that are directly prudentially supervised by the European Central Bank and certain other cross-border groups, for whom resolution is their strategy.
Read more. -
UK Government Launches Payments Landscape Review
07/28/2020
HM Treasury has launched a call for evidence on the U.K.'s payments landscape, which is the first stage of the Payments Landscape Review announced in June 2019. The government is seeking input on the opportunities, gaps and risks that need to be addressed to support the U.K.'s position as being at the forefront of payments technology. Responses may be submitted until October 20, 2020. The government will publish a summary of the responses it receives and set out next steps for the review.
In the call for evidence, the government sets out the steps taken to achieve the aims that were published in 2012 to support the high-level strategy of ensuring that end user consumers and businesses benefit from the U.K. payment networks. Feedback is sought on the extent to which those aims have been achieved.
HM Treasury also discusses the main incentives for new payment systems and services, covering the New Payments Architecture, Faster Payments, the impact of Open Banking on how the systems are used, trends towards new service providers and payment chains and development in cross-border payments. The call for evidence also reflects on the wider work being undertaken on crypto-assets and stablecoins.
View the call for evidence on the U.K.'s payments landscape. -
European Central Bank Publishes Results of Bank COVID-19 Vulnerability Analysis
07/28/2020
The European Central Bank Banking Division has published the results of the COVID-19 vulnerability analysis it conducted on Eurozone banks directly prudentially supervised under the Single Supervisory Mechanism. The analysis was designed to establish how 86 Eurozone banks would be impacted by the COVID-19 pandemic and any vulnerabilities that may arise over a three-year horizon.
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UK Prudential Regulation Authority Announcement on Bank Dividend Payments and Share Buybacks Beyond 2020
07/28/2020
The U.K. Prudential Regulation Authority has published an announcement on its approach to dividend payments and share buybacks by large U.K. banks subject to its prudential supervision, in light of COVID-19. The PRA states that it intends to assess firms' plans for distributions beyond 2020 in Q4 2020, taking into account banks' current and projected capital positions and the level of uncertainty around the economy, market conditions and capital trajectories at that time.
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UK Prudential Regulator Publishes Policy Statement on Asset Encumbrance
07/27/2020
The U.K. Prudential Regulation Authority has published a Policy Statement on asset encumbrance, relevant to all PRA-regulated firms other than credit unions and insurance firms. The Policy Statement takes account of the PRA's consultation on its proposed expectations of how firms manage prudential risks associated with asset encumbrance. "Encumbered assets" are those that are used to secure, collateralize or credit-enhance a transaction and so cannot be freely transferred or liquidated by the pledging party. The PRA's consultation aimed, among other things, to ensure that firms: (i) put in place, and document, adequate risk management processes to monitor the potential impacts of asset incumbrance; (ii) appropriately consider the effects that increased asset encumbrance may have on the restoration of financial viability during a stress scenario; and (iii) ensure that asset encumbrance levels do not unduly impact the amount and cash value of assets that could be lent against in resolution.
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European Central Bank Publishes Recommendation on Bank Dividend Distributions During COVID-19
07/27/2020
The European Central Bank has published an updated Recommendation on dividend distributions by significant institutions that are directly prudentially supervised by the ECB. The Recommendation states that, until January 1, 2021, no dividends should be paid out for the financial years 2019 and 2020, nor should share buy-backs aimed at remunerating shareholders take place. Banks that consider themselves legally required to pay out dividends should explain their underlying reasons to their joint supervisory team. Banks that plan to pay dividends to a non-Eurozone parent institution, parent financial holding company or parent mixed financial holding company should also discuss their intentions with their joint supervisory team.
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European Commission Publishes Capital Markets Recovery Package in Response to COVID-19 Pandemic
07/24/2020
The European Commission has published a series of proposed legislative amendments to reduce the burden on financial institutions during the coronavirus pandemic in relation to their obligations under the EU Securitization Regulation, the Markets in Financial Instruments Directive and the Prospectus Regulation. The package is referred to as the Capital Markets Recovery Package and is designed to make it easier for companies to raise capital and increase banks' capacity to finance the recovery.
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European Central Bank Consults on Compounded €STR Rates
07/24/2020
The European Central Bank has launched a consultation on proposals to publish compounded term rates based on the euro short-term rate (€STR). The consultation closes on September 11, 2020. The ECB is requesting feedback on specific characteristics of the compounded rate using €STR. Publication would take place on a daily basis shortly after the €STR publication. Published maturities could range from one week up to one year. A daily index, making it possible to compute compounded rates over non-standard periods, is also envisaged.
View the ECB's consultation paper on compounded term rates based on €STR. -
European Banking Authority Consults on Technical Standards on Pillar 2 and Combined Buffer Requirements for MREL under BRRD
07/24/2020
The European Banking Authority has launched a consultation on its draft Regulatory Technical Standards for the methodology that EU resolution authorities should use to estimate the Pillar 2 and combined buffer requirements used to set the minimum requirement for own funds and eligible liabilities under the EU Bank Recovery and Resolution Directive. Responses to the consultation should be submitted by October 24, 2020. The draft RTS are intended to be finalized by December 2020.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Consults on Technical Standards on Impracticability of Contractual Recognition of Bail-In
07/24/2020
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards and draft Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e. bail-in) powers under the EU Bank Recovery and Resolution Directive. Responses to the consultation should be submitted by October 24, 2020.
Read more.TOPIC : Recovery & Resolution -
European Central Bank Published Good Practice Guidance on Preparation for Benchmark Rate Reforms
07/23/2020
The European Central Bank has published a report on the results of its industry-wide assessment of Eurozone banks’ readiness for the benchmark interest rate reforms, which affect both EONIA and EURIBOR in the euro area. The purpose of the report is to share good practices that the ECB has identified in its horizontal assessment of the preparedness of Eurozone banks supervised under the Single Supervisory Mechanism. According to the ECB, banks need to improve their preparation for the reforms and escalate their implementation of risk mitigation measures.
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European Banking Authority Consults on Technical Standards on Indirect Exposures
07/23/2020
The European Banking Authority has opened a consultation on proposed draft Regulatory Technical Standards on the determination of indirect exposures to clients of derivative and credit derivative contracts underlying a debt or equity instrument for large exposures purposes. The EU Capital Requirements Regulation, as amended by CRR 2, requires firms to add to the total exposures to a client the exposures arising from derivative contracts listed in Annex II of the CRR and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client. The proposed draft RTS set out how firms should determine exposures arising from derivative and credit derivative contracts not entered directly into with a client but whose underlying debt or equity instrument was issued by a client. The consultation closes on October 23, 2020.
View the EBA's consultation paper.
View details of CRR 2. -
UK Prudential Regulator Consults on Simplified Obligations for Bank Recovery Planning
07/23/2020
The U.K. Prudential Regulation Authority has published a consultation on simplified obligations for PRA-authorized banks, buildings societies, PRA-designated investment firms and their qualifying parent undertakings that are subject to the Recovery Plans Part of the PRA Rulebook. The consultation is primarily aimed at smaller and non-systemic firms. The PRA's consultation closes on October 23, 2020, after which it plans to publish a final Policy Statement on its proposals in the second half of 2020 or 2021.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Consults on Technical Standards for Estimating Default Probabilities and Losses Given Default under CRR 2
07/22/2020
The European Banking Authority has published draft Regulatory Technical Standards on the requirements for the internal methodologies or external sources to be used for estimating default probabilities and losses given default for firms subject to the revised Capital Requirements Regulation (CRR 2). Responses to the consultation should be submitted by October 22, 2020.
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UK Prudential Regulator Consults on Supervision of New and Growing Non-Systemic Banks
07/22/2020
The U.K. Prudential Regulation Authority has published a consultation on proposed changes to its supervision of new and growing non-systemic U.K. banks. The consultation will primarily be relevant to banks in their first few years of authorization as a PRA deposit-taker and prospective banks interested in, or currently, applying for deposit taker authorization. The PRA notes that some new and growing banks may have sufficient experience and resources to quickly move to the standard expected of established banks. In deciding which banks should be subject to its new policy, the PRA would consider each banks' case on its merits and apply supervisory judgement. Responses to the consultation should be submitted by October 14, 2020. The PRA expects the amendments set out in the consultation to take effect in the first half of 2021.
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Outcome of European Supervisory Authorities’ Review of PRIIPs Technical Standards Published
07/21/2020
The Joint Committee of the European Supervisory Authorities has published a letter addressed to the European Commission informing it of the outcome of the ESAs’ review of the Regulatory Technical Standards (Commission Delegated Regulation (EU) 2017/653) on the presentation, content, review and revision of a standardized “key information document” and the conditions for fulfilling the requirement to provide a KID. The RTS supplements the Packaged Retail and Insurance-based Investment Products Regulation, which introduced a requirement for manufacturers of PRIIPs to produce a KID with the intention of improving retail investors’ understanding of the financial products they were purchasing.
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EU Forbearance for Issuer’s Account for COVID-19-Related Lease Modifications
07/21/2020
The European Securities and Markets Authority has published a statement on coordination of supervisory action on issuers’ accounting for lease modifications in light of the coronavirus pandemic. Issuers have encountered challenges in accounting for the large number of lease modifications granted in many jurisdictions. The International Accounting Standards Board issued an amendment to IFRS 16 in May 2020 which provided practical relief for lessees.
Read more.TOPIC : COVID-19 -
UK Proposals to Tighten Financial Promotion Rules By Unauthorized Firms
07/20/2020
HM Treasury has released proposals to amend the U.K.’s financial promotion rules to provide increased consumer protection from misleading advertisements and a lack of suitable information. The U.K. financial promotion rules provide that a person may not communicate a financial promotion—an invitation or inducement to engage in an investment activity—unless the communication is exempt, the firm is authorized to carry on a regulated activity or the communication is approved by an authorized firm. Only financial promotions that are not real-time may be approved by an authorized person, and any approval must comply with the Financial Conduct Authority’s financial promotion rules. Any communication must be fair, clear and not misleading.
Read more.TOPIC : Consumer Protection -
UK Proposals to Extend Regulatory Perimeter to Capture Promotion of Unregulated Crypto-Assets
07/20/2020
HM Treasury has released proposals to amend the U.K.’s financial promotion rules to subject unregulated crypto-assets to the financial promotions regime. The Government proposals aim to enhance consumer protection, ensure market integrity and fight against financial crime. Responses to the consultation can be submitted until October 25, 2020. The Government is separately consulting on limiting the ability of authorized firms to approve financial promotions of unauthorized firms without consent from the Financial Conduct Authority.
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UK Establishes Independent FinTech Strategic Review
07/20/2020
The U.K. Economic Secretary to the Treasury, John Glen, has announced the establishment of the independent FinTech Strategic Review, which was first referenced in the 2020 Budget. The Review, which will be led by Ron Kalifa OBE, former CEO of Worldpay, aims to identify priority areas for industry, policy makers and regulators to investigate to facilitate the ongoing success of the U.K. fintech sector.
Read more.TOPIC : FinTech -
UK Plans to Accelerate Regulator’s Process for Cancelling Firm Authorization (in Certain Situations)
07/20/2020
HM Treasury has published a policy statement setting out how it intends to change the Financial Conduct Authority’s cancellation of authorization process for firms that are no longer carrying out regulated activities under the FCA’s remit. The FCA’s regulatory scope has expanded since the provisions were set out in the Financial Services and Markets Act 2000. HM Treasury is concerned that the inability of the FCA to act quickly to cancel a firm’s authorization and remove details of the firms from the Financial Services register may lead to consumer harm. The Government is therefore planning to add a simpler process whereby the FCA can remove a firm’s authorization where it suspects that the firm is no longer undertaking regulated activities, such as where a firm fails to pay its fees or file a regulatory return. The existing procedure, which requires the FCA to demonstrate that a firm is failing to fulfil the threshold conditions, has failed to carry on a regulated activity or that it is advantageous for the FCA to use its powers to meet its operational objectives, will not be amended. A bill to make the changes will be laid when Parliamentary time allows.
View the policy statement on changes to the FCA’s cancellation of authorization process.
Return to main website.TOPIC : Consumer Protection -
UK Conduct Regulator Consults on Extending Certification and Conduct Rules Implementation Deadlines
07/17/2020
Following the announcement of the extension for solo-regulated firms of the deadline for completion of firms' first assessments of the fitness and propriety of their Certified Persons from December 9, 2020, to March 31, 2021, the U.K. Financial Conduct Authority has opened a consultation on extending certain other implementation deadlines for the Certification Regime and Conduct Rules. The extension of the deadline for firms' first fitness and propriety assessments was agreed to by HM Treasury in light of the continuing impact of the coronavirus pandemic.
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HM Treasury Provides Guidance on Application of EU CRR Quick Fix Package During Brexit Transitional Period
07/16/2020
HM Treasury has published a statement on the application of the EU CRR Quick Fix package during the Brexit transitional period. The EU CRR Quick Fix package consists of a Regulation amending the Capital Requirements Regulation (and also amending the Regulation amending the CRR, known as CRR2) and it was published in the Official Journal of the European Union on June 26, 2020. The Regulation forms part of the EU's response to the coronavirus pandemic.
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UK Financial Services Sector Plan for Supporting COVID-19 Recovery
07/16/2020
TheCityUK, the U.K.'s industry body for financial and related professional services, has published a report entitled "Supporting UK Economic Recovery: Recapitalising Businesses Post COVID-19". The report sets out options for how large debt burdens incurred by small and medium-sized businesses as a result of COVID-19 can be managed. The report was prepared in consultation with financial and professional services firms, HM Treasury, the Bank of England and the Financial Conduct Authority.
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HM Treasury Consults on UK Implementation of CRD V
07/16/2020
HM Treasury has launched a consultation on the U.K.'s implementation of the EU amendments to the Capital Requirements Directive that were published in June 2019 (known as CRD V). EU Member States are required to implement the CRD V changes into their national regimes by December 28, 2020. As this is prior to the end of the U.K.'s Brexit transition period, the U.K must transpose those provisions of CRD V that are applicable before the end of the transition period into U.K. law under the terms of the EU-U.K. Withdrawal Agreement. HM Treasury's consultation relates only to those aspects of CRD V that must be implemented via legislation. The rest of CRD V will be implemented by the U.K. Prudential Regulation Authority through updates to the PRA rules. Responses to HM Treasury's consultation should be submitted by August 19, 2020.
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EU Sustainable Finance Group Publishes Principles for Recovery and Resilience
07/15/2020
The EU Technical Expert Group on Sustainable Finance has published a statement on five high-level principles for recovery and resilience. The statement is made in the context of the EU’s current discussions about recovery and resilience in response to the coronavirus pandemic. The TEG is proposing the five principles supported by recommendations for applying the EU’s Taxonomy to the EU’s recovery plan. The Taxonomy is set out in a recently adopted EU Regulation on the establishment of a framework to facilitate sustainable investment. The Taxonomy is a classification system for sustainable activities that is designed to provide a shared understanding of the environmental sustainability of activities and investments.
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Stage 2 Report on Enhancing Cross-Border Payments Published
07/13/2020
The Committee on Payments and Market Infrastructures has published a report on enhancing cross-border payments and building blocks of a global roadmap. The report forms the second stage of the G20’s three-stage process to develop a roadmap that will enable countries to enhance their cross-border payments systems. The Financial Stability Board published the Stage 1 report in April 2020, which identified existing challenges in cross-border payments systems and specified key “frictions” in the cross-border payments system that contribute to these challenges. The third stage will involve coordination between the FSB and CPMI, together with other international organizations, to compile a roadmap for implementing the improvements. The FSB published a statement welcoming the CMPI report and confirmed that it intends to publish the Stage 3 report, which will be the roadmap for enhancing cross-border payments, in October.
Read more.TOPIC : Payment Services -
Final EU Guidelines for Securitization Repositories Assessing Data Completeness and Consistency
07/10/2020
The European Securities and Markets Authority has published a final report and final guidelines on securitization repository data completeness and consistency thresholds. The guidelines will apply to EU securitization repositories that are registered with and supervised by ESMA. From January 1, 2021, ESMA will consider the guidelines in its supervision of securitization repositories.
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EU Consultation on Guidelines for SFT Position Reporting by Trade Repositories
07/09/2020
The European Securities and Markets Authority has published a consultation paper on proposed Guidelines on the calculation of positions in Securities Financing Transactions by trade repositories under the EU Securities Financing Transactions Regulation. The consultation closes on September 15, 2020. ESMA intends to finalize the Guidelines for publication in Q4 2020 or Q1 2021.
The proposed Guidelines aim to ensure consistency of position calculation by trade repositories to national regulators, including the time of calculations, the scope of the data used in calculations, the treatment of outliers, the recordkeeping of data and the calculation methodologies. They also aim to ensure a consistent methodology is used under SFTR and the European Market Infrastructure Regulation.
View the consultation paper. -
Basel Committee on Banking Supervision Finalizes Credit Valuation Adjustment Risk Framework
07/09/2020
The Basel Committee on Banking Supervision has published final revisions to the credit valuation adjustment risk framework under the Basel III standards. The updated international standard sets out the proposed regulatory capital treatment of CVA risk for derivatives and securities financing transactions. The CVA risk framework is designed to manage the risk of banks incurring mark-to-market losses from deterioration in the creditworthiness of counterparties in derivatives or SFTs. The framework was last revised in December 2017, partly to align it with the Basel Committee's market risk framework. The latest revisions include:
- The reduction of certain risk weights;
- The introduction of new index buckets and revised aggregation of CVA capital requirements;
- An amendment to the scope of portfolios subject to CVA risk capital requirements. SFTs, where the CVA risks stemming from such positions are not material, are excluded and certain client-cleared derivatives are exempt; and
- Revision of the overall calibration of the CVA risk framework, covering both the standardized and the basic approach.
View the updated CVA standard. -
UK Prudential Regulator Proposals to Extend Coverage under the Financial Services Compensation Scheme
07/09/2020
The U.K. Prudential Regulation Authority has opened a consultation on proposals for extending coverage of the Financial Services Compensation Scheme for temporary high balances. Responses to the consultation may be submitted until July 23, 2020. The PRA is proposing to extend coverage under the FSCS for temporary high balances, from six months to 12 months from the date of the deposit or the first date the balance becomes legally transferrable to the depositor. The coverage would revert to six months from February 1, 2021. The proposal is made because of the impact of COVID-19 on consumers.
View the consultation paper. -
Financial Stability Board Makes Recommendations to Support LIBOR Transition
07/09/2020
The Financial Stability Board and Basel Committee on Banking Supervision have published a report to the G20 on supervisory issues associated with benchmark transition. The report focuses on the transition away from using LIBOR, but is relevant to other Interbank Offered Rates. The report presents the findings of a survey on the status of the move from using LIBOR, whose usage U.K. regulators are attempting to cease from the end of 2021, and sets out recommendations for relevant authorities and supervisors.
Read more.TOPIC : LIBOR Transition -
European Commission Publishes Notices to Financial Services Stakeholders on UK Withdrawal from EU
07/07/2020
The European Commission has published a series of updated notices, including many addressed to firms operating in the financial services industry, on the actions that should be taken to prepare for the end of the transition period following the U.K.'s withdrawal from the EU on January 31, 2020. The transition period ends on December 31, 2020. The notices most relevant to the financial services industry relate to asset management, banking and payment services, credit ratings agencies, emissions trading systems and consumer protection and passenger rights. They update and replace the notices originally published in 2018.
Read more.TOPIC : Brexit for Financial Services -
European Commission Consults on Proposed Revisions to EU Cybersecurity Rules
07/07/2020
The European Commission has launched a consultation on proposed revisions to the EU Directive on the security of network and information systems across the Union (commonly known as the NIS Directive), which is designed to protect the security of EU network and information systems. The NIS Directive sets out, among other things, the parameters of national network and information security strategies to be implemented by Member States for providers of "essential services", which include credit institutions (as defined under the EU Capital Requirements Regulation) and financial market infrastructures.
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European Central Bank Publishes Guideline on Default Definition for Less Significant Eurozone Institutions
07/07/2020
The European Central Bank, Banking Supervision division has published a guideline harmonizing the threshold for assessing the materiality of credit obligations past due for the purposes of default assessments under the EU Capital Requirements Regulation. CRR defines the circumstances in which an obligor under a credit obligation will be deemed to be in default. The materiality of the credit obligation is relevant for these purposes, and CRR grants competent authorities the discretion to determine, according to their view of a reasonable level of risk, the threshold against which materiality should be measured.
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European Banking Authority Report on Implementation of EU Prudential Framework During COVID-19
07/07/2020
The European Banking Authority has published a report on the implementation of certain prudential policies introduced by the EBA to deal with the effects of the COVID-19 pandemic. The report focuses on two areas in particular: implementation issues around the EBA's Guidelines on legislative and non-legislative moratoria on loan repayments and the criteria that institutions should follow for the identification and treatment of operational risk events and losses.
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Financial Action Task Force Publishes 12-Month Review on Revised FATF Standards for Virtual Assets
07/07/2020
The FATF has published the results of its 12-month review into the revised FATF standards published in June 2019, designed to help tackle money laundering and terrorist financing risks connected with virtual assets and virtual asset service providers. The FATF's revised standards introduced a new Interpretive Note to Recommendation 15 on New Technologies, which clarified how countries should apply the FATF standards to virtual assets and VASPs, as well as updated guidance on a risk-based approach for virtual assets and VASPs. When the revisions were published, the FATF undertook to conduct a 12-month review of the changes.
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European Commission Publishes Proposed Roadmap on Capital Markets Union Action Plan
07/07/2020
The European Commission has published a proposed Roadmap setting out details of its new Action Plan on the Capital Markets Union. The CMU is an EU initiative seeking to enhance and further integrate the capital markets of EU Member States. An action plan to develop the initiative was first adopted in 2015 and has been commented upon and updated since then, most recently in June 2020 when a High-Level forum on the CMU published a final report with 17 recommendations for advancing the CMU.
Read more.TOPIC : Securities -
Financial Action Task Force Report on Stablecoins
07/07/2020
The Financial Action Task Force has published a report on issues of anti-money laundering and counter-terrorism financing in relation to global stablecoins and stablecoins. The report was mandated by the G20 in October 2019, when it also published its own report on the impact of global stablecoins. The FATF uses the term "so-called stablecoins" in its report to avoid endorsing the use of the phrase "stablecoins", which it views as a marketing term used by promoters of such coins. The term "so-called stablecoins with the potential for mass production" refers to global stablecoins. The FATF has, in parallel, published a 12-month review of its revised FATF standards on virtual assets and virtual asset service providers setting out areas in which the FATF intends to provide updated guidance to cover newly identified risks and provide clarifications.
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UK Resolution Authority Provides Clarity on Impact of LIBOR Transition on Bail-In and Stays Clauses
07/07/2020
Following the letter published on December 18, 2019, to the Chair of the Working Group on Sterling Risk-Free Reference Rates, which provided clarification on the impact that the LIBOR transition is likely to have on the prudential requirements for banks, the Prudential Regulation Authority has published a statement providing clarity on the implications of LIBOR transition for contracts in scope of the PRA’s rules on Contractual Recognition of Bail-In and Stay in Resolution. The PRA states that, where the sole purpose of an amendment to a liability or a financial arrangement is to cease using LIBOR, the amendment should not be considered a material amendment under the PRA rules.
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UK Conduct Regulator Statement on Open Access Regime for Exchange-Traded Derivatives
07/06/2020
The U.K. Financial Conduct Authority has published an updated statement on the open access regime for trading and clearing exchange-traded derivatives. The Markets in Financial Instruments Regulation provided a temporary opt-out from the open access requirements for trading venues and clearing houses in relation to ETDs. The opt-out was due to expire on July 3, 2020. However, in light of COVID-19, the EU has announced it is postponing the implementation of the open access regime for ETDs until July 3, 2021. The FCA's statement acknowledges the EU's postponement of the regime and states that the amended open access regime will form part of retained EU law that will be transposed by the U.K. post-Brexit and will continue to apply in the U.K. after the end of the transition period.
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UK Government Publishes Global Human Rights Sanctions Regulations 2020
07/06/2020
HM Treasury has published the Global Human Rights Sanctions Regulations 2020, a new piece of U.K. legislation designed to target those involved in serious violations of human rights. The Regulations come into force on July 6, 2020. They apply to relevant conduct by any person across the whole of the U.K. but also have extra-territorial effect, additionally applying to conduct by U.K. persons (including U.K. incorporated companies and overseas branches of such companies) outside the U.K. and by any person in the territorial sea adjacent to the U.K.
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EU Notice on Postponement of Open Access Provisions for Exchange-Traded Derivatives
07/03/2020
A notice of information has been published in the Official Journal of the European Union, postponing the entry into application of open access provisions for exchange-traded derivatives under the Markets in Financial Instruments Regulation until July 3, 2021.
MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades in transferable securities, money market instruments and ETDs concluded on a trading venue of their choice. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions have been in force for over-the-counter products (i.e. those not traded on a regulated market) for some time. The European Securities and Markets Authority published a statement in June 2020 setting out the circumstances in which trading venues and CCPs may refuse requests for access, acknowledging the strain placed on trading venues and CCPs by COVID-19, which may impact their ability to deal with such requests.
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Basel Committee on Banking Supervision Publishes Final Updated AML Guidelines
07/02/2020
The Basel Committee on Banking Supervision has published final updated guidelines on the "Sound management of risks related to money laundering and financing of terrorism". The updated guidelines apply to all banks, banking groups and relevant regulators.
The updated guidelines include detailed guidance on the interaction between prudential and AML/CFT supervision to enhance the effectiveness of the supervision of banks' AML/CFT regimes. The updated guidelines also merge and replace two other Basel Committee documents, namely Customer due diligence for banks (October 2001) and Consolidated KYC risk management (October 2004). The guidelines should be read in conjunction with other Basel Committee papers, such as the Core principles for effective bank supervision, as well as relevant guidance published by the Financial Action Task Force.
View the updated guidelines. -
Financial Stability Board Statement on COVID-19 Impact on Benchmark Reform
07/01/2020
The Financial Stability Board has published a statement on the impact of COVID-19 on global benchmark reforms. Although the FSB acknowledges some aspects of benchmark reform will be delayed due to the effects of COVID-19, many areas can go on as planned and the FSB considers that firms should continue to make wider use of risk-free rates to reduce reliance on IBORs. Firms should also ensure their transition programs facilitate a transition away from LIBOR before the end of 2021. The FSB will publish a report on the remaining challenges for benchmark transition later in July.
View the FSB's statement on the impact of COVID-19 on LIBOR benchmark reform. -
Financial Action Task Force Sets out Priorities for 2020-2022
07/01/2020
The new German Presidency of the Financial Action Task Force commences today and has set out its objectives for 2020-2022.
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Final EU Guidelines on the Treatment of Structural FX Under Capital Requirements Regulation
07/01/2020
The European Banking Authority has published final guidelines on the implementation of the structural FX provision under the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae but permits institutions to exclude positions that have been taken for hedging purposes and that are structural. The guidelines will apply to both firms and national regulators from January 1, 2022, to allow firms time to comply with the new framework. However, regulators should review, update or revoke permissions already granted before the guidelines apply.
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UK Conduct Regulator Announces Expectations for Approved Persons Regime for Benchmark Administrators During COVID-19
06/30/2020
The U.K. Financial Conduct Authority has announced its expectations for benchmark administrators and firms using Appointed Representatives that are subject to the Approved Persons Regime during COVID-19. The APR has been superseded by the Senior Managers and Certification Regime for most solo- and dual-regulated firms. However, as benchmark administrators were a new category of authorized firm, they were granted a one-year extension from the roll-out of the SM&CR and so remain subject to the APR until December 7, 2020, when the SM&CR for benchmark administrators that do not undertake other regulated activities will be implemented.
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UK Prudential Regulator Statement on EU CRR ‘Quick Fix’ Package
06/30/2020
The U.K. Prudential Regulation Authority has published a statement on the EU Capital Requirements Regulation ‘Quick Fix’ package, confirming that it applies directly to all PRA-regulated firms. The CRR Quick Fix package has applied across the EU since June 27, 2020. The CRR Quick Fix package is part of the EU’s response to the coronavirus pandemic.
In its statement, the PRA confirms that U.K.-regulated banks already applying the CRR transitional arrangements for IFRS 9 must implement the revised calculations as a result of the Quick Fix package, which extended by two years the transitional measures for the implementation of IFRS 9. In addition, a bank contemplating ceasing to apply the IFRS 9 transitional measures must first obtain PRA approval to do so. The PRA is encouraging those banks to submit their requests by July 31, 2020, which requests must include a written explanation of the basis on which senior management has satisfied itself with the continuing adequacy of the bank’s financial resources.
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Financial Action Task Force Consults on Updating Guidance for Proliferation Financing Risks
06/30/2020
The Financial Action Task Force has opened a consultation on amendments to Recommendation 1 and its Interpretive Note. Recommendation 1 provides guidance on assessing risks and applying a risk-based approach to money laundering and terrorist financing risks. The FATF is proposing to update the Recommendation to require countries and the private sector to identify and assess risks of potential breaches, non-implementation or evasion of the targeted financial sanctions obligations referred to in Recommendation 7 linked to proliferation financing risks. Responses to the consultation may be submitted until August 31, 2020. The FATF intends to consider the feedback at its plenary session in October 2020.
View the consultation paper. -
Extension of Fitness and Propriety Assessments for UK FCA-Regulated Firms
06/30/2020
The U.K. Financial Conduct Authority has announced the extension for solo-regulated firms of the deadline for completion of firms’ first assessments of the fitness and propriety of their Certified Persons. In light of the impact of the coronavirus pandemic on financial institutions, HM Treasury agreed to extend the deadline from December 9, 2020, to March 31, 2021, although the legislation to formalize the extension is yet to be finalized. The FCA states that firms that are able to carry out their assessments before the March 2021 deadline, should do so.
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UK Legislation Made to Onshore EMIR 2.2
06/26/2020
The U.K. has published Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 to onshore the new EU regime for third-country CCPs introduced by amendments to the European Market Infrastructure Regulation, known as EMIR 2.2. EMIR 2.2, which has applied since January 1, 2020, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K.
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UK Prudential Regulator Updates Statement on Regulatory Reporting
06/26/2020
The U.K. Prudential Regulator has announced that, given the time firms have had to adjust to working during COVID-19 and the need for prudential regulators to access data in a timely manner, the PRA expects that, in general, firms will submit regulatory reports on time going forward. Firms experiencing difficulty with this should contact their supervisor. This amends the statement made by the PRA on April 2, 2020, when it stated that it would accept delayed submission of certain regulatory returns with deadlines on or before May 31, 2020. The PRA's previous statement, which confirmed its flexibility on receiving firms' Pillar 3 disclosures, still stands, although the PRA notes that it does not expect publication timelines for Pillar 3 disclosures to be affected by COVID-19 in most cases.
View the PRA's statement on regulatory reporting during COVID-19.
View the PRA's April statement on regulatory reporting. -
EU Banking ‘Quick Fix’ Regulation Published
06/26/2020
A new EU Regulation amending the Capital Requirements Regulation (and also amending the Regulation amending the CRR, known as CRR2), has been published in the Official Journal of the European Union. It is known as the CRR Quick Fix package and applies from June 27, 2020. The Regulation forms part of the EU’s response to the coronavirus pandemic.
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International Organization of Securities Commissions Proposes Artificial Intelligence Requirements for Market Intermediaries and Asset Managers
06/25/2020
The International Organization of Securities Commissions has issued a consultation on proposed guidance on the use of artificial intelligence and machine learning by market intermediaries and asset managers. The draft guidance is intended to assist IOSCO member jurisdictions to develop appropriate regulatory frameworks to mitigate the risks arising from the increased use of AI and ML by financial institutions. Comments on the draft Guidance can be submitted until October 26, 2020.
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EU Amends Technical Standards on Prudent Valuation in Response to COVID-19
06/25/2020An EU Regulation amending the Regulatory Technical Standards on prudent valuation has been published in the Official Journal of the European Union. The amending Regulation amends Delegated Regulation (EU) No 101/2016 (which supplements the EU Capital Requirements Regulation) by increasing the aggregation factor applicable to the core approach from 50% to 66% until December 31, 2020, with the aim of it applying for the June 30, 2020, COREP reporting. The amending Regulation applies from June 26, 2020.
View the amending Regulation. -
European Banking Authority Publishes Final Draft Technical Standards for Public Disclosures and Reporting Requirements Under CRR II
06/24/2020
The European Banking Authority has published its final reports and draft Implementing Technical Standards for public disclosures and supervisory reporting requirements under the revised EU Capital Requirements Regulation. CRR implements the Basel Committee on Banking Supervision's Pillar 3 disclosure requirements, which require banks to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR, published in June 2019, incorporates the revised Basel Committee disclosure standards and mandates the EBA to produce the draft ITS to ensure comparability of the disclosures made with international non-EU active banks.
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European Banking Authority Publishes Final Draft Technical Standards for Public Disclosures and Reporting Requirements Under CRR II
06/24/2020
The European Banking Authority has published its final reports and draft Implementing Technical Standards for public disclosures and supervisory reporting requirements under CRR II. The EU Capital Requirements Regulation implements the Basel Committee on Banking Supervision's Pillar 3 disclosure requirements, which require banks to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR, published in June 2019, incorporates the revised Basel Committee disclosure standards and mandates the EBA to produce the draft ITS to ensure comparability of the disclosures made with international non-EU active banks.
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UK Regulator Publishes Discussion Paper on New Investment Firm Prudential Regime
06/23/2020
The U.K. Financial Conduct Authority has published a discussion paper setting out its initial views on establishing a new Investment Firm Prudential Regime. The EU introduced a new prudential regime for EU investment firms through the Investment Firm Regulation and the Investment Firm Directive, which will (mostly) apply from June 26, 2021. The U.K. encouraged the introduction of the EU IFD and IFR while it was a member of the EU. However, the U.K. will not implement the IFR and IFD into U.K. laws as they come into force after the U.K. has left the EU and after the Brexit transitional period ends.
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HM Treasury Consults on UK Transposition of Revised EU Bank Recovery & Resolution Directive
06/23/2020
HM Treasury has launched a consultation on the U.K.'s intended transposition of the revised EU Bank Recovery and Resolution Directive (known as BRRD 2). BRRD 2 came into force in June 2019 and introduced a series of amendments to BRRD. EU Member States are required to transpose BRRD 2 into their national laws and apply the provisions by no later than December 28, 2020, except for provisions relating to Minimum Requirements for Own Funds and Eligible Liabilities, which apply from January 1, 2024. Under the terms of the Brexit Withdrawal Agreement, the U.K. government has committed to implementing all EU legislation due to be transposed before the end of 2020. HM Treasury has confirmed that, as the implementation of MREL provisions is not required until 2024, the U.K. intends to exercise its discretion to transpose those requirements. The U.K. already has a MREL framework which is based on the Financial Stability Board's Total Loss Absorbing Capacity standards.
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HM Treasury Updates Policy Statement on Prudential Standards for Investment Firms in UK Financial Services Bill
06/23/2020
HM Treasury has published an updated policy statement on its proposals for the prudential standards in the U.K.'s upcoming Financial Services Bill. The Financial Services Bill will set out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. HM Treasury published its original policy statement on the proposed prudential regime in March 2020, setting out its plans to: (i) complete the U.K.'s implementation of the remaining Basel III standards; and (ii) establish a new prudential regime for U.K. investment firms.
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EU Sustainable Finance Taxonomy Regulation Published
06/22/2020
A new EU Regulation on the establishment of a framework to facilitate sustainable investment (commonly referred to as the Taxonomy Regulation) has been published in the Official Journal of the European Union. The Taxonomy is a classification system for sustainable activities that is designed to provide a shared understanding of the environmental sustainability of activities and investments. The Regulation sets out the environment objectives for the Taxonomy and the criteria for determining whether an economic activity qualifies as environmentally sustainable. It also makes various amendments to the Sustainable Finance Disclosure Regulation, including requiring the European Supervisory Authorities to develop regulatory technical standards specifying the content and presentation of information demonstrating that a given investment does not significantly harm relevant environmental objectives.
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UK Conduct Regulator Consults on Permanent Ban for Marketing Speculative Illiquid Securities to Retail Investors
06/18/2020
The U.K. Financial Conduct Authority has launched a consultation on its proposals to make permanent its ban on the mass-marketing of speculative illiquid securities to retail investors. The FCA’s temporary product intervention measures, restricting the sale of speculative illiquid securities to retail investors other than sophisticated or high net worth investors, came into force on January 1, 2020 for a period of one year. The FCA’s consultation sets out the FCA’s plan for making the measures permanent and extending them to include listed bonds with similar features to speculative illiquid securities that are not regularly traded. Responses to the consultation should be submitted by October 1, 2020.
Read more.TOPIC : Consumer Protection -
European Banking Authority Publishes Amended Draft Technical Standards for Passport Notifications
06/18/2020
The European Banking Authority has published amending draft Regulatory Technical Standards and Implementing Technical Standards on passporting notifications under the fourth Capital Requirements Directive. CRD4 requires an EU bank wishing to establish a branch in another EU Member State to notify the national regulator of its home Member State of certain information. In the event of any changes in the information supplied, the relevant bank must notify the national regulators of both the home and host Member State at least one month prior to the change coming into effect. In 2014, the EBA produced RTS on the information to be provided to the national regulators in connection with the exercise of these passporting rights, and ITS on the forms, templates and procedures for such notifications.
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European Banking Authority Extends Payments Moratoria Guidelines
06/18/2020
The European Banking Authority has extended the applicability of its Guidelines on legislative and non-legislative loan repayments in light of the ongoing effects of COVID-19. The Guidelines were originally published in April 2020 and stated that, where payment moratoria were based on national law or a private-sector initiative broadly applied by credit institutions in response to COVID-19, they would not be classified as forbearance or distressed restructuring measures. The Guidelines as originally published applied to moratoria applied before June, 30 2020. That deadline has now been extended to moratoria applied before September 30, 2020.
View the EBA's updated statement on its Guidelines on payments moratoria.
View details of the EBA's original statement on its Guidelines on payments moratoria. -
European Banking Authority Publishes Peer Review of Deposit Guarantee Scheme Stress Test Results
06/17/2020
The European Banking Authority has published the results of its peer review of EU deposit guarantee schemes. The EU Deposit Guarantee Scheme Directive establishes requirements for EU DGSs, including that Member States conduct stress tests of their DGSs. Member States were required to report on their stress tests by July 3, 2019, and the EBA has based its peer review report on the results of the tests. The report is intended to assess the resilience of EU DGSs and identify good practices and areas for improvement.
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UK Publishes Post-Brexit Cyber Sanctions Regulations
06/17/2020
The U.K. Government has published the Cyber (Sanctions) (EU Exit) Regulations 2020 and an explanatory memorandum. The Regulations are made under the Sanctions and Anti-Money Laundering Act 2018, which was introduced to enable the U.K. Government to implement international sanctions following its departure from the EU. The majority of the SAMLA provisions entered into force on November 22, 2018. The purpose of the Regulations is to ensure that the U.K. has an effective cyber sanctions regime at the end of transitional period (currently scheduled for December 31, 2020) as part of the U.K.'s exit from the EU.
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UK Payment Systems and Conduct Regulators Publish Joint Statement on Access to Cash
06/16/2020
The U.K. Payment Systems Regulator and U.K. Financial Conduct Authority have published a joint statement on their approach to maintaining access to cash for those that need it in light of bank branch and cash machine closures due to COVID-19. The regulators have adopted a series of actions, including mapping which regions have seen branch and cash machine closures, working with banks, building societies, the Post Office and Link to ensure access to these facilities is re-established as soon as possible and focusing on the needs of vulnerable consumers who require ongoing access to cash. In the longer-term, the regulators will work to ensure reasonable access to cash is maintained, including through use of shared services and local community initiatives, and anticipate additional powers to preserve access to cash from upcoming legislation announced in the U.K. Government’s 2020 budget.
View the PSR's statement on access to cash.
View the FCA's statement on access to cash.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Working Group on Risk-Free Rates Publishes Recommendation on Voluntary Compensation for Swaptions
06/16/2020
The EU Working Group on Risk-Free Rates has published its recommendation on voluntary compensation for swaptions affected by the CCP discounting transition from EONIA to €STR. The recommendation follows the Working Group’s March 2020 consultation on the topic. The Working Group recommends that counterparties exchange voluntary compensation for relevant legacy swaption contracts and that market participants contact their swaption counterparties promptly to determine whether compensation is required.
Read more.TOPIC : LIBOR Transition -
European Banking Authority Call for Input on Impact of De-Risking on Financial Institutions and Consumers
06/15/2020The European Banking Authority has launched a call for input to understand why financial institutions choose to “de-risk” (meaning they elect not to service a particular customer or category of customers on the basis of higher money laundering and terrorist financing risks) instead of managing the risks of working with those customers. Responses are sought from financial institutions and end users by September 11, 2020. The call for input will inform the EBA’s Opinion on the risks of money laundering and terrorist financing affecting the EU’s financial sector.
View the EBA's call for input. -
European Securities and Markets Regulator Publishes 2019 Annual Report and Updated 2020 Work Program
06/15/2020
The European Securities and Markets Authority has published its 2019 Annual Report together with an updated version of its 2020 Work Program, incorporating changes in response to the COVID-19 pandemic.
ESMA’s 2019 Annual Report discusses ESMA’s work in 2019, which included: (a) the entry into force of EMIR 2.2, including significant new responsibilities for ESMA in the authorization and supervision of CCPs; (b) ESMA’s common supervisory action on the application of the revised Markets in Financial Instrument Directive’s requirements on the assessment of appropriateness, for which ESMA will consider whether any follow-up work is needed in 2020; (c) reviews of MiFID II and the Markets in Financial Instruments Regulation, including on fair access to, and lowering the cost of, market data and the consolidated tape; and (d) sustainable finance, including technical advice delivered to the European Commission on the integration of sustainability risks for investment firms and investment funds into relevant EU legislation, a report on undue short-termism in securities markets and contributions to the technical expert group on sustainable finance which is due to deliver technical advice on delegated legislation relating to the EU Benchmarks Regulation.
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UK Government Amends Sanctions Legislation
06/13/2020
HM Treasury has published the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations and the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations, amending certain aspects of the U.K. sanctions regime. The legislation is made under the Sanctions and Anti-Money Laundering Act 2018, which was introduced to enable the U.K. Government to implement international sanctions following its departure from the EU. The majority of the SAMLA provisions entered into force on November 22, 2018.
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European Commission Consults on Proposed EU Green Bond Standard
06/12/2020
The European Commission has published a consultation on the establishment of an EU Green Bond Standard. The EU's GBS initiative forms part of the European Green Deal, which aims to increase the EU's climate action and environmental policy ambitions. The proposed GBS will establish standards and labels for green financial products and instruments. In June 2019, the EU Technical Expert Group on Sustainable Finance published a report on the proposed GBS, setting out ten recommendations for the substance of the GBS and for how market participants and regulators could support and monitor it. In March 2020, the TEG also published a Usability Guide to the GBS, setting out the TEG's views on its application, including confirming its view that the GBS should be voluntary. The TEG's March 2020 report also included a series of recommendations for the secondary legislation to be published in connection with the EU's proposed Taxonomy Regulation. The Commission and TEG recently published joint FAQs on the EU taxonomy and GBS.
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FICC Markets Standards Board Publishes Case Studies for Managing LIBOR Transition Conduct Risks
06/11/2020
The FICC Markets Standards Board has published a Spotlight Review on case studies for navigating conduct risks during the LIBOR transition, which is due to be completed by the end of 2021. The Review will be of interest to all market participants, including sell-side, buy-side and corporates. It is intended to assist in the identification and management of conduct risks related to the LIBOR transition. The Review assesses risks to market fairness and effectiveness that could arise during the LIBOR transition and discusses how market participants could tackle these risks. Using practical case studies, the Review draws attention to how uncertainties might lead to decision-making challenges for market participants offering new products to clients or changing performance benchmarks.
The U.K. Financial Conduct Authority published a statement in November 2019 setting out its expectations of firms relating to governance and accountability, replacing LIBOR with alternative rates in existing contracts, offering new products with alternative rates, communicating with customers about the transition from LIBOR and best practice for firms investing on behalf of clients.
View the FMSB Spotlight Review on case studies for navigating LIBOR transition conduct risks.
View the FCA's statement on conduct risks.TOPIC : LIBOR Transition -
European Commission Publishes Draft Delegated Regulation on Fees Charged to Third-Country Central Counterparties
06/11/2020
The European Commission has published a draft delegated regulation on the fees charged by the European Securities and Markets Authority to central counterparties established in third-countries that are recognized by ESMA and able to provide clearing services in the EU. The draft regulation will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. EMIR 2.2, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulation can be submitted until July 9, 2020.
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EU Statement on Open Access Requests for Exchange-Traded Derivatives
06/11/2020
The European Securities and Markets Authority has published a statement on the open access provisions for exchange-traded derivatives under the Markets in Financial Instruments Regulation.
MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades in transferable securities, money market instruments and ETDs concluded on a trading venue of their choice, which will in turn allow the members of a trading venue to select the CCP they wish to use for clearing. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions are controversial since they mean that valuable intellectual property and IT systems developed by exchanges effectively must be made available to competitors or new market entrants. It has been argued that the open access requirements make the EU unattractive as a location for exchange businesses due to the commercial disadvantages that result for those exchanges which have successfully invested in innovation.
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European Commission Publishes Draft Delegated Regulations on Criteria for Tiering of Third-Country CCPs and on Comparable Compliance
06/11/2020
The European Commission has published two draft delegated regulations, the first is on the criteria for determining whether a third-country CCP is systemically important and the second is on the minimum elements to be assessed by the European Securities and Markets Authority when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of that assessment. The draft regulations will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. “EMIR 2.2” is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulations can be submitted until July 9, 2020.
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Bank of England Confirms Daily Compounded SONIA Index
06/11/2020
Following the discussion paper published on February 26, 2020, the Bank of England has announced that it will begin publishing a daily compounded Sterling Overnight Index. It is expected that this will start in early August, although the BoE will confirm the date in due course. The daily compounded index would represent the return on an investment earning daily interest at the SONIA rate; market participants could calculate the interest payable on their instruments by reference to the change in the index between two dates. The BoE has decided not to proceed with publishing the proposed SONIA period averages due to lack of industry consensus on the usefulness of such data and the underlying conventions. The BoE will consider producing this data if market participants are able to reach a more united view.
Read more.TOPIC : LIBOR Transition -
European Commission Publishes FAQs on Sustainable Finance Initiatives
06/10/2020
The European Commission has published Frequently Asked Questions on the EU taxonomy and Green Bond Standard. The EU taxonomy is a classification system that will create a common language for sustainable activities, to help determine whether an economic activity is environmentally sustainable. The Green Bond Standard establishes labels for financial products that are judged to be "green". The taxonomy and Standard are two products of the Commission's 2018 Action Plan on Financing Sustainable growth.
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Final Recommendations on EU Capital Markets Union Published
06/10/2020
The High Level Forum on the Capital Markets Union has published its final report setting out 17 recommendations aimed at moving the EU’s capital markets forward and completing the Capital Markets Union. The recommendations are grouped into four main clusters, which focus on: (i) creating a vibrant and competitive business environment; (ii) building stronger and more efficient market infrastructure; (iii) fostering retail investments in capital markets; and (iv) going beyond boundaries across the internal market.
Read more.TOPIC : Securities -
UK Regulators Acknowledge European Systemic Risk Board Recommendation on Financial Institution Distributions
06/08/2020
The Bank of England and U.K. Prudential Regulation Authority have publicly acknowledged the ESRB's Recommendation on the restriction of distributions during COVID-19. The ESRB recommends that EU financial institutions refrain from making dividend distributions, entering into buy-backs of ordinary shares or creating obligations to pay variable remuneration to material risk takers where those actions reduce the quantity or quality of own funds at the EU group level and sub-consolidated or individual level. The BoE and PRA note that the Recommendation applies to U.K. authorities during the Brexit transition period.
View the BoE and PRA's joint statement on the ESRB's Recommendation.
View details of the ESRB's Recommendation.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Systemic Risk Board Announces Further Actions to Combat Impact of COVID-19
06/08/2020
The European Systemic Risk Board has announced a series of further actions designed to combat the impact of COVID-19 on European financial markets. The actions relate to the five priority areas already identified by the ESRB as requiring particular focus in the context of the COVID-19 pandemic, as follows:- Implications for the financial system of guarantee schemes and other fiscal measures to protect the economy: the ESRB has published a Recommendation introducing minimum requirements for national monitoring of the financial stability implications of the various debt moratoria and guarantee schemes introduced by Member States to support economies through COVID-19 (Recommendation A); national regulators are also advised to regularly report information on these schemes to the ESRB in accordance with reporting templates to be published by the ESRB by June 30, 2020 (Recommendation B); national regulators implicated by the Recommendation should communicate the actions they have taken, or intend to take, in response to the Recommendation A by July 31, 2020 and Recommendation B by December 31, 2020;
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Final EU Guidelines on Compliance Function Requirements Under MIFID II
06/05/2020
The European Securities and Markets Authority has published final guidelines on the compliance function requirements that are set out in the revised Markets in Financial Instruments package. The final guidelines replace ESMA's 2012 guidelines issued under MiFID I.
Read more.TOPIC : MiFID II -
UK Conduct Regulator Publishes Guidance on Branch Access During COVID-19
06/04/2020
The U.K. Financial Conduct Authority has published guidance for banks on continuing to make branch access available for essential services. In considering reopening and operating branches, banks should balance the needs of their customers against the safety and welfare of their staff. Maintaining access to essential services for vulnerable customers, such as access to cash, telephone banking and in-person payments, should be a particular priority. Firms should also prioritize the reinstatement of access to cash and essential services in local areas which have lost access to bank branches as a result of the pandemic, and, where this is not possible, should ensure they communicate clearly with customers through websites and physical signs at branches to point them to alternatives, including Post Office services.
View the FCA's guidance on branch access during COVID-19.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
UK Conduct Regulator Update on COVID-19 Response and 2020 Expectations
06/04/2020
The U.K. Financial Conduct Authority’s Executive Director of Supervision for Investment, Wholesale and Specialists, Megan Butler, has given a speech setting out the FCA’s current priorities, its expectations of firms during the COVID-19 pandemic and the outcomes it is focusing on for the wealth management sector, as well as the future priorities for financial regulation.
The FCA initially prioritized immediate relief for firms and consumers, including on mortgages and unsecured lending products, at the outset of the COVID-19 crisis, but is now looking at how it will respond to the challenges of COVID-19 on a more long-term basis. This longer-term approach includes ensuring a good level of operational resilience (in line with the FCA’s ongoing consultation on that topic), that markets can continue to function well, that customers are treated fairly and protected from scams and that the FCA understands firms’ financial resilience so that they can fail in an orderly manner.
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UK Prudential Regulator Publishes Further Guidance on IFRS 9 and Capital Requirements
06/04/2020
The U.K. Prudential Regulation Authority has published a “Dear CEO” letter providing further guidance on IFRS 9 and capital requirements in the context of COVID-19. The PRA published a “Dear CEO” letter in March 2020, advising firms on the application of certain key concepts (including the definition of "default" in the Capital Requirements Regulation and expected credit loss accounting under IFRS 9). This guidance related in large part to payment holidays, many of which are now coming to an end. The PRA’s latest guidance therefore focuses on exits from those initial payment deferrals.
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Bank of England Warns Financial Market Infrastructures Against Profit Distributions
06/04/2020
The Bank of England has written to CEOs of U.K. financial market infrastructure providers, urging them to carefully consider the additional risks and potential financial and operational demands of COVID-19 when determining shareholder distributions or variable remuneration. U.K. FMI providers are expected to discuss any intended shareholder distributions with the Bank of England.
View the BoE's Dear CEO letter to FMIs.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Consultation on Proposed Capital Requirements of Non-Modellable Risks Under the Fundamental Review of the Trading Book
06/04/2020
The European Banking Authority has opened a consultation on proposed Regulatory Technical Standards on capital requirements of non-modellable risks under the Fundamental Review of the Trading Book. The Regulation amending CRR, which was finalized in June 2019, implements, among other things, the Basel III revised requirements to calculate own funds requirements for market risk (FRTB). It will apply directly across the EU from June 28, 2021. The consultation closes on September 4, 2020.
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First Consultations on Proposed Technical Standards for New EU Investment Firm Prudential Regime
06/04/2020
The European Banking Authority has opened consultations on several draft technical standards required to implement the new prudential framework for investment firms. The Investment Firm Regulation and the Investment Firm Directive introduce a more tailored prudential regulatory regime for many EU investment firms that reflect the risks inherent in the diverse activities those firms undertake. It also aims to amend the prudential requirements imposed on certain investment firms to avoid the imposition of undue administrative burdens by removing those firms from the scope of the revised Capital Requirements Regulation and Capital Requirements Directive. Only the largest investment firms will be subject to, and need to obtain bank authorization under, CRD and CRR. The majority of both the IFR and IFD will apply from June 26, 2021. The EBA's consultations are on proposed technical standards that will supplement the IFR and IFD.
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European Banking Authority Provides Additional Opinion on Strong Customer Authentication Requirements for Account Servicing Payment Service Providers
06/04/2020
The European Banking Authority has published an Opinion on the obstacles to the provision by third-party service providers of account information and payment initiation services under the revised Payment Services Directive. PSD2 and the related Regulatory Technical Standards on strong customer authentication and common and secure communication require account servicing payment service providers to establish access interfaces through which third-party service providers can securely access a customers’ payment accounts. Where the ASPSP provides a dedicated interface (as opposed to a modified customer interface), the SCA RTS require it to ensure that there are no obstacles to the provision of services by third-party service providers. The EBA has published the Opinion in response to queries from market participants on issues arising in this area.
Read more.TOPIC : Payment Services -
EU Consultation on Draft Guidelines on Outsourcing to Cloud Service Providers
06/03/2020
The European Securities and Markets Authority has opened a consultation on draft guidelines on outsourcing to cloud service providers. The draft guidelines cover: (i) governance, documentation, systems and procedures that firms should have in place; (ii) the assessment and due diligence to be undertaken before outsourcing arrangements are entered; (iii) minimum elements that outsourcing agreements should include; (iv) exit strategies; and (v) access and audit rights. The consultation closes on September 1, 2020. ESMA expects to publish the final guidelines in Q4 2020 or Q1 2021.
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European Securities and Markets Authority Publishes Updated Transparency and Position Limits Opinions for Third-Country Trading Venues
06/03/2020
The European Securities and Markets Authority has published two opinions on the application of post-trade transparency and position limits rules to third-country trading venues.
The first opinion relates to post-trade transparency requirements under the Markets in Financial Instruments Regulation. Under MiFIR, EU investment firms must publish information on transactions in financial instruments traded on an EU trading venue. ESMA’s opinion states that information about transactions concluded on a third-country trading venue should also be made public in accordance with MiFIR, but it is unnecessary for EU firms to republish such information where the transparency rules of the third-country trading venue are similar to those applicable to EU trading venues under MiFIR.
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EU Extends Period for Lower Short Sale Disclosures
06/03/2020
The European Securities and Markets Authority has published a Decision renewing the temporary lower threshold for disclosures of net short positions in shares. ESMA's original Decision has been in effect since March 16, 2020 and was due to expire on June 16, 2020. The Decision to renew the measures will apply from June 17, 2020 for a further three months. The lower thresholds apply to all holders of net short positions in shares traded on an EU regulated market (i.e., exchange) who must notify the relevant national regulator if the position reaches or exceeds 0.1% of the issued share capital and of each 0.1% above that threshold.
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European Banking Authority Publishes Roadmap on Investment Firm Regulation and Directive Deliverables
06/02/2020
The European Banking Authority has published a new roadmap under the Investment Firm Regulation and the Investment Firm Directive. The IFR and IFD introduce a more tailored regulatory regime for many EU investment firms that reflects the risks inherent in the diverse activities those firms undertake. It also aims to amend the prudential requirements imposed on certain investment firms to avoid the imposition of undue administrative burdens by removing them from the scope of the revised Capital Requirements Regulation and Capital Requirements Directive. The majority of both the IFR and IFD will apply from June 26, 2021.
The EBA's roadmap sets out the timing for the EBA to produce final versions of Regulatory Technical Standards, Implementing Technical Standards, Guidelines and Reports. The EBA must also establish a list of capital instruments and a database of administrative sanctions. The mandates will be delivered in four phases, starting from December 2020, and cover:- Thresholds and criteria for investment firms to be subject to the CRR;
- Capital requirements and composition;
- Reporting and disclosure;
- Remuneration and governance;
- Supervisory convergence and supervisory review and Pillar 2; and
- Environmental, social and governance exposures.
View the EBA's IFR and IFD Roadmap.
View details of the IFR and IFD. -
Extension of Senior Managers Regime to Benchmark Administrators
06/02/2020
The U.K. Financial Conduct Authority has published a Policy Statement and final rules and guidance on the application of the Senior Managers Regime to Benchmark Administrators. The final rules will apply from December 7, 2020 to Benchmark Administrators authorized in the U.K. that do not undertake any other regulatory activities. The FCA’s SMR was originally implemented for banks in 2016 and was extended to all FCA solo-regulated firms authorized under the Financial Services and Markets Act 2000 in December 2019. Benchmark administrators were only obliged to become FCA-authorized by the end of 2019 pursuant to the EU Benchmark Regulation, and so were granted a one-year extension from the roll-out of the SMR.
Read more.TOPIC : Conduct & Culture -
European Securities and Markets Authority Publishes Final Technical Advice on FRANDT Clearing Services Provision Under EMIR REFIT
06/02/2020
The European Securities and Markets Authority has published its final report and technical advice on the conditions for clearing services providers’ commercial terms to be considered fair, reasonable, non-discriminatory and transparent, in accordance with changes introduced under the revised European Market Infrastructure Regulation, or EMIR Refit. EMIR Refit requires the European Commission to adopt legislation setting out these conditions by June 18, 2021. The Commission tasked ESMA with publishing technical advice on the conditions, which ESMA launched a consultation on in October 2019. ESMA’s final technical advice takes account of the responses received to the consultation.
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UK Prudential Regulator Publishes Statement on Electronic Signatures
06/02/2020
The U.K. Prudential Regulation Authority has published a statement on the use of electronic signatures in the context of remote working arrangements during the COVID-19 pandemic. The PRA has stated that, in the absence of specific legal provisions to the contrary, firms are entitled to use electronic signatures to submit forms and other regulatory documents to the PRA. The advice does not extend to the use of electronic signatures more generally.
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European Banking Authority Publishes Guidelines on COVID-19 Exposures Reporting
06/02/2020
The European Banking Authority has published guidelines on bank reporting and disclosure of exposures subject to measures designed to protect borrowers from the economic impact of the COVID-19 crisis. The measures include payment moratoria, which are exempt from prudential treatment as forbearance measures and therefore not subject to the usual supervisory reporting framework. Public guarantee schemes introduced in many Member States are also not captured by existing reporting frameworks. This has created a data gap, which has implications for the risk-analysis of individual institutions and for overall financial stability in the EU.
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FCA Publishes Final Guidance on COVID-19 Measures for Mortgage Providers
06/02/2020
The U.K. Financial Conduct Authority has published final guidance on how mortgage lenders should treat customers coming to the end of a payment holiday, or those yet to request one, in light of the COVID-19 pandemic. The guidance will come into force on June 4, 2020 and remain in force until October 31, 2020, unless renewed or updated. The guidance covers: (i) fair treatment of customers seeking, or coming to the end of, a payment deferral; (ii) options for customers able, or unable, to resume full payments; (iii) the interaction of the guidance with the FCA’s Mortgage Conduct of Business Sourcebook; (iv) training, monitoring, record keeping and Credit Reference Agency reporting; (v) repossessions; and (vi) debt help and money guidance.
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UK Joint Money Laundering Steering Group Publishes Revised Guidance
06/01/2020
The Joint Money Laundering Steering Group has published amendments to its Guidance following its consultation launched on February 3, 2020. The revisions to the Guidance account for changes introduced by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which came into force on January 10, 2020. The 2019 Regulations amend the existing Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to incorporate changes arising from the EU's Fifth Anti-Money Laundering Directive.
The JMLSG's consultation on proposed new Guidance on how the U.K. Money Laundering Regulations apply to crypto-asset exchange providers and custodian wallet providers closed on May 18, 2020. The final new Guidance is still to be published.
The JMLSG is currently consulting on draft guidance on Pooled Client Accounts, with comments due by June 10, 2020.
View the June 2020 JMLSG Guidance.
View details of the JMLSG's consultation on pooled client accounts.
View details of the JMLSG's consultation on crypto-asset exchange provider and custodian wallet provider guidance. -
Guidance Published on Financial Services Exclusions in the UK Corporate Insolvency and Governance Bill
06/01/2020
Following the introduction of the Corporate Insolvency and Governance Bill into Parliament on May 20, 2020, the U.K. government has published a series of guidance notes on the measures proposed in the Bill. The proposed measures, first announced by Secretary of State for Business, Energy and Industrial Strategy on March 28, 2020, are intended to protect companies and businesses facing major funding and operational difficulties in the current COVID-19 pandemic. Once final, the Bill will amend current U.K. insolvency law by, among other things, introducing a new moratorium, establishing a new restructuring plan procedure for failing companies that includes a mechanism to bind a dissenting class of creditors to the plan, and banning termination clauses that would come into effect when a company enters into insolvency, begins a moratorium or starts the new restructuring plan procedure. The Bill will also temporarily remove the threat of personal liability from wrongful trading for directors of companies where they face financial difficulties as a result of COVID-19, which will apply retrospectively from March 1, 2020.
Read more.TOPIC : COVID-19 -
UK Working Group Publishes Paper on Identifying Tough Legacy Issues in the LIBOR Transition
05/29/2020
The Working Group on Sterling Risk-Free Reference Rates has published a paper on the identification of tough legacy issues. The paper concerns those instances where a contract cannot be amended to reference a suitable alternative rate to LIBOR or use a robust fallback so that the contract moves to a suitable alternative rate on the occurrence of certain events. The Working Group is advocating for the U.K. Government to consider legislation to address tough legacy exposures in contracts governed by English law that reference LIBOR (in sterling or other LIBOR currencies) that remain in operation when LIBOR is proposed to be phased out at the end of 2021. The recommendation is similar to the proposed solution of the Alternative Reference Rates Committee under New York law. The Group advises that other steps should also be taken, including the methodology for LIBOR being modified by either an administrator or official intervention. The latter option of official intervention is controversial, in that the benchmark administrator and its committees would lose control over how the benchmark operates, yet remain liable to regulators for its operation and face other legal risks resulting from external decisions. In the Group's view, the only path for certainty over contracts is for market participants to proactively transition away from LIBOR before the end of 2021.
The paper also sets out the Working Group's analysis of whether tough legacy issues exist for certain types of contracts, covering derivatives, bonds, mortgages and loans.
View the RFRWG paper on tough legacy issues.TOPIC : LIBOR Transition -
International Organization of Securities Commissions Publishes Statement on COVID-19 Disclosure for Issuers
05/29/2020
The International Organization of Securities Commissions, the international policy forum for securities regulators, has published a statement on the disclosure standards that securities issuers should adhere to in the context of COVID-19.
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UK Conduct Regulator Announcement on Continuing Professional Development for Regulated Firms
05/27/2020
The U.K. Financial Conduct Authority will temporarily allow regulated firms subject to continuing professional development requirements to carry over any uncompleted CPD hours to the following 12-month period, for years ending before April 1, 2021. Firms should review the FCA’s conditions for carrying over CPD requirements, which include where an individual, due to the current exceptional circumstances arising from COVID-19, will be unable to complete their CPD hours in their current CPD period. The FCA also notes that firms are still expected to demonstrate that relevant individuals remain competent to carry out their work and it expects most individuals to be able to continue to complete CPD while on furlough or working from home.
View the FCA's announcement on CPD requirements.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Commission Publishes Adjusted 2020 Work Program
05/27/2020
The European Commission has published an adjusted 2020 Work Program to reflect the unexpected challenges arising from COVID-19. The Commission still intends to deliver on the commitments made under its original Work Program, published in January 2020, but has adjusted the timing of certain actions necessary to achieve its objectives. An update on the delivery and expected timing of the objectives under the adjusted Work Program are set out in an amended version of Annex 1 on the Commission’s website.
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EU Consultation on Enhancing Intra-EU Investor Protection
05/26/2020
The European Commission has launched a consultation on the intra-EU investment protection and facilitation framework. The Commission is seeking views on the current EU system for investor protection, in particular, how it might be strengthened to encourage further cross-border investment within the EU. The Commission is also investigating how to make cross-border investments easier in the context of the Capital Markets Union. Both legislative and non-legislative options are being considered to address the divergence of investor protection across the EU and concerns about enforcements of rights and remedies. The consultation closes on September 8, 2020. If its assessment of the feedback indicates that it would be appropriate to do so, the Commission intends to publish a legislative proposal in Q1 2021.
View the consultation page.TOPIC : Consumer Protection -
European Banking Authority Reports on Impact of COVID-19 on EU Banking Sector
05/25/2020
The European Banking Authority has published a report on the impact of the COVID-19 pandemic on the financial health of EU banks. The report is mostly based on supervisory data submitted by banks in Q4 2019 and Q1 2020. The EBA's report confirms that banks have activated their contingency plans in response to the crisis, however, their operational capabilities remain under pressure. In addition, some banks have used parts of their capital and liquidity buffers and are expected to continue to do so in the coming months. The report also confirms that the asset quality of banks is likely to continue deteriorating as non-performing loan volumes increase.
View the EBA's report.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Response to UK Letter on Negotiating Positions
05/22/2020
The EU's chief negotiator, Michel Barnier, has responded to the letter of May 19, 2020 of U.K. chief negotiator, David Frost. Mr. Frost had notified Mr. Barnier that the U.K. government had published U.K. drafts of the proposed Comprehensive Free Trade Agreement between the U.K. and EU, as well as other agreements and schedules. Mr. Frost's letter had also included comments on some of the EU positions in the negotiations. In his letter, Mr. Barnier states that he does not think that the substantive points of the negotiation should be debated through written correspondence, however, he does go on to respond to the comments. Mr. Barnier states that the EU is not bound to follow as precedent deals that the EU has concluded with other countries, and that the EU is only following the commitments made in the Political Declaration agreed between the EU and the U.K. in October 2019. Mr. Barnier also emphasises that the EU is seeking to obtain a "level playing field", which, according to the EU's chief negotiator means upholding the current common high standards applicable in the EU and in the U.K. at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change and relevant tax matters. It would mean that the U.K. could impose tougher regulations after the transitional period, but would be tied to the existing EU level of standards.
Read more.TOPIC : Brexit for Financial Services -
Bank of England to Discontinue Three-Month Contingent Term Repo Facility
05/22/2020
The Bank of England has announced that it will discontinue its three-month Contingent Term Repo Facility at the end of May 2020, with the final operation scheduled to take place on May 28, 2020. The BoE’s one-month CTRF operations will continue on a weekly basis until at least June 26, 2020. The BoE has also said that it will reintroduce the operations if necessary.
The CTRF was established by the BoE in March 2020, at the outset of the COVID-19 outbreak, allowing financial market participants to borrow central bank reserves in exchange for less liquid assets.
View the BoE's market notice on amendments to the CTRF.TOPIC : COVID-19 -
UK Prudential Regulator Publishes Guidance on Treatment of COVID-19 Payment Holidays
05/22/2020
The U.K. Prudential Regulation Authority has published a new statement on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address COVID-19. The statement follows the announcements made by the PRA, the U.K. Financial Conduct Authority and the U.K. Financial Reporting Council in March 2020 on financial reporting and audit requirements in light of COVID-19. Those announcements included a letter from the PRA to banks on the application of IFRS 9 (including expected credit loss accounting) to loan arrangements during the pandemic.
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UK Conduct Authority Consults on Guidance on COVID-19 Measures for Mortgage Lenders and Payments Firms
05/22/2020
The U.K. Financial Conduct Authority has published two consultations on its draft guidance for firms on mortgages and safeguarding customers’ funds during the COVID-19 pandemic.
The first consultation relates to the FCA’s proposed guidance on how mortgage lenders should treat customers coming to the end of a payment holiday or those yet to request one. The timeframe for customers who have not yet benefited from a payment holiday to apply for one will be extended to October 31, 2020. The current ban on house repossessions will also be extended to October 31, 2020.
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UK Insolvency and Governance Bill Published
05/20/2020
The U.K. Government has published the U.K. Corporate Governance and Insolvency Bill. The Bill amends aspects of insolvency and company law to assist firms struggling to cope with the effects of the COVID-19 pandemic. The measures include:
- A new moratorium giving companies breathing space from creditors while they investigate rescue options;
- A prohibition on contractual termination upon insolvency clauses, preventing suppliers from refusing to supply goods while a company is going through a rescue process;
- A temporary removal of liability for wrongful trading for company directors who try to keep their businesses operating through the pandemic;
- A temporary prohibition on the filing of statutory demands and winding up petitions by creditors; and
- Temporary permission for companies to hold closed Annual General Meetings.
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European Central Bank Consults on Climate-Related and Environmental Risks Guide for Banks
05/20/2020
The European Central Bank has launched a consultation on its proposed guide on how Eurozone banks should manage and disclose climate-related and environmental risks in accordance with the EU prudential framework. The guide is not legally binding, but aims to raise awareness within the Eurozone banking industry of climate-related and environmental risks and to improve the management of such risks. The consultation closes on September 25, 2020.
The guide applies to significant institutions directly supervised by the ECB, although national regulators in Eurozone member states are expected to apply the guide’s expectations proportionately when supervising less significant Eurozone banks. It should be read in the context of the wider EU bank prudential framework, with particular reference to the Capital Requirements Regulation, the Capital Requirements Directive and relevant ECB guidelines. The guide includes an overview of the nature and characteristics of climate-related and environmental risks as well as the ECB’s supervisory expectations of banks’ business models and strategies, governance and risk appetite and integration of climate-related and environment risks into their credit, operational, market and liquidity risk management frameworks.
View the ECB's consultation on its Climate-Related and Environmental Risks Guide. -
EU Single Resolution Board Publishes Revised MREL Policy
05/20/2020
The EU Single Resolution Board has published a revised policy on minimum requirements for own funds and eligible liabilities. The policy is applicable to Eurozone banks and reflects the changes made in 2019 to the EU Banking Package (which includes the Bank Recovery and Resolution Directive, the Capital Requirements Regulation and the Capital Requirements Directive).
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EU Single Resolution Board Publishes Revised MREL Policy
05/20/2020
The EU Single Resolution Board has published a revised policy on minimum requirements for own funds and eligible liabilities. The policy is applicable to Eurozone banks and reflects the changes made in 2019 to the EU Banking Package (which includes the Bank Recovery and Resolution Directive, the Capital Requirements Regulation and the Capital Requirements Directive).
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European Banking Authority Report on Links Between Bank Recovery and Resolution Planning
05/20/2020
The European Banking Authority has published a report on the links between recovery and resolution planning for EU credit institutions and investment firms subject to the EU Bank Recovery and Resolution Directive.
BRRD sets out the actions that must be taken where EU credit institutions and certain EU investment firms run into financial difficulty. Recovery and resolution are the BRRD “crisis preparation tools” designed, in the case of recovery, by the firm itself to help the firm recover from a severe stress scenario and, in the case of resolution, by the resolution authority where recovery is no longer viable and resolution action must be taken. The EBA notes that, while the two processes are separate, they are related and recovery may often lead to resolution. By assessing links between planning for each process, synergies could be maximized and material inconsistencies addressed to ensure a more effective application of the regime.
Read more.TOPIC : Recovery & Resolution -
EU Call for Transparency in Financial Reports of EU-Listed Issuers
05/20/2020
The European Securities and Markets Authority has published a statement calling for transparency in the half-year financial reports of EU-listed issuers. The statement focuses on interim financial statements that need to be prepared according to IFRS standards and on interim management reports for 2020 half-yearly reporting periods. However, the statement is also relevant to the reporting of financial information in other interim periods. ESMA highlights that issuers must provide updated and useful information that covers the current and expected impact of the coronavirus pandemic on their financial position, performance and cash-flows. In addition, issuers should identify the principal risks and uncertainties to which they are exposed.
View ESMA's statement. -
Single Resolution Board Launches Consultation on Standardized Data Set for Resolution Valuations
05/19/2020
The EU Single Resolution Board has launched a consultation on two proposed documents providing further guidance on the SRB’s expectations for the minimum data sets required to support a robust valuation for Eurozone bank resolutions. Responses to the consultation should be submitted by June 30, 2020.
In February 2019, the SRB published its Framework for Valuation, a guidance document for independent valuers and the public setting out the SRB’s expectations on the principles upon which valuations for resolution under the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation should be based.
Read more.TOPIC : Recovery & Resolution -
UK Draft Negotiating Documents Published
05/19/2020
The U.K. government has published a letter from U.K. chief negotiator David Frost to EU counterpart Michel Barnier and U.K. draft legal texts of the proposed U.K.-EU Comprehensive Free Trade Agreement, as well as other agreements and schedules. The documents set out the U.K. government's position on the future U.K.-EU relationship. In the letter, key points on the U.K.'s position are made. These are:
- The U.K. is seeking to conclude a suite of agreements with the EU with an FTA at the core, all of which are based on precedent agreements that the EU has with other countries. The U.K. is not seeking to remain in the Single Market or the Customs Union.
- The EU's drafts do not include the same text as that agreed with other countries. For example, the EU is not proposing to replicate the inclusion of provisions on regulatory cooperation for financial services that are agreed between the EU and Japan.
- The EU proposals are unaligned with the commitment made by both parties to maintain a level playing field. For example, the EU is proposing that the U.K. accept EU state aid rules and be subject to tariffs on trade if those rules were to be breached.
TOPIC : Brexit for Financial Services -
EU Consultation on Requirements for Contractual Provisions for Recognition of Stay Powers
05/15/2020
The European Banking Authority has opened a consultation on proposed Regulatory Technical Standards on the contractual recognition of stay powers under the Bank Recovery and Resolution Directive. Revisions to the BRRD were published in June 2019. EU Member States are required to transpose the amending Directive into their national laws and to apply the provisions by no later than December 28, 2020, except for provisions relating to the minimum requirement for own funds and eligible liabilities (MREL), which apply from January 1, 2024. The consultation closes on August 15, 2020.
The BRRD provides resolution authorities with powers to stay the contractual rights of parties in financial contracts. These powers allow resolution authorities, for a limited period of time, to suspend contractual payment or delivery obligations due under a contract with a firm under resolution. In certain circumstances before resolution, a resolution authority may also restrict the enforcement of security interests and suspend certain rights of counterparties, such as rights of close-out, netting, accelerating future payments or terminating financial contracts.
Read more.TOPIC : Recovery & Resolution -
UK Regulator Confirms Policy on Credit Risk
05/14/2020
The U.K. Prudential Regulation Authority has published a Policy Statement on its approach to implementing the European Banking Authority's Technical Standards and Guidelines on Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The EBA's regulatory products are designed to address concerns about the variability of own funds requirements arising from the internal models that firms use to calculate their minimum credit risk capital requirements under the Capital Requirements Regulation. The Policy Statement is relevant to U.K. banks, building societies and PRA-designated U.K. investment firms.
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Financial Services Exemptions in UK Insolvency and Governance Bill
05/14/2020
The U.K. Government intends to exempt financial services firms from certain provisions of the new U.K. Corporate Governance and Insolvency Bill. The Bill, announced on March 28, 2020, will amend aspects of the U.K. insolvency regime (as set out under the Insolvency Act 1986) in light of the financial difficulties faced by many businesses as a result of the COVID-19 pandemic. The Bill also includes provisions for companies’ annual general meetings and filing requirements during the COVID-19 crisis.
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UK Joint Money Laundering Steering Group Consults on Pooled Client Accounts Guidance
05/14/2020
The U.K. Joint Money Laundering Steering Group has launched a consultation on draft guidance on Pooled Client Accounts. The JMLSG Guidance is provided for firms in the financial sector. A PCA is a bank account opened with a financial institution by a customer, to administer funds that belong to the customer's clients. The customers clients' money will be co-mingled but the customer's clients will not be able to directly instruct the financial institution to carry out transactions. The JMLSG is proposing guidance on the risks, risk assessments, written agreements and due diligence that might be needed when a financial institution opens and administers a PCA for a customer. The consultation closes on June 10, 2020.
View the consultation paper. -
Revised ISDA 2006 Definitions Implementing Pre-Cessation Fallbacks Expected in July 2020
05/14/2020
The International Swaps and Derivatives Association has published a summary, prepared by the Brattle group, of the responses to the ISDA 2020 consultation on how to implement pre-cessation fallbacks in derivatives. Pre-cessation triggers would cause LIBOR-based derivative contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR no longer to be representative. ISDA sought views as to whether provisions should be included in its standard documentation specifying that rate options for LIBOR in USD, GBP, CHF, JPY and EUR all contain fallbacks that would apply upon the earlier of: (i) a permanent cessation trigger; and (ii) a 'non-representativeness' trigger.
The report confirms the preliminary findings, published by ISDA on April 15, 2020. The majority of respondents are in favor of including the pre-cessation fallbacks in ISDA documentation via either an amended version of the ISDA 2006 definitions (for new contracts) or a protocol (for legacy contracts).
In July 2020, ISDA intends to publish the amended 2006 ISDA Definitions to incorporate the fallbacks for new trades. The protocol will be published at the same time. Both the revised Definitions and the new protocol will come into effect before the end of 2020.
View the report.
View ISDA's press release.TOPIC : LIBOR Transition -
European Systemic Risk Board Actions on Five COVID-19 Priority Areas
05/14/2020
The European Systemic Risk Board has established five priority areas on which it intends to take action to combat the impact of COVID-19 on the EU financial system. In determining its actions, the ESRB hopes to ensure an effective response to the pandemic across the EU that prevents individual Member State actions from negatively impacting the EU Single Market and to take advantage of flexibility in regulatory standards to support financial institutions in providing financial services and liquidity.
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Bank for International Settlements Reports on Financial Crime During COVID-19
05/14/2020
The Bank for International Settlements has published a report on financial crime during the COVID-19 pandemic. The Report provides an overview of the increase in financial crime observed since the COVID-19 outbreak, which includes an increase in cyber threats, greater misuse of online financial services and virtual assets to move illicit funds and possible corruption associated with government stimulus funds. The Report also describes the cyber resilience measures proposed by national and international agencies and the AML actions taken by supervisory bodies, including the issuance of public statements to raise awareness of COVID-19-related AML risks, provision of guidance on the application of existing AML/CTF frameworks and coordination with the financial sector for the reporting of COVID-19-related fraud.
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European Securities and Markets Authority Publishes Statement on Fund Managers' Liquidity Risk Management During COVID-19
05/14/2020
The European Securities and Markets Authority has published a statement confirming its support for the European Systemic Risk Board's Recommendation on tackling the implications of market illiquidity for asset managers with exposures to corporate debt and real estate. In accordance with the ESRB's Recommendation, ESMA intends to coordinate with Member State national regulators to engage closely with these asset managers. The supervisory engagement ties in with ESMA's common supervisory action, announced in January 2020, on liquidity risk management by managers of Undertakings for the Collective Investment in Transferable Securities.
View ESMA's statement on fund managers' liquidity risk management.
View details of the ESRB's Recommendation.
View details of ESMA's common supervisory action on liquidity risk management for UCITS.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
EU Report on CLO Rating Risks
05/13/2020
The European Securities and Markets Authority has published a report highlighting certain issues related to rating-collateralized loan obligations. ESMA launched a review in May 2019 on the arrangements that the three main credit rating agencies (Fitch Ratings, Moody’s Investors Service and S&P Global Ratings) have adopted to assign and monitor credit ratings on CLO instruments issued and rated in the EU. The review is part of ESMA's work on identifying vulnerabilities to financial stability arising from leveraged loans. Leveraged loans are of concern because of: (i) the excessive level of financial leverage of some corporate issuers; (ii) the weakening of underwriting criteria applied by lending entities; and (iii) the expected evolutions in the credit cycle.
Read more.TOPIC : Credit Ratings -
UK Working Group Updates LIBOR Expectations in Wake of COVID-19
05/13/2020
The U.K. Financial Conduct Authority has announced a series of updates to the Working Group on Sterling Risk-Free Reference Rates’ proposed implementation of LIBOR reforms. In March 2020, the RFRWG published a roadmap for the discontinuation of new sterling LIBOR lending by the end of Q3 2020. The FCA, Bank of England and RFRWG now acknowledge that, in light of the COVID-19 pandemic, it will no longer be feasible to transition away from LIBOR across all sterling LIBOR-linked loans by this proposed deadline.
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UK Conduct Regulator Guidance on Post and Paper Documents During COVID-19
05/13/2020
The U.K. Financial Conduct Authority has published guidance on how firms should handle post and paper documents during COVID-19. The FCA expects firms to continue to comply with requirements for post and paper-based processes and, where this is not possible, firms should notify the FCA. The FCA also expects firms to contact customers who do not use online services in a timely manner and should be able to demonstrate any steps they have taken to mitigate the impact of any non-compliance with usual post and paper-based processes.
Firms should also ask customers who have sent cheques via post that have not yet been processed to contact the firm. The firm should consider whether the cheque relates to client money under the FCA’s Client Assets Sourcebook regime, whether they are able to provide the services without cashing the cheque and, if so, whether their intended actions are in compliance with the FCA Client Assets Sourcebook.
View the FCA's statement on post and paper documents.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Banking Authority to Act on Dividend Arbitrage Trading Schemes
05/12/2020
In response to the November 2018 request of the European Parliament to conduct an enquiry into dividend arbitrage trading schemes, the European Banking Authority has published a report (dated April 28, 2020) on the approach of national regulators across the EU to tackle market integrity risks associated with dividend arbitrage trading schemes. The EBA has also published a ten-point Action Plan to address the risks arising from such schemes. Both the report and Action Plan accompanied the EBA's letter to the European Parliament that describes its actions and the steps it intends to take in the future on this issue.
The report sets out the findings arising from the enquiry, which consisted of surveys of national authorities responsible for anti-money laundering and counter terrorist financing and of national prudential regulators. The EBA found that dividend arbitrage trading schemes are not possible in all EU member states and that, where they are possible, they are not always regarded as a tax crime. The EBA concluded that AML and prudential authorities approach dividend arbitrage trading schemes in different ways and there are variations in the extent to which the handling of the proceeds from these schemes by financial institutions constitutes money laundering.
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FICC Market Standards Board Publishes Report on Data Management
05/11/2020
The FICC Market Standards Board has published a report on the critical role of data management in the financial system. The Report is part of the FMSB's Spotlight Reviews, which highlight significant emerging issues in the FICC markets. The Report discusses the principal areas of data risk, which are business continuity, data confidentiality, trading, aggregate exposure, regulatory enforcement, ownership rights and security risks relating to misconduct. The Report also outlines the work of regulators on data governance and analyzes eight key components of data governance, being the data lifecycle, data policies, data taxonomy, mapping data sources, data movement and lineage, data classification, data leakage detection and data quality.
View the FMSB's report on data management in the financial system.TOPIC : Corporate Governance -
UK Prudential Regulator Statement on Pillar 2A Capital Requirements
05/07/2020
The U.K. Prudential Regulation Authority has published a statement announcing its decision to set all Pillar 2A requirements to a nominal amount for the purposes of the 2020 and 2021 Supervisory Review and Evaluation Processes, instead of their usual percentage of Risk Weighted Assets. The statement applies to all firms subject to the Capital Requirements Regulation and Capital Requirements Directive. The PRA has said that it is making the change as it does not consider that RWAs are a useful measure for the evolution of risks in the stressed situation that the pandemic represents. The outcome of the change is that banks are freed up to use their Pillar 2A capital to fund lending and other activities.
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Bank of England Publishes Interim Financial Stability Report on Impact of COVID-19
05/07/2020
The Bank of England’s Financial Policy Committee and Monetary Policy Committee have published reports focusing on the impact of COVID-19 on the U.K. economy and banking sector, together with the minutes of their May Committee meetings and a transcript of the BoE’s joint FPC and MPC press conference, discussing the findings of the Committee reports.
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Bank of England Weighs in on LIBOR Transition with a Mandatory Additional LIBOR Collateral Haircut
05/07/2020
The Bank of England has published a market notice on risk management approaches to collateral referencing LIBOR for use in the Sterling Monetary Framework. The market risk notice applies to GBP LIBOR, USD LIBOR, EUR LIBOR, JPY LIBOR and CHF LIBOR. It states that from April 1, 2021, a haircut add-on will be applied to all LIBOR Linked Collateral maturing after December 31, 2021. LIBOR Linked Collateral is LIBOR Linked Loan Portfolios, Collateral Securities where the coupon pays interest calculated by reference to LIBOR, Collateral Securities where embedded swap payments are calculated by reference to LIBOR and Collateral Securities backed by loans where one or more loans in the portfolio is a LIBOR Linked Loan. The add-on will be 10% from April 1, 2021, 40% from September 1, 2021 and 100% from December 31, 2021.
The market notice also stipulates that from April 2021, LIBOR Linked Collateral that matures after December 2021 will be ineligible for use in the Sterling Monetary Framework.
View the market notice.TOPIC : LIBOR Transition -
UK Conduct Regulator Issues Guidance on Financial Crime Controls and Information Security During COVID-19
05/06/2020
The U.K. Financial Conduct Authority has issued guidance on financial crime controls and information security for financial services firms during COVID-19. The FCA notes the increase in cyber-crime during the COVID-19 pandemic, the risks of which may be magnified by operational disruptions arising from working from home arrangements. Firms are expected to be proactive in managing the increased risks during this period, including being vigilant about the potential increase in cyber risks, ensuring they maintain appropriate governance and oversight arrangements, reviewing the impact of COVID-19 on their information security defenses and ensuring that general notification requirements are followed and significant cyber incidents are reported.
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UK Conduct Regulator Extends Absence Cover Under Senior Managers Regime
05/06/2020
The U.K. Financial Conduct Authority has extended the maximum period for which FCA solo-regulated firms are permitted to arrange cover for a Senior Manager without seeking the FCA's approval from 12 to 36 weeks, within a consecutive 12-month period. Firms will be able to reallocate an absent Senior Manager's prescribed responsibilities for up to a 36-week period via an application for a modification by consent of the FCA's standard 12-week rule. The modification by consent will apply from the date of the firm's application until April 30, 2021. The FCA is yet to issue any further guidance regarding the application of the 12-week rule to U.K. dual-regulated firms.
View the FCA's modification by consent to the 12-week rule. -
European Securities and Markets Authority Statement on MiFID II Conduct of Business Obligations in Light of COVID-19
05/06/2020
The European Securities and Markets Authority has published a statement reminding firms of their MiFID II conduct of business obligations in light of a significant increase in investment accounts opened by retail clients, together with a surge in retail clients' trading activities.
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EU Consultation on SME Growth Markets
05/06/2020
The European Securities and Markets Authority has launched a consultation on the functioning of the small and medium-sized Growth Markets regime under the Markets in Financial Instruments Directive II and on draft technical standards for the promotion of the use of SME Growth Markets to be developed under the Market Abuse Regulation. SME Growth Markets were a new sub-category of multilateral trading facility introduced by MiFID II in January 2018 to facilitate access to capital for SMEs. The consultation closes on July 15, 2020.
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EU Recommendations For STS Framework For Synthetic Securitization
05/06/2020
The European Banking Authority has published a report on the feasibility of developing a framework for simple, transparent and standardized synthetic securitization that is limited to balance-sheet securitization under the EU Securitization Regulation.
The EBA is recommending:- The establishment of a cross-sectoral framework for STS synthetic securitization that is limited to balance-sheet securitization;
- To be eligible for 'STS' status, a synthetic securitization must comply with the proposed STS criteria, including the criteria adapted appropriately for synthetic securitization;
- The European Commission should consider the potential for a differentiated capital treatment for STS balance-sheet synthetic securitization; and
- Any proposal for STS synthetic securitization should include a mandate to the EBA to monitor the functioning of the STS synthetic market.
The European Commission will consider the report and recommendations in preparing its own report and, if appropriate, legislative proposal.
View the EBA's report on a STS framework for synthetic securitization. -
UK Bounce Back Loan Scheme Launches
05/04/2020
HM Treasury's Bounce Back Loan Scheme has launched today. The scheme provides government guarantees for loans between £2,000 to £50,000 and will enable small businesses to apply for loans quickly and easily. The loans will also be subject to a flat interest rate of 2.5% and firms that have already taken out a Coronavirus Business Interruption Loan of £50,000 are entitled to apply for it to be switched to the BBLS. HM Treasury has also published a Dear CEO letter addressed to accredited lenders describing the pricing and regulation of the BBLS and the interaction between the BBLS and the CBILS. Loans of £25,000 or less made under the BBLS will also fall outside the regulatory perimeter for the purposes of the Consumer Credit Act 1974 and the Financial Services and Markets Act 2000.
View HM Treasury's announcement on the BBLS.
View HMT's Dear CEO letter on BBLS.
View details of the regulatory perimeter exemption for the BBLS.TOPIC : COVID-19 -
UK Prudential Regulator on Regulatory Treatment of UK Bounce Back Loan Scheme
05/04/2020
The U.K. Prudential Regulation Authority has published a statement on credit risk mitigation eligibility and the leverage ratio treatment of loans made under HM Treasury's Bounce Back Loan Scheme and a separate modification by consent of the exclusion of loans under the BBLS from the calculation of the total exposure measure of the leverage ratio.
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EU Moves to Further Delay the Bilateral Margin Requirements for Uncleared Derivatives
05/04/2020
The European Supervisory Authorities have published updated joint draft Regulatory Technical Standards amending the existing EU risk mitigation techniques for uncleared OTC derivatives. In December 2019, the ESAs published a draft RTS to amend existing bilateral margin requirements made under the European Market Infrastructure Regulation in line with certain clarifications made to the related international framework by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. These updated draft RTS include all those amendments and also delay the upcoming bilateral margin requirements to bring the EU framework in line with the global timeline. In response to the coronavirus outbreak, the Basel Committee announced in April 2020, a one-year deferral for the implementation of the final two phases of the joint Basel Committee and International Organization of Securities Commissions' framework for non-centrally cleared derivatives margin requirements.
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UK Conduct Regulator Announces New Digital Sandbox in Response to COVID-19
05/04/2020
The U.K. Financial Conduct Authority has announced a new digital sandbox pilot program, which will provide regulatory support for innovative firms whose business plan addresses issues arising from the coronavirus pandemic. The FCA intends to open the sandbox for applications in summer and, in the meantime, welcomes any expressions of interest from interested innovative firms. The FCA had been planning a digital sandbox before the pandemic, but is fast-tracking the process in light of the challenges facing firms and how the sandbox might assist them.
View the FCA's announcement. -
Financial Action Task Force Reports on Financial Crime During COVID-19
05/04/2020
The Financial Action Task Force has published a report on financial crime (including money laundering and terrorism financing activities) during COVID-19, identifying challenges, good practices and policy responses to the emerging threats and vulnerabilities.
The increased threats identified include fraud from criminals attempting to profit from the pandemic, a spike in cyber crime, particularly phishing emails and spam campaigns and a corresponding impact on other predicate crimes including human trafficking, exploitation of workers, online child exploitation and organized property crime. In conjunction, confinement and social distancing measures designed to combat COVID-19 are impacting government and private sector capacity to implement AML and CTF obligations.
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Bank of England Announces COVID-19 Changes to Resolution Measures
05/01/2020
The Bank of England and U.K. Prudential Regulation Authority have issued a statement on changes to the resolution measures applicable to the major U.K. banks and building societies, designed to ease the operational burden on firms in the wake of COVID-19.
The dates by which firms must submit their first reports describing their preparations for resolution, and publish summaries of those reports, under the BoE and PRA’s new Resolvability Assessment Framework have been extended by one year. The first reports should be submitted to the PRA by October 2021 and public disclosures should be made by June 2022.
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HM Treasury Exempts Certain Bounce Back Loans From Regulatory Regime
05/01/2020
HM Treasury has published the Financial Services and Markets Act 2000 (Regulated Activities) (Coronavirus) (Amendment) Order 2020, exempting certain loans made under the U.K. Government's Bounce Back Loan Scheme from regulation under the U.K. financial regulatory regime. The Order applies to loans of £25,000 or less made under the BBLS by commercial lenders to sole traders, unincorporated associations and partnerships of four people. These loans will be classed as exempt credit agreements and will therefore largely not be subject to the provisions of the Consumer Credit Act 1974.
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UK Conduct Regulator Grants Regulatory Forbearance From Strong Customer Authentication for E-Commerce Transactions
04/30/2020
The U.K. Financial Conduct Authority has granted firms an additional six months to implement strong customer authentication for e-commerce, extending the deadline from March 14, 2021 to September 14, 2021. The forbearance has been granted in light of the exceptional circumstances arising from COVID-19, in a bid to minimize disruption to consumers and merchants.
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European Central Bank Modifies Terms of Targeted Lending Operations and Announces New Refinancing Operations
04/30/2020
The European Central Bank has announced a series of modifications to its targeted longer-term refinancing operations (referred to as TLTRO III) to facilitate ongoing access of firms and households to bank credit. TLTRO III is the latest in the series of Eurosystem refinancing operations that provide financing to Eurozone credit institutions.
Read more.TOPIC : COVID-19 -
Council of the European Union Publishes Working Paper on Interoperability Arrangements and MiFIR Open Access for Exchange Traded Derivatives
04/29/2020
The Council of the European Union has published a working paper on interoperability arrangements as a source of contagion risk and open access provisions for exchange-traded derivatives under the Markets in Financial Instruments Regulation.
Interoperability arrangements are links between CCPs that involve the cross-system execution of transactions. They are relevant where multiple CCPs service the same trading venue and allow clearing members of one CCP to centrally clear trades carried out with members of another CCP, without requiring the first counterparty to be a member of the second CCP. The European Market Infrastructure Regulation contains provisions governing CCP interoperability arrangements, including the need for non-discriminatory access, adequate risk management policies and the need for prior approval of relevant national regulators.
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UK Regulators Respond to Amended COVID-19 Support Packages
04/27/2020
The U.K. Prudential Regulation Authority and the U.K. Financial Conduct Authority have published guidance for firms on the implications of HM Treasury's amendments to the U.K. Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme and the introduction of the Bounce Back Loan Scheme.
HM Treasury has announced the new BBLS which will run alongside the existing CBILS and CLBILS, providing government guarantees for loans to small businesses of between £2,000 and £50,000. The minimum threshold for CBILS loans will be increased to £50,001, and firms with existing CBILS loans of £50,000 or less will be entitled to switch their facility to the BBLS. The BBLS will launch for applications from May 4, 2020.
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European Supervisory Authorities Consult on Technical Standards on Sustainability Disclosures
04/23/2020
The European Supervisory Authorities have launched a joint consultation on proposed Regulatory Technical Standards on content, methodologies and presentation of disclosures under the EU Regulation on sustainability‐related disclosures in the financial services sector, known as the Sustainable Finance Disclosure Regulation. Responses to the consultation can be submitted until September 1, 2020.
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European Banking Authority Publishes Guidance on Prudential Flexibility for COVID-19
04/22/2020
The European Banking Authority has published guidance on its supervisory flexibility for certain aspects of the European bank prudential regulatory framework, in light of the COVID-19 pandemic.
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Financial Stability Board Consults on Cyber Incident Responses
04/20/2020
The Financial Stability Board has launched a consultation on its proposed guidance on Effective Practices for Cyber Incident Response and Recovery. The consultation seeks input on a toolkit of cyber incident responses compiled by the FSB based on effective actions taken by organizations across the world. The consultation paper opens with a series of specific questions for respondents to consider, before setting out the draft toolkit of responses on which feedback should be given. Responses should be submitted by July 20, 2020.
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UK Prudential Regulator Publishes Q&A on Use of Liquidity and Capital Buffers During COVID-19
04/20/2020
The U.K. Prudential Regulation Authority has published a Q&A guide on how banks should use their capital and liquidity buffers during the COVID-19 crisis. The PRA and Financial Policy Committee have stressed the important role that banks must play in providing liquidity to the economy in the wake of the pandemic, using all tools at their disposal, including the buffers built up in the years since the 2007-2009 financial crisis.
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UK Conduct Regulator Confirms Regulatory Rules Allow Electronic Signatures
04/20/2020
The U.K. Financial Conduct Authority has published a statement on its expectations for wet-ink signatures in light of the coronavirus pandemic. The FCA confirms that FCA rules do not require wet-ink signatures for agreements and do not prevent the use of electronic signatures either. However, the FCA stresses the validity of electronic signatures is a legal matter, for which firms should seek legal advice, if appropriate.
The FCA also states that firms may use electronic signatures in submitting forms.
View the FCA's statement on wet-ink signatures.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.TOPIC : COVID-19 -
UK Conduct Regulator Statement on Financial Resilience for Solo-Regulated Firms
04/17/2020
The U.K. Financial Conduct Authority has published a statement on its intended approach to prudential regulation of FCA solo-regulated firms during the COVID-19 pandemic. Firms are expected to plan ahead and prudently manage their financial resources. Firms that have been set capital buffers are permitted to use them to support the continuation of their activities, but should contact the FCA if they intend to draw down a buffer. Firms should also maintain up-to-date wind-down plans taking account of the impact of COVID-19 and should contact the FCA if they are concerned about their ability to meet debts as they fall due or their wind-down plans identify material execution risks. Boards should be satisfied that any discretionary distributions of capital to fund share buy-backs, dividends, or upstream cash are prudent.
View the FCA's statement on financial resilience for solo-regulated firms. -
European Central Bank Announces Capital Requirements Relief for Market Risk
04/16/2020
The European Central Bank has announced its decision to temporarily reduce capital requirements for market risk in response to high levels of volatility arising from the COVID-19 pandemic. The reduction will be effected via the reduction of the qualitative market risk multiplier, a supervisory measure that is set by regulators and used to compensate for underestimation of market risk capital requirements. The ECB's decision will be reviewed after six months.
View the ECB's announcement on capital requirements relief for market risk. -
International Swaps and Derivatives Association Announces Preliminary Results of LIBOR Pre-Cessation Fallbacks Consultation
04/15/2020
The International Swaps and Derivatives Association has announced the preliminary results of its consultation on pre-cessation fallbacks for LIBOR-referencing derivatives. The consultation was launched in February 2020, and sought industry responses on ISDA’s proposals to add a pre-cessation trigger to the LIBOR cessation fallbacks ISDA is proposing to implement in its standard documentation. The trigger would cause LIBOR-based derivative contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR to be no longer representative.
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G20 Action Plan for COVID-19
04/15/2020
The G20 finance ministers and central bank governors have published an Action Plan for the international response to the COVID-19 pandemic. The Action Plan covers the healthcare, economic and fiscal responses that G20 members have agreed to undertake, as well as measures to ensure a return to a strong and sustainable global economy, the provision of support to countries in need and the learning of lessons in preparation for future crises.
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COVID-19: European Central Bank Confirms Easing of Prudential Measures for Large Eurozone Banks
04/15/2020
The European Central Bank, Banking Supervision has published a letter addressed to the significant Eurozone banks that it directly prudentially supervises under the Single Supervisory Mechanism. The ECB, Banking Supervision, expresses its support of the EBA's statement dated March 31, 2020 on supervisory reporting and Pillar 3 disclosures. In line with the EBA's statement, the ECB: (i) confirms that significant Eurozone banks may delay by one month the submission of supervisory data for remittance dates between March 2020 and May 2020; (ii) excludes information on the liquidity coverage ratio; and (iii) is allowing firms an additional two months to submit information on funding plans.
The ECB recommends that Eurozone national regulators should apply the same delays to the smaller Eurozone banks.
View the ECB's letter to significant banks.
View details of the EBA's statement on supervisory reporting and Pillar 3 disclosures.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
Financial Stability Board Reports to G20 on COVID-19 Response
04/15/2020
The Financial Stability Board has published a report to the G20 on the financial stability implications and policy measures taken in response to the coronavirus pandemic. The report provides an overview of the impact on financial stability of the outbreak and describes the policy actions taken by FSB member jurisdictions. The FSB confirms that it is monitoring financial resilience, focusing on the ability of:- financial institutions and markets to channel funds to the real economy;
- market participants to obtain U.S. dollar funding, particularly in emerging markets;
- financial intermediaries to manage liquidity risk; and
- market participants and financial market infrastructures, such as CCPs, to manage evolving counterparty risks.
The report also sets out how the FSB is supporting international cooperation and coordination on the COVID-19 response by: (i) information sharing; (ii) conducting financial stability risk assessments; and (iii) assisting with coordinating responses on policy issues.
View the FSB's report to the G20 on the COVID-19 response.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center.TOPIC : COVID-19 -
European Banking Authority Updates Guidelines on Equivalence of Non-EU Confidentiality Regimes
04/15/2020
The European Banking Authority has published updated Guidelines on the equivalence of confidentiality regimes under the Capital Requirements Directive. The EBA has added one new third-country national regulator—the New York State Department of Financial Services—to the current list of third-country national regulators whose confidentiality regimes can be regarded as equivalent to those in the EU, following an assessment of the professional secrecy and confidentiality frameworks under which they operate. The updated recommendations apply from April 16, 2020. The Guidelines are intended to assist national regulators in the EU in their assessment of third-country equivalence with the aim of facilitating cooperation with third-country supervisory authorities and their participation in supervisory colleges overseeing international banks.
View the updated Guidelines. -
UK Conduct Regulator Says Banks Must Have a Senior Manager Responsible for the Unregulated Activity of Lending to Small Businesses
04/15/2020
The U.K. Financial Conduct Authority has published a Dear CEO letter to U.K. regulated banks on lending to small businesses. In the letter, the interim Chief Executive, Christopher Woolard, reminds banks about the importance of ensuring that the benefits of the Government's Coronavirus Business Interruption Loan Scheme are passed to the businesses and consumers that need it. The FCA confirms that it and the PRA are monitoring the level of lending to businesses.
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International Organization of Securities Commissions Highlights Cross-Border Issues in Sustainable Finance
04/14/2020
The International Organization of Securities Commissions has published a final report on Sustainable Finance and the Role of Securities Regulators and IOSCO. The report underlines the negative impact on cross-border financial activities and the investor protection concerns caused by the existence of multiple and diverse sustainability frameworks and standards, including sustainability-related disclosure, the absence of common definitions of sustainable activities and greenwashing and other challenges to investor protection.
As a result of the findings, the IOSCO Board is establishing a Board-level Task Force on Sustainable Finance. The Task Force will aim to: (i) improve sustainability disclosures by issuers and asset managers; (ii) collaborate with other international standard-setters and regulators to avoid duplicative efforts and to enhance regulatory coordination; and (iii) develop case studies and analyses of transparency, investor protection and other issues to demonstrate the practical implications.
View the report. -
Financial Stability Board Consults on Global Stablecoins
04/14/2020
The Financial Stability Board has launched a consultation on global stablecoin arrangements. The consultation is in response to the G20 mandating the FSB to analyze potential regulatory issues posed by global stablecoins and to advise on multilateral responses. Responses to the consultation should be submitted by July 15, 2020. The FSB's final report is expected to be published in October 2020.
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Financial Stability Board Writes to G20 on COVID-19 Response
04/14/2020
The Financial Stability Board has published a letter from Randal K. Quarles, the FSB Chair, to G20 Finance Ministers and Central Bank Governors on the response to the coronavirus pandemic. The letter highlights that the financial sector needs to respond to a "twin challenge": the increased demand for credit throughout the global economy and the uncertainty around the value of assets. The letter describes how the FSB and its member jurisdictions have responded to the pandemic to support local and global market functioning, discussing in particular, the steps taken to maintaining financial stability and supporting the real economy during the COVID-19 crisis. The letter also outlines the work to promote a global financial system that supports a strong recovery, including the FSB's prioritizing of certain areas, namely non-bank financial intermediation, the orderly transition away from LIBOR, utilizing technological innovation to assist in cybersecurity and promoting efficient and resilient cross-border payments.
View the FSB's letter.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
UK Conduct Regulator Announces Details of Post-Brexit Temporary Permissions Regime for EEA Firms and Funds
04/11/2020
The U.K. Financial Conduct Authority has published details of the temporary permissions regime that will allow FCA-regulated EEA firms to continue providing financial services in the U.K. for a limited period following the U.K.’s exit from the EU, in the event that no implementation or transitional period is agreed under the Withdrawal Agreement. Without an implementation or transitional period, EEA firms’ passporting rights to provide financial services would cease on the date that the U.K. leaves the EU.
Read more.TOPIC : Brexit for Financial Services -
EU Delays Publication Dates for Annual Transparency Calculations for Non-Equities
04/09/2020
The European Securities and Markets Authority has issued a public statement announcing the delay of the publication dates of the annual transparency calculations for non-equity instruments. ESMA's statement is made in response to the impact of the coronavirus. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, which became effective on January 3, 2018, introduced pre- and post-trade transparency requirements for equity and non-equity financial instruments. ESMA is postponing the publication of the annual transparency calculation for derivatives, exchange traded commodities, exchange traded notes, emission allowances and structured finance products from April 30, 2020 to July 15, 2020 and their application from June 1, 2020 to September 15, 2020. The transitional transparency calculations will continue to apply until September 14, 2020 (inclusive). The publication and application of the annual transparency calculations for bonds remain unchanged. The new thresholds will be applicable from June 1, 2020.
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European Securities and Markets Authority Recommends Regulatory Forbearance for Funds’ Periodic Reporting Obligations
04/09/2020
The European Securities and Markets Authority has announced its expectation that national regulators should, where possible, deprioritize supervisory action against certain fund managers for failure to comply with periodic financial reporting deadlines for funds they manage for the periods ending from December 31, 2019 to April 30, 2020 (inclusive). The fund managers covered by ESMA’s statement are: (i) undertakings for the collective investment in transferable securities (UCITS) management companies; (ii) self-managed UCITS investment companies; (iii) authorized alternative investment fund managers; (iv) non-EU AIFMs marketing AIFs; (v) European Venture Capital Fund managers; and (vi) European Social Entrepreneurship managers.
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UK Prudential Regulator Announces Delays for Certain Regulatory Reporting and Disclosure Requirements
04/09/2020
The U.K. Prudential Regulation Authority has announced a series of amendments to regulatory reporting and disclosure requirements applicable to U.K. banks, building societies, designated investment firms and credit unions, in light of the global COVID-19 pandemic. The PRA’s changes follow recent statements and recommendations made by the European Banking Authority, providing clarity on measures to mitigate the impact of COVID-19 on the EU banking sector.
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UK Prudential Regulator Publishes 2020/2021 Business Plan
04/09/2020
The U.K. Prudential Regulation Authority has published its Business Plan for 2020/2021, which sets out its strategic goals for the next 12 months and its work plan to deliver them. The PRA has had to tailor its intended Business Plan to take account of the impact of the COVID-19 pandemic. In particular, it has elected to cancel its 2020 annual cyclical scenario stress tests, delay the publication of the results of the 2019 biennial exploratory scenario, postpone less critical aspects of its supervisory program for individual firms and extend consultation periods and implementation timeframes for new initiatives where possible.
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Financial Stability Board Report on Global Enhancement of Cross-Border Payments
04/09/2020
The Financial Stability Board has published a report addressed to the G20 on international cross-border payment arrangements, where the sender and recipient of funds are in different jurisdictions. The report forms the first stage of the G20’s three-stage process to develop a roadmap that will enable countries to enhance their cross-border payments systems. The second stage will see the Committee on Payments and Market Infrastructures set out the building blocks of a system to improve cross-border payments and is due to be submitted to the G20 in July 2020. The third stage will involve coordination between the FSB and CPMI, together with other international organizations, to compile a roadmap for implementing the improvements. A report on the full three-stage process is expected to be delivered to the G20 in October 2020.
Read more.TOPIC : Payment Services -
EU Regulatory Forbearance for Audit Requirements for Interest Rate Benchmark Administrators and Contributors
04/09/2020
The European Securities and Markets Authority has issued a public statement asking national regulators across the EU not to prioritize supervisory actions against interest rate benchmark administrators and contributors for failing to comply with the external audit requirements under the Benchmark Regulation, where those audits are carried out by September 30, 2020. The EU Benchmark Regulation requires an interest rate benchmark administrator to have an external audit conducted of its compliance with the benchmark methodology and Benchmark Regulation. Contributors to interest rate benchmarks are required to have an external audit conducted of their input data and compliance with the Benchmark Regulation. ESMA is granting the regulatory forbearance in response to the impact of COVID-19. ESMA states that administrators and contributors that anticipate a delay to the required audits should inform their nation regulator.
View ESMA's statement.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
UK Prudential Regulator Takes Further Steps in Response to COVID-19
04/09/2020
The U.K. Prudential Regulation Authority has announced two further measures in response to the coronavirus outbreak. The first is the PRA's decision to maintain the systemic risk buffer rates at the rate set in December 2019. The rates determine the amount of additional regulatory capital that must be held by "systemic risk buffer institutions" (i.e. U.K. financial institutions deemed to be systemically important). In scope firms are the so-called "ring-fenced bodies" within the meaning in the Financial Services and Markets Act 2000 and include banks and large building societies holding more than £25bn in deposits. The buffer applicable to each institution is intended to reflect the relative costs to the U.K. economy if the institution in question were to fall into distress. In December 2019, the PRA maintained the rates that had first been set in May 2019. The SRB rates will be re-assessed in December 2021 and the decision taken then will take effect in January 2023.
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European Banking Authority Report on Impact of Basel III Reforms
04/08/2020
The European Banking Authority has published two reports on the impact of the Basel III liquidity coverage ratio, as implemented in the EU, and the estimated impact of the Basel III credit and market risk, and credit valuation adjustment reforms, which are yet to be implemented by the EU. The reports are based on 2019 data that was collected prior to the outbreak of COVID-19.
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European Commission Launches Consultation on Sustainable Finance Strategy
04/08/2020
The European Commission has launched a consultation on its renewed sustainable finance strategy. The consultation was proposed at the beginning of 2020 as part of the Commission’s next steps for sustainable finance. It poses a series of questions to all EU citizens, public authorities and private organizations, as well as experts with particular knowledge of finance and sustainability, on the aspects of the EU’s renewed strategy. Responses to the consultation should be submitted by July 15, 2020.
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UK Conduct Regulator Publishes 2020/2021 Business Plan
04/07/2020
The U.K. Financial Conduct Authority has published its Business Plan for 2020/2021, which sets out its five key priorities for the next one to three years.
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European Commission Consults on Retail Payments Strategy for the EU
04/03/2020
The European Commission has launched a consultation on a retail payments strategy for the EU. The Commission's final strategy will be published in Q3 2020 alongside the new digital finance strategy, on which the Commission launched a consultation on the same day. The consultation closes on June 26, 2020.
The Commission states that the RPS will be a key to reinforcing the international role of the euro, strengthening Europe's influence and enhancing its economic autonomy. In addition, the Commission notes that safe and efficient payment systems and services will assist the EU in tackling emergencies, such as the coronavirus outbreak.
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Basel Committee on Banking Supervision Announces Further Measures to Alleviate COVID-19 Impact
04/03/2020
The Basel Committee on Banking Supervision has announced a series of measures designed to reduce the impact of COVID-19 on the global banking sector. The latest measures are designed to facilitate bank lending to the real economy and boost banks’ operational capacity to the financial strain of COVID-19. They follow the extension to Basel III implementation deadlines announced by the Group of Central Bank Governors and Heads of Supervision on March 27, 2020.
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UK Conduct Regulator Publishes Guidance on Senior Managers and Certification Regime for Solo-Regulated Firms in Response to COVID-19
04/03/2020
The U.K. Financial Conduct Authority has published guidance for solo-regulated firms on adherence to the Senior Managers and Certification Regime in light of COVID-19. The FCA has separately issued joint Guidance with the Prudential Regulation Authority on the SM&CR for dual-regulated firms.
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HM Treasury Announces Further Funding Support for Businesses During COVID-19
04/03/2020
HM Treasury has announced further funding to support businesses during COVID-19. The actions include extending the Coronavirus Business Interruption Loan Scheme to make all small businesses affected by COVID-19 eligible for funding, as opposed to just those unable to secure regular commercial financing. Lenders will also no longer be permitted to seek personal guarantees for loans under £250,000. The government has also announced the introduction of the new Coronavirus Large Business Interruption Loan Scheme, which will make government-backed loans of up to £25 million available to firms with an annual turnover of between £45 million and £500 million.
The funding schemes will not be available to banks, insurers or building societies. Further details of all of the government's funding schemes can be found on the government's website.
View the government's announcement on COVID-19 support measures.
View the Government's COVID-19 support packages.TOPIC : COVID-19 -
UK Regulators Publish Guidance on Senior Managers and Certification Regime for Dual-Regulated Firms in Response to COVID-19
04/03/2020
The U.K. Financial Conduct Authority and Prudential Regulation Authority have published joint guidance for dual-regulated firms on adherence to the Senior Managers and Certification Regime in light of COVID-19. The U.K. regulators intend to be flexible in enforcing SM&CR requirements given the disruption to personnel and operations triggered by the pandemic. The FCA has issued separate guidance for solo-regulated firms subject to the SM&CR.
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European Commission Consults on a New Digital Finance Strategy for the EU
04/03/2020
The European Commission has launched a consultation on a new digital finance strategy and FinTech action plan for Europe. The Commission states that although it is prioritizing fighting the coronavirus pandemic, it has decided not to delay this work because the digital finance can help to tackle issues arising as a result of the coronavirus pandemic. The Commission's final strategy, due to be published in Q3 2020, will set out the focus FinTech policy areas for the next five years. The consultation closes on June 26, 2020.
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Financial Stability Board COVID-19 Actions
04/02/2020
The Financial Stability Board has announced its coordinated actions with FSB members to support the real economy and maintain financial stability in the wake of COVID-19. Key actions include:- Information sharing – FSB members are sharing information on the actions taken to deal with COVID-19, which include lending and liquidity support, market functioning support and measures to support business continuity of both financial institutions and regulators;
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European Commission Acknowledges Postponement of COP26
04/02/2020
The European Commission has acknowledged the U.K. Presidency's decision to postpone the UN Climate Change Conference of the Parties (commonly known as COP26) in order to focus efforts on containing COVID-19. The Commission's work to produce a plan to raise the EU's 2030 climate-change ambitions and cut greenhouse gas emissions by 50-55% compared to 1990 levels is on track to be presented by September 2020.
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UK Conduct Regulator Consults on COVID-19 Financial Relief for Consumers Guidance
04/02/2020
The U.K. Financial Conduct Authority is consulting on proposed measures to ease the financial implications of COVID-19 on consumers. The measures would be introduced via guidance issued by the FCA on areas of particular concern to consumers. The consultation, which is deliberately short given the unprecedented circumstances arising from the pandemic, is open until 9am on April 6, 2020 and, if confirmed, the measures will take effect from April 9, 2020.
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UK Prudential Regulator Welcomes Postponement of Basel III Implementation
04/02/2020HM Treasury and the U.K. Prudential Regulation Authority have published a joint statement welcoming the delay to implementation of certain aspects of the Basel III regulatory reforms, announced by the Group of Central Bank Governors and Heads of Supervision. The GHOS has delayed the deadlines for introducing certain Basel III standards by one year until 2023 (or, in the case of the output flow, 2028). The Treasury and PRA intend to work together to produce a U.K. implementation timetable that is consistent with the GHOS’s delay.
View the PRA's statement on the delayed implementation of Basel III.
View details of the GHOS's delays to the implementation of Basel III.
Details of other regulatory responses to COVID-19 are available at our COVID-19 Research Center. -
European Banking Authority Guidelines on Treatment of COVID-19 Payments Moratoria
04/02/2020
The European Banking Authority has published guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID-19 crisis. The Guidelines state that, where payment moratoria are based on national law or a private-sector initiative broadly applied by credit institutions in response to COVID-19, they will not be classified as forbearance or distressed restructuring measures.
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Financial Action Task Force Issues Statement on Remaining Vigilant to AML and CFT Risks During the COVID-19 Pandemic
04/01/2020
The Financial Action Task Force has published a statement on measures to combat illicit financing during the coronavirus pandemic. The key messages are that the FATF supports the use of the flexibility built into the risk-based approach to anti-money laundering and counter-financing terrorism. However, it warns financial institutions to remain vigilant to new and emerging finance risks arising due to COVID-19, such as frauds arising due to difficulties in customer due diligence in person or reductions of monitoring due to remote working, or due to possible risks of fraud in government cash handout schemes. It reminds firms that they should ensure that they continue to effectively mitigate risks and are able to detect and report suspicious activities. In addition, the FATF urges financial institutions to use responsible digital customer onboarding and the delivery of financial services wherever possible and refers institutions to the FATF's recently released Guidance on Digital ID. Furthermore, the FATF encourages countries and financial institutions to consider appropriate use of simplified due diligence measures to assist in the delivery of government benefits established in response to the pandemic.
View the FATF's statement.
View details of the FATF's Guidance on Digital ID.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
Single Resolution Board Letter to Eurozone Banks on COVID-19 Relief Measures
04/01/2020
The EU Single Resolution Board has written to Eurozone banks about potential COVID-19 relief measures. It is united with the European Supervisory Authorities and national regulators in aiming to alleviate operational burdens on banks to enable them to deal with the COVID-19 crisis. The SRB intends to apply a pragmatic and flexible approach to 2020 resolution plans and MREL decisions and will consider postponing less urgent information requests where necessary. It does, however, confirm that Eurozone banks still need to submit the following reports: Liability Data Report, Additional Liability Report and MREL quarterly template.
View the SRB's letter to Eurozone banks. -
EU Consultation on Standardized Information for Facilitating Cross-Border Distribution of Funds
03/31/2020
The European Securities and Markets Authority has launched a consultation on the forms, templates and procedures that national regulators should use to publish information on their websites to facilitate cross-border distribution of funds. The Regulation on facilitating cross-border distribution of funds aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. It was brought in at the same time amendments were made to the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive through an amending Directive. Member states are required to transpose the amending Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation applied directly across the EU from August 1, 2019, while the remaining provisions will apply from August 2, 2021.
Read more.TOPIC : Funds -
European Securities and Markets Authority Publishes Advice on Fines and Penalties for Third-Country CCPs
03/31/2020
The European Securities and Markets Authority has published its final technical advice to the European Commission on procedural rules for imposing fines and penalties on third-country CCPs and trade repositories. The technical advice also covers the alignment of the rules with those applicable to EU credit rating agencies, which ESMA directly supervises. The European Commission mandated ESMA to produce the technical advice in response to changes made to the European Market Infrastructure Regulation by EMIR Refit and EMIR 2.2. EMIR Refit updated (amongst other things) the requirements applicable to trade repositories, including with respect to fines and penalties. EMIR 2.2 introduced investigatory and supervisory powers over CCPs for ESMA to ensure compliance with the new requirements, including the ability to request information from CCPs, appoint an independent investigation officer to investigate any possible infringements under EMIR 2.2 and impose fines.
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UK Prudential Regulator Statement on Bank Dividends and Bonuses in Light of COVID-19
03/31/2020
The U.K. Prudential Regulation Authority has published a statement supporting the decisions of the U.K.'s largest banks to suspend dividends and buybacks on ordinary shares until the end of 2020 and to cancel outstanding 2019 dividends. The PRA also makes it clear that it expects banks to refrain from paying cash bonuses to senior staff, including material risk takers. In parallel, the PRA has written to the CEOs of the largest U.K. banks (HSBC, Nationwide, Santander, Standard Chartered, Barclays, RBS and Lloyds Banking Group), notifying them of the PRA's expectation that they should not pay cash bonuses to senior staff.
View the PRA's statement. -
UK Conduct Regulator Dear CEO Letter to Firms on Consumer Protection During COVID-19 Pandemic
03/31/2020
The U.K. Financial Conduct Authority has published a Dear CEO letter addressed to firms providing services to retail investors on the actions they should be taking to protect consumers during the COVID-19 pandemic. Firms are expected to provide strong support and service to consumers, to be transparent with their customers and to report to the FCA immediately if they foresee themselves getting into financial difficulty.
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UK Prudential Regulator Publishes Capital Requirements Guidance for UK Firms in Light of COVID-19
03/31/2020
The U.K. Prudential Regulation Authority has published two statements addressed to U.K. firms on the application of certain requirements of the EU Capital Requirements Regulation.
The first statement sets out the PRA's approach to calculating exposure under the internal models method for counterparty credit risk in light of the significant moves in counterparty credit risk exposures during the COVID-19 pandemic. Firms are reminded of their notification obligations in relation to any changes they make to their internal models method models as a result of the PRA's guidance.
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European Banking Authority Issues Statements on Addressing COVID-19 Impact for EU Banking Sector
03/31/2020
The European Banking Authority has published three statements providing clarity on measures to mitigate the impact of COVID-19 on the EU banking sector. The statements are: Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19: referring to its statement issued on March 12, 2020, the EBA outlines further details on actions that firms, national regulators and resolution authorities can take to mitigate the impact of COVID-19. The EBA stresses the importance of firms providing reliable data for supervisory purposes, particularly given market fluctuations. However, the EBA reiterates that some leeway can be given to firms for certain areas and asks national regulators to consider the extent to which a delay to submission of data may be justified. In general, the EBA suggests that firms should be given an additional month to submit data (with an additional two months given for remittance of data on funding plans), but national regulators should confirm the precise requirements. The EBA excludes from the forbearance information on the liquidity coverage ratio (LCR) and reporting for resolution planning purposes. The EBA also encourages national regulators to be flexible about the deadline for firms to publish their Pillar 3 data. Firms should contact their regulator if they expect that there will be a delay to their Pillar 3 disclosures.
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European Securities and Markets Authority Encourages Regulatory Forbearance for Best Execution Reporting in Light of COVID-19
03/31/2020
The European Securities and Markets Authority has published a statement encouraging national regulators to deprioritize supervisory actions against firms that fail to meet best execution reporting deadlines under the revised Markets in Financial Instruments Directive. The MiFID II best execution requirements oblige investment firms to obtain the best possible result for their clients when executing client orders, and require execution venues and investment firms to make data relating to the quality of execution of transactions publicly available.
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European Securities and Markets Association Publishes Call for Evidence on Credit Rating Information and Data
03/30/2020
The European Securities and Markets Authority has published a call for evidence on credit rating information and data, the purpose of which is to understand the activities of those who use credit ratings.
In doing so ESMA wants to identify each users' requirements of credit ratings information, including:
- the format of the information;
- the frequency with which the information is required; and
- the scope.
ESMA also aims to understand why users prefer to rely on paid-for third-party providers, rather than rely on the freely published information provided by the European Rating Platform.
Read more.TOPIC : Credit Ratings -
Basel Committee on Banking Supervision Defers Basel III Implementation in Response to COVID-19
03/30/2020
The Basel Committee on Banking Supervision has delayed the implementation timeline for Basel III to allow firms to focus on tackling the challenges resulting from the coronavirus (COVID-19) pandemic.
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European Securities and Markets Authority Maintains MiFID II Equity Transparency Calculations Application Date
03/27/2020
The European Securities and Markets Authority has issued a statement in which it confirms that the existing date for the application of the equity transparency calculations will remain unchanged. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, which became effective on January 3, 2018, introduced pre- and post-trade transparency requirements for equity and non-equity financial instruments. On February 28, 2020, ESMA published the transparency calculations that will apply to new instruments from April 1, 2020 until March 31, 2021. Further calculations will be released ahead of that date once the data quality review for those instruments has been completed.
ESMA's statement confirms that the new calculations will apply from April 1, 2020, as intended, because firms have had to implement new transparency calculations in the past and so do not need to revise their IT systems to comply with the obligation. In addition, ESMA is of the view that a delay could negatively impact those firms that have planned for the new calculations.
View ESMA's statement.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Centre. -
UK Financial Conduct Authority Clarifies Senior Manager Responsibility For Work-Related Travel
03/27/2020
The U.K. Financial Conduct Authority has published a statement emphasizing the responsibility of relevant Senior Managers or equivalent persons in prioritizing which of their firm's employees cannot work from home and need to travel into an office or business continuity site to perform their role. The FCA's statement is relevant to all FCA-regulated firms across the U.K. and is made in relation to the COVID-19 pandemic. The FCA states that it expects the number of individuals that need to travel into an office or other place of work to be considerably less than would be required for a business-as-usual basis. The FCA provides a list of roles that it considers are capable of being performed from home. These are: financial advisers, staff who can safely and securely trade shares and financial instruments from home, business support staff, claims management companies and those selling non-essential goods and credit.
View the FCA's statement.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Centre. -
COVID-19: European Central Bank Recommends Suspension of Dividends by Large Eurozone Banks
03/27/2020
The European Central Bank has published an updated Recommendation requiring the largest Eurozone-based banks to suspend the payment of any dividends and buyback of shares until at least October 1, 2020. The Recommendation is addressed to significant institutions that are directly prudentially supervised by the ECB. Eurozone national regulators of smaller banks are expected to apply the Recommendation, as deemed appropriate. The Recommendation applies to both 2019 and 2020 dividends, but does not retroactively apply to dividends that have already been paid for the 2019 financial year. Where a bank believes that it is legally obliged to make a dividend pay-out, it should explain the reasons to its joint supervisory team.
The purpose of the Recommendation is to ensure that banks are able to maintain their lending and therefore the support of businesses during the current global pandemic.
View the ECB recommendation here.
View the ECB press release here.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Securities and Markets Authority Grants Regulatory Forbearance for Financial Reporting in Wake of COVID-19
03/27/2020
The European Securities and Markets Authority has published guidance for issuers on compliance with their financial reporting requirements in light of the challenges presented by the coronavirus (COVID-19) pandemic. Under the EU Transparency Directive, issuers of debt securities or shares must publish annual and half-yearly financial reports within four months and three months, respectively, of the end of the relevant reporting period.
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COVID-19: EU Regulatory Forbearance for Banks and Investment Firms for Reporting Securities Financing Transactions
03/26/2020
UPDATE: Further to its statement published on March 18, 2020, the European Securities and Markets Authority has published a clarifying statement to confirm that the regulatory forbearance granted for banks and investment firms subject to the upcoming reporting obligation under the Securities Financing Transaction Regulation also applies to securities financing transactions subject to the backloading requirement.
ESMA published its initial public statement on steps it is taking to mitigate the impact of the coronavirus (COVID-19) on the EU financial markets. ESMA is granting regulatory forbearance for banks and investment firms subject to the upcoming reporting obligation under the SFTR. Banks and investment banks were due to start reporting SFTs from April 13, 2020. EU banks and investment firms have been rolling out necessary diligence to categorize their clients and confidentiality waivers ahead of the launch, as well as installing new IT systems to report. ESMA's regulatory forbearance delays the reporting obligation for banks and investment firms from April 13, 2020 to July 13, 2020, which is the date from which CCPs and central securities depositories must begin reporting SFTs. Other Financial Counterparties must report from October 12, 2020 and Non-Financial Counterparties from January 11, 2021.
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UK Financial Conduct Authority Expectations on Financial Resilience of Firms
03/26/2020
The U.K. Financial Conduct Authority has published a statement reminding firms that they are able to use capital and liquidity buffers during the COVID-19 pandemic. The FCA also stated that firms should plan ahead and ensure that any potential exit from the market is conducted in an orderly manner. The statement is relevant for firms that are solo-regulated by the FCA.
Firms are encouraged to contact the FCA if they are unable to meet their capital requirements.
View the FCA announcement.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
COVID-19: UK Regulators Issue Joint Statement on Financial Statement Requirements
03/26/2020
The U.K. Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulation Authority have announced a number of measures and initiatives to assist firms during the current global coronavirus pandemic. These include:- a statement from the FCA on the publishing of audited financial reports for listed companies;
- guidance from the FRC for companies preparing financial statements to be read in conjunction with PRA guidance on assessing expected loss under IFRS9; and
- guidance from the FRC for audit firms.
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UK Conduct Regulator: COVID-19 Will Not Impact LIBOR Deadline
03/25/2020
On March 25, 2020, the U.K. Financial Conduct Authority confirmed that COVID-19 is not expected to affect LIBOR preparations and the target date for LIBOR cessation of the end of 2021 still stands. The FCA does acknowledge, however, that some interim LIBOR milestones may not be met as a result of the pandemic, and it will continue to monitor the impact on such timelines carefully.
View the FCA's statement on COVID-19 and LIBOR.
Details of other regulatory responses to COVID-19 are available at our COVID-19 Research Center. -
COVID-19: European Securities and Markets Authority Publishes Statement on Accounting Implications
03/25/2020
The European Securities and Markets Authority has published a statement to ensure the consistent application by issuers of International Financial Reporting Standards within the European Union. In particular, it addresses the requirement for consistent application of IFRS 9 related to the classification of financial assets and liabilities. ESMA considers a range of accounting implications that may arise for Issuers as a result of national governments' and EU bodies' responses to the COVID-19 pandemic.
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European Banking Authority Provides Clarity on the Prudential Framework in Light of COVID-19
03/25/2020
The European Banking Authority has released two separate statements in response to the COVID-19 pandemic, the first covering bank prudential regulation and the second dealing with consumer protection and payment services.
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European Banking Authority Announces Postponement of Certain of its Activities
03/25/2020
In order to ensure that banks are able to focus on key operations throughout the current COVID-19 pandemic, the European Banking Authority has announced a postponement and extension of certain activities.
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Bank of England Financial Policy Summary and Record of the Financial Policy Committee March 2020 Meetings
03/24/2020
The Bank of England's Financial Policy Committee met on March 9 and 19, 2020, a time when the COVID-19 pandemic dominated the news and in turn presented challenges for markets.
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International Organization of Securities Commissions Publishes Report on Global Stablecoins
03/23/2020
The International Organization of Securities Commissions has published a report analyzing the regulatory issues arising from the use of global stablecoins and setting out how the existing IOSCO principles would apply to a global stablecoin, depending on its structure. IOSCO states that global stablecoins, depending on how they are set up, share features with regulated securities and other regulated financial instruments and services. Using a hypothetical global stablecoin case, the report analyzes how the IOSCO Principles and Standards would apply and also considers some of the broader implications. The report also includes an analysis, jointly conducted by IOSCO and the Committee on Payment and Market Infrastructures, of the applicability of the CPMI-IOSCO Principles for Financial Market Infrastructures. The conclusion is that the PFMI will apply to global stablecoin arrangements involving the performance of systemically important payment system functions or other FMI functions.
View IOSCO's report on global stablecoin initiatives. -
COVID-19: UK Financial Conduct Authority Confirms No Short Selling Ban (Yet)
03/23/2020
The U.K. Financial Conduct Authority has published a statement confirming that, in the wake to the COVID-19 pandemic, it is working with regulators in the U.S., the EU and elsewhere to ensure that the financial markets can remain orderly and open. Noting the recent volatility in the financial markets, the FCA confirms that the U.K. has not imposed a short selling ban and neither has the U.S. or any other major financial market. The EU has however temporarily reduced the threshold for the reporting of short positions. Net short position holders are required to notify the relevant national regulator of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold. This also applies to listed shares on UK markets. It is not necessary to notify existing positions above the new lower threshold that were not previously notifiable, until new trading takes place.
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HM Treasury Exempts COVID Corporate Financing Facility from Regulated Activity Regime
03/20/2020
HM Treasury has published the Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2020, exempting the COVID Corporate Financing Facility from the U.K.'s regulated activity regime. The Order will come into effect from March 23, 2020. The exemption means that the COVID Corporate Financing Facility is not subject to the U.K. prohibition on conducting regulated activities in the U.K. under section 19 of the Financial Services and Markets Act 2000.
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Financial Stability Board Announces Coordinated Financial Sector Response to COVID-19
03/20/2020
The Financial Stability Board is coordinating with its members to support coordinated action required to preserve global financial stability. National regulators and financial institutions are encouraged to take advantage of regulatory flexibility to protect funding for market participants and the real economy, and international standard setting bodies are working together, including with reference to financial policy responses in their respective jurisdictions, to ensure the financial system can continue to finance growth.
View the FSB's announcement. -
European Securities and Markets Authority Announces MiFID II Tick-Size Regime Forbearance
03/20/2020
The European Securities and Markets Authority expects national regulators to de-prioritize their supervision of the new tick-size regime for systematic internalizers under the Markets in Financial Instruments Regulation in light of the challenges posed by COVID-19. Amendments to the MiFIR tick-size regime were introduced by the Investment Firms Regulation and are due to come into effect on March 26, 2020. ESMA's statement demands that national regulators do not prioritize supervisory actions in relation to the new regime from March 26, 2020 until June 26, 2020.
View ESMA's statement on regulatory forbearance for new tick-size regime.
View details of the Investment Firms Regulation. -
Bank of England Announces COVID-19 Policy Measures
03/20/2020
The Bank of England has announced a series of supervisory and policy measures designed to help firms prudentially regulated by the U.K. Prudential Regulation Authority (banks, building societies, insurers and large investment firms) and BoE-regulated financial market infrastructures (CCPs, central securities depositories and recognized payment systems) with the impact of COVID-19.
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COVID-19: European Securities and Markets Authority Extends Consultation Deadlines
03/20/2020
The European Securities and Markets Authority has announced that it is extending the consultation response dates to assist market participants as they implement arrangements to ensure business continuity during the coronavirus outbreak.
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COVID-19: European Securities and Markets Authority Clarifies MiFID II Telephone Recording Requirements
03/20/2020
The European Securities and Markets Authority has published a statement on the telephone recording obligations in the Markets in Financial Instruments Directive. MiFID II requires records to be kept of all services, activities and transactions undertaken by an investment firm, including recordings of telephone conversations or electronic communications relating to: (i) transactions concluded when a firm deals on own account (proprietary trading); and (ii) the provision of client order services that relate to the reception, transmission and execution of client orders. Firms are also required to implement and maintain a policy for the recording of these telephone conversations.
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UK Joint Money Laundering Steering Group Consults on Crypto-Asset Exchange and Custodian Wallet Provider Guidance
03/18/2020
The U.K. Joint Money Laundering Steering Group has launched a consultation on its proposed new Guidance on how the U.K. Money Laundering Regulations apply to crypto-asset exchange providers and custodian wallet providers. The proposed Guidance will form a new Sector 22 section in Part II of the existing JMLSG Guidance. Comments on the proposed Guidance should be submitted by May 18, 2020.
Read more. -
Brexit Negotiations: European Commission Publishes Draft EU-UK Agreement
03/18/2020
The European Commission has published a draft of the proposed agreement between the U.K. and the EU to govern the future relationship between the two, including provisions on financial services. The list of in-scope services includes all services under the Markets in Financial Instruments Directive, the EU Capital Requirements legislation, the European Market Infrastructure Regulation and other legislation. Other provisions of the draft bring market developments in scope and ensure that U.K. financial institutions can provide, subject to certain conditions being met, new services and products in the EU. Notably, the Commission’s draft text provides a carve-out that allows either side to adopt prudential measures for financial stability reasons or for the protection of investors, depositors, policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier. The draft text also includes a commitment by both the EU and U.K. to implement internationally-agreed standards for financial services regulation and supervision, anti-money laundering and counter terrorism and tax evasion.
View the European Commission's Draft Text of the Agreement on the New Partnership with the United Kingdom.TOPIC : Brexit for Financial Services -
EU Lowers Short Sale Disclosure Threshold
03/16/2020
The European Securities and Markets Authority has announced a Decision to lower the threshold for disclosing short positions in shares. Effective March 16, 2020, all holders of net short positions in shares traded on an EU regulated market (i.e., exchange) must notify the relevant national regulator if the position reaches or exceeds 0.1% of the issued share capital. Net short position holders must notify the relevant national regulator of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold.
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EU Working Group on Risk-Free Rates Consults on Voluntary Compensation for Legacy Swaptions
03/13/2020
The EU Working Group on Risk-Free Rates has launched a consultation on a proposed recommendation for voluntary compensation for legacy swaptions impacted by the CCP discounting transition to Euro Short-Term Rate (€STR). A Swaption is a type of interest-rate derivative contract. The CCP discounting switch from EONIA to €STR is planned for June 2020. The Working Group has identified that if the exercise date of swaptions is after the CCP transition date, the valuation of the products may change because of the discounting switch from EONIA to €STR. However, because the contracts are bilateral, the CCP compensation mechanism will not apply. The Working Group is seeking feedback on whether it should issue recommendations on the voluntary exchange of a cash compensation between bilateral counterparties to swaption contracts.
The consultation closes on April 3, 2020.
View the consultation paper.TOPIC : LIBOR Transition -
EU Single Resolution Board Announces Staff Teleworking Arrangements
03/13/2020
The EU Single Resolution Board has announced that SRB staff will commence teleworking from March 16, 2020, following relevant decisions from the European Commission and Belgian government. SRB staff remain contactable via email or phone.
View the SRB's announcement.TOPIC : COVID-19 -
European Central Bank Announces Temporary Capital and Operational Relief for Banks
03/12/2020
The European Central Bank has announced a series of measures designed to support banks to continue their vital role of funding the real economy in the wake of COVID-19. Banks will be permitted temporarily to operate below the level of capital required by Pillar 2 Guidance, the capital conservation buffer and the liquidity ratio. They will also be permitted partially to use capital instruments that do not qualify as Common Equity Tier 1 capital to meet Pillar 2 Requirements. The ECB hopes that, together with EU national regulators' relaxation of the countercyclical capital buffer, these measures will provide significant capital relief to banks.
Read more. -
European Banking Authority Prioritizes Supporting Core Bank Operations
03/12/2020
The European Banking Authority has published a statement on actions to mitigate the impact of COVID-19 on the EU banking sector. In the statement, the EBA states that it is working with the European Central Bank and EU national regulators to ease the immediate operational burden on EU banks and recommends that national regulators should use, where appropriate, the flexibility embedded in the regulatory framework.
The EBA views supporting banks' focus on core operations as a priority and has decided to postpone the EU-wide stress test to 2021. However, the EBA will conduct an additional EU-wide transparency exercise to provide updated information on banks' exposures and asset quality. The EBA also recommends that national regulators grant some flexibility on the remittance dates for supervisory reporting by banks.
The EBA states that banks should adopt prudent dividend and other distribution policies, including variable remuneration.
View the EBA's statement.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
UK Bank of England Opens Discussion on Central Bank Digital Currency Options
03/12/2020
The Bank of England has published a Discussion Paper on central bank digital currency opportunities, challenges and design. The BoE is one of several banks exploring introducing a CBDC. The Discussion Paper describes a platform model of CBDC that demonstrates the issues raised by the concept of a CBDC, highlighting both the risks and opportunities. The BoE stresses that the model does not represent any decision by the BoE on the design of a CBDC and is merely intended to aid the overall discussion. Indeed, the BoE emphasizes that no decision has been made on whether to introduce a CBDC and that it would need to ensure that the benefits outweigh any risks. If a CBDC were to be introduced in the U.K. it would be denominated in pounds sterling and would exist alongside cash and commercial bank deposits.
Read more. -
HM Treasury Policy Statement on Prudential Standards for Investment Firms in UK Financial Services Bill
03/11/2020
HM Treasury has published a policy statement on its proposals for the prudential standards in the U.K.'s upcoming Financial Services Bill. The Financial Services Bill will set out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The U.K. has historically wished and repeatedly sought to impose higher capital requirements on banks and investment firms than the EU has accepted, in part driven by the better capitalization of U.K. banks compared to some EU institutions. The new policy statement establishes four overarching principles which will govern HM Treasury's approach to prudential standards: (i) financial stability and high international standards; (ii) supporting growth, competition and competitiveness; (iii) giving U.K. regulators a central role in designing technical prudential requirements; and (iv) flexibility, allowing the U.K. to maintain its relationship with the EU and take account of U.K.-specific requirements.
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Working Group on Sterling Risk-Free Reference Rates Publishes Roadmap for Ceasing New GBP LIBOR Lending by Q4 2020
03/10/2020
The Working Group on Sterling Risk-Free Reference Rates has published two documents relevant to the transition away from the use of LIBOR. The first is a statement on bond market conventions and the second is a path for discontinuation of new GBP LIBOR lending by the end of Q3 2020.
Read more.TOPIC : LIBOR Transition -
EU Technical Expert Group on Sustainable Finance Publishes Final Taxonomy Recommendations
03/09/2020
The European Commission has published a final Taxonomy report of the Technical Expert Group on Sustainable Finance. The EU Taxonomy is the EU's classification system of sustainable activities, the legal basis of which is set out in the proposed Taxonomy Regulation (agreed at political level in December 2019). The proposed Taxonomy Regulation sets the environment objectives for the Taxonomy and imposes new obligations for market participants, large companies, the EU and EU Member States. The Taxonomy Regulation will be supplemented by secondary legislation that will set out detailed technical screening criteria to establish when an economic activity can be considered sustainable. The Taxonomy Report provides the TEG's final recommendations to the European Commission on certain content for much of that secondary legislation and replaces the earlier reports of the TEG.
Read more. -
UK Financial Conduct Authority Opens Call for Input on Access to Wholesale Data
03/09/2020
The U.K. Financial Conduct Authority has published a call for input on accessing and using wholesale data. The FCA has launched the call for input to assess the use and value of data and advanced analytics in wholesale financial markets. The regulator would like to know if there are concerns about access to data and how it is priced and sold because the market may be causing harm to investors. The focus of the call for input is benchmarks, trading data and market data vendor services. However, the FCA welcomes input on whether there are other areas where data access is giving rise to issues. Responses to the call for input may be submitted until January 7, 2021 (extended in response to the impact of COVID-19). The FCA will publish a feedback statement setting out its analysis and next steps.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Competition, Consumer Protection, Financial Market Infrastructure -
UK Regulator Consults on Enhancing Climate-Related Disclosures by Certain Issuers
03/06/2020
The U.K. Financial Conduct Authority has published a consultation paper on proposals to enhance climate-related disclosures by listed issuers and to clarify the existing disclosure obligations of issuers in relation to climate, environmental, social and governance matters. The FCA proposals would implement the disclosure recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. Responses to the consultation may be submitted until October 1, 2020.
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Guidance Published on Digital Identification Technologies for Anti-Money Laundering Purposes
03/06/2020
The Financial Action Task Force has published Guidance on how digital identification technologies can be used to conduct some aspects of customer due diligence for anti-money laundering purposes. The FATF presents a risk-based approach to the use of digital ID software, relying on a set of open source, consensus-driven assurance frameworks and technical standards for digital ID systems. In addition, the FATF sets out a series of recommendations for relevant authorities, regulated entities (meaning financial institutions, virtual asset service providers and designated non-financial businesses and professions) and digital ID services providers. The Guidance is non-binding, however, it clarifies the FATF's standards.
View the FATF's Guidance on digital ID. -
UK Regulator Highlights Board Diversity Expectations for Banks and Investment Firms
03/04/2020
The U.K. Prudential Regulation Authority has published a letter addressed to the chairpersons of banks, large investment firms and insurance companies on board diversity. The letter is intended to remind firms of the importance of board diversity in achieving effective challenge and improving decision-making and of the need to comply with the PRA's rules. The European Banking Authority published a report on benchmarking of diversity practices in February 2020. The report shows a huge improvement in board diversity in banks and investment firms since 2015. However, the PRA notes that compliance is not comprehensive.
The PRA asks chairs of all firms subject to its diversity requirements to ensure that their firm is in compliance and to take remedial action if not.
View the PRA's letter on board diversity.TOPIC : Corporate Governance -
Brexit Negotiations: UK Government Publishes Approach to Future EU-UK Relationship
02/27/2020
The U.K. government has published a document setting out its negotiating proposals for a future relationship with the EU. The U.K. left the EU on January 31, 2020 and is no longer an EU member state. However, during an agreed transitional period (currently scheduled to end on December 31, 2020), EU laws and regulations will continue to apply in the U.K. The EU and U.K. will be negotiating during that period on their future relationship.
Read more.TOPIC : Brexit for Financial Services -
UK Launch of COP26 Private Finance Agenda
02/27/2020
The outgoing Governor of the Bank of England has announced the launch of the COP26 Private Finance Agenda. In January this year, Mark Carney was appointed as Finance Adviser for COP26 to assist the U.K. Government to build a sustainable financial system that supports the transition to a net zero emissions economy. Andrew Bailey will replace Mr. Carney as the Governor of the Bank of England from March 16, 2020. The objective of the COP26 Private Finance Agenda is for every professional financial decision to take climate change into account.
View the Bank of England's press release of the launch.
View Mark Carney's speech to launch the COP26 Private Finance Agenda. -
Bank of England Announces LIBOR Initiatives and Publishes Discussion Paper on Risk-Free Rates Transition
02/26/2020
Andrew Hauser, the Executive Directive of Markets at the Bank of England, today announced the launch of two significant initiatives to boost the U.K.’s transition away from sterling LIBOR. Firstly, the BoE intends to begin publishing a compounded Sterling Overnight Index Average index from July 2020, enabling market participants to construct compounded SONIA rates which can be used as a replacement reference rate for term LIBOR-linked instruments. Secondly, from October 2020, the BoE will progressively increase the haircuts applied to LIBOR-linked collateral placed with the BoE as security against central bank loans, with a final haircut of 100% by the end of 2021.
Read more. -
EU Council Authorizes European Commission to Negotiate Post-Brexit Trade Agreement with the UK
02/25/2020
The Council of the European Union has authorized the opening of negotiations with the U.K. for a new partnership agreement between the U.K. and the EU. The Council's Decision (dated February 13, 2020) authorizes the opening of the negotiations, appoints the Commission as negotiator and stipulates that the negotiations must be conducted in consultation with the Working Party on the United Kingdom and in accordance with the Council's directives.
The EU intends to enter into a free trade agreement with the U.K. For financial services, the Council directs that the arrangements between the EU and U.K. should be based on their respective equivalence frameworks, complemented by close and voluntary cooperation and consultation and transparency on equivalence decisions. The EU envisages that the FTA should be in line with existing EU FTAs with other countries for specific sectors, including the financial services sector.
It is expected that the first session of negotiations will take place in early March.
View the Council's decision authorising the opening of the negotiations.
View the negotiating directives.TOPIC : Brexit for Financial Services -
Draft UK Legislation to Onshore EMIR 2.2 Published for Feedback
02/24/2020
HM Treasury has published for feedback a draft statutory instrument to implement the revised provisions for CCPs in the European Market Infrastructure Regulation (known as EMIR 2.2.) into U.K. law once the Brexit implementation period ends (currently scheduled for December 31, 2020). HM Treasury is publishing the draft instrument to provide Parliament and stakeholders the opportunity to provide feedback on the proposed approach before the instrument is laid before Parliament. The draft instrument–Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020–is due to be laid before Parliament in the Spring.
Read more.TOPIC : Brexit for Financial Services -
International Swaps and Derivatives Association Announces Results of LIBOR Fallbacks Consultation and New Pre-Cessation Fallbacks Consultation
02/24/2020
The International Swaps and Derivatives Association has published the results of its consultation on fallbacks to be introduced into standard ISDA documentation based on alternative risk-free rates for EUR LIBOR and EURIBOR. The fallbacks would apply if the relevant IBOR were to be permanently discontinued. Respondents to the consultation agreed with ISDA’s proposed approach of adopting a compounded setting in arrears rate with a backward-shift adjustment and historical median over a five-year lookback period approach to address technical issues associated with the fallback rates. ISDA therefore intends to develop fallback provisions on this basis. It will publish an anonymized summary of the consultation feedback in the coming weeks.
Read more. -
EU High-Level Forum Sets Out Vision for European Capital Markets
02/20/2020
The European Commission’s High-Level Forum on the Capital Markets Union has published an interim report setting out its vision for the future of European capital markets. The CMU is an EU initiative which aims to enhance integration of EU capital markets, further safeguard financial stability, strengthen the international role of the euro and diversify sources of finance for small- and medium-sized enterprises. The High-Level Forum was established in November 2019 and consists of experienced industry executives and international experts who will work together to propose policy recommendations designed to contribute to the CMU.
Read more.TOPIC : Securities -
European Commission Launches Strategy for Data and Artificial Intelligence
02/19/2020
The European Commission has published a set of documents presenting its strategies for data and Artificial Intelligence. The main document is a Communication to the European Parliament, the European Council and relevant committees, entitled "A European strategy for data." The Communication describes the policy measures put forward by the European Commission for an EU data economy that aims to increase the use of, and demand for, data and data-enabled products and services in the EU over the next five years. The Commission argues for an attractive policy environment that provides for access to data, the flow of data across the EU, protection of personal data protection rights and an open yet assertive approach to international data flows that is based on European values.
Read more.TOPIC : FinTech -
EU Working Group on Risk-Free Rates Publishes Report on Liquidity in EONIA transition
02/19/2020
The EU Working Group on Risk-Free Rates has published a report setting out recommendations for the transition of financial products from EONIA to the Euro Short-Term Rate (€STR). The recommendations aim to ensure liquidity in €STR cash and derivatives products and include practical recommendations, such as replacing EONIA with €STR products at the earliest opportunity and communicating with customers and other market participants about the transition.
Read more.TOPIC : LIBOR Transition -
European Systemic Risk Board to Evaluate Systemic Cyber-security Risk
02/19/2020
The European Systemic Risk Board has published a report on cyber-security risk, which it has identified as a source of systemic risk to the global financial system. The report notes that the increased digitalization and interconnectedness of the global financial system makes it heavily reliant on ICT infrastructure and vulnerable to cyber attacks. The report provides an overview of key regulatory and industry initiatives aimed at combatting cyber risk, which include: (i) the 2019 International Organization of Securities Commissions’ Cyber Task Force report on cyber regulation; (ii) the European Banking Authority’s Guidelines on management of information and communication technology and security risks; and (iii) the European Securities and Markets Authority’s 2020-2022 Strategic Orientation, which establishes the dangers of cyber threats as an area of focus for ESMA and the other European Supervisory Authorities.
Read more. -
Financial Stability Board Highlights Vulnerabilities in Global Financial System
02/18/2020
The Financial Stability Board has written to G20 Finance Ministers and Central Bank Governors outlining the key focus areas for the FSB’s work ahead of the next G20 summit in Saudi Arabia in November 2020. The communication builds on certain areas highlighted as priorities in the FSB’s 2020 Work Program, published in December 2019.
Read more. -
European Systemic Risk Board Appoints Vice-Chair and Board Members
02/17/2020
The European Systemic Risk Board has appointed Jan Reinder De Carpentier as its new Vice Chair. New board members Pedro Machado and Jesús Saurina have also been appointed. The new appointees will take up their positions on March 1, 2020 and will hold them for five years.
View the SRB's announcement.
View the Council Implementing Decision giving effect to the appointments of the Vice-Chair and Board Members.TOPIC : People -
Single Resolution Board Launches Consultation on Minimum Requirements for Own Funds and Eligible Liabilities Policy
02/17/2020
The Single Resolution Board has launched a consultation on proposed changes to its policy on minimum requirements for own funds and eligible liabilities (MREL) for Eurozone banks, designed to bring the SRB’s MREL policy in line with the changes introduced by the 2019 EU banking package for EU banks. MREL is the EU's precursor to total loss-absorbing capacity (TLAC) standards at international level. The SRB is responsible for ensuring the compliance of Eurozone-based institutions that are subject to the Single Resolution Mechanism (primarily Eurozone countries) with their resolution and recovery planning requirements. It works with national regulators from Eurozone countries to determine MREL requirements. Responses to the consultation should be submitted by March 6, 2020. The SRB expects to publish its final MREL Policy Statement based on these responses by the end of April 2020 and will apply the policy to MREL decisions taken in early 2021.
Read more. -
European Commission Consults on MiFID II
02/17/2020
The European Commission has launched a consultation on reviewing the EU Markets in Financial Instruments package. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation have applied across the EU since January 1, 2018 and regulate the functioning and transparency of EU financial markets. The consultation closes on May 18, 2020. The Commission is due to publish a legislative proposal to amend MiFID II and MiFIR in Q4 2020.
Read more.TOPIC : MiFID II -
UK Payment Systems Regulator Publishes Policy Statement on Confirmation of Payee Requirements
02/14/2020
The U.K. Payment Systems Regulator has published a policy statement setting out its final decision on varying Specific Direction 10, which requires payment service providers to implement the Confirmation of Payee system by March 31, 2020. Confirmation of Payee is a system which ensures that certain identifiers (including name, sort code and account number) of a payee are verified against the records of a payment services provider before a payment is made.
Read more.TOPIC : Payment Services -
International Organization of Securities Commissions Reports on Risks and Regulatory Considerations for Crypto-Asset Trading Platforms
02/12/2020
Following its consultation last year, the International Organization of Securities Commissions has published a report on the key issues and risks related to trading of crypto-assets on crypto-asset trading platforms (referred to as CTPs). The report aims to assist IOSCO member jurisdictions to assess the issues and risks relating to CTPs and sets out key considerations to be taken into account, including related toolkits for regulators. The considerations are: (i) access to CTPs; (ii) safeguarding assets; (iii) conflicts of interest; (iv) operations of CTPs; (v) market integrity; (vi) price discovery; and (vii) technology. IOSCO states that where a regulator has determined that a crypto-asset is a security, the provisions on securities trading and regulation apply.
Read more. -
European Banking Authority Consults on Guidelines on Systemic Risk Buffers for Sectoral Exposures
02/12/2020
The European Banking Authority has launched a consultation on proposed Guidelines on the appropriate subsets of sectoral exposures to which national regulators may apply a systemic risk buffer under the Capital Requirements Directive. CRD 5 amended the provisions on when a national regulator may set a systemic risk buffer for sectoral exposures. The EBA is mandated to prepare Guidelines to enhance harmonization of the approach across the EU. CRD 5 must be transposed into Member State laws by December 28, 2020 and those laws must be applied from December 29, 2020. Responses to the consultation can be submitted until July 13, 2020. Once finalized, the Guidelines will apply to the relevant national regulators from December 29, 2020.
View the consultation paper.
View details of CRD 5 and CRR 2. -
European Banking Authority Publishes Final Set of Recommendations for Improving the EU Deposit Guarantee Scheme Directive
02/11/2020
The European Banking Authority has published the third in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS funding and uses of DGS funds. It is dated January 23, 2020. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The second opinion, published in October 2019, was on DGS payouts. The opinions have been prepared to assist the European Commission in its obligation to report on the implementation of the DGSD.
Read more. -
European Commission Confirms Scope of Securities Financing Transactions Regulation for Non-EU Funds
02/10/2020
In a letter published by the International Securities Lending Association, the European Commission confirms that the reporting obligations of the EU Securities Financing Transactions Regulation will not apply to non-EU Alternative Investment Funds, even if the manager is an EU AIFM, except for SFTs concluded in the course of the operations of the non-EU AIF’s EU branch.
View the letter. -
European Central Bank Proposes Guide on Assessing Counterparty Credit Risk
02/07/2020
The Banking Supervision arm of the European Central Bank has opened a consultation on a proposed guide on assessing counterparty credit risk. The proposed guide sets out the ECB's approach to assessing the internal models that banks use to calculate their exposure to counterparty credit risk under the Capital Requirements Regulation. The proposed guide would apply to those Eurozone banks for which the ECB is responsible for direct prudential supervision as part of the Single Supervisory Mechanism, and that are permitted to use internal model methods. The consultation closes on March 18, 2020.
View the ECB public consultation. -
EU Recommendations for Alignment of the EU Derivatives Trading and Clearing Obligations
02/07/2020
The European Securities and Markets Authority has published a final report and recommendations on aligning the trading obligation under the Markets in Financial Instruments Regulation with recent changes made to the clearing obligation under the European Markets Infrastructure Regulation by the EMIR Refit Regulation. ESMA's report to the European Commission will support the Commission's report to the European Parliament and Council that is due by December 18, 2020.
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Macroprudential Weaknesses in EU's Alternative Investment Fund Managers Directive to Be Addressed in AIFMD Review
02/05/2020
The European Systemic Risk Board has published a letter (dated February 3, 2020) to the European Commission on the weaknesses of the Alternative Investment Fund Managers Directive. The ESRB is responsible for macro-prudential oversight within the European Union. The AIFMD framework provides the ESRB with data to assist it to analyze systemic risks. The ESRB considers that the AIFMD reporting framework could be improved and wants the Commission to consider these issues as part of the review of the AIFMD. The letter sets out the ESRB's experiences with the scope and application of the AIFMD, in particular considering:
- The suitability of the reporting framework and access to data for monitoring systemic risk: the ESRB highlights that the AIFMD framework could be improved, particularly with regards to fund identification, fund classification, information on the interconnectedness of funds, information on leverage and liquidity risk, reporting frequency and access to data.
Read more.TOPIC : Funds -
Further Consultation on Pre-Cessation Fallbacks Announced
02/05/2020
The International Swaps and Derivatives Association has announced that it will be issuing later in February 2020 a further consultation on how to implement pre-cessation fallbacks. A “pre-cessation” trigger in derivative contracts would cause LIBOR-based contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR no longer to be representative.
Read more. -
EU-Wide Supervisory Focus on MiFID II Suitability Compliance
02/05/2020
The European Securities and Markets Authority has announced an EU-wide common supervisory action in 2020 on the application of the suitability requirements under the Markets in Financial Instruments Directive. National regulators of EU member states will simultaneously assess compliance with the applicable requirements by market participants established in their jurisdictions. The knowledge and experience of the national regulators will be shared through ESMA to enhance the convergence of supervisory practices. ESMA's Suitability Supervisory Briefing and Suitability Guidelines are relevant to this initiative.
View ESMA's announcement.
View details of ESMA's suitability supervisory briefing.
View details of ESMA's suitability guidelines.TOPIC : MiFID II -
EU Consultation on Revised Risk Factor Guidelines for Assessing Money Laundering Risks
02/05/2020
The European Banking Authority has launched a consultation on proposed revisions to the Risk Factor Guidelines for financial institutions to assess money laundering and terrorist financing risks. The proposed changes aim to take into account the most recent revisions to the EU Anti-Money Laundering Directive (i.e. 5MLD) and newly identified risks, including those specified in the EBA's implementation reviews. The consultation closes on July 6, 2020.
Read more. -
EU Recommendations on MiFID II Product Intervention Amendments
02/04/2020
The European Securities and Markets Authority has published Technical Advice on the impact and functioning of the product intervention rules in the Markets in Financial Instruments Regulation. MiFIR gives ESMA powers temporarily to prohibit or restrict the marketing, distribution or sale of financial instruments or types of financial activity. The European Banking Authority has similar powers in relation to certain structured deposits. National regulators of EU Member States are able to impose permanent product intervention measures. ESMA's Technical Advice to the European Commission is on the functioning of the MiFIR provisions and their impact, taking into account its experience and the feedback from market participants to its Call for Input last year.
Read more.TOPIC : MiFID II -
Amended EU Guidelines for National Regulators on Enforcing Financial Information Publication by EU Issuers
02/04/2020
The European Securities and Markets Authority has published amended Guidance for national regulators on the enforcement of financial information that issuers listed on regulated markets are required to publish under the EU Transparency Directive. The amended Guidelines will apply from January 1, 2022. ESMA is making the amendments following the peer review exercise it conducted in 2017. The amendments focus on the methods that regulators use to select issuers for financial information examination and the procedures applied during such examinations.
View the amended Guidelines.TOPIC : Securities -
EU Consultation on Potential Amendments to MiFID II's Equity Transparency Regime
02/04/2020
The European Securities and Markets Authority has commenced a consultation on proposed amendments to the provisions of the Markets in Financial Instruments package on the transparency regime for equity and equity-like instruments, the double volume cap mechanism and the trading obligation for shares. The consultation is part of the larger review on the implementation of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. Feedback to the consultation will aid ESMA in preparing its report to the European Commission, which in turn is expected to report in 2020 to the European Parliament and Council of the European Union. ESMA's consultation closes on March 17, 2020. It intends to publish its final report to the Commission in July 2020. ESMA will be consulting separately on the transparency regime for non-equity instruments, such as bonds and derivatives.
Read more.TOPIC : MiFID II -
EU Moves to Delay Securities Settlement Discipline Rules to 2021
02/04/2020
The European Securities and Markets Authority has published draft amending Regulatory Technical Standards to delay the implementation of the settlement discipline requirements under the EU's Central Securities Depositories Regulation. The draft RTS would postpone the application date of the settlement discipline rules from September 13, 2020 to February 1, 2021, by amending the existing RTS (Commission Delegated Regulation (EU) 2018/1229). The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process. ESMA has acted amid calls from industry associations and other stakeholders to delay the application date so that systems, procedures and measures can be put in place properly.
View the draft RTS.TOPIC : Securities -
UK Joint Money Laundering Steering Group Proposes Amendments to Guidance
02/03/2020
The Joint Money Laundering Steering Group has opened a consultation on proposed amendments to its Guidance. The revisions to the Guidance are to account for changes introduced by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. The Regulations amend the existing Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, incorporating changes arising from the EU’s Fifth Anti-Money Laundering Directive.
Read more. -
European Banking Authority Publishes Report on Diversity Practices in Banks and Investment Firms
02/03/2020
The European Banking Authority has issued a report on diversity practices in credit institutions and investment firms. The report is based on diversity data collected by national regulators under the Capital Requirements Directive. CRD requires banks (known as “credit institutions”) and investment firms to adopt policies promoting diversity in their management bodies. The report finds that 41% of institutions still do not have a diversity policy, despite a CRD obligation to implement one. Even amongst institutions that have implemented a policy, not all promote gender diversity. The EBA is calling on institutions and Member States to consider additional measures to promote a more balanced gender representation and to ensure compliance with diversity policy requirements. It intends to continue monitoring diversity in management bodies and to issue further benchmark studies in the future.
View the EBA's report on diversity practices. -
European Securities and Markets Authority Consults on Pre-Trade Transparency Regime
02/03/2020
The European Securities and Markets Authority has launched a consultation to collect the views of market participants on the pre-trade transparency regime applicable to systematic internalizers for “non-equity instruments” (which include bonds, structured-finance products, emission allowances and derivatives) under the Markets in Financial Instruments Regulation. A consultation on the transparency regime for equity and equity-like instruments has been launched separately.
Read more. -
UK Prime Minister Sets Out Plan for Post-Brexit Relationship with EU
02/03/2020
The U.K. Prime Minister, Boris Johnson, has published a written statement on the U.K. Government’s proposed approach to negotiations on the U.K.’s future relationship with the EU. The U.K. formally left the EU on January 31, 2020 and entered an 11-month transition period, expiring on December 31, 2020, during which most EU legislation will continue to apply. The U.K. must now negotiate how the U.K. will interact with the EU after the end of the implementation period.
Read more.TOPIC : Brexit for Financial Services -
European Commission Takes First Step to Formally Open Negotiations With UK on Future Relationship
02/03/2020
The European Commission has published a Recommendation for a Decision by the Council of the European Union authorizing the opening of negotiations for a trade deal between the U.K. and the EU. The draft Recommendation authorizes the opening of the negotiations, appoints the Commission as negotiator and establishes a special committee for consultation. The annex to the draft Recommendation sets out the proposed negotiating directives and describes the EU's vision for its future relationship with the U.K., based on the EU-U.K. Withdrawal Agreement. Once the Council adopts the decision, the Commission will formally open the negotiations.
View the draft Recommendation and negotiating directives.TOPIC : Brexit for Financial Services -
EU Consultation on Draft Technical Standards For Third-Country Firm Registration and Disclosure Under MiFID II
01/31/2020
The European Securities and Markets Authority has launched a consultation on proposed draft Technical Standards on the provision of investment services and activities in the EU by third-country firms under the Markets in Financial Instruments package. The consultation closes on April 28, 2020 and ESMA intends to submit the final draft Technical Standards to the European Commission in Q3 2020.
The provisions in the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation on third-country firms were recently amended. Among other things, the changes require third-country firms providing services to all types of clients to provide ESMA with further information. In addition, ESMA has increased powers over third-country firms providing services to eligible counterparties and per se professional clients, such as the ability to conduct on-site inspections and impose product restrictions or prohibitions.
ESMA's consultation paper covers the proposed:- draft Regulatory Technical Standards on the information for registration of third-country firms and the information to be reported annually by third-country firms registered with ESMA;
- draft Implementing Technical Standards on the format of applications for registration of third-country firms and the format of the information to be reported annually; and
- draft ITS on the format of the information to be reported annually to national regulators by branches of third-country firms.
View the consultation paper. -
EU Opinion on Italian Accepted Market Practice in Accordance with the Market Abuse Regulation
01/31/2020
The European Securities and Markets Authority has published an opinion supporting the Italian Commissione Nazionale per le Società e la Borsa’s (Consob) revised accepted market practice on liquidity contracts for the purposes of the Market Abuse Regulation. The Market Abuse Regulation provides certain prohibitions against market manipulation but allows “accepted market practices” (AMPs) as a defense against allegations of market manipulation. To benefit from the defense, it is necessary to establish that a relevant transaction was conducted for legitimate reasons and in accordance with a formally accepted AMP. AMPs must be established by national regulators and notified to ESMA. ESMA will then issue an opinion on the compatibility of the AMP with MAR and whether its establishment would threaten market confidence.
Read more. -
European Securities and Markets Authority Confirms Brexit Implementation Period Requirements
01/31/2020
The European Securities and Markets Authority has released a statement confirming that, during the Brexit implementation or transitional period, the reporting and notification requirements for U.K. firms under EU legislation, such as the Markets in Financial Instruments package and the European Market Infrastructure Regulation, will continue to apply. In addition, ESMA will continue directly to supervise U.K. established credit rating agencies, trade repositories and securitization repositories until January 1, 2021. Under the EU-U.K. Withdrawal Act, the U.K. will leave the EU on January 31, 2020. However, EU laws will continue to apply in the U.K. until the end of the implementation period that will run from February 1, 2020 to December 31, 2020.
View ESMA's statement.TOPIC : Brexit for Financial Services -
Scope of Jurisdiction of Court of Justice Over UK Matters Confirmed
01/31/2020
The Court of Justice of the European Union has published a press release on the consequences for it of the U.K.'s withdrawal from the EU on January 31, 2020. The announcement confirms that U.K. judges will no longer serve the Court of Justice and of the General Court. The statement also confirms that the Court of Justice will continue to have jurisdiction in proceedings brought by or against the U.K. until the end of the implementation period (December 31, 2020). The Court will also have jurisdiction to give preliminary rulings on requests from U.K. courts that are made before the end of the implementation period.
View the press release.TOPIC : Brexit for Financial Services -
EU Debate on Usefulness of Equivalence Regime Under the Prospectus Regulation
01/31/2020
The European Securities and Markets Authority has published a letter it addressed to the European Commission about the technical advice that the Commission requested from ESMA on the general equivalence criteria to guide future equivalence assessments for prospectuses prepared under the laws of third countries. The Prospectus Regulation allows national regulators of EU member states to approve a prospectus for an offer of securities to the EU public or for admission to trading on an EU exchange, prepared in accordance with the laws of a third country, provided the disclosure laws of the third country are equivalent to those of the Prospectus Regulation. The Commission is empowered to adopt legislation setting out general equivalence criteria and may also adopt a decision determining that the laws of a specific third country are equivalent.
Read more.TOPIC : Securities -
UK Conduct Regulator Confirms EU Regulatory Reporting Regime Applies During Brexit Implementation Period
01/30/2020
The U.K. Financial Conduct Authority has announced that during the Brexit implementation period, all existing regulatory reporting will continue under the EU regime. The FCA's announcement follows the adoption by the Council of the European Union of the Withdrawal Agreement on the same day, which means that the U.K. will leave the EU on January 31, 2020. Although the U.K. will have left the EU, EU law will apply in the U.K. until the transitional or implementation period ends on December 31, 2020. The FCA confirmed that EEA firms wanting to enter the Temporary Permissions Regime or fund managers wanting to continue to market funds in the U.K. under the Temporary Marketing Permissions Regime had until the end of the day on January 30, 2020 to notify the FCA.
View the FCA's announcement.TOPIC : Brexit for Financial Services -
Bank for International Settlement Says Buy-Side Firms Need to Adopt Global FX Code
01/30/2020
The Chair of the Markets Committee of the Bank for International Settlements has written to the Chair of the Global Foreign Exchange Committee providing a brief assessment of the effectiveness of the FX Global Code. The FX Global Code was first published by the GFXC in May 2017. It superseded and substantively updated existing guidance for participants in FX markets previously provided by the Non-Investment Products (NIPs) Code. The Code comprises a set of global principles of good practice for the FX market, covering a broad range of areas, including ethics, governance, execution, information-sharing, risk management, compliance, trade confirmation and settlement. The Global FX Committee committed to reviewing the code every three years.
In the letter, the BIS Markets Committee sets out its assessment of and recommendations for improving the effectiveness of the FX Global Code. In particular, the Committee recommends that additional action is taken by the Global FX Committee to ensure that more of the large buy-side firms sign up to the Code.
View the letter. -
UK Conduct Regulator Publishes Brexit-Related Updates to Handbook
01/30/2020
The U.K. Financial Conduct Authority has published a series of updates to the FCA Handbook relating to the U.K.’s exit from the EU on January 31, 2020.
Read more.TOPIC : Brexit for Financial Services -
EU Agrees Final Brexit Legislation
01/30/2020
Following the signature of the EU-U.K. Withdrawal Agreement on January 24, 2020, the European Central Bank has issued a statement expressing its regret that the U.K. is leaving the EU but stating its intention to ensure that Brexit causes the minimum disruption possible.
Read more.TOPIC : Brexit for Financial Services -
International Organization of Securities Commissions Priorities for 2020
01/30/2020
The International Organization of Securities Commissions has published its annual work program, setting out its priorities for 2020. IOSCO will continue to focus on the five areas identified by its Board in 2019 as well as one new issue. The areas of focus are:- Crypto-assets: following its consultation last year, in February 2020, IOSCO will publish a final report on issues, risks and regulatory considerations relating to crypto-asset trading platforms. IOSCO will also publish the outcome of its review of the regulatory risks relating to investment funds exposures to crypto-assets. Finally, a report will be issued in early 2020 on issues relating to Global Stablecoins.
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EU-Wide Supervisory Focus on UCITS Liquidity Risk Management Announced
01/30/2020
The European Securities and Markets Authority has announced an EU-wide common supervisory action on liquidity risk management by managers of Undertakings for the Collective Investment in Transferable Securities will be undertaken in 2020. This would appear to be a response to the Woodford scandal. The EU UCITS Regulation requires UCITS managers to manage a UCITS liquidity risk to ensure, among other things, that investors can redeem their investments on demand. National regulators of EU member states are going to simultaneously assess compliance with the requirements by market participants established in their jurisdictions. The knowledge and experience of the national regulators will be shared through ESMA to enhance the convergence of supervisory practices.
View ESMA's announcement.TOPIC : Funds -
European Commission Seeks Feedback on Changes to Non-Financial Reporting Regime
01/30/2020
The European Commission is seeking feedback on a roadmap for its proposed changes to the Non-Financial Reporting Directive. The Directive specifies the non-financial information (e.g., regarding the environment, social issues and bribery and corruption) that large listed companies, banks and insurance companies must report on annually. The Commission has committed to review the Directive in order to strengthen firms’ reporting in this area, particularly with respect to the adequacy of reporting on sustainable investment. Policy options include: (i) revising the existing non-binding guidelines on reporting under the Directive; (ii) endorsing existing or future voluntary standards on non-financial reporting; and (iii) revising and strengthening the provisions of the Directive itself. Feedback on the roadmap should be submitted by February 27, 2020. The Commission intends to launch a further consultation on the possible revision of the Directive in Q1 2020.
View the Commission's roadmap on revision of the Non-Financial Reporting Directive. -
EU Adopts Withdrawal Agreement
01/30/2020
The Council of the European Union has adopted a decision to conclude the EU-U.K. Withdrawal Agreement. The European Parliament consented to the Agreement on January 29, 2020.
The Withdrawal Agreement will enter into force when the U.K. leaves the EU on January 31, 2020 (midnight CET / 11 p.m. GMT). Although the U.K. will have left the EU, it will still apply EU laws until December 31, 2020, which is the agreed transitional or implementation period under the Agreement.
View the Council's press release.TOPIC : Brexit for Financial Services -
European Commission Publishes 2020 Work Programme
01/29/2020
The European Commission has published its 2020 Work Programme, setting out the EU’s strategic priorities for the next 12 months.
Read more. -
EU Amends Implementing Standards for Diversified Stock Indices Under Capital Requirements Legislation
01/29/2020
A Commission Implementing Regulation amending existing Implementing Technical Standards under the Capital Requirements Regulation has been published in the Official Journal of the European Union. The ITS specify the stock indices that are sufficiently diversified to be counted as individual equities, without requiring market participants to take account of their specific risk under CRR for any stock index future placed on them. The amendments to the ITS update the stock indices listed in light of the latest available data. The ITS will apply directly across Member States from February 19, 2020.
View the amending Commission Implementing Regulation. -
UK Legislation Published Introducing Commencement of Brexit Withdrawal Act
01/29/2020
The European Union (Withdrawal Agreement) Act 2020 (Commencement No. 1) Regulations 2020 have been published by the U.K. Government. The Commencement Regulations establish “exit day” (January 31, 2020), as the day upon which certain provisions of the European Union (Withdrawal Agreement) Act 2020 will come into force, including provisions that give domestic legal effect to the Withdrawal Agreement and EEA EFTA separation agreement and those providing for the retention of existing grounds for deportation of relevant persons.
Read more.TOPIC : Brexit for Financial Services -
UK Legislation Published Delaying Brexit Transitional Regimes to End of Implementation Period
01/28/2020
The Financial Services (Consequential Amendments) Regulations 2020 have been published by the U.K. Government. The Regulations delay the application of various financial services temporary permissions and transitional regimes until the end of the implementation or transitional period (December 31, 2020) which was established under the European Union (Withdrawal Agreement) Act 2020. The Regulations come into force immediately before exit day, which is due to occur on January 31, 2020.
Read more.TOPIC : Brexit for Financial Services -
UK Payment Systems Regulator Consults on Competition and Innovation Issues in the New Payments Architecture
01/28/2020
The U.K. Payment Systems Regulator has published a Call for Input on competition and innovation in the U.K.'s New Payments Architecture. Feedback was originally requested by March 24, 2020, but in light of COVID-19 that deadline has been extended to May 1, 2020. The PSR confirms that it will consult further on this issue, including on a draft policy statement. All of the feedback will assist the PSR to develop the NPA regulatory policy, the final version of which will be published before the end of 2020. The NPA will reorganize the clearing and settlement of most of the U.K.'s domestic interbank payments, including payments that currently use the BACS and Faster Payments systems. The consultation paper sets out certain potential harms to competition and innovation and possible mitigating measures to address these.
View the call for input. -
UK Government Confirms Aim of Achieving Equivalence for Financial Services by End June 2020
01/27/2020
HM Treasury has published a letter addressed to the Chair of the European Union Committee of the House of Lords concerning equivalence for financial services as a result of Brexit. In the letter, HM Treasury confirms that the priority for the U.K. Government is to obtain equivalence from the EU (and grant the same to the EU for U.K. purposes) by June 30, 2020 across all areas of the financial services sector where the EU framework currently provides for equivalence. There are just over 40 areas within the existing EU equivalence framework. This is in line with the EU-U.K. Withdrawal Agreement. The Withdrawal Agreement is subject to approval by the EU on January 29, 2020. The U.K. legislation to implement the Withdrawal Agreement, the European Union (Withdrawal Agreement) Act 2020, received Royal Assent on January 23, 2020.
HM Treasury also confirms that discussions have already been held with countries outside the EU regarding the U.K.'s equivalence framework and states that the U.K. could grant equivalence even where there is no EU equivalence, confirming the U.K.'s sovereign rights following Brexit.
View the letter.
You may like to view our client note: "The EU-UK Future Relationship: EU Announces its Timetable For Cross-Border Equivalence in Financial Services", dated January 15, 2020.TOPIC : Brexit for Financial Services -
UK Government Launches Consultation on Application of EU Fifth Money Laundering Directive to Trusts
01/24/2020
HM Treasury and HM Revenue and Customs have launched a consultation on the implementation of rules governing the registration of trusts under the EU Fifth Anti Money Laundering Directive. Responses to the consultation should be submitted by February 21, 2020.
Read more. -
UK Legislation Published Implementing Revised Brexit Deal
01/24/2020
The European Union (Withdrawal Agreement) Act 2020 has received Royal Assent and has been published by the U.K. Government. The EUWA Act 2020 implements the revised Withdrawal Agreement agreed between the EU and the U.K. last October and provides for that Agreement to have direct legal effect in the U.K. Subject to final EU sign-off, the U.K. is scheduled to leave the EU with this deal on January 31, 2020.
Read more.TOPIC : Brexit for Financial Services -
Christopher Woolard Appointed as Interim Chief Executive of UK Conduct Authority
01/24/2020
Christopher Woolard has been appointed Interim Chief Executive of the U.K. Financial Conduct Authority from March 16, 2020. Mr. Woolard is currently the Executive Director of Strategy and Competition and an Executive member of the FCA's Board. He will take on the role when the current FCA Chief Executive Andrew Bailey becomes Governor of the Bank of England. HM Treasury will be running an open process for the role of permanent CEO in due course.
View the announcement.TOPIC : People -
UK Regulator Outlines Priorities for Supervising Benchmark Administrators
01/24/2020
The U.K. Financial Conduct Authority has written to the CEOs of benchmark administrators that it supervises. In the letter, the FCA sets out its supervisory strategy as well as the potential harms that benchmark administrators pose to their customers and to the financial markets. The FCA is asking all benchmark administrators to consider the harm that their firm may present and to consider how those could be mitigated. The FCA intends to focus over the next two years on the following areas to ensure that its supervision of benchmark administrators mitigates the identified risks:- Quality of standards: the quality of an administrator's governance and controls, the information provided in their Benchmark Statement, their recalculation and cessation policies, their outsourcing arrangements and their approach to operational resilience; and
- Excessive fees and costs: the FCA is concerned that competition may not be working well in the provision of benchmarks following the feedback received to its Wholesale Sector Competition Review and Asset Management Market Study. The FCA intends to carry out a Call for Input on access to data in wholesale markets so that it can gain a better understanding of the issues and determine whether any action is needed.
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UK Prudential Regulator Publishes Policy Statement on Changes to Pillar 2 Capital Requirements
01/23/2020
The U.K. Prudential Regulation Authority has published a Policy Statement following its consultation last year on changes to the Pillar 2 capital requirements for banks and large investment firms. The amendments will apply from January 23, 2020. The PRA has made some changes to the proposed text following feedback from respondents that further clarification would be helpful, in particular on the setting of the PRA buffer using the hurdle rate in stress, buffer interactions and usability. The amendments are implemented in:- Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital";
- Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" (SS31/15); and
- Supervisory Statement, "Implementing CRD IV: Capital buffers" (SS6/14).
View the Policy Statement.
View the updated Statements.
View details of the PRA's consultation. -
UK Regulators Take Steps to Establish Financial Services AI Public Private Forum
01/23/2020
The Bank of England and the U.K. Financial Conduct Authority are establishing the Financial Services AI Public Private Forum that Governor Mark Carney announced in June 2019. The regulators are calling for expressions of interest to join the forum from a range of sectors, including, but not limited to: (i) asset and investment management; (ii) banking; (iii) financial market infrastructure; (iv) fintech; (v) insurance; (vi) non-governmental organizations; and (vii) technology service providers.
The purpose of the forum is to:- share information and understand the practical challenges of using AI and machine learning in financial services, including obstacles to implementation and potential risks and trade-offs;
- establish the potential areas where principles, guidance, regulation or good practice might assist in the safe adoption of AI and machine learning; and
- assess whether ongoing industry input would be useful and what form that could take, such as through industry codes of conduct or an industry standard board.
View the FCA's announcement.
View the BoE's webpage.
View the terms of reference.TOPIC : FinTech -
Revised EU Guidelines on Fraud Reporting Under the Payment Services Directive Published
01/22/2020
The European Banking Authority has published amendments to the 2018 Guidelines on fraud reporting under the revised Payment Services Directive (known as PSD2). The Regulatory Technical Standards on "strong customer authentication" requirements for payments services providers, setting out the process by which service providers authenticate the identity of customers have applied directly across the EU since September 14, 2019. Following clarifications by the European Commission on the application of SCA to certain transaction types, the EBA has amended the reporting templates linked to the guidelines to cater for reporting of transactions where SCA is not applied for reasons other than an exemption under the SCA RTS. The amendments will apply to the reporting of payment transactions initiated and executed from July 1, 2020.
View the EBA's announcement and the consolidated Guidelines.
View details of the SCA RTS.TOPIC : Payment Services -
EU Proposals to Amend the EU-Wide Stress Test Framework for Banks
01/22/2020
The European Banking Authority has commenced a consultation on proposed changes to the EU-wide stress test framework for banks. The EU-wide stress test contributes to improving the financial resilience of banks. Responses to the consultation may be submitted until June 30, 2020. The EBA is holding a public hearing on the proposals on February 21, 2020.
The EBA is proposing to amend the framework to have two parts. The first would be the supervisory element, based on a common EU methodology. It would include the current constrained bottom-up approach, but also have an option for national regulators to adjust or replace banks' estimates based on top-down models and other tools. The second part would be the bank element and would be based on the same common methodology applied in the supervisory part. However, banks would be given more discretion to calculate their projections, provided an explanation and disclosure of the rational and impact of any deviations is possible. The quality of disclosure of the results would remain high, with only the supervisory leg being amended to limit the quantity of disclosure. Feedback is also sought on the approach to scenario designs.
View the consultation paper and other details. -
UK Conduct Regulator Wants Asset Management Sector to Reflect on Risks to Customers and Markets
01/22/2020
The U.K. Financial Conduct Authority has published two letters addressed to the CEOs of firms in the asset management and funds sectors. The first letter is addressed to CEOs of FCA-authorized firms directly managing mainstream investment vehicles or advising on mainstream investments, excluding wealth managers and financial advisers. The second letter is addressed to CEOs of FCA-authorized firms managing alternative investment vehicles, such as hedge funds or private equity funds, or managing alternative assets directly or advising on these types of investments. The letters follow the FCA's report on its review of how firms in the asset management sector selected and used risk modeling and other portfolio management tools.
Read more. -
UK Conduct Authority to Review Suitability of Retirement Income Financial Advice
01/21/2020
The U.K. Financial Conduct Authority has announced the focus of its second review assessing suitability - advice received by consumers on retirement income. The FCA intends to publish a report on the outcome of the review in 2020. Alongside the announcement, the FCA has published a letter addressed to the CEOs of financial advice firms describing its approach to tackling key areas of concern with financial advice firms and setting out the action it expects these firms to undertake. The letter covers assessing suitability of advice, defined benefit pension transfer advice, pensions and investment scams, adequate financial resources and professional indemnity insurance, the FCA's recently imposed ban on the promotion of speculative mini-bonds to retail consumers, the Senior Managers and Certification Regime and preparing for the end of the Brexit implementation period.
View the FCA's statement.
View the Dear CEO letter. -
Group of Central Banks to Collaborate on Potential of Central Bank Digital Currencies
01/21/2020
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank and the Bank for International Settlements have announced that they have created a group to share experience as they assess the potential cases for central bank digital currency. The group will assess CBDC use cases, economic, functional and technical design choices, including cross-border interoperability and the sharing of knowledge on emerging technologies.
View the announcement. -
European Central Bank Sets Out Expectations of Eurozone Banks' Dividend and Variable Remuneration Policies
01/21/2020
The Banking Supervision arm of the European Central Bank has set out its expectations of Eurozone banks regarding their dividend distribution and variable remuneration policies. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and has certain powers relating to the supervision by national Eurozone regulators of smaller banks. The ECB has published a letter addressed to significant banks warning them to take a "prudent, forward-looking stance" when setting the banks' remuneration policy and has also published a Recommendation (dated January 17, 2020) on requiring significant banks to "establish dividend policies using conservative and prudent assumptions". The Recommendation will apply directly to significant Eurozone banks. The ECB expects national Eurozone regulators to consider how it might be applied proportionally to the smaller banks. The ECB expects Eurozone banks to consider how their variable remuneration policies and dividend distribution policies will impact their ability to continue to meet their regulatory capital requirements, particularly taking into account the transitional provisions of the Capital Requirements Directive (version IV) and the transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds.
View the ECB's letter.
View the ECB's Recommendation. -
UK Conduct Regulator Clarifies Rules on Publication of Non-Representative LIBOR
01/20/2020
The U.K. Financial Conduct Authority has responded to a request from the International Swaps and Derivatives Association for clarification on the expected timeframes for publication of a non-representative LIBOR. The FCA (in conjunction with the Financial Stability Board) had previously requested ISDA to introduce “pre-cessation” triggers in its derivative contracts, causing LIBOR-based contracts to fall back to an alternative reference rate in the event that the FCA deemed LIBOR to no longer be representative. ISDA requested clarity about the length of the period during which such a non-representative LIBOR might be published prior to its total cessation.
Read more. -
European Central Bank Consults on Proposed Guidelines on Materiality Threshold for Credit Obligations Past Due for Small Eurozone Banks
01/20/2020
The European Central Bank has opened a consultation on proposed guidelines on the materiality threshold for credit obligations past due for less significant institutions based in the Eurozone. The EU Capital Requirements Regulation risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and has set the materiality threshold for these firms. The proposed guidelines are addressed to national Eurozone regulators within the SSM responsible for setting the threshold for less significant institutions. The ECB is proposing a single materiality threshold for all less significant institutions, both for retail and non-retail exposures.
The consultation closes on February 17, 2020.
View the consultation paper. -
UK Conduct Authority Halts UK Operation of MiFID Transparency Regime in Light of Commitment to Brexit Deal
01/20/2020
The U.K. Financial Conduct Authority has updated its webpage and statement on the operation of the transparency regime under the Markets in Financial Instruments Directive post-Brexit. The U.K. Government has stated that it is committed to leaving the EU with a deal on January 31, 2020, followed by an implementation period. As a result, the FCA confirms that during the implementation period, all MiFID systems will remain connected to the European Securities and Markets Authority. A further update will be provided in due course.
View the FCA's updated statement. -
UK Proposals for Confirmation of Payee Exemptions
01/20/2020
The U.K. Payment Systems Regulator has opened a consultation on proposals to vary its Specific Direction 10 on Confirmation of Payee. Confirmation of Payee is a system that ensures that certain identifiers (including name, sort code and account number) of a payee are verified against the records of a payment services provider before a payment is made. On August 1, 2019, the PSR issued Specific Direction 10 to certain institutions within the six largest U.K. payment service providers - Lloyds Group, Barclays Group, HSBC Group, Royal Bank of Scotland Group, Santander Group and Nationwide Building Society - requiring them to implement "Confirmation of Payee" by March 31, 2020. The PSR is consulting on amending the Direction to introduce a new basis for a payment service provider to request an exemption from the requirements. The existing text of the Direction only allows exemptions in exceptional circumstances. The PSR also intends to include a limited exemption for HSBC UK Bank plc in the revised Direction. Responses to the consultation can be submitted until January 29, 2020.
View the consultation.TOPIC : Payment Services -
Proposed EU Guidelines for Securitization Repositories Assessing Data Completeness and Consistency
01/17/2020
The European Securities and Markets Authority has launched a consultation on proposed guidelines on securitization repository data completeness and consistency thresholds. The proposed guidelines would apply to EU securitization repositories that are registered with and supervised by ESMA. The consultation closes on March 16, 2020.
Read more. -
UK Court Confirms Bitcoin Status as Property for Certain Proprietary Claims
01/17/2020
A U.K. court has granted an interim proprietary injunction over Bitcoin held in an account of a cryptocurrency exchange after it had been transferred there as part of a cyber attack on a Canadian insurance company. The judgment in AA v Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm) was given on December 13, 2019, and following the lifting of reporting restrictions, was released for publication on January 17, 2020. In coming to its decision, the High Court adopted the analysis as to the proprietary status of crypto assets set out in the recent legal statement by the UK Jurisdiction Taskforce. Although each case will depend on the relevant facts and issues, the decision confirms that crypto assets are a form of property capable of being the subject of a proprietary injunction.
Read more. -
UK Regulators Push For More Action on LIBOR Transition
01/16/2020
The Bank of England, U.K. Prudential Regulation Authority, U.K. Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates have published a set of documents outlining priorities and milestones for 2020 on LIBOR transition.
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Global Financial Innovation Network Announces Plans to Improve the Framework for Cross-Border Testing of Innovative Firms
01/16/2020
The Global Financial Innovation Network has published a report on lessons learned during the cross-border testing of innovative firms and their products. The GFIN was launched at the start of 2019 and is a network of organizations committed to supporting financial innovation in the interests of consumers. One of GFIN's priorities is to facilitate cross-border trials of emerging technologies across global jurisdictions (a global sandbox). The GFIN began a pilot with eight firms in April 2019, which aimed to develop testing plans for their cross-border trials. However, as none of the firms developed a testing plan that satisfied each jurisdiction's requirements, the GFIN could not progress things further. The GFIN has since met to consider how to take things forward and will further develop the framework of cross-border testing.
The report describes the accomplishments and the challenges that arose during the pilot and sets out the proposed next steps and solutions to improve cross-border testing for the next phase. The solutions include establishing a central website for GFIN and creating a single application form for applicants, both of which should make it easier for prospective firms to find relevant information and submit an application. In the first half of 2020, the GFIN will open applications for the first formal cohort of participants.
View the report.TOPIC : FinTech -
International Organization of Securities Commissions Recommends UTC Clock Synchronization to Facilitate Market Abuse Monitoring
01/16/2020
The International Organization of Securities Commissions has published a report in which it recommends that where jurisdictions require clock synchronization for trading purposes, clocks should be synchronized to Coordinated Universal Time (UTC). In its 2013 report - Technological Challenges to Effective Market Surveillance – Issues and Regulatory Tools (FR04/13) – IOSCO recommended the introduction of a requirement for trading venues and their participants to synchronize the business clocks used to record the date and time of a reportable event. The practice assists regulators in monitoring the markets for market abuse and identifying market abuse. Certain jurisdictions have already implemented clock synchronization according to UTC, including Australia, Canada and the EU.
View IOSCO's report. -
Mark Carney Appointed as Finance Adviser to UK Government on Sustainable Finance
01/16/2020
Mark Carney, the outgoing Governor of the Bank of England, has been appointed as Finance Adviser for COP26. The role will be to assist the U.K. Government to build a sustainable financial system that supports the transition to a net zero economy. Andrew Bailey will replace Mr. Carney as the Governor of the Bank of England from March 16, 2020.
Read more.TOPIC : People -
European Commission Announces Next Steps for Sustainable Finance
01/16/2020
The European Commission has published a Communication detailing the Sustainable Europe Investment Plan that will support the European Green Deal Investment Plan. The Communication is accompanied by a proposed Regulation to establish a Just Transition Fund and a Factsheet explaining the Plan. Feedback on the proposed Regulation can be submitted until March 12, 2020.
Read more. -
European Banking Authority Launches Consultation on Technical Standards Governing Own-Funds Requirements for Non-Trading Book Positions
01/13/2020
The European Banking Authority has launched a consultation on its draft regulatory technical standards specifying how institutions should calculate their own funds requirements for market risk in respect of non-trading book positions that are subject to foreign-exchange risk or commodity risk. The draft RTS have been published for consultation in accordance with the revised Capital Requirements Regulation, which came into force on June 7, 2019 and (subject to certain exceptions) will apply directly across the EU from June 28, 2021. Responses to the consultation should be submitted by April 10, 2020. The EBA is expected to consult in 2020 on other technical standards to supplement CRR II and has published a roadmap providing the due dates for its deliverables.
Read more. -
UK Conduct Authority Publishes Findings of Review of Risk Modelling and Other Portfolio Management Tools in the Asset Management Sector
01/13/2020
The U.K. Financial Conduct Authority has published a report on its review of how firms in the asset management sector selected and used risk modelling and other portfolio management tools. The review was undertaken to assess how firms identify and manage the risks as well as firms' ability to respond to system failures or service interruptions.
Read more. -
European Banking Authority Publishes Report on Big Data and Advanced Analytics
01/13/2020
The European Banking Authority has published a report on big data and advanced analytics in the banking sector. The report sets out the findings of the EBA's review of big data and analytics and presents key pillars and elements of trust for the development, implementation and adoption of BD&AA by banks.
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International Swaps and Derivatives Association Publishes FAQs on IBOR Fallback Rate Adjustments
01/10/2020
The International Swaps and Derivatives Association has published a set of Frequently Asked Questions on Interbank Offered Rate Fallback Rate adjustments. The FAQs are part of ISDA's preparations for the sweeping changes being made to global interest rate benchmarks, which may see a transition from IBORs to overnight risk free rates. Parties to derivatives contracts that currently reference IBORs are being encouraged to include contractual fallback provisions providing for adjusted RFRs that could replace IBORs if they are discontinued before a contract is concluded. RFRs are structurally different to IBORs, hence why the RFRs must be adjusted in order to be incorporated into contracts that currently reference IBORs.
Read more.TOPIC : Derivatives -
European Systemic Risk Board Recommends Options for Addressing Procyclicality in Derivatives Markets and Securities Financing Transactions
01/09/2020
The European Systemic Risk Board has published a report on mitigating the procyclicality of margins and haircuts in derivatives markets and securities financing transactions. The report assesses the systemic risks arising from procyclicality associated with margin and haircut practices and makes recommendations for addressing the risks.
Read more.TOPIC : Derivatives -
European Securities and Markets Authority Publishes 2020-2022 Strategic Orientation
01/09/2020
The European Securities and Markets Authority has published its Strategic Orientation for 2020-2022, setting out its longer-term objectives for regulating financial markets. The previous Strategic Orientation covered the period from 2016-2020 and so is coming to an end this year. Looking forward, ESMA aims to:- develop the EU Capital Markets Union by encouraging wider retail investor participation, which would assist with the diversification of funding sources and efficiency of capital markets;
- promote sustainable finance and long-term oriented capital markets as part of the EU's commitment to meet the UN's Sustainable Development Goals by 2030;
- examine the opportunities and risks of digitalization and technology for market participants and regulators;
- guarantee the EU's voice in financial markets, aiming to maintain the openness of EU financial markets and develop EU co-operation with third-country authorities to ensure investor protection and financial stability; and
- encourage proportionality, particularly with respect to SMEs and innovative companies, where ESMA may need to tailor its initiatives to meet its objectives.
View ESMA 2020-2022 Strategic Orientation. -
European Securities and Markets Authority Publishes Final Report and Updated Q&A on CCP Membership Criteria and Due Diligence
01/07/2020
The European Securities and Markets Authority has published a final report on the 2018 survey it conducted on central counterparties' membership criteria and due diligence practices, together with an update to its Q&As providing guidance on the correct implementation of the European Markets Infrastructure Regulation. The survey was prompted by the default in September 2018 of an individual who was acting as a clearing member of Nasdaq Clearing AB. This triggered ESMA's investigation into CCPs' membership and due diligence practices and their compliance with participation requirements under EMIR and the joint Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions.
Read more.TOPIC : Financial Market Infrastructure -
Bank of England and UK Conduct Regulator Announce Proposals for Financial Sector Data Reforms
01/07/2020
The Bank of England and U.K. Financial Conduct Authority have published a series of proposals setting out their plans to enhance their data and analytics capabilities. The proposals include a revised FCA data strategy, a BoE discussion paper on transforming data collection and a viability report published by the FCA and BoE, together with seven regulated firms, on the possibilities of digital regulatory reporting. The FCA and BoE depend on data to conduct their supervisory responsibilities.
Read more. -
European Securities and Markets Authority Publishes Evidence on Market Impacts of Circuit Breakers
01/07/2020
The European Securities and Markets Authority has published a working paper setting out its findings on the market impacts of “circuit breakers”, instruments used by trading venues to interrupt excessive price movements in financial instruments. The revised Markets in Financial Instruments Directive places obligations on national regulators to require a regulated market in their jurisdiction to be able to temporarily halt or constrain trading if there is significant price movement in a financial instrument on that market during a short period and, in exceptional cases, to be able to cancel, vary or correct any transaction.
Read more.TOPIC : Financial Market Infrastructure -
International Swaps and Derivatives Association Publishes Guide on Cross-Border Application of Margin Rules
01/06/2020
The International Swaps and Derivatives Association has published a guide on the cross-border application of margin rules established under the U.S., EU and Japanese regimes for uncleared derivatives. While most jurisdictions base their margin rules on the framework established by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions, there is still scope for differences to arise under national regimes. The guide provides an overview of the margin rules in each of the three jurisdictions, focussing on the cross-border and substituted compliance elements. It also includes a series of charts showing the application and availability of substituted compliance under each regime.
Read more.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Clarifications on Reporting of Securities Financing Transactions
01/06/2020
The European Securities and Markets Authority has published a final report and guidelines on reporting under the Securities Financing Transaction Regulations, together with amended SFTR validation rules and a statement on Legal Entity Identifiers. The SFTR requires all securities financing transactions to be reported to EU-recognized trade repositories. SFTs involve the use of securities to borrow cash or other high investment-grade securities and include repurchase transactions, securities lending and sell/buy backs.
Read more.TOPIC : Derivatives -
New EU Regulation Enhances European Supervisory Authorities' Powers
12/27/2019
An EU Regulation has been published amending the European Supervisory Authorities' powers under various pieces of EU legislation. The Regulation grants ESMA additional powers to monitor market data and authorize benchmark administrators under the Markets in Financial Instruments Regulation and the Benchmarks Regulation, respectively. It also amends the legislation founding the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, granting them additional powers to facilitate their supervisory duties. The Regulation will enter into force on December 30, 2019. The provisions regarding ESMA's enhanced supervisory powers over market data and benchmarks will apply from January 1, 2022. All other provisions regarding the European Supervisory Authorities' enhanced powers will apply from January 1, 2020.
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European Supervisory Authorities Publish New Risk Mitigation Technique Standards for OTC Derivative Contracts
12/23/2019
The European Supervisory Authorities have published joint draft Regulatory Technical Standards amending the existing EU risk mitigation techniques for uncleared OTC derivatives, together with a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral. The draft RTS amend existing bilateral margin requirements made under the European Market Infrastructure Regulation, in line with certain clarifications made to the related international framework by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. The draft RTS were originally published on December 5, 2019, but have been republished with one additional amendment. The Final Report has been submitted to the European Commission for endorsement.
Read more.TOPIC : Derivatives -
EU Temporary Equivalence and Recognition for UK CCPs Extended in Event of a No-Deal Brexit
12/23/2019
An amended temporary equivalence decision on the regulatory framework applicable to central counterparties in the U.K. and Northern Ireland has been published in the Official Journal of the European Union. The decision amends the existing EU equivalence decision, which applies from the date that the U.K. leaves the EU in the event that no withdrawal agreement has been agreed, and ends on March 30, 2020. The amended decision extends the period of equivalence to one year following a U.K. no-deal exit from the EU and will apply from December 24, 2019. It would not apply in the event that the Withdrawal Agreement is ratified by both sides.
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European Parliament Publishes Resolution on EU Financial Services Regulation for Third Countries
12/23/2019
The European Parliament has published a resolution on relationships between the EU and third countries concerning financial services regulation and supervision. The resolution follows the publication of a report in August 2018 by the European Parliament’s Committee on Economic and Monetary Affairs setting out its proposal for the European Parliament’s resolution, which comes in the wake of the U.K.’s upcoming exit from the EU. The key factors prompting the resolution include the need to mitigate risks to financial stability arising from a possible no-deal Brexit, the need for clarification of the relationship between third-country markets and the EU’s single market in the interests of broader financial stability and the fact that existing third-country equivalence rules are not currently subject to a single framework.
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European Securities and Markets Authority Publishes Follow-Up Report on Credit Rating Agency and Trade Repository Fees
12/20/2019
The European Securities and Markets Authority has published a follow-up report on its 2018 Thematic Report on the fees charged by credit rating agencies and trade repositories. ESMA directly supervises all CRAs and trade repositories that are established in the EU. The 2018 Thematic Report highlighted three key areas of concern in the fee charging practices of CRAs and trade repositories, namely: (i) transparency and disclosure to clients and ESMA of fees; (ii) the process of setting fees; and (iii) how interactions with other group entities may pose challenges to the principles of non-discrimination and cost-related fees to which credit rating agencies and trade repositories are expected to adhere.
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UK Chancellor Appoints New Governor of Bank of England
12/20/2019
The U.K. Chancellor of the Exchequer, Sajid Javid, has announced the appointment of Andrew Bailey as the new Governor of the Bank of England.
Read more.TOPIC : People -
Financial Stability Board Publishes Feedback to Resolution Planning Disclosures Consultation
12/20/2019
The Financial Stability Board has published a statement summarizing the feedback it received to its June 2019 consultation on firms’ public disclosures on resolution planning and resolvability. The consultation sought feedback on a series of questions regarding general and firm-specific disclosures made by systemically important banks and other firms subject to resolution planning requirements.
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Financial Stability Board Publishes Feedback to Derivatives and Trading Portfolios’ Solvent Wind-Down Consultation
12/20/2019
The Financial Stability Board has published a statement summarizing the feedback it received to its June 2019 consultation on the solvent wind-down of derivatives and trading portfolios. The consultation sought feedback on a series of questions regarding existing wind-down practices that may be used as a recovery option for global systemically important institutions that find themselves under stress. The FSB intended to consider publishing guidance on solvent wind-down planning depending on the responses elicited by the consultation.
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UK Secondary Legislation Published Implementing EU Fifth Money Laundering Directive
12/20/2019
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 have been published, amending the existing Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The amending Regulations incorporate changes made to EU legislation under the EU’s Fifth Anti-Money Laundering Directive. The majority of the amending Regulations provisions will come into force on January 10, 2020, with the exception of those governing: (i) customer due diligence on anonymous prepaid cards; and (ii) requests for information about accounts and safe-deposit boxes, which will come into force on July 10, 2020 and September 10, 2020 respectively.
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EU Publishes Handbook for Climate Benchmarks
12/20/2019
The EU Technical Expert Group on Sustainable Finance has published a Handbook providing guidance on the EU’s new climate transition benchmarks (EU CTB) and Paris-aligned benchmarks (EU PAB), as well as on the environmental, social and governance disclosures that will be applicable to all investment benchmarks (other than currency and interest rate benchmarks) in the future. Conventional benchmarks do not typically reflect low-carbon considerations, but an increasing focus on sustainability has led to a proliferation in recent years of specific low-carbon benchmarks that were not subject to clear or comparable standards.
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EU Political Agreement on Proposed Regulation on Cross-Border Crowdfunding Service Providers
12/19/2019
The EU legislative bodies have announced that political agreement has been reached on the proposed Regulation on European Crowdfunding Service Providers for Business. The proposed ECSP Regulation is part of the EU Capital Markets Union initiative and the Commission's FinTech Action Plan. It aims to increase access to finance through crowdfunding for innovative companies, start-ups and SMEs. The European Commission published the original legislative proposal on March 8, 2018. Since then, the text of the proposed ECSP Regulation has been amended.
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Consultation on Credit Adjustment Spread Methodologies for Fallbacks in Cash Products Referencing GBP LIBOR
12/19/2019
The Working Group on Sterling Risk-Free Reference Rates has opened a consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR. The consultation focuses on cash products, including, but not limited to, syndicated loans, floating rate notes, retail loans, bilateral corporate loans and securitizations. It only covers GBP LIBOR and credit adjustment spreads to be applied to a SONIA-derived rate. Responses to the consultation can be submitted until February 6, 2020.
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Financial Stability Board Assesses Financial Stability Implications of Expanding Leveraged Loans and Collateralized Loan Obligations Markets
12/19/2019
The Financial Stability Board has published a report on the vulnerabilities associated with leveraged loans and collateralized loan obligations. In the report, the FSB assesses how the leveraged loan and CLO markets have developed and analyzes the potential implications for global financial stability.
Noting that there are data gaps, the FSB makes the following conclusions:- there are indications that weaknesses in the leveraged loan and CLO markets have increased since the 2008-09 global financial crisis;
- banks have the largest direct exposures to leveraged loans and CLOs. These exposures are concentrated among a limited number of large global banks and have a significant cross-border dimension; and
- non-bank investors, such as investment funds, insurance companies, pension funds, broker-dealers and holding companies, also have exposures to leveraged loans and CLOs.
The FSB intends to consider whether there is scope to close data gaps, but will continue to analyze the financial stability risks and will examine the regulatory and supervisory implications related to leveraged loans and CLOs.
View the report.TOPIC : Securities -
European Banking Authority Launches Consultation on Draft Technical Standards Identifying Material Risk Impact Staff Subject to Compensation Requirements
12/19/2019
The European Banking Authority has launched a consultation on its draft Regulatory Technical Standards setting out the criteria for identifying staff whose professional activities have a material impact on credit institutions’ risk profiles. The EBA is required to produce the RTS under the revised Capital Requirements Directive (CRD V), in support of the CRD requirement that remuneration policies for staff whose professional activities have a material impact on the credit institution’s risk profile are appropriate to the size, nature and complexity of the credit institution in question.
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European Commission Launches Consultations on Digitalization in the Financial Sector
12/19/2019
The European Commission has launched two consultations on digitalization in the financial sector. They form part of the EU’s new Digital Finance Strategy which aims to deepen the Single Market for digital financial services, promote a data-driven EU financial sector while addressing the risks inherent in that and enhance the digital operational resilience of the financial system.
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European Banking Authority Publishes Final Technical Standards for the Standardized Approach to Counterparty Credit Risk
12/18/2019
The European Banking Authority has published final draft Regulatory Technical Standards governing the standardized approach to counterparty credit risk in derivatives transactions. The final draft SA-CCR RTS will supplement the requirements set out in the EU's Capital Requirements Regulation, as amended by CRR 2. The SA-CCR requirements aim to address the shortcomings of existing calculation methods to ensure parties are adequately protected in the event of default by a counterparty to a derivatives transaction and these final draft RTS aim to ensure a more harmonized calculation of own funds requirements for counterparty credit risk than has been the case under CRR.
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Bank of England Consults on Proposed 2021 Climate Change Stress Tests
12/18/2019
The Bank of England has published a discussion paper seeking feedback on its proposals for a series of 2021 stress-tests on climate-related risks for the largest banks, insurers and the financial system. The stress tests will help to quantify potential climate change risks faced by the financial system and enable market participants and oversight bodies like the BoE to develop measures to prepare for those risks. Responses to the consultation should be submitted by March 18, 2020. The final stress testing framework will be published in the second half of 2020 with the results of the exercise published in 2021.
Read more. -
EU Recommendations to Combat Undue Short-Term Pressure From Financial Sector on Corporates
12/18/2019
The European Supervisory Authorities have each published advice to the European Commission on undue short-term pressure from the financial sector on corporations. The ESAs comprise the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The ESAs' advice responds to the European Commission's request in June 2019 for evidence and possible advice on potential undue short-term pressure by financial service participants on corporations. The Commission asked the ESAs 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 ESAs' advice, summarized below, may result in the Commission proposing amendments to several pieces of EU legislation, such as the Capital Requirements Directive and related Regulation, the Markets in Financial Instruments package and the Non-Financial Reporting Directive.
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International Swaps and Derivatives Association Consults on Fallbacks Based on Alternative Risk-Free Rates For Derivatives Referencing EUR Libor and EURIBOR
12/18/2019
The International Swaps and Derivatives Association has launched a consultation in which it proposes to amend its standard documentation to implement fallbacks based on alternative risk-free rates for certain key Interbank Offered Rates - EUR LIBOR and EURIBOR. ISDA states that the back-ups will apply if the relevant IBOR is permanently discontinued, based on defined triggers. Responses to the consultation should be submitted to ISDA by January 21, 2020.
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UK Prudential Regulatory Authority Responds on Prudential Impediments for Banks Arising from the LIBOR Transition
12/18/2019
The Prudential Regulation Authority has published a letter addressed to the Chair of the Working Group on Sterling Risk-Free Reference Rates. The letter responds to the Working Group's letter in October 2019 requesting regulatory forbearance or clarification from regulators on the impact that the LIBOR transition is likely to have on the prudential requirements for banks. The main issues raised by the Working Group include: (i) the potential for certain capital instruments to no longer qualify as regulatory capital; (ii) the potential for securitizations and MREL-eligible instruments to be considered as "new contracts" as a result of changes to contractual terms, leading to the need to insert bail-in or other bank recovery contractual terms; and (iii) that many banks will need to obtain regulatory approvals for alterations to the models used to determine their regulatory capital arising from their exposures and risks.
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Financial Stability Board Calls for Sustained Efforts to Migrate From LIBOR
12/18/2019
The Financial Stability Board has published a progress report on reforms to major interest rate benchmarks. The report provides the FSB's annual update on progress taken by the official sector and market participants to move from interbank offered rates to overnight risk-free rates by the end of 2021 in line with the FSB's 2014 recommendations. The FSB highlights that the continued reliance by global financial markets on LIBOR poses significant financial stability risks and urges all participants to continue with their efforts to transition to the alternative risk-free rates. The FSB also warns regulated firms to expect increased examination from regulators of their efforts to transition as the end of 2021 approaches.
View the report. -
EU Regulation and Directive on Covered Bonds Published
12/18/2019
A new Regulation and Directive amending certain provisions of the Capital Requirements Regulation on covered bonds and introducing standards on the issuance of covered bonds and covered bond public supervision has been published in the Official Journal of the European Union. The Regulation and Directive will both enter into force on January 7, 2020. The Regulation will apply directly in all Member States from July 8, 2022, while Member States must publish national legislation implementing the Directive by July 8, 2021 and must apply that legislation from July 8, 2022.
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UK Prudential Regulator Finalizes Revisions to Pillar 2 Liquidity Reporting Frequency
12/17/2019
The U.K. Prudential Regulatory Authority has published a Policy Statement, revised reporting rules and a revised Supervisory Statement on the PRA's approach to supervising liquidity and funding risks (SS 25/15).
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Financial Stability Board Publishes 2020 Work Program
12/17/2019
The Financial Stability Board has published its work program for 2020. The FSB confirms that it will continue to monitor developments to identify and manage new and emerging risks, work to finalize the outstanding components of the post-crisis reforms and assess the implementation of reforms as well as their effects. Key areas of focus will be:- LIBOR transition: the FSB will monitor implementation of the benchmark reforms and report on outstanding issues.
- Global stablecoins: the FSB will launch a consultation on global stablecoins in April 2020.
- Global payment systems: the FSB will work with other international bodies to develop and deliver a roadmap for using digital innovations to improve global cross-border payments.
- FinTech: the FSB will report on the perspective of emerging market and developing economies.
View the FSB work program for 2020. -
UK Financial Policy Committee Highlights Risks of Open-Ended Funds and Global Stablecoins
12/16/2019
The Financial Policy Committee of the Bank of England has published its latest financial stability report. The report sets out the FPC's view of the resilience of the U.K. financial system and the main risks to the U.K.'s financial stability as well as the work being carried out to address those risks. The FPC states that the 2019 annual cyclical scenario stress test indicates that the U.K. banking system would be resilient to deep simultaneous U.K. and global recessions. Furthermore, the U.K. financial system is resilient to and prepared for any disruptions that may arise from a disorderly Brexit.
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International Organization of Securities Commissions Consults on Combating Conduct Risks in Debt Capital Raising
12/16/2019
The International Organization of Securities Commissions has launched a consultation on methods of addressing potential conflicts of interest and other conduct risks that arise from market intermediaries’ participation in the debt capital raising process. Responses should be submitted by February 16, 2020.
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European Supervisory Authorities Publish Guidelines on AML/CTF Cooperation
12/16/2019
The European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority (collectively known as the European Supervisory Authorities) have published joint guidelines aimed at enhancing cooperation between national regulators in combating anti-money laundering and counter-terrorist financing. The EU Fourth Money Laundering Directive requires national regulators to cooperate in their AML/CTF supervision of entities that operate on a cross-border basis.
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UK Conduct Regulator Publishes Feedback on Climate Change and Green Finance Projects
12/16/2019
The U.K. Financial Conduct Authority has published a feedback statement on its proposals for improving climate change disclosures and the information given to consumers about green financial products and services. The feedback statement follows the FCA’s discussion paper on climate change and green finance, in which it sought comments on potential changes to its regulatory approach in these areas.
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European Securities and Markets Authority Publishes Information on Pending Applications for Benchmark Administrators
12/13/2019
The European Securities and Markets Authority has published a list of the entities that are awaiting their national regulator’s approval for authorization and registration as EU benchmark administrators. Under the EU Benchmark Regulation, existing EU and third country benchmark administrators are entitled to apply for authorization to continue as administrators.
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EU Expert Group on Regulatory Obstacles to Financial Innovation Publishes Recommendations on Regulatory Framework for FinTech
12/13/2019
The EU Expert Group on Regulatory Obstacles to Financial Innovation (or ROFIEG) has published a set of Recommendations and a Q&A on the establishment of an accommodative framework for FinTech in the EU. The ROFIEG was established by the European Commission in 2018 to provide expertise on technology in the financial services sector and, in particular, to review the EU’s legal and regulatory FinTech framework.
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International Organization of Securities Commissions Publishes Framework for Monitoring Leverage in Funds
12/13/2019
The International Organization of Securities Commissions has published a framework designed to facilitate regulators’ monitoring of leverage in investment funds, assisting regulators in identifying potential risks to financial stability.
Read more.TOPIC : Funds -
EU Report on Accepted Market Practices Under the Market Abuse Regulation
12/13/2019
The European Securities and Markets Authority has published an annual report to the European Commission on the application of accepted market practices under the 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.
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Proposed EU Procedural Rules for Penalties Imposed on Third-Country CCPs, Trade Repositories and Credit Rating Agencies
12/13/2019
The European Securities and Markets Authority has launched a consultation on proposed procedural rules for penalties imposed on third-country CCPs, trade repositories and credit rating agencies. Responses are invited by January 18, 2020. ESMA intends to finalize its technical advice by the end of Q1 2020.
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EMIR 2.2 Regulation on the Authorization and Recognition of CCPs Published
12/12/2019
A new Regulation amending the European Market Infrastructure Regulation has been published in the Official Journal of the European Union, introducing changes to the procedures and authorities involved in the authorization of central counterparties and the requirements for the recognition of third-country CCPs. The Regulation, known as “EMIR 2.2”, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance.
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European Securities and Markets Authority Publishes Final Report on Suspicious Transaction Reporting Under the Market Abuse Regulation
12/12/2019
The European Securities and Markets Authority has published its final report on the compliance of Member States with suspicious transaction and order reports under the Market Abuse Regulation, in which it sets out the results of its peer review into certain aspects of the STOR framework. Experts from national regulators and ESMA were appointed to conduct the review and issued a self-assessment questionnaire to all 31 EEA national regulators, as well as conducting on-site visits to six national regulators.
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Basel Committee on Banking Supervision Consults on Prudential Treatment of Crypto-Assets
12/12/2019
The Basel Committee on Banking Supervision has published a discussion paper seeking the views of stakeholders on the prudential regulatory treatment of crypto-assets. The paper is relevant for academics, banks, central banks, finance ministries, market participants, payment system operators and providers, supervisory authorities and technology companies. Responses should be submitted by March 13, 2020.
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European Securities and Markets Authority Reports on Sanctions Imposed Under UCITS Directive
12/12/2019
The European Securities and Markets Authority has published its second annual report on the sanctions imposed in 2018 under the Undertakings for Collective Investments in Transferable Securities Directive. The UCITS Directive requires national regulators to inform ESMA annually of information relating to all penalties and measures they have imposed under the Directive during the previous calendar year, which ESMA then compiles in a single annual report.
Read more.TOPIC : Enforcement -
Committee on Payments and Market Infrastructures Publishes Report on Wholesale Digital Tokens
12/12/2019
The Committee on Payments and Market Infrastructures has published a report on wholesale digital tokens. The report focuses on how digital tokens might be used to effect settlement in wholesale transactions, replacing existing systems where such transactions are settled by updating balances in account records on a centralized register. The CPMI confirms that any wholesale digital token arrangement would need to comply with the applicable regulatory requirements, including, if the arrangement is systemically important, the Principles for Financial Market Infrastructure.
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New EU Regulation on Promotion of Small- and Medium-Sized Enterprise Growth Markets
12/11/2019
A new Regulation amending the revised Markets in Financial Instruments Directive, Market Abuse Regulation and Prospectus Regulation has been published in the Official Journal of the European Union, introducing changes to support small- and medium-sized enterprise growth markets as trading venues.
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European Securities and Markets Authority Publishes Amendments to Eligible Collateral Standards Under Capital Requirements Regulation
12/11/2019
The European Securities and Markets Authority has published draft Implementing Technical Standards amending the existing ITS that establish the standards for the main indices and recognized exchanges that can hold securities eligible as collateral under the revised Capital Requirements Regulation (or “CRR II”).
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European Securities and Markets Authority Publishes Report on Costs Disclosure Standards for Fund Managers
12/10/2019
The European Securities and Markets Authority has published its final report on its proposed Regulatory Technical Standards on costs disclosure requirements for European Long-Term Investment Fund Managers.
Read more.TOPIC : Funds -
European Systemic Risk Board Publishes Recommendation on Collection of Information from Banks
12/09/2019
The European Systemic Risk Board has published a Recommendation on the exchange and collection of information for macroprudential purposes by national regulators about branches of banks (credit institutions) that have their head office in another Member State or in a third country.
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European Commission Publishes Regulation Amending EU Benchmarks Regulation
12/09/2019
The European Commission has published a Regulation amending the EU Benchmarks Regulation in the Official Journal of the European Union. The amending Regulation aims to introduce minimum requirements for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks to improve the accuracy and integrity of those benchmarks for their users.
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European Commission Publishes Amendments to Closely Correlated Currencies Standards Under the Capital Requirements Regulation
12/09/2019
The European Commission’s Implementing Technical Standards amending the existing Implementing Regulation on closely correlated currencies has been published in the Official Journal of the European Union.
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European Banking Authority Publishes Final Report on Banks’ Funding Plans Guidelines
12/09/2019
The European Banking Authority has published its final report on an update of its guidelines on harmonized definitions and templates for banks (credit institutions) to report their funding plans in accordance with the European Systemic Risk Board’s Recommendation on the funding of banks. The Guidelines apply to national regulators and banks that report their funding plans to national regulators in accordance with the local implementation of the European Systemic Risk Board’s Recommendation.
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European Commission Publishes Regulation on Sustainability-Related Disclosures in Financial Services
12/09/2019
A new Regulation on sustainability-related disclosures in the financial services sector has been published in the Official Journal of the European Union. The Regulation is intended to encourage the financial services sector to disclose information about their approaches to sustainability risk and consideration of adverse sustainability impacts in the course of their businesses, as part of wider EU efforts to combat climate change and other sustainability-related issues. Climate change and sustainable finance are particular areas of focus for the EU.
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Financial Stability Board Publishes Reports on Implications of BigTech and Cloud Services
12/09/2019
The Financial Stability Board has published two reports on: (i) BigTech in finance and (ii) third-party dependencies on cloud services. The reports form part of the FSB’s ongoing work to analyze structural changes within the financial system in order to harness benefits and mitigate risks.
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European Securities and Markets Authority Publishes Annual Report on Regulators’ Supervisory Measures under EMIR
12/09/2019
The European Securities and Markets Authority has published its annual report on the supervisory measures and penalties imposed by national regulators in respect of certain provisions under the European Markets Infrastructure Regulation. The relevant provisions govern: (i) the clearing obligation; (ii) the reporting obligation; (iii) non-financial counterparties; and (iv) the risk mitigation techniques under EMIR.
Read more.TOPIC : Derivatives -
UK Conduct Regulator Publishes Consultation on Proposed Miscellaneous Changes to Rules
12/06/2019
The U.K. Financial Conduct Authority has published a consultation on its proposed changes to various aspects of the FCA Handbook.
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European Banking Authority Publishes Action Plan on Sustainable Finance
12/06/2019
The European Banking Authority has published an action plan on sustainable finance, setting out how it intends to deliver on its aims to help combat environmental, social and governance risks and providing clarity on the direction of its policy in this area. The EBA has been mandated to contribute to work on ESG risks under various pieces of EU legislation and will focus on environmental factors and climate change in its initial phase of work. The action plan also sets out the EBA’s projected timelines and milestones on sustainable finance.
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EU MiFID II Review: First Review Report on Prices for Market Data and on the Consolidated Tape
12/05/2019
Following its consultation earlier this year, the European Securities and Markets Authority has published a report on the development of prices for market data and on the consolidated tape for equity. The report is the first review report on the implementation of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation and will assist the Commission in preparing its reports to the European Parliament and Council of the European Union, which are expected in 2020.
Read more.TOPIC : MiFID II -
UK Prudential Regulator Consults on Outsourcing and Third Party Risk Management Rules
12/05/2019
The U.K. Prudential Regulation Authority is consulting on proposals for modernizing the regulatory framework on outsourcing and third party risk management by the financial services sector. The proposals are relevant to banks, building societies, PRA-designated investment firms, insurance and reinsurance firms and groups in scope of the Solvency II Directive as well as U.K. branches of overseas banks and insurers. Responses to the consultation should be submitted by April 3, 2020. The PRA aims to publish its final policy on the proposals in the second half of 2020.
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European Securities and Markets Authority Launches Consultation on Credit Ratings Agencies’ Internal Control Functions
12/05/2019
The European Securities and Markets Authority has launched a consultation on its proposed guidelines setting out the criteria that Credit Ratings Agencies should have in place to demonstrate that their internal control systems are adequate and effective to maintain the independence of their activities, in line with the EU Credit Ratings Agencies Regulation. Responses to the consultation should be submitted by March 16, 2020. ESMA intends to publish a final report in 2020.
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EU Statement on Stablecoins
12/05/2019
The Council of the European Union and the European Commission have published a joint statement on stablecoins. The statement reiterates many of the messages of the G7 working group paper on the impact of stablecoins. The EU statement confirms that no global stablecoin arrangement should begin to operate in the EU until the legal, regulatory and supervisory issues can be identified and dealt with appropriately. In the statement, the two EU bodies allude to the lack of information as a key impediment to global stablecoin arrangements being able to operate in the EU, in particular, because without it the authorities are unable to consider the impact on monetary policies or assess how to address other risks presented by this type of cryptoasset.
View the EU statement on stablecoins.
View details of the G7 working group paper on stablecoins. -
UK Regulators Launch Consultation on Operational Resilience in Financial Services
12/05/2019
The Bank of England, U.K. Prudential Regulation Authority and U.K. Financial Conduct Authority have published a shared policy summary and consultation papers on strengthening operational resilience in the financial services sector. The consultation impacts banks, building societies, PRA-designated investment firms, firms subject to the Solvency II Directive, recognized investment exchanges, CCPs, central securities depositories, payment system operators, FCA enhanced scope SM&CR firms and entities authorized and registered under the Payment Services Regulations 2017 and Electronic Money Regulations 2011. Responses to the consultation should be submitted by April 3, 2020.
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EU Council Pushes for Further Harmonization of EU Anti-Money Laundering Rules
12/05/2019
The Council of the European Union has adopted strategic priorities for reforms to the EU's anti-money laundering and countering the financing of terrorism regime and has called upon the European Commission to put those priorities into action.
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New Regulation and Directive Governing Prudential Requirements for EU Investment Firms
12/05/2019
The new EU Investment Firms Regulation and Investment Firms Directive have been published in the Official Journal of the European Union. The new legislation aims to create a more tailored regulatory regime for many EU investment firms that reflects the risks inherent in the diverse activities those firms undertake.
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International Swaps and Derivatives Association Seeks Clarity on Implications of Potential "Non-Representative" LIBOR Statement
12/04/2019
The International Swaps and Derivatives Association has published a letter in which it responds to the Financial Stability Board's November 15, 2019 letter on pre-cessation triggers. The co-Chairs of the FSB's Official Sector Steering Group requested ISDA to include a "pre-cessation trigger" alongside the cessation trigger in its standard language in derivatives contracts, via either definitions for new contracts or in a single protocol (without embedded optionality) for outstanding contracts. The pre-cessation trigger would cause a LIBOR-based contract to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority, as the regulator of LIBOR, deemed that LIBOR was no longer representative.
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UK Competition Authority Removes Part 6 of Retail Banking Market Investigation Order
12/04/2019
Following its consultation earlier this year, the U.K. Competition and Markets Authority has published its final decision to vary the Retail Banking Market Investigation Order 2017 by removing Part 6 of the Order, which governs automatic enrollment in personal current account alerts.
Read more.TOPIC : Competition -
European Banking Authority Publishes Advice on EU Implementation of Basel III
12/04/2019
The European Banking Authority has published the second part of its two-part technical advice on the impact of the Basel III reforms in the EU. The Basel III reforms aim to reduce excessive variability of risk weighted assets and improve the comparability of banks’ capital ratios, and in 2018, the European Commission requested the EBA to provide technical advice on their implementation in the EU. The first part of the EBA’s advice was delivered in August 2019, relating to Basel III reforms to credit risk, operational risk, output floor and securities financing transactions.
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Report on Loan Enforcement Laws Across the EU Published
12/03/2019
The European Commission has published a study analyzing the individual and collective loan enforcement laws in the 28 EU member states. The report, authored by Dr Steffek, University of Cambridge, sets out in anonymized format the results of the study on member state loan enforcement laws from the perspective of the bank as lender enforcing a loan contract against a company, a sole trader, a partnership or a consumer as borrower.
Read more.TOPIC : Enforcement -
UK Conduct Regulator to be Appointed as Supervisor of UK Cryptoasset Businesses
12/02/2019
The U.K. Financial Conduct Authority will be appointed as the supervisor of U.K. cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as a result of amendments that will be made to the Money Laundering Regulations due to come into force on January 10, 2020. The amendments are being made in order to implement the EU’s Fifth Money Laundering Directive, which Member States must introduce as part of their national laws by January 2020.
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UK FICC Market Standards Board Consults on Draft Statement of Good Practice for Sovereign and Supranational Fixed Income Markets Auctions
12/02/2019
The U.K. FICC Market Standards Board is consulting on its draft Statement of Good Practice for Participation in Sovereign and Supranational Auctions in Fixed Income Markets. The FMSB is a standards setting body operated by wholesale market participants that was established in 2015. It is mandated to issue Standards that improve conduct in the wholesale Fixed Income, Currencies and Commodities markets. FMSB Member Firms are expected to consider their practices in light of the Standards, but the Standards are not binding and non-compliance will not affect whether a firm is deemed to have met its regulatory obligations.
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UK Conduct Regulator Publishes Consultation on Extension of Senior Managers Regime to Benchmark Administrators
11/29/2019
The U.K. Financial Conduct Authority has published a consultation paper seeking feedback on its proposals for the extension of the Senior Managers’ Regime to benchmark administrators. The FCA’s SMR was originally implemented for banks in 2016 and was extended to all authorized investment firms in December 2019. Benchmark administrators were only obliged to become FCA-authorized by the end of 2019 pursuant to the EU Benchmark Regulation, and so were granted a one-year extension from the roll-out of the SMR.
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Financial Stability Board Publishes Final Report on Impact of Regulatory Reforms for SME Financing
11/29/2019
The Financial Stability Board has published its final report on the impact of financial regulatory reforms on the provision of financing to small- and medium-sized enterprises. The report follows the FSB’s consultation in June 2019 on its draft paper examining the way in which the Basel III and certain national and regional regulatory reforms have impacted SME financing.
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European Banking Authority Publishes Guidelines on Technology and Security Risk Management
11/28/2019
The European Banking Authority has published its final guidelines on the management of information and communication technology and security risks by financial institutions in the EU. The Guidelines set out how financial institutions should comply with relevant provisions on the governance and risk management of ICT and security risks under the Fourth Capital Requirements Directive and the Second Payment Services Directive.
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Basel Committee on Banking Supervision Publishes Consultation on Credit Valuation Adjustment Risk
11/28/2019
The Basel Committee on Banking Supervision has published a consultation paper seeking feedback on its final amendments to the credit valuation adjustment risk framework set out under the Basel III standards. The paper provides a detailed description of the amendments and sets out the proposed revised standards. Responses to the consultation should be submitted by February 25, 2020.
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European Central Bank Publishes Paper on Stablecoins
11/28/2019
The European Central Bank has published a paper providing an overview of the stablecoins market and looking ahead to its future development. The paper contains no binding rules or guidance and is designed for information purposes only. It outlines how stablecoins have emerged as an alternative to highly volatile cryptoassets, such as Bitcoin, by incorporating "stabilization" mechanisms that back the value of the stablecoins by tying them to underlying assets such as fiat currencies or commodities. Facebook's unveiling of its Libra stablecoin has attracted much attention from regulators, demonstrating the ongoing challenges faced by the cryptoassets. It goes on to describe the different types of stablecoins, the current status of stablecoin initiatives and considers potential use cases for stablecoins, such as transferring money without using financial institutions or cash. The ECB determines that it remains to be seen how the more innovative types of stablecoin will develop given their greater volatility and foresees that improvements in stablecoin governance may need to be made.
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UK Conduct Regulator Consults on Guidance on Managing Inside Information
11/27/2019
The U.K. Financial Conduct Authority has published a newsletter for primary market participants seeking feedback on draft best practice guidance for government departments, industry regulators and public bodies on the identification, control and disclosure of inside information. Comments on the best practice note should be submitted by January 15, 2020.
The FCA determined that new, up-to-date guidance on inside information was required to reflect recent legal and regulatory developments, including the introduction of the Market Abuse Regulation in July 2016. Certain of these developments are directly applicable to the actions of government departments, industry regulators and public bodies. The guidance is targeted at these entities and feedback on the guidance is therefore sought particularly from them. The note sets out certain relevant aspects of the Market Abuse Regulation and provides suggestions for how these entities can identify inside information that they become privy to, including questioning whether the information has been made public, whether it is precise and whether a reasonable investor might use it as part of the basis of an investment decision. It also provides suggestions on controlling and handling inside information once it has been identified and on the systems and controls that should be adopted around disclosing the information.
View the FCA's guidance. -
Basel Committee on Banking Supervision Publishes Guidance on Sector-Specific Capital Buffers
11/27/2019
The Basel Committee on Banking Supervision has today published its guiding principles for the operationalization of a sectoral countercyclical capital buffer (or "SCCyB"). The SCCyB complements the Basel Committee's countercyclical buffer by establishing capital requirements that could be imposed on a particular sector, in addition to the countercyclical buffer that is based on banks' total risk weighted assets. The SCCyB will only apply to jurisdictions that choose to implement it on a voluntary basis and will not form part of the Basel standards.
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New EU Directive on Protection of Persons Reporting Breaches of Union Law
11/26/2019
A new EU Directive, known as the "EU Whistleblowing Directive", that aims to enhance the enforcement of EU law and policies by providing protection for individuals that report breaches has been published in the Official Journal of the European Union. The Directive will apply to whistleblowers working in the private or public sector, whether they are classed as workers, self-employed, shareholders or working under the supervision and direction of contractors, subcontractors and suppliers, as well as those who acquired information in previous employment or through the recruitment process for a job they are yet to begin.
The Directive will come into force on December 16, 2019. Member States must implement the majority of the provisions into their national laws by December 17, 2021.
View the Directive.TOPIC : Corporate Governance -
UK Conduct Regulator Announces 2020 Mini-Bond Product Intervention Measures
11/26/2019
The U.K. Financial Conduct Authority has announced that it will introduce temporary product intervention measures for 12 months from January 1, 2020 to December 31, 2020 to combat risks to consumers of the promotion of speculative mini-bonds. The measures follow the high profile failure of mini-bond issuer London Capital & Finance plc, which has prompted an investigation by the FCA into the circumstances surrounding LC&F's collapse and the FCA's supervision of the firm. HM Treasury is also conducting an ongoing investigation into the wider policy questions raised by LC&F's failure, focusing on a review of the regulatory regime governing non-transferable debt securities and an assessment of Innovative Finance ISA rules.
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Financial Stability Board Provides Technical Clarifications on Implementation of Haircuts for Uncleared Securities Financing Transactions
11/26/2019
The Financial Stability Board has published an updated report on the regulatory framework for haircuts on uncleared securities financing transactions. The technical guidance on the implementation of the FSB's framework has been updated to provide clarification through text amendments and the addition of questions and answers.
View the report.
View details of the FSB's delay to the implementation timetable.TOPIC : Shadow Banking -
Basel Committee on Banking Supervision Publishes Statement on Proportionate Implementation of Basel Framework
11/26/2019
The Basel Committee on Banking Supervision has published a joint statement with the Basel Consultative Group on the proportionality of the implementation of the Basel Framework by the banks and jurisdictions to which it applies. The Basel Consultative Group is the Basel Committee's sub-group responsible for enhancing the Basel Committee's engagement with global supervisors, including those from non-member countries. The Basel Framework is the set of bank prudential standards established by the Basel Committee that Basel members have agreed to implement. The joint statement confirms the role of proportionality that is established in the Basel Committee's "Core principles for effective banking supervision".
The statement follows the Basel Committee's survey on proportionality in bank regulation and supervision, in which it found that a majority of Basel Committee and BCG jurisdictions apply proportionality measures in supervision of banks.
View the Basel Committee's statement on proportionality.
View the Basel Committee's Core principles for effective banking supervision.
View the Basel Committee's survey on proportionality in bank regulation and supervision. -
UK Conduct Regulator Publishes Feedback and Final Rules on Proxy Advisors Regulations
11/25/2019
The U.K. Financial Conduct Authority has published a Policy Statement incorporating its response to the feedback it received on its proposals for the implementation of the Proxy Advisors (Shareholders' Rights) Regulations 2019, together with the final rules. The final rules make amendments to the FCA's Decision Procedure and Penalties Manual and Enforcement Guide, reflecting the new Regulations that came into force on June 10, 2019.
The Regulations implemented new obligations imposed upon proxy advisors by the revised EU Shareholder Rights Directive into the U.K. statutory regime. The FCA has the power to discipline and investigate proxy advisors under the Proxy Advisors Regulations and changes were therefore required to the FCA's rules to take account of these powers. The following new provisions have been included in the Decision Procedures and Penalties Manual:- the FCA will publish a statement about a proxy advisor who has breached a relevant requirement; it will impose a public censure in contested cases and allow decision makers to use executive powers to decide on settled cases;
- the FCA will decide when to impose a financial penalty on a proxy advisor; and
- the FCA will decide when to impose a restitution requirement.
The FCA has also included a new section in its Enforcement Guide explaining how it will use its powers under the Regulations. The intended approach will broadly mirror that taken by the FCA in conducting investigations, sanctioning and using its regulatory powers under FSMA.
View the FCA's Feedback and final rules. -
European Banking Authority Publishes Consultation on Draft MREL and TLAC Disclosure and Reporting Standards
11/22/2019
The European Banking Authority has published a consultation paper on its draft Implementing Technical Standards for supervisory reporting and public disclosure of minimum requirements for own funds and eligible liabilities (or “MREL”) and total loss-absorbing capacity (or “TLAC”). Responses to the consultation should be submitted by February 22, 2020. The EBA expects to submit the final draft ITS to the European Commission in June 2020.
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Eurozone Single Resolution Board Publishes Opinions on Internal Rules for its use of Personal Data
11/22/2019
The Eurozone Single Resolution Board has published a series of three opinions setting out its own internal rules for the circumstances in which it may restrict the rights of data subjects under Regulation (EU) 2018/1725, data protection legislation that is commonly understood as the public sector equivalent of the General Data Protection Regulation. The Regulation governs the use of personal data by EU institutions and agencies.
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Financial Stability Board Publishes 2019 List of Global Systemically Important Banks
11/22/2019
The Financial Stability Board has published the 2019 list of global systemically important banks. Alongside the 2019 G-SIB list, the Basel Committee on Banking Supervision has published further information relating to its 2019 assessment of G-SIBs, including:
- The denominators of each of the 12 high-level indicators used to calculate the banks’ scores under the G-SIB methodology;
- The 12 high-level indicators used to calculate these denominators; and
- The cutoff score used to identify the G-SIBs in the updated list and the thresholds used to allocate G-SIBs to buckets for the purpose of calculating the specific higher loss absorbency requirements.
The Basel Committee assessment was based on its 2013 methodology for identifying G-SIBs. A revised assessment methodology was published by the Basel Committee in July 2018, which is expected to be implemented by member jurisdictions by 2021.
View the 2019 G-SIB list.
View the Basel Committee's statement on its G-SIB assessment methodology.
View details of the Basel Committee's revised assessment framework for G-SIBs.
Read more.
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European Commission Publishes Report on Liability for Artificial Intelligence
11/21/2019
The New Technologies formation of the European Commission’s Expert Group on Liability and New Technologies has published a report on liability regimes for artificial intelligence. The report discusses existing laws concerning liability for emerging digital technologies and describes how those laws could be improved to cater for the new risks and challenges associated with new technologies. The New Technologies formation is a panel that was established by the European Commission in March 2018 and was asked to examine existing EU liability regimes and make recommendations for amendments to take account of emerging digital technologies where necessary.
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European Banking Authority Launches Consultation on Specific Supervisory Reporting Requirements for Market Risk
11/21/2019
The European Banking Authority has launched a consultation on its proposed draft Implementing Technical Standards on specific supervisory reporting requirements for market risk. “Market risk” relates to the risk of losses that banks face to their on- and off-balance sheet positions from adverse movements in market prices. The EBA was mandated to produce the ITS under the Capital Requirements Regulation II, published in June 2019, which made extensive changes to the EU’s capital requirements regime, including through the implementation of the Basel Committee on Banking Supervision’s international standards on market risk.
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European Banking Authority Publishes Roadmap for Technical Standards and Guidelines Supplementing the Risk Reduction Package
11/21/2019
The European Banking Authority has published a roadmap for the risk reduction package that involved changes to the EU Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive. The EBA is mandated within the changed legislation to prepare technical standards, guidelines and reports on governance and remuneration, large exposures, resolution, reporting and disclosure. The EBA's roadmaps set out the timelines for delivery of all of the mandates, including where deadlines have been adjusted by the EBA.
View the EBA's roadmaps for the risk reduction package.
View details of CRD5 and CRR2.
View details of BRRD 2. -
Basel Committee Publishes Report on Open Banking and Application Programming Interfaces
11/19/2019
The Basel Committee on Banking Supervision has published a report on “open banking” and the use of application programming interfaces. The term “open banking” refers to the sharing and leveraging of customer-permissioned data by banks with third-party developers and firms to build applications and services, including for example those that provide real-time payments, greater financial transparency options for account holders, marketing and cross-selling opportunities. Application programming interfaces are software intermediaries that enable information to be exchanged between applications.
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UK Conduct Regulator Sets Out Conduct Expectations of Firms For LIBOR Transition
11/19/2019
The U.K. Financial Conduct Authority has published a statement on conduct risk during the LIBOR transition, which is due to be completed by the end of 2021. The statement is in the form of questions and answers and sets out the FCA's expectations of firms relating to governance and accountability, replacing LIBOR with alternative rates in existing contracts, offering new products with alternative rates, communicating with customers about the transition from LIBOR and best practice for firms investing on behalf of clients.
View the FCA's statement. -
UK Legal Statement on CryptoAssets and Smart Contracts
11/18/2019
The UK Jurisdiction Taskforce has published a legal statement on cryptoassets and smart contracts under English private law. UKJT is part of the LawTech Delivery Panel, an industry-led group established in 2018, with the aim of identifying barriers and opportunities for growth. The legal statement provides the UKJT's view of the principles applicable under English and Welsh private law for determining when a cryptoasset will be considered property and when an enforceable contract is concluded through a smart contract. The intention of the statement is to help improve confidence among market participants and investors due to the perception of legal uncertainty on the legal status of cryptoassets and smart contracts.
Read more. -
European Commission Vice President Addresses CCP Temporary Equivalence and Sustainable Finance in London Speech
11/15/2019
The Vice President of the European Commission, Valdis Dombrovskis, has given a keynote speech at the Guildhall in London covering, amongst other things, the EU’s proposals for the development of the European sustainable finance framework and a proposed extension to the temporary equivalence regime for U.K. central counterparties.
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Financial Stability Board’s LIBOR Steering Group Encourages ISDA to Roll Out Pre-Cessation Trigger
11/15/2019
The co-Chairs of the Financial Stability Board’s Official Sector Steering Group, whose work focuses on interest rate benchmarks that are deemed to play a critical role in the global financial system, have written to the International Swaps and Derivatives Association requesting that it includes a “pre-cessation trigger” alongside the cessation trigger in its standard language in derivatives contracts, via either definitions for new contracts or in a single protocol (without embedded optionality) for outstanding contracts. The pre-cessation trigger would cause a LIBOR-based contract to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority, as the regulator of LIBOR, deemed that LIBOR was no longer representative.
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Basel Committee on Banking Supervision Consults on Pillar 3 Disclosure Requirements for Market Risk and Sovereign Exposures
11/14/2019
The Basel Committee on Banking Supervision has opened two consultations on revisions to the Basel III Pillar 3 disclosure requirements, one related to market risk disclosures and one on sovereign exposures disclosures. Responses to both consultations should be submitted by February 14, 2020. No indication is given as to when the sovereign exposure disclosure requirements might be introduced. The Basel Committee intends to publish the revisions of the market risk disclosure requirements in time for implementation of the revisions by member jurisdictions by no later than January 1, 2022.
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Financial Stability Board Publishes 2019 Resolution Report
11/14/2019
The Financial Stability Board has published its 2019 Resolution Report, providing updates on its implementation of policy measures to enhance the resolvability of systemically important financial institutions.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Consults on Draft Technical Standards on Passport Notifications Under Capital Requirements Directive
11/13/2019
The European Banking Authority has published draft amended Regulatory and Implementing Technical Standards regarding the exercise of credit institutions’ rights to freedom of establishment and freedom to provide services (i.e. passporting rights) under the Capital Requirements Directive. The EBA reviewed the original Technical Standards in 2018 and found several areas for improvement that would enhance the quality and consistency of passport notifications and the ability of EU national regulators to use them. It has produced the draft amended standards with a view to updating the information requirements that must be notified by a credit institution to its home national regulator. Responses to the consultation should be submitted by February 13, 2020.
Read more.TOPIC : Financial Services -
Working Group on Euro Risk-Free Rates Makes Recommendations for €STR Fall-Back Arrangements
11/12/2019
The European Central Bank has published a report by the working group on euro risk-free rates on €STR fall-back arrangements. The EU Benchmark Regulation requires regulated entities to have put in place written plans on the steps that they would take should a benchmark used in their contracts be materially amended or ceases. The Working Group recommends that instead of selecting an alternative rate, regulated entities should take into account the ECB's regular review of €STR's methodology and the policies and procedures for the possible cessation of €STR, together with the use of contractual fallbacks.
View the report. -
Final EMIR 2.2 Technical Advice Published
11/11/2019
Following its consultation earlier this year, the European Securities and Markets Authority has published final reports and the final technical advice on third-country CCP tiering, comparable compliance and fees under draft revisions to the European Market Infrastructure Regulation, known as EMIR 2.2. EMIR 2.2 will change the requirements for the supervision of both EU and third-country CCPs, and includes the controversial formal EU "location policy" for CCPs. The technical advice will assist the Commission in preparing the final delegated legislation that will supplement the EMIR 2.2.
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European Commission Publishes EU Delegated Regulation Aligning KID Publication Requirements under PRIIPS Regulation
11/08/2019
A Commission Delegated Regulation amending secondary legislation supplementing the Packaged Retail and Insurance-Based Investment Products Regulation has been published in the Official Journal of the European Union.
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EU Single Resolution Board Launches Consultation on Expectations for Banks
11/08/2019
The Eurozone Single Resolution Board has launched a public consultation on its proposed “Expectations for Banks”, a draft document outlining best practice for banks in implementing resolution planning. The consultation is being undertaken as part of the SRB’s endeavours to work with Eurozone banks and other stakeholders and to demonstrate transparency in its approaches and decisions.
Read more.TOPIC : Recovery & Resolution -
UK Information Commissioner’s Office Consults on Application of Powers under Proceeds of Crime Act
11/08/2019
The U.K. Information Commissioner’s Office, the U.K.’s independent body for the upholding of information rights in the public interest, has issued a consultation paper on proposals that it be granted investigative and other powers under the Proceeds of Crime Act 2002. The proposals are in response to the increasing number of cases in which financial gains are made by criminals involved in the theft of personal data.
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European Commission Publishes Commission Delegated Regulation Amending Auctioning Allowances Rules
11/08/2019
A Commission Delegated Regulation amending the EU Auctioning Regulation has been published in the Official Journal of the European Union. The Delegated Regulation will apply directly in all EU Member States from November 28, 2019. The EU Auctioning Regulation provides for EU emission allowances to be auctioned and specifies key aspects of the auctions, including their design, timing and eligibility requirements.
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US Securities and Exchange Commission Extends No-Action Relief for MiFID II Inducements and Research
11/08/2019
The U.K. Financial Conduct Authority has welcomed the U.S. Securities and Exchange Commission’s extension of no-action relief addressing a potential conflict between U.S. regulation and the inducements and research provisions of the revised Markets in Financial Instruments Directive. One of MiFID II’s objectives is to give investors transparency into the cost of both research and trading commissions by requiring payments for these elements to be unbundled.
Read more.TOPIC : MiFID II -
European Banking Authority Reports Reduction in EU Banks’ Non-Performing Loans
11/08/2019
The European Banking Authority has published a report on non-performing loans in the EU banking sector, in which it finds that total NPLs have decreased from over €1.5 trillion in June 2015 to €636 billion in June 2019. The level of European NPLs was a key concern for EU supervisors and market participants following the financial crisis, triggering efforts to deal with the issue at a supervisory, political and market participant level.
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Basel Committee on Banking Supervision Publishes Consultation on Coordination of Prudential and AML/CFT Supervision
11/08/2019
The Basel Committee on Banking Supervision has published a consultation paper on the “Introduction of guidelines on interaction and cooperation between prudential and anti-money laundering/counter-terrorism financing supervision”. Under the consultation paper, the Basel Committee proposes to amend its guidelines on the “Sound management of risks related to money laundering and financing of terrorism” to include guidance on the interaction between prudential and AML/CFT supervision in a bid to enhance the effectiveness of the supervision of banks’ AML/CFT regimes. Responses to the consultation should be submitted by February 6, 2020.
Read more. -
Financial Stability Board Plenary Meets to Review Global Financial System Vulnerabilities, FinTech and its 2020 Work Program
11/07/2019
The Financial Stability Board has met in Paris to review key issues facing financial markets, including vulnerabilities in the global financial system, FinTech developments and its 2020 work program.
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European Commission Confirms Fitness of EU Supervisory Reporting Requirements for Financial Services
11/07/2019
The European Commission has published the results of its “fitness check” of EU supervisory reporting requirements. The reporting requirements imposed by EU and national regulatory authorities require regulated institutions to provide information to their respective authorities regarding their financial condition and activities. The European Commission assessed the effectiveness, coherence, relevance and efficiency of existing reporting requirements in order to identify areas that may be simplified or streamlined.
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EU Technical Standards On Homogeneity Conditions For STS Securitizations
11/06/2019
Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered "homogenous" have been published in the Official Journal of the European Union. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The RTS will apply directly across the EU from November 26, 2019.
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HM Treasury Publishes Equivalence Determinations for EU Financial Services Legislation
11/06/2019
HM Treasury has published the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, providing U.K. government ministers with a temporary power to make equivalence and exemptions directions for the EU and EEA Member States under relevant financial services legislation. The temporary power will come into force on the date that the U.K. leaves the EU (currently expected to be no later than January 31, 2020) and can only be used for up to twelve months from that date.
Read more.TOPIC : Brexit for Financial Services -
Working Group on Euro Risk-Free Rates Recommends Fallback Provisions Contracts Referencing EURIBOR
11/06/2019
The European Central Bank has published a report by the working group on euro risk-free rates providing high-level recommendations for fall-back provisions in contracts for cash products and derivatives transactions referencing EURIBOR. The recommendations are not legally binding and market participants can decide whether, and to the extent to which, they wish to adopt them. EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation and the methodology for calculating EURIBOR has been revised to be Benchmark Regulation-compliant, to be implemented by the end of 2019.
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EU Consultation on Changes to Position Limits for Commodity Derivatives
11/05/2019
Following its Call for Evidence issued in May this year, the European Securities and Markets Authority has launched a consultation on proposed revisions to the legal framework for position limits and position management in commodity derivatives. The position limits regime was introduced by the revised Markets in Financial Instruments Directive. MiFID II requires the European Commission to report to the European Parliament and the Council on the impact of the application of position limits and position management on liquidity, market abuse and orderly pricing and settlement conditions in commodity derivatives markets. ESMA must provide the Commission with advice regarding this new regime to support the Commission's preparation of the report, including any recommendations for changing the legislative requirements. Responses to ESMA's consultation should be submitted by January 8, 2020.
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EU Recommendations on Financial Accounting Implications of Transition to €STR
11/05/2019
The European Central Bank has published a report by the working group on euro risk-free rates on the financial accounting implications of the transition from EONIA to €STR and the introduction of €STR-based fallbacks for EURIBOR.
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IOSCO Confirms That Stablecoins Are Potentially Within the Securities Regulatory Perimeter
11/04/2019
The International Organization of Securities Commissions has issued a statement confirming that it is possible, depending on their structure, for stablecoins to fall within the scope of securities market regulation. IOSCO has undertaken an in-depth study (not published) of stablecoins and has concluded that each proposed stablecoin, the manner in which it is intended to operate and the rights and obligations conferred on participants needs to be analyzed to assess the risks and benefits of the particular stablecoin. The statement is widely considered to be in response to Facebook's announcement about its proposed stablecoin, Libra. According to IOSCO, certain stablecoins may have features that are similar to securities and accordingly will be within the regulatory perimeter of some countries. IOSCO calls on entities that wish to launch stablecoins to engage with regulators so that any risks associated with the operation of the stablecoin might be mitigated.
View IOSCO's statement. -
UK Conduct Regulator Requests Fund Managers to Review Liquidity Management Practices
11/04/2019
The U.K. Financial Conduct Regulator has published a “Dear Chairman” letter addressed to Authorized Fund Managers requesting them to review certain aspects of the liquidity management arrangements for the authorized funds that they manage. The letter follows the FCA’s recent policy statement establishing new rules for open-ended funds that invest in inherently illiquid assets and aims to address concerns that open-ended funds may not always be able to liquidate funds fast enough to comply with redemption requests. In its policy statement, the FCA acknowledged that its new rules did not capture open-ended UCITS funds such as the LF Woodford Equity Income Fund. This latest letter urges firms to recognise that effective liquidity management is a core function for all open-ended funds.
Read more.TOPIC : Funds -
Financial Action Task Force Consults on Digital Identity in Customer Due Diligence Guidance
10/31/2019
The Financial Action Task Force is seeking feedback from private sector stakeholders on its draft guidance on the use of digital identity systems in customer due diligence. The guidance will supplement Recommendation 10 of the FATF's Recommendations regarding customer due diligence and demonstrates how authentication of customer identities in the digital finance and digital ID context supports broader anti-money laundering/counter-terrorism financing efforts. Stakeholders should submit responses to the consultation by November 29, 2019. The FATF intends to make further amendments to its draft guidance at its February 2020 meetings.
Read more. -
Basel Committee on Banking Supervision Considers Key Supervisory and Policy Initiatives
10/31/2019
The Basel Committee on Banking Supervision met on October 30-31, 2019 to discuss key policy and supervisory issues, including: (i) a proposed consultation on adjustments to the credit valuation adjustment risk framework; (ii) a proposed consultation on revised market risk and sovereign exposure disclosure requirements; (iii) a proposed discussion paper on the prudential treatment of cryptoassets; (iv) a proposed consultation on guidelines for enhanced cooperation between prudential regulatory authorities and anti-money laundering/counter-terrorism financing authorities; and (v) its reports into the implementation of the Net Stable Funding Ratio and large exposures standards in Argentina and China. All of the proposed consultation papers, as well as the NSFR/large exposures reports, are expected to be published in November 2019.
Other topics under discussion included benchmark rate reforms, the implementation of the Basel Committee's guidance on managing foreign exchange settlement risk and the usability of capital buffers. On the latter subject, the Basel Committee has also published a newsletter reiterating the importance of the capital buffer framework and emphasizing that the buffers are designed to be usable. The Basel Committee has announced that Canada will host the 21 International Conference of Banking Supervisors on October 21-22, 2020.
View the Basel Committee's press release on its October 30-31 2019 meeting.
View the Basel Committee's newsletter on capital buffers.
View details of the 21 International Conference of Banking Supervisors. -
UK Conduct Regulator Postpones Implementation Date for Brexit Contingency Plans
10/30/2019
The U.K. Financial Conduct Authority has extended the date by which firms must implement Brexit contingency plans following the extension of the Brexit deadline from October 31, 2019 to January 31, 2020. Firms and funds should now notify the FCA for entry into the temporary permissions regime by January 30, 2020 and fund managers have until January 15, 2020 to notify the FCA if they wish to change their existing notification. Firms should continue to comply with transaction and trade reporting requirements under the Markets in Financial Instruments Directive and European Market Infrastructure Directive, respectively.
View the FCA's statement on contingency planning deadlines. -
European Banking Authority Publishes Opinion on Strengthening Depositor Protection in the EU
10/30/2019
The European Banking Authority has published the second in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS payouts. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The third opinion will cover DGS funding and the uses of DGS funds. The opinions have been prepared to assist the European Commission in its obligation to report on the implementation of the DGSD.
Read more. -
UK Government Agrees Extension of Brexit Deadline With European Union
10/30/2019
The U.K. Government has published legislation extending the deadline for the U.K.'s withdrawal from the European Union, following an agreement reached with relevant European Union bodies on the extended Brexit deadline. The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 3) Regulations 2019 amend the day of the U.K.'s exit from the European Union from October 31, 2019 to January 31, 2020, granting the U.K. government an additional three months in which to ratify its proposed Brexit deal.
Read more.TOPIC : Brexit for Financial Services -
UK Conduct Regulator Further Extends Deadline for E-Money and Payment Services Temporary Permissions Notifications
10/30/2019
The U.K. Financial Conduct Authority has published two amending Directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 extending the deadlines by which e-money and payment services firms should notify the FCA of their intention to rely on the temporary permissions regime following the U.K.’s exit from the EU. These firms should now make notifications by January 30, 2020. The extended deadline falls immediately before the revised Brexit deadline of January 31, 2020.
View the FCA's amended Direction on notifications for the e-money services temporary permissions regime.
View the FCA's amended Direction on notifications for the payment services temporary permissions regime. -
European Banking Authority Urges EU Legislative Update for Cross-Border Banking and Payment Services in the Digital Era
10/29/2019
The European Banking Authority has published a report identifying potential barriers to customer choice and the cross-border provision of banking and payment services in the EU, together with proposals for how to overcome these issues. Building on the EBA's FinTech Roadmap and the European Commissioner's Consumer Financial Services Action Plan, the report sets out the areas where the institutions, including FinTech firms, may face challenges when seeking to provide intra-EU cross-border services, focusing on authorizations and licensing, consumer protection and conduct of business requirements and anti-money laundering and countering the financing of terrorism. The EBA makes recommendations for where changes to EU primary legislation or further guidelines could address the issues to enhance the EU's single market.
Read more. -
UK Regulator Publishes Final Technical Standards on Strong Customer Authentication in the Event of a No-Deal Brexit
10/25/2019
The U.K. Financial Conduct Authority has published a Policy Statement, final Technical Standards and changes to the Handbook rules on strong customer authentication and common and secure open standards of communication to be applicable when the U.K. leaves the EU. The FCA consulted on the proposed SCA RTS in early 2019 when the U.K. was due to leave the EU on March 29, 2019, and before the EU SCA Regulatory Technical Standards application date. Since then, Brexit has been extended and the EU SCA RTS has applied directly across the EU since September 14, 2019. As a result, the EU SCA RTS would be onshored into U.K. law under the Withdrawal Act. However, in preparation for a no-deal Brexit, the U.K. Payment Services Regulations would require firms to apply the U.K. SCA RTS. As a result, the EU SCA RTS would be revoked and the FCA's SCA RTS will apply in the U.K. in the event of a no-deal Brexit.
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Regulatory Oversight Committee Launches Consultation on Legal Entity Identifiers for General Government Entities
10/25/2019
The Legal Entity Identifier Regulatory Oversight Committee has launched a consultation on the allocation of LEIs to government entities. LEIs are reference codes allocated to legal entities for the purposes of unique identification in financial transactions and for other public sector uses. General government entities are eligible for LEIs as they are legal entities, but many (such as Ministries, Agencies and Republics) are not incorporated or do not otherwise have legal personality
Read more.TOPIC : Financial Services -
UK Prudential Regulator Launches Consultation on More Proportionate Capital Requirements for Credit Unions
10/24/2019
The U.K. Prudential Regulation Authority has launched a consultation on the capital requirements that apply to credit unions. The PRA considers that credit unions approaching the thresholds of £10 million in assets or 15,000 members may find barriers to expansion under the current capital regime. It also finds that the risks that the capital regime endeavours to tackle could be addressed in a simpler manner than the link between capital and credit union membership size and activity which is currently used. The PRA also considers that engaging with small credit unions earlier could increase chances of a non-failure solution.
Read more. -
UK Conduct Regulator Publishes Feedback on Regulatory Framework for Stewardship Discussion Paper
10/24/2019
The U.K. Financial Conduct Authority has published a feedback statement on the discussion paper, “Building a regulatory framework for effective stewardship” that it published in January 2019 together with the Financial Reporting Council. The discussion paper called for input on how best to encourage the capital markets community to engage more actively in “stewardship” of the assets in which they invest.
Read more. -
Financial Action Task Force Publishes Best Practices for Beneficial Ownership Transparency
10/24/2019
The Financial Action Task Force has published best practices on beneficial ownership for legal persons. Global standards require authorities to be able to ascertain the ultimate owner of a company or foundation to provide transparency and mitigate against the use of legal persons for financial crime purposes. The FATF's Best Practices document identifies the issues faced in achieving transparency of beneficial ownership and provides recommendations for an effective system that ensures accurate and up-to-date information to authorities in a timely manner. The FATF highlights that using a multi-pronged approach with numerous information sources is considered more effective and the document sets out the key features of an effective multi-pronged system.
View the FATF best practices on beneficial ownership for legal persons. -
European Supervisory Authorities Issue Guidance on Scope of Application to Bonds of the PRIIPs Regulation
10/24/2019
The Joint Committee of the European Supervisory Authorities has published a Supervisory Statement on the scope of application to bonds of the EU Packaged Retail and Insurance-based Investment Products Regulation. The ESAs have issued the Supervisory Statement in an attempt to avoid the adoption of diverse approaches by national regulators across the EU as to when a Key Information Document is required for different types of bonds under the PRIIPs Regulation. The PRIIPs Regulation, directly applicable across the EU since January 1, 2018, imposes a requirement upon issuers of packaged retail and insurance-based investment products to issue KIDs to retail investors describing key features of their products, in order to enhance transparency and improve investor protection in the PRIIPs market.
Read more. -
European Banking Authority Publishes Opinion on Regulatory Treatment of Non-Performing Exposure Securitizations
10/23/2019
The European Banking Authority has published an opinion recommending amendments to the regulatory treatment of the securitization of non-performing exposures. The opinion examines how securitizations may be used to fund the reduction of NPEs and outlines regulatory constraints imposed on the use of securitizations in this way, alongside its proposals for amendments to the regulatory framework.
Read more. -
Working Group on Sterling Risk-Free Reference Rates Asks Regulators to Act on Prudential Impediments to LIBOR Transition
10/23/2019
The Working Group on Sterling Risk-Free Reference Rates has written to the Prudential Regulation Authority raising issues in the banking prudential regulation regime that, in its view, will require changes and/or regulatory forbearance if a smooth transition from LIBOR to SONIA is to be achieved. Although the letter focuses on the U.K. regime, the issues are likely to be relevant globally.
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European Securities and Markets Authority Publishes Enforcement Priorities for 2019 Financial Reports
10/22/2019
The European Securities and Markets Authority has published its annual Public Statement on European enforcement priorities for listed companies’ 2019 financial reports. The priorities will guide the areas of focus when ESMA and relevant national enforcement authorities assess the reports.
Read more.TOPIC : Corporate Governance -
European Commission Consults on Alternative Standardized Approach for Market Risk
10/22/2019
The European Commission has invited responses to its consultation on proposed changes to the standardized approach for market risk. The changes follow the Basel Committee on Banking Supervision’s revisions to the Basel III market risk capital framework, which were published in January 2019.
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Committee on Payments and Market Infrastructures Publishes Toolkit for Reducing Wholesale Payments Fraud
10/22/2019
The Committee on Payments and Market Infrastructures has prepared a “toolkit” to assist central banks to reduce the risk of wholesale payments fraud related to endpoint security. The Financial Stability Institute at the Bank for International Settlements has also announced that it will make tutorials on wholesale payments security freely available to central banks on request.
Read more. -
EU and UK Agree Revised Brexit Deal
10/19/2019
The EU and U.K. have, in principle, agreed new terms for the withdrawal agreement giving effect to the U.K.'s exit from the European Union. These include a revised political declaration and protocol concerning Northern Ireland replacing the controversial backstop. An amended unilateral declaration on consent in Northern Ireland by the U.K. has also been published. The new Withdrawal Agreement provides for a transitional period from the day the U.K. exits the EU until December 31, 2020. That period may be extended for a period of one to two years, if agreed between the EU and the U.K by July 31, 2020.
View the revised Withdrawal Agreement and Political Declaration.
View our client note providing comparisons to the previous versions.TOPIC : Brexit for Financial Services -
G7 Working Group Reports on the Impact of Global Stablecoins
10/18/2019
The G7 working group on stablecoins has published a report investigating the impact of global stablecoins. The working group is comprised of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, and is chaired by Benoît Cœuré (Chair of the Committee on Payments and Market Infrastructures).
Read more. -
Financial Stability Board to Assess Potential Risks of Stablecoins
10/18/2019
The Financial Stability Board has published a report on regulatory issues arising with respect to so-called stablecoins. The FSB defines a stablecoin as "a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets" which may be "collateralised by fiat currency or commodities, or supported by algorithms".
Read more. -
UK Prudential Regulator Launches Consultation on Supervision of Liquidity and Funding Risk
10/17/2019
The U.K. Prudential Regulation Authority has launched a consultation on proposed amendments to its Supervisory Statement, “The PRA’s approach to supervising liquidity and funding risk”. The amendments are intended to clarify the appropriate use of the Bank of England’s liquidity facilities and the credibility of recovery plans that rely on such facilities.
Read more. -
European Securities and Markets Authority Finds Improvement in Supervision of Derivatives Data
10/17/2019
The European Securities and Markets Authority has published the results of its peer review into the supervisory actions of six national regulators in enhancing the quality of derivatives data under the European Market Infrastructure Regulation. EMIR requires EU counterparties to a derivative contract to report details of their contract to one of the seven registered trade repositories supervised by ESMA.
Read more.TOPIC : Derivatives -
European Central Bank Publishes Report on the Risk Management Implications of the Euro Risk-Free Rates Provisions
10/17/2019
The European Central Bank has published a report on the risk management implications of the upcoming move away from the Euro Overnight Index Average (the overnight reference rate for the euro) and EURIBOR (the term reference rate for the euro) to alternative risk-free rates. Both EONIA and EURIBOR were identified as critical benchmarks for the purposes of the EU Benchmarks Regulation.
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UK Conduct Regulator Publishes Feedback on Climate Change and Green Finance Projects
10/16/2019
The U.K. Financial Conduct Authority has published a feedback statement on its proposals for improving climate change disclosures and the information given to consumers about green financial products and services. The feedback statement follows the FCA’s discussion paper on climate change and green finance, in which it sought comments on potential changes to its regulatory approach in these areas.
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European Banking Authority Launches Consultation on Technical Standards for Public Disclosures under CRR II
10/16/2019
The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for public disclosures by financial institutions under the Capital Requirements Regulation. CRR implements the Basel Committee on Banking Supervision’s Pillar 3 disclosure requirements, which require relevant financial institutions to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR was published in June 2019 and, for the most part, will apply directly across the EU from June 28, 2021. It incorporates the revised Basel Committee disclosure standards into CRR and mandates the EBA to produce the draft ITS to ensure comparability of the disclosures made with international non-EU active banks. Responses to the consultation should be submitted by January 16, 2020. The EBA expects to submit the revised draft ITS to the European Commission in June 2020.
Read more. -
European Banking Authority Publishes Opinion on Strong Customer Authentication Deadline for E-Commerce Card Payments
10/16/2019
The European Banking Authority has published an opinion stating its expectation that national regulators should enforce strong customer authentication requirements on e-commerce card-based payment transactions by December 31, 2020. The Opinion also describes the actions that regulators should take in the lead up to this deadline to ensure compliance. The EBA’s Regulatory Technical Standards on strong customer authentication and common and secure communication, published in accordance with the revised Payment Services Directive, came into force on March 14, 2018 and have applied directly in all Member States since September 14, 2019. In response to questions on the SCA requirements, the EBA also published an Opinion in June 2019, setting out market approaches to payment authentication that would be deemed compliant with the new SCA rules. The EBA acknowledged that some market participants may struggle to comply with the SCA requirements and allowed national regulators to grant e-commerce card-based payment transaction providers additional time to migrate to SCA approaches.
Read more.TOPIC : Payment Services -
European Banking Authority Publishes Consultation on Structural FX Guidelines Under Capital Requirements Regulation
10/16/2019
The European Banking Authority has published a consultation on its proposed guidelines on the implementation of the structural FX position contemplated by the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae, but permits institutions to exclude positions that have been taken for hedging purposes and that are of a structural nature.
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European Banking Authority Launches Consultation on Technical Standards for Supervisory Reporting Requirements under CRR II
10/16/2019
The European Banking Authority has launched a consultation on its draft Implementing Technical Standards for financial institutions’ reporting requirements under the revised Capital Requirements Regulation. The draft ITS will amend the existing reporting regime applicable to banks subject to the CRR, taking into account certain amendments to that regime made by CRR 2 and the “Backstop Regulation”. Responses to the consultation should be submitted by January 16, 2020.
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Financial Stability Board Publishes Report on Implementation of G20 Financial Regulatory Reforms
10/16/2019
The Financial Stability Board has published its annual report on the 2019 progress made in the implementation of the G20’s financial reforms. The FSB published an interim progress report in June 2019 at the meeting of G20 Finance Ministers and Central Bank Governors in Japan, which summarized FSB member jurisdictions’ progress to date in implementing the recommended reforms. The annual report provides further detail on the progress made and sets out areas for future work.
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Financial Stability Board Publishes Report on Progress of Over-The-Counter Derivatives Market Reforms
10/15/2019
The Financial Stability Board has published a report on the progress its member jurisdictions have made in 2019 on the implementation of agreed G20 reforms to over-the-counter derivatives markets. The report finds that there has been limited additional implementation of the reforms since the FSB’s 2018 report.
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EU Council Adopts Laws on Enhanced Supervision of Third-Country CCPs
10/15/2019
The Council of the European Union has adopted the amendments to EU law on CCP supervision. The adopted laws revising the European Market Infrastructure Regulation (EMIR 2.2) will change how both EU CCPs and third-country CCPs are supervised, and implement into legislation the controversial EU "location policy" for the largest third-country CCPs. According to the Council's press release, EMIR 2.2 is scheduled to be published in the Official Journal of the European Union on December 12, 2019 and would come into force 20 days later. The legislative process relevant to EMIR 2.2 has taken place with the U.K. exit from the European Union in the background and many of the changes relevant to third-country CCPs are effectively a response to the U.K.'s decision to leave the EU, given that two of the three largest European Union clearing houses are U.K.-based.
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UK Rules to Implement France's Large Exposure Limit for Highly Indebted Corporates
10/15/2019
The U.K. Prudential Regulation Authority has published a Policy Statement and final rules to reciprocate the French measure on large exposures, following a recommendation by the European Systemic Risk Board. In July 2018, France's Haut Conseil de stabilité financière (HCSF) imposed a measure under the Capital Requirements Regulation that lowers the large exposure limit, from 25% to 5% of a firm's eligible capital, for French G-SIIs and French O-SIIs for their exposures to French non-financial counterparties that are 'highly indebted'. The PRA will apply the same 5% large exposure limit for exposures to certain French NFCs through amendments to the Large Exposures part of the PRA Rulebook. The measures apply on a consolidated basis to U.K. firms identified by the PRA as Global Systemically Important Institutions and Other Systemically Important Institutions from January 1, 2020.
View the PRA rules.
View the PRA Policy Statement. -
Financial Stability Board Publishes Report on Progress of Over-The-Counter Derivatives Market Reforms
10/15/2019
The Financial Stability Board has published a report on the progress its member jurisdictions have made in implementing the agreed G20 reforms to over-the-counter derivatives markets in 2018. The report finds that good progress has been made in implementation of the agenda.
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UK FICC Markets Standards Board Publishes Statement of Good Practice on Conflicts of Interest
10/14/2019
The U.K. Fixed Income, Currencies and Commodities Markets Standards Board has published a statement of good practice for the FICC markets on conflicts of interest. The statement of good practice represents the FMSB’s view of best practice but is not subject to the FMSB’s adherence framework, so failure to comply will not indicate a failure to meet regulatory obligations.
Read more.TOPIC : Conduct & Culture -
Financial Stability Board Publishes Update on Market Fragmentation Work
10/14/2019
The Financial Stability Board has published a progress update on its ongoing work to tackle market fragmentation. The update follows the FSB’s June 2019 Report on Market Fragmentation, which explored the link between market fragmentation and financial stability and identified four areas for further work to address the issue: deference (e.g. the reliance authorities place on one another when regulating or supervising participants on a cross-border basis); pre-positioning of capital and liquidity; regulatory and supervisory coordination and information-sharing; and market fragmentation as part of the evaluation of reforms, starting with the “too-big-to-fail” evaluation.
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Financial Stability Board Publishes Letter to G20 Ministers on Effect of Reforms and Future Work
10/13/2019
The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors describing the progress of post-financial crisis reforms and key focus areas for the future. Over the past ten years, the FSB has proposed a number of reforms to the global financial system, working with international organizations on implementation to improve financial stability.
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UK Prudential Regulator Implements New Waiver of Deposit Protection Rules
10/13/2019
The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).
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UK Financial Policy Committee Issues Summary of UK Financial System
10/11/2019
The U.K. Financial Policy Committee has issued a summary of the resilience of the U.K. financial system to potential economic shocks and the vulnerabilities it faces. The summary follows the FPC’s meeting on October 2, 2019, at which the FPC agreed on its intended policy action going forward. The FPC is made up of Bank of England staff, the Chief Executive of the U.K. Financial Conduct Authority and certain external members who work to identify, monitor and take action to remove or reduce systemic risks to the U.K. financial system.
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European Commission Consults on Implementing Final Basel III Reforms
10/11/2019
The European Commission has launched a public consultation on aligning the EU rules on capital requirements to certain final outstanding elements of the Basel III international standards. On December 7, 2017, the Basel Committee on Banking Supervision published the last part of the Basel III reforms. The revisions were to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. It was agreed that the revised standards would be implemented from January 1, 2022, except that the output floor would be phased-in until January 1, 2027. The Commission's consultation closes on January 3, 2020.
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UK Government Responds to Committee Report on Conduct Authority's Perimeter of Regulation
10/10/2019
The U.K. government has published a response to the Treasury Committee's report on the Financial Conduct Authority's perimeter of regulation. The Committee's Report is part of its ongoing inquiry, The Work of the Financial Conduct Authority, which is considering: (i) the timeliness in which the FCA is able to take action; (ii) the transparency of the FCA's work and decisions; and (iii) the scope of the FCA's regulatory perimeter.
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International Bodies Issue Report on Governance Arrangements for Derivatives Data
10/09/2019
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a joint report on governance arrangements for critical data elements for over-the-counter derivatives. The report does not cover governance arrangements for the Unique Transaction Identifier and Unique Product Identifier, which are being reviewed separately by the Financial Stability Board. The report aims to contribute to international efforts to improve transparency, mitigate systemic risk and prevent market abuse in derivatives markets.
Read more.TOPIC : Derivatives -
Financial Stability Board Publishes Governance Arrangements for Unique Product Identifier
10/09/2019
The Financial Stability Board has published a report on governance arrangements for the Unique Product Identifier, a globally harmonized code identifying over-the-counter derivatives products reported to trade repositories. The UPI will enable authorities to aggregate data on OTC derivatives transactions, which will in turn help them to assess systemic risk and detect market abuse.
Read more.TOPIC : Derivatives -
Final EU Guidelines For Improving Settlement Efficiency Published
10/08/2019
The European Securities and Markets Authority has published a final report and final Guidelines on standardized procedures and messaging protocols for investment firms under the Central Securities Depositaries Regulation.
CSDR requires investment firms to take steps to limit settlement fails, including by ensuring that they have all the necessary transaction data on the day of the transaction. Investment firms must also have in place arrangements with their professional clients to ensure prompt communication of an allocation of securities to the transaction, confirmation of that allocation and confirmation of the acceptance or rejection of the terms in good time before the intended settlement date. The content of the messages and deadlines for sending them is contained in the Regulatory Technical Standards on settlement discipline (Commission Delegated Regulation (EU) 2018/1229). The Guidelines clarify the scope of these requirements and provide guidance on the standardized procedures and messaging standards to be used for firms to comply with the requirement.
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Brexit: European Banking Authority Again Warns Against Letter-Box Entities
10/08/2019
The European Banking Authority has issued a further Communication on issues associated with the U.K.'s withdrawal from the EU, scheduled to take place on October 31, 2019. The EBA notes that financial institutions have made progress on their preparations for a no-deal Brexit. However, national regulators have highlighted concerns about the operationalization of relocation plans and customer communication. In particular, national regulators have noted that in some cases authorization has been obtained, but it remains unclear whether the firm has transferred assets, skilled staff and risk function to fully operationalize the new business. The EBA reminds firms of the principles it set out in its October 2017 Opinion on structures, and particularly the need for firms not to set up so-called "empty shells".
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Final EU Technical Standards on Cooperation Arrangements with Third-Country Regulators on Market Abuse Issues
10/08/2019
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on supervisory cooperation between EU national regulators and third-country national regulators. The Market Abuse Regulation requires national regulators, where necessary, to enter into cooperation arrangements with supervisory authorities in non-EU countries for the exchange of information and enforcement of market abuse obligations. ESMA is charged with preparing draft RTS containing a template for those cooperation arrangements. ESMA's template provides a flexible approach for national regulators by allowing only parts of the template to be used, depending on what is deemed as necessary by a national regulator.
ESMA's preparation of the draft RTS was delayed so that ESMA could take into account the entry into force of the EU General Data Protection Regulation. The draft RTS requires national regulators to have safeguards in place for the transfer of data from the EU to a third-country where the transfer of data takes place in the usual course of business and practice, and in the absence of an equivalence decision.
The final draft RTS have been submitted to the European Commission for adoption.
View the final report and draft RTS. -
Eurozone Supervisory Priorities for 2020
10/07/2019
The European Central Bank's Banking Supervision arm has published the 2020 supervisory priorities of the Single Supervisory Mechanism and a risk assessment for 2020. ECB Banking Supervision has identified the following risks to the euro banking sector: (i) economic, political and debt sustainability challenges in the euro area; (ii) business model sustainability; (iii) cybercrime; (iv) execution risk related to banks' strategies for non-performing loans; (v) easing lending standards; (vi) repricing in financial markets; (vii) misconduct, money laundering and terrorism financing; (viii) Brexit; (ix) global outlook and geopolitical uncertainties; (x) reaction to regulation; and (xi) climate-change related risk.
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European Securities and Markets Authority Issues Public Statements on No-Deal Brexit Preparations
10/07/2019
The European Securities and Markets Authority has issued four public statements on its preparations for a no-deal Brexit in the event the U.K. fails to agree a deal with the EU or extend the Brexit deadline before October 31, 2019. In its public statement on preparations for a possible no-deal Brexit, ESMA notes that it had already put in place no-deal contingency plans ahead of the U.K.’s previous Brexit deadline extension on April 10, 2019.
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EU Economic and Financial Committee Launches Consultation on Single-Limb Collective Action Clauses for Amendments to EU Sovereign Debt Instruments
10/07/2019
The EU Economic and Financial Committee sub-Committee on EU sovereign debt markets (the ESDM) has launched a consultation on its proposals to mandate the introduction of single-limb collective action clauses into euro area government securities issued from January 1, 2022. The ESDM has released a draft of the proposed CAC together with an explanatory note and seeks input on its proposals from selected market participants by October 28, 2019.
Read more.TOPIC : Securities -
UK Regulator Update on the Operation of the MiFID Transparency Regime Post-Brexit
10/07/2019
The U.K. Financial Conduct Authority has published an update to the Supervisory Statement on the operation of the transparency regime under the Markets in Financial Instruments Directive post-Brexit. The FCA published a statement on March 14, 2019 on the operation of the MiFID II transparency regime should the U.K. leave the EU without a deal on March 29, 2019. The FCA has updated the statement to reflect how the regime would work if the U.K. leaves the EU on October 31, 2019, without a deal.
View the FCA's update.
View details of the FCA's March 2019 Supervisory Statement. -
European Central Bank Issues Statement on Liquidity of Euro Area Banks
10/07/2019
The European Central Bank has issued a statement on the results of its 2019 supervisory stress test. The European Central Bank is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. It found that the vast majority of banks directly supervised by the ECB have overall comfortable liquidity positions, although there were some vulnerabilities that required further attention.
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European Securities and Markets Authority Consults on Alignment of EU Trading and Clearing Obligations
10/04/2019
The European Securities and Markets Authority has published a consultation paper on aligning the trading obligation under the Markets in Financial Instruments Regulation with the recent changes made to the clearing obligation under the European Markets Infrastructure Regulation by the EMIR Refit Regulation. Responses to the consultation should be submitted by November 22, 2019. ESMA intends to submit its final report to the European Commission in early 2020, with the Commission’s report to the European Parliament and Council expected by December 18, 2020.
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European Supervisory Authorities Publish Opinion on AML/CTF Risks in EU Financial Sector
10/04/2019
The European Supervisory Authorities have published a joint opinion on the current anti-money laundering and counter-terrorist financing risks posed to the EU financial sector. The opinion is published in accordance with the requirements of the Fourth Anti-Money Laundering Directive, which requires the ESAs to publish a joint opinion on the AML/CTF risks affecting the EU’s financial sector every two years. The most recent previous opinion was published in February 2017.
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European Securities and Markets Authority Publishes Opinion on MiFID II Frequent Batch Auctions and Double Volume Cap
10/04/2019
The European Securities and Markets Authority has published an opinion on frequent batch auctions and the double volume cap mechanism. The opinion follows ESMA’s report, published in June this year, reviewing firms’ use of frequent batch auctions and their potential as a means of circumventing the double volume cap and transparency requirements under the Markets in Financial Instruments Regulation and Markets in Financial Instruments Directive II.
Read more.TOPIC : MiFID II -
EU Consultation on Clearing Service Provision under EMIR Refit
10/03/2019
The European Securities and Markets Authority has opened a consultation on its draft technical advice on commercial terms for providing clearing services under the European Market Infrastructure Regulation. Responses to the consultation should be submitted by December 2, 2019.
Read more.TOPIC : Derivatives -
EU Proposals on Amending the Market Abuse Regulation
10/03/2019
The European Securities and Markets Authority has launched a consultation on proposed changes to the EU Market Abuse Regulation. MAR requires the European Commission to report on certain aspects of the operation of MAR, including where appropriate, making recommendations for legislative change. The proposals will mostly affect issuers of financial instruments admitted to trading or trading on a trading venue, investment firms and asset management firms. ESMA is holding a public hearing on the proposals on November 5, 2019, and the consultation closes on November 29, 2019. ESMA expects to submit its report to the Commission in Spring 2020.
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European Banking Authority Publishes Basel III Capital Monitoring Report and Update on EU Bank Liquidity Measures
10/02/2019
The European Banking Authority has published two reports reviewing the impact of the EU’s implementation of the Basel III capital monitoring reforms and Capital Requirements Regulation liquidity measures. The EBA estimates that once the Basel III reforms are fully implemented, EU banks’ Tier 1 minimum required capital will have increased by an average of 19.3%. Liquidity coverage ratios, meanwhile, averaged roughly 149% in December 2018, significantly above the minimum threshold of 100% set out in the CRR.
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European Supervisory Authorities Publish Joint 2020 Work Programme
10/02/2019
The Joint Committee of the European Supervisory Authorities has published its 2020 work program, outlining revisions to the Joint Committee’s scope of work and the matters it will focus on in 2020. The Joint Committee consists of representatives from the European Banking Authority, the European Insurance and Occupational Pensions Authority, the European Securities and Markets Authority, the European Commission and the European Systemic Risk Board.
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European Securities and Markets Authority Publishes Guidelines on Prospectus Regulation Risk Factors
10/01/2019
The European Securities and Markets Authority has published Guidelines on risk factors under the EU Prospectus Regulation that will provide guidance to Member State national regulators when reviewing prospectuses. The Guidelines will apply from December 4, 2019. Within two months of the date of publication of the guidelines in all EU official languages, national regulators must notify ESMA whether they comply with the guidelines and, if they do not, whether they intend to comply. If they do not intend to comply, national regulators must explain why that is the case.
Read more.TOPIC : Securities -
European Securities and Markets Authority Publishes 2020 Work Priorities
10/01/2019
The European Securities and Markets Authority has published its Annual Work Programme for 2020. The Work Programme sets out ESMA’s focus areas for 2020 and provides details of expected outputs within each of the areas. In 2019, the European Council, Parliament and Commission agreed on new tasks for ESMA, meaning that ESMA will take on an enhanced role in areas including direct supervision, supervisory convergence and investor protection. The final Regulations amending the scope of the European Supervisory Authorities’ work mandates are expected to be published in the second half of 2019.
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EU Publishes Technical Advice on Disclosure Requirements for New Climate Benchmarks
09/30/2019
The European Commission's Technical Expert Group has published a final report on EU climate benchmarks and benchmark Environmental, Social and Governance disclosures. The Commission set up the TEG on Sustainable Finance when it published its legislative proposal for amending the EU Benchmark Regulation as part of its action plan on Sustainable Finance. The proposed legislation will create two new categories of low carbon benchmarks: the EU Climate Transition Benchmark (EU CTB) and the EU Paris-aligned Benchmark (EU PAB). It also includes ESG disclosure requirements for all investment benchmarks. The final text of the proposal has been agreed and it is expected to be published in October/November 2019.
The TEG report provides technical advice to the Commission on: (i) the minimum ESG disclosure requirements for all benchmarks, except interest rates and currency benchmarks, and specific ESG disclosure requirements for EU CTBs and EU PABs; and (ii) the minimum technical requirements for the methodology of EU CTBs and EU PABs. In addition, the report includes recommendations on other areas of work that are connected to the benchmark ESG disclosures, such as the proposed EU Classification System of Sustainable Activities (i.e. the EU Taxonomy) and changes to the disclosure requirements in the Markets in Financial Instruments package to take into account ESG disclosures.
View the report. -
Council of the European Union Issues Note on Strategic Priorities for AML and CTF
09/30/2019
The Presidency of the Council of the European Union has issued a note inviting Ministers of the Permanent Representatives Committee to consider certain issues regarding the EU anti-money laundering and counter-terrorism financing framework. In July 2019, the European Commission published a Communication and a series of reports assessing the EU implementation of EU AML and CTF requirements and discussing whether further action is needed to improve the EU’s AML/CTF framework. In its Communication, the Commission identified certain issues that were likely to impede the effectiveness of the framework.
Read more. -
UK Prudential Regulator Launches Consultation on Asset Encumbrance Rules
09/30/2019
The U.K. Prudential Regulation Authority has launched a consultation on its proposed expectations of how firms manage prudential risks associated with asset encumbrance. The PRA’s expectations are relevant to all PRA-authorized firms, other than credit unions and insurance firms. Responses should be submitted by January 17, 2020.
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European Securities and Markets Authority Issues Call for Evidence on Product Intervention Measures
09/30/2019
The European Securities and Markets Authority has issued a call for evidence on the impact of its product intervention powers prohibiting the marketing, distribution and sale of binary options to retail clients and imposing restrictions upon contracts for difference that were marketed, distributed or sold to retail clients. ESMA is seeking feedback from all interested stakeholders, in particular investment firms and banks providing investment services (particularly those that provide CfDs or binary options captured by the product intervention measures) and consumer groups and investors. Responses should be submitted by November 4, 2019.
Read more. -
UK Conduct Regulator Finalizes Rules for Funds Investing in Illiquid Assets
09/30/2019
The U.K. Financial Conduct Authority has finalized new rules governing certain types of open-ended funds that invest in inherently illiquid assets.
Read more.TOPIC : Funds -
UK Prudential Regulator Finalizes Policy on Resolution Assessments For Senior Managers Regime
09/27/2019
The U.K. Prudential Regulation Authority has published a Policy Statement and final rules on resolution assessments and reporting amendments under the Senior Managers and Certification Regime. The PRA also published updated versions of "Strengthening individual accountability in banking" (SS28/15) and "Senior Managers Regime form: Statement of Responsibilities". The changes will take effect on December 9, 2019. The PRA has made minor changes to the drafting to take into account feedback and the measures announced on July 31, 2019 on resolvability assessments for all U.K. banks. The changes to the prescribed responsibility for recovery plans and resolution packs will impact U.K. banks and building societies with £50 billion or more in retail deposits. The changes to the Statement of Responsibilities will affect all PRA-regulated firms, unless they will not be subject to resolvability assessments in future.
View the Policy Statement.
View the updated rules and documentation.
View details of the final resolvability assessment framework for all U.K. banks. -
European Banking Authority Publishes Strategic Focus Areas for 2020
09/27/2019
The European Banking Authority has published its 2020 Work Programme. The Programme details six strategic areas of focus for 2020 and these are:
- Support the development of the risk reduction package and the implementation of the global standards in the EU. The EBA will work on developing level 2 legislation required by the revised Capital Requirements Regulation and Directive, the revised Bank Recovery & Resolution Directive and the new Covered Bonds Directive and Investment Firm Regulation and related Directive (the latter two have not yet entered into force). The EBA will continue to work on the implementation of the market risk requirements, following the finalization of the Basel Committee on Banking Standard's fundamental review of the trading book (FRTB). In particular, in 2020, the EBA anticipates implementing the reporting requirement and certain aspects of the FRTB revisions for the internal model approach and for the treatment of non-trading book positions subject to FX or commodity risk. Another priority will be finalization of the EBA's roadmap for the internal ratings-based approach for calculating minimum capital requirements for credit risk.
- Providing efficient methodologies and tools for supervisory convergence and stress testing. The EBA intends to consult on Pillar 2 changes during 2020 and will conduct the 2020 stress test for EU banks.
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UK Conduct Regulator Issues Draft Directions on No-Deal Brexit Temporary Transitional Power
09/26/2019
The U.K. Financial Conduct Authority has updated the directions under the temporary transitional power granted to it in preparation for a no-deal Brexit. The TTP was granted to the U.K. regulators under the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 as a means of granting transitional relief from regulatory requirements where the requirements have been introduced or have changed as a result of onshoring financial services legislation. In July 2019, the FCA announced an extension of its use of the TTP from June 30, 2020 to December 31, 2020 in light of the change to the date that the U.K. was due to leave the EU to October 31, 2019. The updated directions reflect that extension as well as prudential instruments that have been published since the draft directions were originally published in March 2019.
View the FCA's press release and the related documentation.TOPIC : Brexit for Financial Services -
International Organization of Securities Commissions Review of Suitability Requirements for Complex Products
09/26/2019
The International Organization of Securities Commissions has published a report, "Thematic Review on Suitability Requirements with respect to the Distribution of Complex Financial Products". The report summarizes the outcome of the review IOSCO undertook of a sample of member jurisdictions' implementation of the IOSCO 2013 Suitability Requirements for the Distribution of Complex Financial Products, which aims to prevent mis-selling of complex products. The Suitability requirements comprise nine principles relating to classification of customers, general duties regardless of customer classification, disclosure requirements, customers protections, incentives and enforcement.
Read more. -
European Banking Authority Launches Consultation on Synthetic Securitizations Framework
09/25/2019
The European Banking Authority has launched a consultation on its proposed simple, transparent and standardized framework for synthetic securitization. The paper also seeks feedback from stakeholders on a proposed list of criteria that should be considered when labeling a synthetic securitization an STS and on the introduction of different regulatory treatments for STS synthetic securitizations. The EBA will hold a public hearing on October 9, 2019 and responses to the consultation should be provided by November 25, 2019.
Read more.TOPIC : Derivatives -
No-Deal Brexit Uncertainty Leads EU to Suspend Assessment of Transparency Requirements on Bond Markets
09/24/2019
The European Securities and Markets Authority has confirmed in a letter to the European Commission that it considers it inadvisable to conduct an annual review in 2019 of the Regulatory Technical Standards on the transparency requirements for trading venues and investment firms for bonds, structured finance products, emission allowances and derivatives (sometimes referred to as RTS 2). The requirement for an annual review is stipulated in the Markets in Financial Instruments package, and ESMA's report could lead to legislative changes subjecting more bonds and derivatives to the transparency requirements. ESMA's assessment of RTS 2 would be impacted by the uncertainty arising from Brexit, in particular, the potential for a no-deal Brexit, because the outcome would vary depending on whether U.K. data was included or not.
ESMA intends to conduct its annual review before July 2020 and to determine the impact on bond market liquidity of the U.K.'s departure from the EU.
View ESMA's letter to the European Commission. -
UK Conduct Regulator Appoints Executive Director of Risk and Compliance Oversight
09/20/2019
The U.K. Financial Conduct Authority has appointed Sheree Howard as its new Executive Director of Risk and Compliance Oversight, replacing Barbara Frohn, who left the FCA earlier this year. Ms. Howard joined the FCA as a Senior Adviser in December 2017. Her new role as part of the Executive Committee will see her advising the FCA’s Board on the breadth of risk in the organization.
View the FCA's announcement.TOPIC : People -
UK Conduct Authority Publishes Review Findings for EU Research Unbundling Rules
09/19/2019
The U.K. Financial Conduct Authority has published the outcome of its review of the research unbundling reforms implemented in the EU by the revised Markets in Financial Instruments Directive. MiFID II has applied across the EU since January 3, 2018. MiFID II restricts the payment or receipt of all fees, commission and non-monetary benefits ("inducements") unless these enhance the quality of service provided to a client, and do not impair an EU investment firm's duty to act in the best interests of its client. Any inducement that is a minor, non-monetary benefit is exempt from the limitation. Research provided by any third party (regardless of location) to an EU investment firm providing investment services or ancillary services will be regarded as an "inducement" and subject to the inducement prohibition, unless the research is received in return for either direct payment by the investment firm out of its own resources or payment from a separate research payment account (RPA). "Soft dollar" commissions are not allowed, unless these are done through an RPA. The rules have impacted buy-side and sell-side firms in the EU, as well as their non-EU counterparts.
Read more.TOPIC : MiFID II -
European Economic and Social Committee Publishes Opinion on Sustainable Finance Reforms
09/19/2019
The European Economic and Social Committee has published an Opinion on the European Commission’s Reflection Paper, “Towards a Sustainable Europe by 2030”, which was published earlier this year. The Commission’s Reflection Paper considers Europe’s competitive advantages in delivering sustainable development, assesses the EU and global climate change challenges that must still be tackled, and sets out policy changes and proposals that will enable the EU to adhere to the UN’s 2030 Agenda for Sustainable Development and the 17 Sustainable Development Goals.
Read more. -
International Swaps and Derivatives Association Consults on Final Fall Backs for Alternative Risk-Free Rates
09/18/2019
Following its previous two consultations, the International Swaps and Derivatives Association has launched a consultation on the proposed final parameters that will apply to alternative risk-free rates if derivatives fall backs are triggered. Responses to the consultation should be provided by October 23, 2019. ISDA will amend the 2006 ISDA Definitions based on the feedback and also intends to publish a protocol so that market participants can include fall backs in legacy IBOR contracts, if needed. Both documents are expected to be finalized before the end of 2019, ready for implementation in 2020.
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UK Prudential Regulator Consults on Credit Risk
09/18/2019
The U.K. Prudential Regulation Authority has launched a consultation on its approach to implementing the European Banking Authority's Technical Standards and Guidelines on Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The consultation is relevant to U.K. banks, building societies and PRA-designated U.K. investment firms. Responses to the consultation need to be submitted by December 18, 2019.
Read more. -
UK Prudential Regulator Implements New Waiver of Deposit Protection Rules
09/13/2019
The U.K. Prudential Regulation Authority has announced that it will provide a new waiver by consent of the Continuity of Access Rules under the Depositor Protection Part of the PRA Rulebook. The DPP Rulebook sets out rules requiring firms to ensure that eligible depositors have access to deposits covered by the Financial Services Compensation Scheme in the event of the firm’s insolvency, by establishing systems to facilitate a transfer of such deposits (the so-called “Continuity of Access” rules).
Read more. -
UK Competition Authority Consults on Intention to Vary Retail Banking Market Investigation Order
09/12/2019
The U.K. Competition and Markets Authority has formally announced its provisional decision to vary the Retail Banking Market Investigation Order 2017 by removing Part 6 of the Order, which governs automatic enrollment in personal current account alerts. The CMA has published a draft of its proposed Variation Order together with its provisional decision and is seeking comments on both, which should be submitted by October 15, 2019.
Read more.TOPIC : Competition -
UK Conduct Regulator Escalates Awareness of Need for No-Deal Brexit Preparations
09/11/2019
The U.K. Financial Conduct Authority has published a press release announcing that it is stepping up its efforts to assist firms to prepare for a no-deal Brexit. Among other things, the FCA will be publishing a series of digital advertisements highlighting the FCA Brexit webpages, and it has set up a dedicated telephone line (0800 048 4255).
View the FCA's press release.TOPIC : Brexit for Financial Services -
UK Statutory Instrument Published to Amend Benchmark Regulations
09/11/2019
A U.K. statutory instrument has been published amending the existing U.K. legislation that gives effect to the EU Benchmarks Regulation. The new statutory instrument – the Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2019 – amends the definition of a “Miscellaneous Benchmarks Person” under the existing regulation and clarifies the scope of the U.K. Financial Conduct Authority’s powers to impose requirements on Miscellaneous Benchmark Persons. The amendments will come into force on October 14, 2019.
Read more.TOPIC : Financial Services -
UK Payments Regulator Paper on Use of Data in the Payments Industry
09/10/2019
Following the publication of a discussion paper in June 2018, the U.K. Payment Systems Regulator has published its response paper on the issue of data in the payments industry. The discussion paper outlined three potential areas where data use could directly affect the PSR's statutory objectives of promoting competition and innovation. These are:- Reluctance of end-users to share payments data with third-party providers of other payments-related services (so-called "overlay services"), due to concerns over whether their data will be treated appropriately.
Read more.TOPIC : Payment Services -
EU Clarification on Legacy Own Funds Instruments Coming in Mid-2020
09/09/2019
The European Banking Authority has announced that it will clarify by mid-2020 the position of instruments that were both issued and qualified as "own funds" for capital purposes before December 31, 2011. When the Capital Requirements Regulation entered into force, transitional provisions provided that these legacy instruments would also qualify as own funds instruments under the CRR, even if they did not meet the enhanced requirements for own funds introduced in that measure. The transitional period for such instruments ends on December 31, 2021. The EBA has stated that it will provide clarification on the appropriate treatment of the legacy instruments to ensure that banks maintain high quality regulatory capital and that the rules are consistently applied across the EU. The EBA confirms that it will take into account recent changes to own funds requirements in CRR II as well as other linked changes under the Bank Recovery and Resolution Directive.
View the EBA's announcement. -
UK Prudential Regulator Proposes Amendments to the Pre-Issuance Notification Rules for Regulatory Capital Instruments
09/09/2019
The U.K. Prudential Regulation Authority has published a consultation paper in which it proposes amendments to the Pre-Issuance Notification (PIN) requirements for regulatory capital instruments. The PIN requirements are applicable to PRA-authorized Capital Requirements Regulation firms and require firms to notify the PRA of certain capital instruments that they intend to issue. The PRA assesses the terms and conditions of these instruments prior to issuance, to ensure that firms maintain quality capital resources which comply with CRR. Responses to the consultation are requested by December 9, 2019.
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UK Court Rules on Withholding Identity of Peer-To-Peer Lenders
09/06/2019
The U.K. High Court of Justice has ruled that the identities of the underlying lenders in a series of loans made through a peer-to-peer lending platform should not be disclosed to the claimant borrower. Milne v Open Access Finance Ltd considers a claim brought by a solicitor who took out a series of loans over several years with Open Access Finance, a peer-to-peer lender. The claimant is seeking relief from his obligation to repay the £170,000 worth of loans extended to him, damages for misleading actions contrary to the Consumer Protection from Unfair Trading Regulations 2008, as well as damages under the Financial Services and Markets Act 2000 and relief under the Consumer Credit Act 1974.
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UK Statutory Instrument Published to Onshore the EU Prospectus Regulation For No-Deal Brexit
09/06/2019
A U.K. statutory instrument has been published to onshore the EU Prospectus Regulation in the event of a no-deal Brexit. In preparing for an April Brexit, the U.K. had onshored the EU Prospectus Directive in the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 (known as the "Official Listing instrument"). However, since then the date on which the U.K. is due to leave the EU has changed to October 31, 2019 and the EU Prospectus Directive has been repealed by the EU Prospectus Regulation (as of July 21, 2019).
Read more.TOPIC : Brexit for Financial Services -
UK No-Deal Brexit Legislation Extends Transitional Provisions for Third-Country Benchmarks
09/06/2019
A U.K. statutory instrument has been published to further the U.K.'s financial services legislation preparations in the event of a no-deal Brexit. The statutory instrument – the Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/1212) – provides for, among other things:- amending the exit legislation that establishes temporary regimes for EEA e-money and payment services firms to ensure that firms entering the Contractual Run-Off regime can carry out the full range of activities required to discharge any pre-existing contractual obligations;
- extending the transitional provisions for third-country benchmarks in the Benchmarks (Amendment and Transitional Provisions) (EU Exit) Regulations 2019 by three years to ensure that U.K. firms can use third-country benchmarks until the end of 2022 without the benchmarks needing to be on the Financial Conduct Authority's register;
- updating cross-references to the Capital Requirements Regulation to take into account the EU amendments to the CRR that became applicable in June 2019; and
- amending various exit instruments to correct or clarify the original text.
View the amending regulation and explanatory memorandum.TOPIC : Brexit for Financial Services -
UK Brexit Legislation Published to Onshore the Revised Capital Requirements Regulation
09/05/2019
A draft U.K. statutory instrument to onshore into U.K. law, post-Brexit, the revised Capital Requirements Regulation (known as CRR II) has been published – the Capital Requirements (Amendment) (EU Exit) Regulations 2019 (2019 No. 1232). CRR II and the revised Capital Requirements Directive were published in the Official Journal of the European Union on June 7, 2019. Subject to certain exceptions, the Regulation amending CRR will not apply directly across the EU from June 28, 2021. However, some of its provisions are already in force. EU Member States are required to transpose the Directive amending CRD into their national laws and to apply those provisions from December 29, 2020, subject to certain exceptions.
The new U.K. statutory instrument amends the existing U.K. exit legislation to address deficiencies arising due to the changes made in CRR II, but only those changes that will be applicable by October 31, 2019. These changes relate to new definitions, revisions to the rules on what qualifies as capital, new mandates for technical standards to be prepared and some changes to the Minimum Requirements for Own Funds and Eligible Liabilities (MREL). In addition, the statutory instrument removes the automatic preferential capital treatment for EU exposures introduced by CRR II. This aligns with the position taken in the existing exit legislation. It is anticipated that in the event of a no-deal Brexit, the U.K. regulators may use their temporary powers to suspend the additional capital requirements for such exposures.
View the amending regulation and explanatory memorandum.
View details of CRR II.TOPIC : Brexit for Financial Services -
EU Stress Simulation Framework for Investment Funds Published
09/05/2019
The European Securities and Markets Authority has published, in an economic report, a stress simulation framework for investment funds, which is intended for use by national regulators. The report provides an overview of the framework, options available for stress testing and discusses the calibration of redemption shocks for investment funds, methods to assess the resilience of funds to shocks, ways to measure the impact of fund managers' liquidation strategies on financial markets, and possible second-round effects. The report also includes a case study where ESMA applied the stress simulation framework to 6,000 UCITS bond funds, the underlying data for which ESMA has shared with national regulators.
ESMA intends to use the stress test simulation to assist it in monitoring and identifying risks that may impact the funds industry.
View the economic report.TOPIC : Funds -
UK Prudential Regulator Writes to Banks on Prudential Supervision of Money Laundering and Terrorist Financing Risks
09/05/2019
The Prudential Regulation Authority has published a "Dear CEO" letter sent to all PRA-regulated banks and investment firms (firms that are subject to the Capital Requirements Regulation) on the prudential supervision of money laundering and terrorist financing risks. The PRA reminds firms of the Opinion published by the European Banking Authority on July 24, 2019, which invited national prudential supervisors to (i) make clear to institutions the expectation that prudential supervisors should be aware of AML/CTF risks that may affect the institutions they oversee; and (ii) notify institutions that AML/CTF concerns will be taken into account in determining prudential supervision.
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European Commission Issues Communication on Final Preparations for No-Deal Brexit
09/04/2019
The European Commission has published a Communication on finalizing preparations for the withdrawal of the U.K. from the EU on November 1, 2019. The Commission stresses the likelihood of a no-deal Brexit on October 31, 2019 and asks all stakeholders to take action now to finalize their plans for the situation, noting that the contingency measures that are in place can only mitigate against some of the more significant disruptions. The Commission warns that a further delay to the date that the U.K. exits the EU should not be assumed, in that a delay may not be requested by the U.K. government nor granted by the EU.
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US Court Rejects Suit Over Office of the Comptroller of the Currency FinTech Charter
09/03/2019
Judge Dabney Friedrich of the U.S. District Court for the District of Columbia has dismissed a lawsuit brought by the Conference of State Bank Supervisors (CSBS) that would have prevented the Office of the Comptroller of the Currency from offering a special purpose national bank charter to certain non-bank financial services firms. The CSBS brought the lawsuit in October 2018 following the OCC's July 2018 announcement that it would begin accepting applications for the FinTech charter, arguing that the OCC lacks the authority to award bank charters to non-depository institutions. However, Judge Friedrich concluded that the CSBS did not have standing to bring the suit given the fact that the OCC has yet to award a FinTech charter to any non-bank financial services firms.
Read more.TOPIC : FinTech -
Banking Standards Board Publishes Good Practice Guidance on Regulatory References
09/03/2019
The Banking Standards Board has published a statement of good practice for firms when providing and requesting regulatory references in accordance with the Senior Managers and Certification Regime. The SM&CR for banks and building societies was established in 2016 to improve management within banking sector firms. The regime includes a requirement for firms to request references when determining whether a candidate is suitable for a senior management function, certification function or non-executive director function.
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European Securities and Markets Authority Publishes Final Guidance on Liquidity Stress Tests for Investment Funds
09/02/2019
The European Securities and Markets Authority has published a report containing its final guidelines on liquidity stress testing in Alternative Investment Funds and Undertakings for Collective Investment in Transferable Securities. The guidelines have been published in accordance with the European Systemic Risk Board's 2018 Recommendation, which was designed to address liquidity and leverage risk in investment funds. ESMA's guidelines will apply from September 30, 2020.
Read more.TOPIC : Funds -
Financial Stability Board Publishes Summary of Workshop on Continuity of Access to Financial Market Infrastructure
08/28/2019
The Financial Stability Board has published a summary of an industry workshop, held on May 21, 2019, on continuity of access to financial market infrastructures for firms in resolution. The FSB held the workshop to assist in its efforts to monitor implementation of the FSB Guidance on continuity of access to FMI for firms in resolution, published in July 2017. The Guidance provides for arrangements to allow continuity of access to FMIs for a global systemically important bank in resolution. The Guidance applies to FMIs as providers of clearing, payment, securities settlement and/or custody services, to G-SIBs and other banks that are subject to resolution (referred to here as firms) and recovery planning requirements, as well as the G-SIB resolution authorities and regulators of the FMIs.
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UK Conduct Regulator Sets Out Approach for Annual Remuneration Round
08/28/2019
The U.K. Financial Conduct Authority has published a letter (dated August 19, 2019) addressed to the chairpersons of the remuneration committees of the boards of banks and large investment firms (investment firms with total assets over £50 billion). The letter sets out the FCA's findings from the 2018/19 remuneration round and informs how the FCA intends to assess remuneration policies and practices of firms in 2019/20.
The FCA observes that firms continue to address conduct issues in their remuneration policies and practices. It reminds the chairpersons of remuneration committees of their accountability as senior managers under the Senior Managers Regime. Noting that firms continue to adjust awards for material poor performance and misconduct, but that some firms still find it difficult to provide appropriate justification for some adjustments, the FCA states that it will work with firms this year on their approach to ex post facto risk adjustment.
The FCA letter also states that the annual review of submitted Remuneration Policy Statements will again be coordinated with the Prudential Regulation Authority. Firms are asked to submit a short summary addressing the key points raised in the statement, including the key changes made last year and an explanation of how the chairperson has assured himself or herself that the firm's overall remuneration policies drive behavior that reduces potential harm.
Finally, the FCA invites chairpersons of remuneration committees to engage in the FCA's work on transforming culture in financial services.
View the letter. -
UK Law Commission Calls for Evidence on Operation of the System for Intermediated Securities
08/27/2019
The UK Law Commission has published a Call for Evidence on the system for intermediated securities. The Call for Evidence will inform the Commission's scoping study to assess the current state of the law and issues arising from intermediation, which the Department for Business, Energy & Industrial Strategy has requested. Intermediated securities are shares and bonds held electronically through computerized credit entries. The Call for Evidence describes how intermediated securities are held and recorded, noting the advantages of the system. It also raises practical issues with the system and presents some potential solutions.
Read more.TOPIC : Securities -
European Central Bank Amends Its Supervisory Expectations on Non-Performing Loans
08/22/2019
Following the coming into force on April 26, 2019 of an EU regulation amending the Capital Requirements Regulation that introduced a statutory prudential backstop, and requires banks to have minimum loan loss coverage for newly originated loans, the European Central Bank has published a communication on supervisory coverage expectations for non-performing loans. The ECB communication announces that the ECB has revised its supervisory expectations on NPLs that it published in its March 2018 Addendum to the Guidance for Eurozone banks on NPLs as a result of the Amending Regulation. Neither the Guidance nor the Addendum are legally binding, but both apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries.
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UK Conduct Regulator Announces Exemption from Enforcement of Strong Customer Authentication
08/20/2019
The U.K. Financial Conduct Authority has announced in a "Dear CEO" letter that it will not take enforcement action against firms that are not compliant with Strong Customer Authentication requirements for electronic payment transactions by the legal deadline of September 14, 2019. The exemption from enforcement will apply only to card-not-present e-commerce transactions. In order to qualify for the exemption, firms must demonstrate that they have taken the necessary steps to comply with UK Finance's plan for implementing SCA by March 14, 2021.
Read more.TOPIC : Payment Services -
UK Court Grants Asset Preservation Order over Bitcoin
08/20/2019
A U.K. court has granted an asset preservation order over Bitcoin stolen in a "spear phishing" attack on a major crypto-currency trader. The decision confirms that proprietary claims over Bitcoin constitute serious issues that should be tried in the courts. Although the presiding judges did not make a final ruling on the legal questions surrounding the nature of Bitcoin ownership, it is believed that this is the first time the English courts have considered the nature of crypto-currencies as property.
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Decision on Eurozone Oversight of Systemically Important Payment Systems
08/16/2019
A Decision of the European Central Bank has been published in the Official Journal of the European Union. The Decision supplements the ECB's Regulation on the oversight of systemically important payment systems. The Decision sets out the procedures and conditions for a regulator to follow when seeking to obtain information and documents from the operator of a SIPS, requiring a SIPS operator to appoint an independent expert to carry out an investigation or review on the operation of the SIPS or conduct on-site inspections.
The Decision enters into force on September 5, 2019 and applies to the Eurozone regulators of Eurozone SIPS.
View the ECB Decision. -
European Banking Authority Recommends Changes to EU Deposit Guarantee Scheme Directive
08/08/2019
The European Banking Authority has published an Opinion on the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes. The EU Deposit Guarantee Scheme Directive requires the European Commission to report on the implementation of the Directive. The EBA's Opinion is the first of three opinions that it will issue to support the Commission in preparing the report. The other two opinions are expected before the end of 2019, one covering deposit guarantee scheme pay outs and the other DGS funding and uses of DGS funds.
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Working Group on Sterling Risk-Free Reference Rates Publishes Summary of Responses to Discussion Paper on SONIA Referencing Conventions
08/07/2019
The Working Group on Sterling Risk-Free Reference Rates has published a summary of the responses it received to its March 2019 discussion paper on conventions for referencing SONIA in new financial contracts.
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UK Conduct Regulator Discusses Enhanced Liquidity Requirements for UCITS
08/06/2019
Andrew Bailey, the Chief Executive of the U.K. Financial Conduct Authority, has written to Lord Myners of the House of Lords concerning the establishment of U.K. requirements for liquidity standards for Undertakings for Collective Investment in Transferable Securities (UCITS) that are more stringent than existing EU requirements. Andrew Bailey's letter was prompted by Lord Myners' query as to whether the U.K. government has ever formally reviewed the case for imposing more stringent requirements or whether it must abide by the requirements in the EU UCITS Directive.
Read more.TOPIC : Funds -
European Banking Authority Publishes Advice on EU Implementation of Basel III
08/05/2019
The European Banking Authority has published several documents setting out its advice to the European Commission on the impact and implementation in the EU of the Basel III 2017 reforms. On December 7, 2017, the Basel Committee on Banking Supervision published the last part of the Basel III reforms. The revisions were to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards take effect from January 1, 2022, except that the output floor may be phased-in until January 1, 2027.
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UK Conduct Regulator Concludes No Changes Needed to Banking Senior Managers Regime
08/05/2019
The U.K. Financial Conduct Authority has published the findings of its review into the implementation of the Senior Managers and Certification Regime for the banking sector. The SM&CR came into force for banking firms in March 2016 with the aim of making individuals in the banking sector more accountable for their conduct. The FCA conducted the review to determine how the SM&CR has been implemented in the three years since its introduction. The review is intended to aid understanding of the impact of the regime and the FCA does not intend to make any policy changes on the basis of its findings. The FCA's review focuses on the implementation of the existing banking SM&CR, but an expanded SM&CR regime will come into force for all FCA solo-regulated firms from December 9, 2019. Firms falling within scope of the expanded regime should, where appropriate, also take the findings of the FCA's review into account in their implementation of the SM&CR.
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UK Committee Recommends Enhancing the Financial Conduct Authority's Powers and Remit
08/02/2019
The U.K. Treasury Committee has published a report on the Financial Conduct Authority's perimeter of regulation. The Report is part of the Committee's ongoing inquiry, The Work of the Financial Conduct Authority, which is considering: (i) the timeliness in which the FCA is able to take action; (ii) the transparency of the FCA's work and decisions; and (iii) the scope of the FCA's regulatory perimeter. This Report considers the last of these issues and makes several recommendations to the Treasury on the remit and powers of the FCA to enhance understanding of consumers of the regulatory perimeter, reduce harm to consumers and mitigate against regulatory arbitrage.
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European Banking Authority Launches Consultation on Draft Guidelines for Capital Requirements Regulation Contractual Payments
07/31/2019
The European Banking Authority has launched a consultation on its proposed guidelines on the methodology used to determine the weighted average maturity of contractual payments due under securitization transaction tranches for the purposes of the Capital Requirements Regulation. The CRR establishes, amongst other things, the principles by which firms should calculate their credit risk, including in relation to securitization transactions.
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EU Restrictions on Contracts for Difference Lifted in Wake of National Measures
07/31/2019
The European Securities and Markets Authority has announced that it will not again renew its product intervention measure for Contracts for Differences. 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's first restrictions on the marketing, distribution and sale of CfDs to retail clients applied from August 1, 2018 and was then extended every three months because ESMA did not consider that the consumer protection risk had been addressed. ESMA's view is that because most national regulators in EU member states have now adopted permanent measures, its own temporary restrictions do not need to be extended. The U.K. Financial Conduct Authority has imposed permanent restrictions on the sale, marketing and distribution of CfDs and CfD-like options to retail consumers. The rules will apply to all CfDs entered into from August 1, 2019, and to CfD-like options entered into from September 1, 2019.
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UK Conduct Regulator Amends Directions for E-Money and Payment Services Temporary Permissions Regime
07/31/2019
The U.K. Financial Conduct Authority has published two amending Directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 varying the deadlines by which e-money and payment services firms should notify the FCA of their intention to rely on the temporary permissions regime following the U.K.’s exit from the EU. The TPR will allow EU firms to continue providing financial services in the U.K. post-Brexit for a limited period of time, pending full FCA permission being granted. Notifications should now be made by October 30, 2019. The extended deadline falls immediately before the revised Brexit deadline of October 31, 2020.
View the FCA's amended Direction on notifications for the e-money services temporary permissions regime.
View the FCA's amended Direction on notification for the payment services temporary permissions regime.
View details of the FCA’s extended TPR announcement on April 11, 2019.
View details of the FCA’s extended TPR announcement on March 28, 2019. -
UK Regulator Provides Guidance on Regulatory Perimeter and Crypto-Assets
07/31/2019
The U.K. Financial Conduct Authority has published a Policy Statement and final Guidance on Crypto-assets. The Policy Statement summarizes the feedback received to the FCA's consultation on draft Guidance and sets out the FCA's response to that feedback. The final Guidance is, for the most part, the same as that on which the FCA consulted, except the FCA has made some drafting changes to provide further clarity and has added some guidance on stablecoins and airdrops. In addition, the FCA has revised the taxonomy by making a distinction between: (i) unregulated tokens, which are exchange tokens and utility tokens; and (ii) regulated tokens, which are security and e-money tokens.
The Guidance is intended to clarify the FCA's expectations for firms carrying on crypto-asset activities within the U.K. by providing insight for market participants on whether certain crypto-assets are within the FCA's regulatory perimeter or are otherwise regulated. The FCA highlights that the Guidance should be used by firms to understand the regulatory status of their crypto-asset activities, but assessing whether a crypto-asset or related activity is within the regulatory perimeter can only be done on a case-by-case basis. Firms should also refer to the FCA's Perimeter Guidance Manual (PERG) in its Handbook, and where firms need further clarification, they should contact the FCA and/or obtain external legal advice.
The Guidance provides an overview of the U.K. regulatory perimeter and discusses relevant concepts, such as "by way of business." It also refers to the territorial scope of the regulatory perimeter, referring to the detailed guidance in PERG and highlighting that where part of an activity is carried on outside the U.K., a firm may still be carrying on a regulated activity in the U.K.
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UK Regulators Finalize Resolvability Assessment Framework for Banks
07/30/2019
Following their consultation earlier this year, the Bank of England and the Prudential Regulation Authority have finalized the new Resolvability Assessment Framework. The Framework comprises: (i) the BoE's approach to assessing resolvability, which includes the outcomes that the BoE considers necessary to support resolution; (ii) new PRA rules that require firms to assess their resolvability, submit a report to the PRA on the assessment and publish a summary statement on the assessment; and (iii) the BoE making public statements on the resolvability of each individual firm that is in-scope of the PRA's new rules.
Read more.TOPIC : Recovery & Resolution -
EU Equivalence for Australian and Singaporean Benchmarks
07/30/2019
Two equivalence decisions under the EU Benchmark Regulation have been published in the Official Journal of the European Union. The first decision declares as equivalent to the EU regime the legal and supervisory framework of Australia applicable to the administrators of financial benchmarks that are declared significant benchmarks by the Australian Securities and Investments Commission. The second decision declares as equivalent to the EU regime the legal and supervisory framework of Singapore applicable to the administrators of financial benchmarks that are designated as designated benchmarks by means of the Securities and Futures (Designated Benchmarks) Order 2018. Both decisions will enter into force on August 19, 2019.
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EU Credit Rating Equivalence Decisions Repealed for Some; Reaffirmed for Others
07/30/2019
A series of Implementing Decisions on the equivalence with the EU Credit Rating Agencies Regulation of the credit rating regimes of certain non-EU countries have been published in the Official Journal of the European Union. The EU 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 the European Securities and Markets Authority; (ii) a third-country CRA under the endorsement regime; or (iii) a third-country CRA under the equivalence/certification regime. Equivalence decisions for several jurisdictions were adopted in 2012 under the CRA Regulation, as it was at the time. The equivalence decisions were for Brazil, Canada, Argentina, Singapore, Australia, Mexico, the U.S., Japan and Hong Kong. CRAs from Mexico, the U.S. and Japan subsequently obtained certification from ESMA.
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UK Conduct Regulator Consults on STS Notifications under Onshored Securitization Regulation
07/30/2019
The U.K. Financial Conduct Authority has launched a consultation on draft technical standards on the content and format of STS notifications under the U.K.'s onshored Securitization Regulation. The consultation closes on August 27, 2019. Unless Brexit is delayed further, the FCA intends to publish the final or near-final technical standards on or very near to Exit day, which is currently due to be October 31, 2019.
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European Commission Communicates on Financial Services Equivalence
07/29/2019
The European Commission has published a Communication on equivalence in the area of financial services, including an annex that briefly sets out the equivalence decisions adopted by the Commission since January 2018. The Communication describes the Commission's current equivalence policy priorities, recent legislative improvements and the main assessment and the decision-making processes. It also sets out recent and ongoing work on equivalence assessments and monitoring.
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UK Consultation on Draft Law Ensuring Trustee Oversight of Investment Consultants and Fiduciary Managers
07/29/2019
The U.K. Department for Work and Pensions has opened a consultation on draft Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2019. The consultation runs until September 2, 2019. The draft Regulations are intended to implement into law certain of the remedies made by the U.K. Competition and Markets Authority in its Investment Consultants and Fiduciary Managers Markets Investigation. The CMA published a Final Report in December 2018 that set out its finding of adverse competition in the investment consultants and fiduciary managers markets and the remedies to address that finding. The CMA's final Order to implement the remedies was published on June 10, 2019.
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UK Conduct Regulator Publishes Final Senior Managers & Certification Regime Rules for Extended Regime
07/26/2019
The U.K. Financial Conduct Authority has published its final rules extending the Senior Managers and Certification Regime to all FCA solo-regulated firms. The final rules take into account responses to the FCA's consultation paper issued in January 2019, which proposed changes to optimize the expanded regime.
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European Central Bank Announces Publication Time for Euro Short-Term Rate
07/26/2019
The European Central Bank has announced the publication time for the new Euro short-term rate (or €STR) that will come into effect from October 2, 2019. €STR will represent the wholesale euro unsecured overnight borrowing costs of banks located in the euro area. The ECB has also published the final version of its Guideline in the Official Journal of the European Union. The Guideline is addressed to all Eurosystem central banks and will govern the rate and establish the responsibilities of the ECB and national central banks in determining and administering the rate.
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UK Conduct Regulator Extends Period for Use of Its Brexit Temporary Transitional Power
07/25/2019
The U.K. Financial Conduct Authority has announced that it will extend its use of the temporary transitional power from June 30, 2020 to December 31, 2020 in light of the change to the date that the U.K. is due to leave the EU to October 31, 2019.
Read more.TOPIC : Brexit for Financial Services -
UK Regulators Consult on Amending EU Exit Instruments
07/25/2019
The Bank of England and the Prudential Regulation Authority have opened a consultation on further changes to EU Exit instruments following the extension of Brexit from April to October 31, 2019, which means that certain EU legislation that has been published since April will become retained law. The consultation closes on September 18, 2019.
The consultation covers: (i) a proposed update on the Bank's and PRA's intended use of the temporary transitional power; (ii) proposals for the PRA Rulebook and Binding Technical Standards that will be retained, or 'onshored', in U.K. law; and (iii) the Bank's proposed BTS under the Central Securities Depositories Regulation.
Read more.TOPIC : Brexit for Financial Services -
UK Draft Legislation for Post-Brexit EMIR 2.1 Published
07/25/2019
A draft U.K. statutory instrument to onshore into U.K. law, post-Brexit, the revised European Market Infrastructure Regulation (known as EMIR Refit) has been published - The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
EMIR Refit was published in the Official Journal of the European Union on May 28, 2019 and, for the most part, has applied directly across the EU since June 17, 2019.
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UK Payments Regulator Consults on Draft Updated Powers and Procedures Guidance
07/25/2019
The U.K. Payment Systems Regulator has launched a consultation on the updated Powers and Procedures Guidance and Interchange Fee Regulation Guidance. The Regulator published the original Powers and Procedures Guidance in March 2015 before it became operational.
Read more.TOPIC : Payment Services -
European Commission Assesses Risks to EU of AML and CTF
07/24/2019
The European Commission has published a Communication and a series of reports assessing the EU implementation of anti-money laundering and terrorist financing requirements and discussing whether further action is needed to improve the EU's AML/CTF framework. The Communication summarizes the reports and the Commission's conclusions. The Commission notes that some of the shortcomings identified in the reports may have been remedied through the Fourth AML Directive, and that others may still be mitigated through the implementation of the Fifth AML Directive, due to be implemented by member states by January 2020.
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European Banking Authority Publishes Opinion on Relation of Prudential Objectives to Anti-Money Laundering and Counter-Terrorism Financing
07/24/2019
The European Banking Authority has published an Opinion signaling the importance of money laundering and terrorism financing risks in the prudential supervision of EU Member States. The Opinion invites national prudential supervisors to make clear to institutions in their jurisdictions the expectation that prudential supervisors should be aware of AML/CTF risks that may affect the institutions they oversee.
Read more. -
Reformed EONIA Publication Times Confirmed
07/24/2019
The European Money Markets Institute has announced that EONIA will be published daily at or soon after 9:15 CET, as from October 2, 2019.
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Margin Requirements for Uncleared Derivatives Delayed for Certain Counterparties
07/23/2019
The target date at international level for regulators to introduce margin requirements for uncleared derivatives for counterparties with lower trading volumes has been extended for a year by the International Organization of Securities Commissions and the Basel Committee on Banking Standards. The amendment may, depending on regulatory responses, in turn impact small banks, asset managers, pension funds and insurers.
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 by nine months the phase-in period for the obligations relating to both initial margin and variation margin. Relevant international standards apply to entities that are financial firms and systemically important non-financial entities, the definitions for which are determined by national regulation.
Read more.TOPIC : Derivatives -
UK Regulator Publishes Policy Statement on Eligibility of Financial Collateral Under Capital Requirements Regulation
07/23/2019
The U.K. Prudential Regulation Authority has published the final version of its amended Supervisory Statement on credit risk mitigation, providing additional clarity on the eligibility of financial collateral under the Capital Requirements Regulation. The Supervisory Statement is published alongside the PRA's Policy Statement, which provides feedback on the responses to the PRA's consultation paper on the same topic launched in January this year. The amendments to the Supervisory Statement are effective as of July 23, 2019, the date the Policy Statement is published. Firms with concerns about their ability to comply with the revised Supervisory Statement are advised to liaise with their usual supervisory contacts.
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UK Regulator Consults on Changes to Counterparty Credit Risk Treatment
07/23/2019
The U.K. Prudential Regulation Authority has issued a consultation on proposed additions to its Supervisory Statement on counterparty credit risk. The additions are intended to provide clarity to the market on how firms should satisfy the Capital Requirements Regulation's requirement to ensure senior management are aware of the limitations and assumptions included in models used to calculate exposure values for derivatives. The consultation is relevant to all firms captured by the provisions of the Capital Requirements Directive. Responses to the consultation are requested by October 25, 2019.
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UK Conduct Regulator Consults on Firms' Treatment of Vulnerable Consumers
07/23/2019
The U.K. Financial Conduct Authority has launched a consultation on its proposed guidance on how financial services firms should treat "vulnerable" consumers. The consultation will be divided into two stages: the first stage focuses on: (i) whether the draft guidance covers the right issues and provides sufficient clarity to firms on what they should do to improve outcomes for vulnerable consumers; (ii) the potential impact of the guidance on firms' costs and the potential benefit to consumers of the implementation of the guidance; and (iii) whether the guidance is sufficient to ensure firms take appropriate action to treat vulnerable consumers fairly or whether additional policy interventions are required. The second stage will seek input on a revised draft of the guidance, which will take account of feedback received during the first stage, together with a cost-benefit analysis. Responses to the first stage of the consultation should be provided by October 4, 2019.
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UK Payment Systems Regulator Revises Timeline for Market Review into the Supply of Card-Acquiring Services
07/22/2019
The U.K. Payment Systems Regulator has revised the timeline for its work on the market review into the supply of card-acquiring services. The PSR will publish its interim report for consultation in Q1 2020, instead of by the end of 2019 as initially set out in the Terms of Reference. The postponement has come about as the PSR has identified a number of additional issues that need to be addressed in the review.
The market review is a response to concerns that the supply of card-acquiring services from specialist providers by merchants (to enable card payments to be accepted and processed on their behalf) may not be working well for some merchants and, ultimately, consumers. The market review is intended to examine the lack of transparency around merchants' fees for accepting card payments and barriers to competition in the card-acquirer services market.
View the PSR's announcement. -
HM Treasury Seeks Input on the Future of Regulatory Coordination in Financial Services
07/19/2019
Launching the first phase of the Future Regulatory Framework Review, HM Treasury has issued a call for evidence on regulatory coordination in the financial services sector. The Financial Services Future Regulatory Framework Review was announced in March 2019 by the Chancellor in his Spring Statement. The Review will assess whether the U.K. financial services regulatory framework is fit for purpose, including being able to support the sector to grow in the future. Four key challenges for the sector are identified: operating outside of the EU, new relationships following Brexit, technological change and other global challenges, such as climate change. The Review will entail a comprehensive evaluation of the regulatory framework in a phased process. The first phase covers coordination by the U.K. regulators. Later phases will cover other areas, to be announced once the arrangements for the U.K.'s exit from the EU are clearer.
The call for evidence focuses on how the government and regulators work together to ensure the best outcomes for the financial services sector, consumers of financial services and the U.K. Feedback is requested on what stakeholders consider works well and the areas for potential improvement. Where possible, responses should provide examples. Responses to the call for evidence should be submitted by October 18, 2019.
View the call for evidence.TOPIC : Financial Services -
Revised EU Guidelines on Stress Testing of Money Market Funds Published
07/19/2019
Following its consultation in late 2018, the European Securities and Markets Authority has published final reports and updated guidelines on stress testing money market funds and the requirements imposed upon MMFs to report information to national regulators under the EU Money Market Funds Regulation.
The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds, and are often regarded as a short-term cash management function alternative to bank deposits. The MMF Regulation requires MMFs and MMF managers to measure the impact of the common reference stress test scenarios, as specified by ESMA in guidelines, and to report the outcomes to their national regulators. The first MMF reports are due by the end of Q1 2020.
Read more.TOPIC : Funds -
Financial Stability Board Delays Implementation Deadlines for Minimum Haircut Standards for Uncleared SFTs
07/19/2019
The Financial Stability Board has extended the implementation timelines for its recommendations on securities financing transactions, in particular those on minimum haircut standards for uncleared SFTs. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The FSB published, in 2015, its regulatory framework and recommendations for haircuts on uncleared SFTs, which included timelines for the implementation of the recommendations by FSB member jurisdictions. The FSB notes that while progress is being made in implementing the recommendations, many jurisdictions have not yet done so. The FSB acknowledges that most of the delay is due to the new date for implementing the Basel III framework, including the minimum haircut standards on bank-to-non-bank SFTs, which was postponed to January 2022.
Read more.TOPIC : Shadow Banking -
International Body Issues Statement on Liquidity Risk Management Recommendations for Investment Funds
07/18/2019
The International Organization of Securities Commissions has issued a statement on its Liquidity Risk Management Recommendations for investment funds. The statement is in response to the U.K.'s Financial Policy Committee's Financial Stability report which stated that the IOSCO Liquidity Risk Management Recommendations do not prescribe how it should be ensured that funds' assets and investment strategies are consistent with their redemption terms. IOSCO's statement sets out how the Recommendations provide a comprehensive framework for regulators to address liquidity risks in funds. IOSCO notes that the Recommendations allow some flexibility as to how they are implemented by jurisdiction due to the diversity of the funds sector. IOSCO does not believe that a global prescriptive standard is appropriate and will undertake an exercise in 2020 to assess how the recommendations have been implemented across the globe.
Read more.TOPIC : Funds -
Final EU Guidelines on EU Credit Rating Agency Disclosure Obligations and Advice on Sustainable Finance in the Credit Rating Market
07/18/2019
The European Securities and Markets Authority has published two documents relating to sustainable finance in the credit rating sector. The first document is technical advice for the European Commission, responding to the Commission's mandate in its 2018 Action Plan for Sustainable Finance for ESMA to assess the current practice within the credit rating market concerning sustainability considerations. ESMA has assessed the extent to which environmental, social or governance factors are considered within credit rating agencies' credit assessments. ESMA concludes that CRAs are including ESG factors in their ratings, but it is difficult to assess the extent to which each factor is being considered in the various asset classes. ESMA warns that credit ratings should not be understood as providing an opinion on sustainability characteristics of an issuer or entity and recommends that the CRA Regulation should not be revised to require the consideration of sustainability characteristics in CRAs' credit assessments. However, ESMA advises that it may be appropriate to update the disclosure requirements in the CRA Regulation to enhance the transparency on how CRAs are considering the ESG factors.
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European Banking Authority Reports on Regulatory Perimeter, Regulatory Status and Authorization of Fintech Activities
07/18/2019
Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Banking Authority has published a report on the regulatory perimeter, regulatory status and authorization of FinTech activities under its remit, in particular the banking, payment services and electronic money services sectors. The European Securities and Markets Authority published its related report on July 12, 2019.
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EU Call for Evidence on the Impact of the Inducements and Charges Disclosure Requirements Under MiFID II
07/17/2019
The European Securities and Markets Authority has launched a call for evidence on the impact of the inducements and costs and charges disclosure requirements under the revised Markets in Financial Instruments Directive. MiFID II restricts the payment or receipt of all fees, commissions and non-monetary benefits (which are defined as so-called "inducements") unless these enhance the quality of service provided to a client and do not impair an EU investment firm's duty to act in the best interests of its client. EU investment firms are obliged to disclose to each client all fees, commissions and non-monetary benefits received by them in connection with any investment service provided by them to that client.
Read more.TOPIC : MiFID II -
EU Report on Sanctions and Measures Imposed under MiFID II in 2018
07/17/2019
The European Securities and Markets Authority has published a report on enforcement actions taken across the EU for breach of the revised Markets in Financial Instruments package. The report covers administrative sanctions and measures as well as criminal sanctions in aggregated form for 2018. ESMA notes that the data is limited because MiFID II has only applied since January 3, 2018, and some Member States were late in applying the requirements. Therefore, ESMA does not believe that it is possible to detect any trends using the limited data. ESMA will produce the same report annually, based on the submission of information from national regulators.
View the report. -
UK's Expanded Senior Managers and Certification Regimes Enter into Force
07/17/2019
The Bank of England and Financial Services Act 2016 (Commencement No. 6 and Transitional Provisions) Regulations 2019 have been made. The Regulations bring into force, from December 9, 2019, the expanded Senior Managers and Certification Regimes for all Financial Conduct Authority solo-regulated firms authorized under the Financial Services and Markets Act 2000, which include asset managers and investment firms carrying out certain activities. These firms need to complete their initial certification assessments for existing certified staff and new hires by December 9, 2020, although they must have identified certification staff by December 9, 2019. A transitional provision states that the regime will only apply to Claims Management Companies that are authorized by the FCA by December 9, 2019 and to other CMCs on the date that they obtain their authorization.
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EURIBOR Benchmark Statement Published
07/17/2019
The European Money Markets Institute has published a Benchmark Statement on the administration of Euro Interbank Offered Rate (Euribor). Earlier in July this year, the EMMI obtained authorization as the administrator of Euribor, which is a critical benchmark under the EU Benchmark Regulation. EMMI has made reforms to Euribor in order to ensure it meets the requirements of the Regulation, including adopting a new hybrid methodology, the phased implementation of which will be completed by the end of 2019.
View EMMI's announcement and the Benchmark Statement. -
Certain UK Brexit Regulations Updated and Amended
07/16/2019
The draft U.K. Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 3) Regulations 2019 have been published.
Read more.TOPIC : Brexit for Financial Services -
UK Proposes Rules to Implement France's Large Exposure Limit for Highly Indebted Corporates
07/16/2019
The U.K. Prudential Regulation Authority has published a consultation on proposals to reciprocate the French measure on large exposures, following a recommendation by the European Systemic Risk Board. In July 2018, France's Haut Conseil de stabilité financière (HCSF) imposed a measure under the Capital Requirements Regulation that lowers the large exposure limit, from 25% to 5% of a firm's eligible capital, for French G-SIIs and French O-SIIs for their exposures to French NFCs that are 'highly indebted'.
The PRA is proposing to apply the same 5% large exposure limit for exposures to certain French NFCs through amendments to the Large Exposures part of the PRA Rulebook. The proposals would apply to Global Systemically Important Institutions and Other Systemically Important Institutions from January 1, 2020.
Responses to the consultation should be submitted to the PRA by September 6, 2019.
View the consultation paper. -
EU Consultation on Performance Fees for Retail Funds
07/16/2019
The European Securities and Markets Authority has launched a consultation on proposed guidelines on performance fees in Undertakings for Collective Investment in Transferable Securities. The consultation closes on October 31, 2019 and ESMA will publish its final guidelines once it has considered all of the feedback.
Read more.TOPIC : Funds -
Recommended Legal Action Plan for Transition from EONIA to €STR
07/16/2019
Following its consultation earlier this year, the working group charged with implementing the European market's move away from EONIA, has published a recommended legal action plan for new and legacy contracts referencing EONIA. The implementation of the recommended legal measures is intended to address issues arising from the transition from EONIA to the euro short-term rate (known as €STR). €STR is a risk-free rate and, with a fixed spread, will replace EONIA as a reference rate in a variety of euro-denominated financial contracts, including derivatives, collateral remuneration for derivatives and cash products such as commercial paper, repurchase agreements and default interest payable under syndicated loans.
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European Commission Highlights Areas for Further Analysis in Basel III Reforms
07/15/2019
The Director General for Financial Stability, Financial Services and Capital Markets Union of the European Commission has written to the European Banking Authority highlighting areas where further analysis is required on the impact and implementation of the Basel III reforms in the EU. The EBA is in the process of finalizing its advice to the European Commission on the impact within the EU of the implementation of the Basel III reforms to credit risk, operational risk, output floor and securities financing transactions.
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EU Consultation on Guidelines on Compliance Function Requirements under MiFID II
07/15/2019
The European Securities and Markets Authority has published a consultation paper on proposed guidelines on the compliance function requirements that are set out in the revised Markets in Financial Instruments package. The consultation closes on October 15, 2019 and ESMA intends to publish its final guidelines in Q2 2020. The final guidelines will replace ESMA's guidelines that were issued in 2012 under MiFID I because some of the 2012 guidelines are now set out in MiFID II or its secondary legislation and so reflect the enhanced role of the compliance function under MiFID II.
Read more.TOPIC : MiFID II -
European Banking Authority Provides Guidance to Aide Convergent Implementation of the Liquidity Coverage Ratio in the EU
07/12/2019
The European Banking Authority has published its first report on its monitoring of the Liquidity Coverage Ratio implementation in the EU. The LCR has applied as a 100% minimum binding standard across the EU since January 1, 2018, ahead of the Basel implementation date of January 1, 2019. The LCR requirements are set out in the Capital Requirements Regulation and the Capital Requirements Directive, supplemented by the LCR Delegated Regulation (Commission Delegated Regulation (EU) 2015/61). The LCR Delegated Regulation allows national regulators some discretion when implementing the LCR requirements. The EBA's report sets out its observations on the implementation of the LCR, focusing on the level of divergence of implementation of the LCR across the EU. To enhance a more convergent implementation of the LCR, the EBA also provides some guidance for national regulators and banks on operational deposits, retail deposits excluded from outflows and notifications on additional liquidity outflows.
The EBA intends to continue monitoring implementation of the LCR, including the extent to which national regulators and banks apply its guidance incorporated in the report and will assess whether any more formal guidance is needed.
View the EBA's report. -
European Securities and Markets Authority Publishes Report on the Licensing of FinTech Business Models
07/12/2019
Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Securities and Markets Authority has published a report on the licensing of FinTech business models. The report sets out the key conclusions identified from the information collected from national regulators through two surveys that ESMA conducted in the last two years, and some of the actions that have been taken to address the emerging challenges. The report does not make any recommendations, but instead refers to previous advice and reports that make recommendations for an EU-level response to the issues.
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EU Legislative Package for Cross-Border Distribution of Investment Funds Published
07/12/2019
A Regulation and a Directive aimed at facilitating the cross-border distribution of investment funds have been published in the Official Journal of the European Union. The Directive amends the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive by introducing new provisions and amending certain existing provisions of those pieces of legislation. The new Regulation aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. Member states are required to transpose the Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation will apply directly across the EU from 1 August 2019, with the remaining provisions applying from August 2, 2021.
Read more.TOPIC : Funds -
European Securities and Markets Authority Launches Consultation on Disclosure Guidelines Under EU Prospectus Regulation
07/12/2019
The European Securities and Markets Authority has launched a consultation on its proposed guidelines on compliance with disclosure requirements under the new EU Prospectus Regulation. The Consultation Paper may be of particular interest to investors, issuers, offerors or persons asking for admission to trading on a regulated market and any market participant who is affected by the new Prospectus Regulation. Responses to the consultation should be submitted by October 4, 2019. ESMA intends to publish a final summary of all consultation responses and a final version of the guidelines in Q2 2020.
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EU Evaluates MiFID II's Success in Improving Trade Data Quality, Availability and Costs
07/12/2019
The European Securities and Markets Authority has launched a consultation on the development of pre- and post-trade transparency data and the functioning of the consolidated tape for equity instruments under the revised Markets in Financial Instruments package. The consultation paper sets out ESMA's initial views, taking into account feedback received during earlier roundtables and questionnaires. Responses to the consultation should be provided by September 6, 2019. ESMA will consider the feedback it receives in preparing its final report, which it intends to submit to the European Commission in December 2019. The final report will assist the Commission in preparing its review reports to the European Parliament and Council of the European Union, which are expected to be published in 2020.
Read more.TOPIC : MiFID II -
EMIR Refit: EU Clarification on Derivatives Trading and Clearing Obligations
07/12/2019
The European Securities and Markets Authority has issued a Statement clarifying the application and interaction of the EU derivatives clearing and trading obligations following the entry into force of the revised European Market Infrastructure Regulation, known as EMIR Refit.
EMIR Refit has, subject to limited exceptions, applied directly across the EU since June 17, 2019. EMIR Refit amended the definition of a Financial Counterparty, bringing central securities depositories authorized under the EU Central Securities Depositories Regulation within scope and categorizing all Alternative Investment Funds as FCs (or, for non-EU funds, as third-country entities equivalent to FCs). It also introduced a clearing threshold for FCs, meaning that small FCs are exempt from the clearing obligation. In addition, Non-Financial Counterparties that meet the clearing threshold no longer must clear all derivatives that they enter that are subject to the clearing obligation, but only those derivatives in the asset class for which they have exceeded the threshold.
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UK Payment Systems Regulator Launches Consultation on Supply of Card-Acquiring Services
07/11/2019
The U.K. Payment Systems Regulator has launched a consultation on the PSR's proposed approach to assessing the profitability of card-acquiring service providers for U.K. merchants and consumers. The Consultation Paper may be of particular interest to providers of card-acquiring services, merchant trade bodies and merchants, as well as card scheme operators and issuers. Responses to the consultation should be submitted by August 1, 2019. Following the consultation, the PSR intends to publish a report setting out its interim conclusions on the supply of card-acquiring services.
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Firms Criticized for Non-Compliance with the EU Contracts For Difference Product Intervention Measures
07/11/2019
The European Securities and Markets Authority has published a Statement cautioning contracts for difference providers to comply with its temporary product intervention measure restricting the marketing, distribution or sale of CfDs to retail clients. The measure is due to expire at the end of the day on July 31, 2019, unless ESMA again renews it.
In its Statement, ESMA states that it has noticed and is concerned that certain firms are not complying with the temporary CfD restriction or any similar permanent national measure. ESMA reminds firms that the temporary CfD restriction does not apply to eligible counterparties or professional clients, including to retail clients who opt to being treated as professional clients, as defined in the revised Markets in Financial Instruments Directive. However, firms must comply with the MiFID II requirements when dealing with a retail client that requests to opt up to being treated as a professional client, including by alerting clients to the loss of protection afforded by the temporary CfD restriction. ESMA also reminds firms that they should not incentivize a retail client to become a professional client by using language that promotes the status or benefits of professional clients.
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UK Conduct Regulator Publishes Final Prospectus Regulation Rules
07/11/2019
The Prospectus Regulation Rules Instrument 2019 has been published, setting out the new FCA Prospectus Regulation Rules sourcebook. The Instrument also makes amendments to certain other sections of the FCA Handbook as well as to the FCA's Enforcement Guide and Perimeter Guidance manual. The new rules aim to align the U.K. rules with the EU Prospectus Regulation and will take effect from July 21, 2019.
Any prospectus approved by the FCA before July 21, 2019 will be governed by national law under the old Prospectus Directive regime until either: (i) the end of the prospectus' validity; or (ii) July 21, 2020. Prospectuses submitted for approval on or after July 21, 2019 must be in line with the EU Prospectus Regulation and the FCA's new Prospectus Regulation Rules sourcebook.
View the Prospectus Regulation Rules Instrument 2019.
View details of the FCA Policy Statement on the Prospectus Regulation Rules sourcebook. -
UK Conduct Regulator Publishes New Measure of Market Cleanliness
07/09/2019
The U.K.'s Financial Conduct Authority has published details of its Abnormal Trading Volume ratio, a new metric by which the FCA intends to measure "market cleanliness". Market cleanliness refers to the level of market abuse activities, such as insider dealing or market manipulation, affecting transactions in the market. The FCA currently monitors market abuse using a variety of tools, including the mandatory submission of suspicious transaction and order reports by those involved in executing certain types of financial market transactions.
Read more. -
UK Conduct Regulator Publishes Annual Report
07/09/2019
The U.K. Financial Conduct Authority has published its Annual Report and Accounts for the year ended March 31, 2019. The report considers topics including: (i) key highlights from 2018/2019; (ii) the U.K.'s withdrawal from the EU and the FCA's proposed approach to regulation in the wake of Brexit; (iii) the FCA's cross-sector and sector priorities; and (iv) perimeter issues. The report follows the publication of the FCA's first Annual Perimeter Report in June 2019, which provides a review of the FCA's regulatory perimeter.
Read more. -
European Banking Authority Publishes Progress Report on Repair of Internal Ratings Based Models
07/08/2019
The European Banking Authority has published a progress report on its 2016 roadmap designed to address concerns about the variability of own funds requirements arising from the internal models that firms use to calculate their minimum credit risk capital requirements under the Capital Requirements Regulation.
Read more.
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US Regulators Clarify Position on Broker-Dealer Custody of Digital Asset Securities
07/08/2019
The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued a joint statement clarifying how their traditional regulatory approaches would apply to how broker-dealers handle their customers' digital asset securities and transactions. Specifically, the statement focuses on how certain SEC and FINRA rules apply to broker-dealers that wish to take custody of digital asset securities or perform other noncustodial activities involving such assets.
The SEC and FINRA staffs (collectively, the "Staffs") said that a number of firms have applied to FINRA to engage in broker-activities involving digital asset securities, and a number of registered broker-dealers have also submitted applications to expand their businesses to include digital asset securities services. Many of these applications cover proposed business models that would involve the applicant taking custody of digital asset securities, while others would involve certain noncustodial activities.
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European Banking Authority Publishes Report on FinTech's Impact on Payment and Electronic Money Institutions' Business Models
07/08/2019
The European Banking Authority has published a report on the impact of financial technology on the business models of payment and electronic money institutions. The report aims to provide an overview of the current FinTech landscape and raise awareness of the main trends affecting business models. It follows major developments in the industry including the introduction of the revised Payment Services Directive (known as PSD2), the emergence of new market entrants offering innovative products and the growth of instant and mobile payment methods.
Read more. -
HM Treasury Publishes Report on Activities of Anti-Money Laundering and Counter-Terrorist Financing Supervisory Bodies
07/08/2019
HM Treasury has published a report on the activities undertaken by the U.K.'s anti-money laundering and counter-terrorist financing supervisory bodies in 2017-2018. The report follows the publication of the Financial Action Task Force's Mutual Evaluation Report, published in December 2018. The Mutual Evaluation Report found that the U.K.'s AML/CTF regime was the strongest of all the countries assessed by the FATF. However, the report still identified shortcomings in regulated firms' compliance with the Money Laundering Regulations 2017 and the performance of supervisory bodies responsible for overseeing AML/CTF activity.
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EU Seeks Feedback on Taxonomy for Sustainable Economic Activities
07/04/2019
The European Commission's Technical Expert Group on sustainable finance has launched a call for feedback on the taxonomy for sustainable economic activities. The TEG's Report on Taxonomy was published on June 18, 2019, alongside the Commission's Guidelines on reporting climate-related information, an interim TEG report on EU climate benchmarks and a TEG report on an EU green bond standard. The Report on Taxonomy links to the EU's proposed Regulation on the establishment of a framework to facilitate sustainable investment.
Feedback on the TEG's Report on Taxonomy should be submitted by September 13, 2019.
View the Report on Taxonomy.
View further details on the call for feedback.
View the Commission's Guidelines on reporting climate-related information. -
UK Conduct Regulator Presses Non-Bank Payment Service Providers for Compliance with Safeguarding of Customer Funds Requirements
07/04/2019
The U.K. Financial Conduct Authority has published the outcome of its multi-firm review into the safeguarding arrangements of customer funds by non-bank payment service providers. The FCA assessed how 11 non-bank PSPs complied with the requirements for safekeeping of customer funds under the U.K.'s Payment Services Regulations 2017 and Electronic Money Regulations 2011. These Regulations require authorized payment institutions and e-money institutions to take measures to safeguard their customers' funds, including segregating relevant funds and performing reconciliations, to ensure that in the event of the insolvency of the firm, the client's funds can be returned in a timely and orderly way. The FCA has provided guidance on complying with the requirements in the relevant Approach Document. Customer funds held by these types of institutions are not protected by the Financial Services Compensation Scheme.
Read more.TOPIC : Payment Services -
Eurozone Resolution Board Publishes Approach to Public Interest Assessment
07/03/2019
The Single Resolution Board has published a paper setting out its approach to the Public Interest Assessment under the resolution framework for Eurozone banks. 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). Under the resolution framework, an assessment is undertaken as to whether it would be in the public interest for a failing bank or a bank that is likely to fail to be resolved. The assessment is based on the objectives of maintaining financial stability, protecting covered depositors and safeguarding public funds. Where resolution is not appropriate, a bank would instead be subject to national insolvency procedures.
The SRB's paper outlines the factors that it would take into account when carrying out the public interest assessment and how it applies the legal criteria. The paper also includes examples of how the SRB has conducted the assessment in practice by reference to recent resolutions involving banks such as Banco Popular Español S.A., Banca Popolare di Vicenza S.p.A, Veneto Banca S.p.A. and ABLV Group.
View the SRB paper.TOPIC : Recovery & Resolution -
UK Conduct Regulator Proposes Banning the Sale to Retail Clients of Derivatives Referencing Crypto-Assets
07/03/2019
The U.K. Financial Conduct Authority has launched a consultation proposing to restrict the sale, marketing and distribution of derivatives and exchange-traded notes that reference certain types of unregulated, transferable crypto-asset to all retail clients by firms in, or from, the U.K. The FCA consultation follows the final report of the U.K. Crypto-Assets Task Force in October 2018. The FCA's view is that although the U.K.'s market in crypto-assets is relatively small, there is still a consumer protection issue that needs to be addressed.
Read more. -
European Central Bank Requests Benchmark Transition Plans from Large Eurozone Banks
07/03/2019
The Chair of the Supervisory Board of the European Central Bank, Andrea Enria, has written a "Dear CEO" letter to the larger Eurozone banks on their preparation for the transition from interest rate benchmarks to risk-free-rates. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The ECB is seeking assurance from these banks that they have plans in place to address the transition from interest rate benchmarks to risk-free-rates, focusing on the transition from the Euro overnight index average, EONIA, to the Euro short-term rate - €STR - as a euro risk-free rate. EONIA will be calculated as €STR plus a fixed spread, from October 2, 2019, which is when €STR will be launched. EONIA is due to cease entirely from the beginning of 2022.
The ECB is requesting the significant Eurozone banks to provide: (i) a summary of the key risks to the reform of benchmarks; (ii) a detailed action plan on how to address those risks and pricing issues as well as implement process changes; and (iii) contact details for those at the firm overseeing the transition.
View the letter.
View details of the new EONIA methodology. -
UK Government Publishes Green Finance Strategy
07/02/2019
The U.K. Government has published a Green Finance Strategy for transforming finance for a greener future. The Green Finance Strategy has two objectives: to align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by Government action and to strengthen the competitiveness of the U.K. financial sector. The Strategy document states that these objectives will be met by:
- Greening finance: ensuring current and future financial risks and opportunities from climate and environmental factors are integrated into mainstream financial decision-making, and that markets for green financial products are robust in nature. Some of the action committed to by the Government includes: (i) announcing an expectation for all listed companies and large asset owners to disclose by 2022 (as per the recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures); (ii) establishing a joint taskforce with U.K. regulators, chaired by Government, to examine the most effective way to approach disclosure and exploring the appropriateness of mandatory reporting; (iii) clarifying responsibilities for the Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee to have regard to the Paris Agreement when carrying out their duties. The Government states that it will publish an interim report by the end of 2020, which will include an assessment of these steps.
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UK Regulator Justifies Ignoring EU Opinion on CfD Rules
07/02/2019
The U.K. Financial Conduct Authority has published a statement setting out its reasons for failing to act in accordance with the European Securities and Markets Authority's Opinion on the FCA's measures restricting the sale of Contracts for Difference and CfD-like options to retail customers. Where a national regulator takes product intervention measures under the Markets in Financial Instruments Regulation, ESMA must adopt an opinion on whether those measures are justified and proportionate. If ESMA's opinion states that the measures are not justified and proportionate and a national regulator declines to take action on the basis of ESMA's opinion, the national regulator must immediately publish a statement on its website explaining why it has adopted that course of action.
Read more. -
UK Conduct Regulator Publishes Arrangements for Sharing Personal Data with Non-EEA Authorities
07/02/2019
The U.K. Financial Conduct Authority has published its signed Administrative Arrangement agreement dictating the circumstances in which it, as an EEA authority, may share the personal data that it holds with non-EEA authorities. The agreement is a standard form of agreement which will be signed by relevant EEA and non-EEA authorities and is designed to safeguard personal data transfers between authorities in light of new requirements imposed by the General Data Protection Regulation. The agreement includes, among other things, provisions restricting the circumstances in which relevant authorities may transfer data (including that it may only be transferred for the purpose of assisting the authority to fulfil its regulatory mandate and that it will only transfer data that are adequate, relevant and limited to what is necessary for the purposes for which they are transferred) and the processes the authority will establish to review their own policies and procedures on transfers of personal data.
View the FCA's signed Administrative Agreement.TOPIC : Consumer Protection -
Financial Stability Board Reports on Implementation of the TLAC Standard
07/02/2019
The Financial Stability Board has published a report on the Review of the Technical Implementation of the Total Loss-Absorbing Capacity (TLAC) Standard. The FSB conducted a review of implementation of the TLAC Standard by jurisdictions that covered the Global Systemically Important Banks to which the TLAC Standard applied as at January 1, 2019 and the home and material host jurisdictions of those G-SIBs. The focus of the review was assessing whether implementation aligns with the timelines and objectives set out in the TLAC Standard.
Read more. -
UK Competition Authority To Review Retail Banking Market Investigation Rules
07/01/2019
The U.K. Competition and Markets Authority has announced its decision to review Part 6 of the Retail Banking Market Investigation Order 2017. Part 6 requires providers of personal current account services to establish a system of alerts to their customers notifying them of specified information, including that the customer's account has exceeded a pre-agreed credit limit.
Read more.TOPIC : Competition -
EU to Lift Temporary Ban on the Sale of Binary Options to Retail Clients in Wake of National Measures
07/01/2019
The European Securities and Markets Authority has ended its temporary prohibition on the marketing, distribution or sale of binary options to retail clients. 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.
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UK Regulator Publishes Rules Restricting Sale of Contracts for Difference and Related Options
07/01/2019
The U.K. Financial Conduct Authority has published the Conduct of Business (Contracts for Difference) Instrument 2019, implementing product intervention measures designed to restrict the sale, marketing and distribution of contracts for difference and contract for difference-like options to retail consumers. The rules will affect: (i) retail clients who invest, or may invest, in CFDs and CFD-like options; (ii) investment firms caught by the provisions of the Markets in Financial Instruments Directive (including those caught by the Capital Requirements Directive, where appropriate) that are involved in marketing, distributing or selling CFDs and CFD-like options in, or from, the U.K. to retail clients; and (iii) U.K. branches of third-country investment firms that are involved in marketing, distributing or selling CFDs or CFD-like options to retail clients.
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Bank for International Settlements to Establish Innovation Hub for Central Bank Financial Technology
06/30/2019
The Bank for International Settlements has announced it will establish an innovation Hub to encourage international collaboration on innovative financial technology for central banks. The Hub's purpose will be to: (i) identify trends in technology affecting central banks; (ii) develop "public goods" in the technology space aimed at improving the functioning of the global financial system; and (iii) act as a focal point for central bank innovation.
Read more.TOPIC : FinTech -
UK Financial Conduct Authority Issues Response to EU Opinion on Strong Customer Authentication
06/28/2019
The U.K. Financial Conduct Authority has issued a statement confirming its intended approach to enforcing firms' compliance with EU "strong customer authentication" rules that will apply across the EU from September 14, 2019.
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Global Financial Innovation Network Publishes Progress Report
06/28/2019
The Global Financial Innovation Network, the group of financial regulators established in 2018 to support international financial innovation, has published a report on the progress made during its first year. The group is made up of 35 global regulators from 21 jurisdictions that work together to share knowledge and market experiences and enable innovative firms to interact with a network of regulators.
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Commodity Futures Trading Commission Launches LabCFTC Accelerator
06/27/2019
The Commodity Futures Trading Commission has announced two new programs as part of its LabCFTC initiative. The first is LabCFTC Accelerator, which will provide the agency with a number of tools to drive its understanding and potential adoption of emerging technologies. The second is the CFTC's second annual FinTech Forward conference, which will take place on October 24, 2019 and bring together a variety of stakeholders in the FinTech ecosystem to explore the latest developments in the space.
As part of the LabCFTC Accelerator program, the agency seeks to better understand emerging technologies through the use of tools such as internal pilots and tests, market research and innovation competitions. The topic for the upcoming innovation competition will be announced at the FinTech Forward 2019 conference.
FinTech Forward 2019 will bring together innovators, regulators, market participants, thought-leaders and the general public to cover a number of areas in the FinTech space, including digital assets, commodities and platforms, machine learning and AI, RegTech and algorithmic trading. The agency also said it expects there to be a greater focus on international FinTech, as the event will coincide with the CFTC's Office of International Affairs' International Regulators Symposium. Registration for the FinTech Forward 2019 conference will be open to the public early this fall.
View the CFTC's announcement.
View details of the CFTC LabCFTC initiative.TOPIC : FinTech -
UK Payment Systems Regulator Publishes Progress Report on Access to and Governance of Payment Systems
06/27/2019
The U.K. Payment Systems Regulator has published its fourth report on developments in access to payment systems and the governance of those systems.
Read more.TOPIC : Payment Services -
UK Regulator Secures Insider Dealing Conviction
06/27/2019
The U.K. Financial Conduct Authority has secured convictions against two individuals accused of insider dealing. Fabiana Abdel-Malek, a former senior compliance officer at the London office of a major European headquartered bank, and Walid Anis Choucair, her family friend, were both sentenced to three years' imprisonment for insider dealing.
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Basel Committee on Banking Supervision Publishes Revisions to Leverage Ratio Requirements
06/26/2019
The Basel Committee on Banking Supervision has published revisions to its standards for leverage ratio capital requirements. The revisions relate to: (i) calculations of leverage ratios for "client-cleared" derivatives; and (ii) disclosure requirements for leverage ratios.
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UK Conduct Regulator Publishes Consultation on Regulation of Proxy Advisors under Revised Shareholder Rights Directive
06/26/2019
The U.K. Financial Conduct Authority has published a consultation on proposed changes to its Decision Making and Penalties Manual and Enforcement Guide to incorporate its new responsibility for regulation of proxy advisors. The proposals will be of interest to those falling within the Proxy Advisors (Shareholders' Rights) Regulations 2019 and anyone who uses the services of proxy advisors. Responses to the consultation should be submitted by July 26, 2019.
Read more. -
UK Secondary Legislation Published to Implement the Prospectus Regulation
06/25/2019
The Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 have been formally published and will come into force on July 21, 2019.
Read more.TOPIC : Securities -
Eurozone Single Resolution Board Publishes Update to MREL Policy
06/25/2019
The Eurozone Single Resolution Board has published an addendum to its 2018 policy statement on minimum requirements for own funds and eligible liabilities. The addendum takes into account changes made as part of the EU’s “Banking Package”, published in the Official Journal of the European Union on June 7, 2019, in particular the EU’s implementation of the Total Loss Absorbing Capacity (TLAC) standard by changes made under the revised Capital Requirements Regulation (CRR2).
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UK Prudential Regulator Launches Consultation on Revisions to Pillar 2 Liquidity Reporting Frequency
06/25/2019
The U.K. Prudential Regulatory Authority has launched a consultation on amending the frequency with which firms must submit reports using the PRA’s liquidity reporting template. The obligation to make a report using the "PRA 110" template comes into force on July 1, 2019 and obliges firms with total assets equal to or greater than €30bn to report details of their liquidity on a monthly basis, or, in the event of specific liquidity or market stress, on a weekly basis.
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Financial Stability Board Publishes Progress Report on G20 Financial Regulatory Reforms
06/25/2019
The Financial Stability Board has published a progress report summarizing FSB member jurisdictions’ progress in implementation of the G20’s recommended financial reforms. The G20’s program of financial reforms was launched in 2009 to mend the weaknesses that led to the global financial crisis. The FSB is the body responsible for delivering the G20’s proposed changes and its latest report sets out progress made since the FSB’s last report in November 2018, as well as areas where further work is required.
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European Banking Authority Publishes Draft Methodology for 2020 EU-Wide Stress Tests
06/25/2019
The European Banking Authority has published its draft methodology, templates and template guidance for the 2020 EU-wide stress tests that will be carried out to assess EU banks' resilience to an adverse economic shock. The final methodology will be published by the end of 2019. The stress test will be launched in January 2020 and the results will be published by the end of July 2020.
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European Securities and Markets Authority Issues Survey on Short-Term Pressure Imposed by the Financial Sector
06/24/2019
The European Securities and Markets Authority is seeking responses to its survey examining short-term pressure on corporations from the financial sector. The survey forms part of an investigation prompted by the European Commission into how short-termism in market practices may be inhibiting the EU’s progress towards a sustainable economy. ESMA’s survey is aimed at investors, issuers, management companies of undertakings for the collective investment in transferable securities, self-managed UCITS investment companies, alternative investment fund managers and the trade associations of financial market participants. Responses to the questionnaire must be submitted by July 29, 2019.
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US and UK Regulators Issue Joint Statement on Credit Derivatives Markets
06/24/2019
The U.S. Commodity Futures Trading Commission, U.S. Securities and Exchange Commission and the U.K. Financial Conduct Authority have issued a joint statement regarding the use of "opportunistic strategies" in the credit derivatives markets, including but not limited to so-called "manufactured credit events." The agencies expressed concern that the use of such strategies could adversely affect the integrity and confidence of these markets, as well as markets more generally, due to issues related to securities, derivatives conduct and antifraud laws, along with public policy concerns.
Read more.TOPIC : Derivatives -
Basel Committee on Banking Supervision Publishes Overview of Pillar 2 Practices and Approaches
06/21/2019
The Basel Committee on Banking Supervision has published an overview report on the Pillar 2 supervisory review process and on the different practices that regulators and legislators in Basel member jurisdictions have adopted in relation to it.
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Final EU Secondary Legislation Under the Prospectus Regulation Published
06/21/2019
Two Commission Delegated Regulations supplementing the EU Prospectus Regulation have been published in the Official Journal of the European Union. The first Regulation is 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. It will supplement the requirements in the Prospectus Regulation on: (i) the review, approval and filing of the universal registration document and any amendments; (ii) the format of the prospectus, the base prospectus and the final terms; (iii) the specific information to be included in a prospectus, the minimum information to be included in the universal registration document and the reduced information to be included under the simplified disclosure regime for secondary issuances; (iv) the reduced content, standardized format and the sequence of the EU Growth prospectus; (v) the reduced content and standardized format of the specific summary; and (vi) the review and approval of prospectuses by national regulators. The Regulation also repeals, from July 21, 2019, the existing Implementing Regulation under the existing Prospectus Directive on the form and content of prospectuses.
Read more.TOPIC : Securities -
International Organization for Securities Commissions Publishes Report on Liquidity in Corporate Bond Markets Under Stressed Conditions
06/21/2019
The International Organization for Securities Commissions has published a report studying the effect of stressed market conditions on liquidity in corporate bond markets. The report arose out of concerns about liquidity in the corporate bond market in the years since the global financial crisis and, in particular, the possibility that a significant sell-off could trigger price volatility and temporarily depress prices. The report is based upon a review of existing studies of corporate bond markets, an examination of historic periods of market stress and discussions with industry stakeholders.
Read more.TOPIC : Securities -
European Banking Authority Publishes Opinion on Strong Customer Authentication Under Payment Services Directive
06/21/2019
The European Banking Authority has published an Opinion on market approaches to payment authentication that will be deemed compliant with the new rules on strong customer authentication coming into force later this year.
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Financial Action Task Force Publishes Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers
06/21/2019
The Financial Action Task Force has published the outcomes of its third and last Plenary meeting under the U.S. Presidency in Orlando on June 19-21, 2019. The FATF considered key issues such as strategic initiatives, mutual evaluations and the upcoming focus areas under the Chinese Presidency.
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European Commission Publishes Commission Delegated Regulation Amending Registration Conditions for SME Growth Markets
06/21/2019
An amending Commission Delegated Regulation to the existing Commission Delegated Regulation (Regulation 2017/565) on requirements for participants in SME growth markets has been published in the Official Journal of the European Union. Regulation 2017/565 supplements related provisions under the Markets in Financial Instruments Directive, which establishes "SME growth markets" as a new type of trading venue for small and medium sized enterprises.
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European Commission Publishes Report on Implementation of Wire Transfer Regulation
06/20/2019
The European Commission has published a report detailing: (i) the extent to which Member States have implemented the sanctions and monitoring sections of the EU Wire Transfer Regulation; and (ii) the particular sanctioning activities that national regulators have adopted under the Regulation. The Commission was obliged to provide the report to the European Parliament and Council of the European Union under the Wire Transfer Regulation. Although Member States are not obliged to take specific steps in response to the report's findings, the Commission concludes the report by stating its intention to continue to support Member States in their implementation of the Wire Transfer Regulation and reserves the right to take further measures to ensure the Regulation is correctly implemented by all Member States.
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Bank of England Publishes Report on the Future of the UK Financial System and the Bank's Priorities for the Future
06/20/2019
Huw van Steenis, the Bank of England financier appointed by the BoE in 2018 to review the future of the U.K. financial system, has published his "Future of Finance" report, setting out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that. The report was based on consultations with entrepreneurs, financiers, tech firms, global investors, consumer groups, charities, policymakers and business leaders across the U.K. and overseas. In response, the BoE has published a document which sets out the actions it intends to take to deal with the challenges and opportunities identified in the report.
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UK FICC Markets Standards Board Announces Consultation on Draft Statement of Good Practice
06/20/2019
The U.K. FICC Markets Standards Board has published a Transparency Draft of its new Statement of Good Practice on Conflicts of Interest. The Statement aims to provide guidance for participants in the fixed income, currencies and commodities markets on ways to identify and manage risks arising from conflicts of interest in the FICC markets. The guidance is particularly targeted at firms operating in Europe and the conflicts that may arise from the sale and trading of publicly listed or over-the-counter securities or financial instruments.
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European Commission Publishes Commission Delegated Regulation Extending Exemption from EU Transparency Requirements to the People's Bank of China
06/20/2019
An amending Commission Delegated Regulation to the existing Commission Delegated Regulation (Regulation 2017/1799), which specifies that third-country central banks may be exempted from certain transparency requirements under the Markets in Financial Infrastructure Regulation, has been published in the Official Journal of the European Union. The amendment means that the People's Bank of China will be added to the list of counterparty institutions whose transactions will not be subject to trade transparency requirements under MiFIR to the extent that those transactions are in pursuit of monetary, foreign exchange or financial stability policy. The amending Delegated Regulation will come into force and apply directly across the EU from July 10, 2019.
View the amending Commission Delegated Regulation.
View Commission Delegated Regulation 2017/1799. -
Basel Committee on Banking Supervision Discusses Supervisory Initiatives and Approves Implementation Reports
06/20/2019
Central bankers and banking supervisors of the Basel Committee on Banking Supervision met this week to discuss a range of policy and supervisory initiatives.
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UK Financial Conduct Authority Publishes First Annual Perimeter Report
06/19/2019
The U.K. Financial Conduct Authority has published its first annual perimeter report, which (i) describes the boundaries of the FCA's regulatory oversight, (ii) considers challenges to the regulatory perimeter and (iii) sets out its aims for the future. The motivations behind the report include recent high profile controversies involving firms on the periphery of the FCA's regulatory perimeter (including London Capital & Finance which issued non-transferable bonds to consumers), innovations in technology that test the boundaries of the perimeter and the post-Brexit future of U.K. financial regulation.
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European Banking Authority Proposes Guidelines on Loan Origination and Monitoring
06/19/2019
The European Banking Authority has launched a consultation on draft Guidelines on loan origination and monitoring. The consultation stems from the European Council's Action Plan on tackling non-performing loans in Europe. The purpose of the guidelines is to improve the processes by which institutions grant loans and monitor them thereafter, with the overarching goal of improving the financial stability of the EU financial system.
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UK Law Commission Makes Recommendations to Improve Anti-Money Laundering Regime
06/18/2019
The U.K.'s Law Commission has published a report, entitled "Anti-money Laundering: the SARS Regime", setting out recommendations to improve the prevention, detection and prosecution of money laundering and terrorism financing in the U.K. The Law Commission began a review in 2017 into the U.K. anti-money laundering regime, focusing on the suspicious activity reporting (SAR) process and taking into account EU and U.K. anti-money laundering legislation and related legislation, such as the General Data Protection Regulation. Following the consultation, the Commission has decided not to recommend amendments to the primary legislation, but instead that more detailed guidance should be issued. As a result, and for example, new exceptions from the reporting regime will not be proposed, as has been argued by some aspects of industry for reports on low-value transactions or reports on issues which are already in the public domain. The Commission is making several recommendations to improve the existing system, including:- The establishment of a new Advisory Board to supervise the development of guidance and to advise the Secretary of State on potential improvements to the regime, including in relation to emerging threats.
- A new online SAR report that is easier to use with the aim of ensuring more consistent data is provided to the U.K. Financial Intelligence Unit through these reports.
- Creating an obligation for the Government to issue statutory guidance on key legal concepts within the framework so as to improve certainty around the obligation to report suspicious activities.
View the report. -
International Cyber Task Force Reports on Cyber Regulation
06/18/2019
The International Organization of Securities Commissions has published the final report of its Cyber Task Force on cyber regulation. The report sets out how IOSCO member jurisdictions apply three recognized cyber frameworks - the CPMI-IOSCO Guidance on Cyber Resilience for Financial Market Infrastructures; the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity; and the International Organization for Standardization 27000 series standards. The Cyber Task Force does not propose that IOSCO issues any further guidance on this topic, as this could lead to duplication. The report is instead intended to be a resource for financial market regulators and firms, to raise awareness of existing cyber guidance and to encourage the adoption of good practices. The Cyber Task Force recommends that IOSCO's member jurisdictions use these standards to close any gaps in their existing cyber frameworks and that further work is undertaken to establish where those gaps are.
View the report.TOPIC : Cyber Security -
New EU Guidelines on Disclosure of Climate-Related Information
06/18/2019
The European Commission has published new, non-binding Guidelines on reporting climate-related information. The new Guidelines are supplementary to the guidelines issued by the Commission in 2017 on reporting non-financial information. The new Guidelines are intended to assist large public entities (with over 500 employees) to report climate-related information under the EU Non-Financial Reporting Directive. The new Guidelines incorporate the recommendations of the Financial Stability Board's taskforce on climate-related financial disclosures, taking into account the EU's forthcoming taxonomy on sustainable activities. The new Guidelines include guidance on reporting of climate-related information related to business models, key performance indicators, risks and their management. Further guidelines for banks and insurance companies are set out in the annex.
Read more. -
UK Secondary Legislation Published to Implement Changes under EMIR REFIT
06/17/2019
The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (Amendment) Regulations 2019 have been made and will come into force on July 9, 2019.
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European Securities and Markets Authority Postpones Review of Transparency Requirements under MiFIR
06/17/2019
The European Securities and Markets Authority has postponed its review of the operation of transparency requirements laid out under Regulatory Technical Standards issued under the Markets in Financial Instruments Regulation. MiFIR's transparency regime obliges those providing investment services in the EU to disclose details of their transactions in bonds, structured finance products, emission allowances and derivatives both prior to, and following, trades. The detail of how participants should comply with this transparency regime is set out in the related delegated acts and technical standards published under MiFIR. Under the MiFIR RTS, ESMA is obliged to submit a report on the operation of thresholds for the liquidity and trade percentiles of certain financial instruments by July 30 each year. However, given the continuing uncertainties over Brexit, ESMA considers it would be inappropriate to perform the review by the usual deadline, particularly as the results of its review may lead to a tightening of the relevant rules. No new deadline for performing the review has yet been established.
View ESMA's letter.
View the transparency RTS. -
UK Regulator Issues Consultation Paper on Adequate Financial Resources
06/13/2019
The U.K. Financial Conduct Authority has published a consultation paper explaining the FCA's proposed approach to minimum financial resources requirements and seeking feedback on the proposed clarifications to its stated approach. The consultation paper is relevant for all FCA solo-regulated firms subject to the FCAs's threshold conditions and/or Principles for Business. Firms should submit responses by September 13, 2019.
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UK Conduct Regulator Publishes Dear CEO Letter on its Wealth Management and Stockbroking Supervision Strategy
06/13/2019
The U.K. Financial Conduct Authority has published a "Dear CEO" letter addressed to wealth management and stockbroking firms, identifying the key areas of focus for its two-year Wealth Management and Stockbroking supervision strategy. In the letter, the FCA identifies the four key types of harm for customers in this sector as: (i) reductions in savings and investments due to fraud, investment scams and inadequate client money or assets controls; (ii) loss of confidence in the industry due to mismanagement of conflicts of interest and market abuse; (iii) reductions in savings and investments due to substandard order handling procedures and execution processes; and (iv) inability to understand the costs of services provided by firms as a result of insufficient or inaccurate disclosure.
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European Commission Publishes Fourth Progress Report on Reduction of Non-Performing Loans in Europe
06/12/2019
The European Commission has published its fourth progress report on the reduction of non-performing loans in Europe. The report describes the impact of the EU's measures to tackle NPLs, which stem from the European Council's "Action Plan to Tackle NPLs in Europe". The Action Plan was designed to reduce risk in the European banking sector. As part of this project, the European Commission launched a package of legislative and non-legislative measures designed to address the build-up of non-performing loans seen in the years following the financial crisis.
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UK Parliamentary Committee Report Criticizes UK's Post-Brexit Sanctions Policy
06/12/2019
The U.K. Foreign Affairs Committee has published a critical report on the U.K. government's plans for the future of sanctions policy following Brexit. Currently, the U.K. must comply with economic and financial sanctions agreed at EU-level. Following the U.K.'s exit from the EU, it will regain autonomy over sanctions policy, but the Foreign Affairs Committee report reveals a lack of high-level thought on policy, a muddled position on key issues, including the implementation of EU sanctions into U.K. law following Brexit, the U.K.'s ability to impose "Magnitsky" sanctions (sanctions imposed upon individuals accused of human rights violations), and the extent to which the U.K.'s future sanctions policy should be coordinated with allies' policies, and a lack of cross-departmental government coordination in developing a coherent U.K. sanctions policy.
Read more. -
European Commission Publishes Progress Report on European Economic Monetary Union
06/12/2019
The European Commission has published a report on progress made in Europe since the publication of "The Five Presidents' Report" of 2015, in which five of the EU's key figures set out their agenda for deepening the EU's Economic and Monetary Union. The report is published ahead of the Euro Summit on June 21, 2019, where EU leaders will meet to review progress in tackling the challenges faced by the EU.
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European Commission Updates Credit Rating Agencies Regulation Equivalence Decisions
06/11/2019
The European Commission has published a series of draft Implementing Decisions on the equivalence with the EU Credit Rating Agencies Regulation of the credit rating regimes of certain non-EU countries. The Implementing Decisions for Brazil, Canada, Argentina, Singapore and Australia repeal the existing equivalence decisions of the credit rating legislation in these countries, stripping these regimes of their equivalent status. The Implementing Decisions for Mexico, the US, Japan and Hong Kong confirm the equivalence of such countries' credit rating legislation.
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UK Law Commission Embarks Upon Review of Intermediated Securities System
06/11/2019
The Law Commission has been appointed to review potential legal issues with the U.K. intermediated securities system. Intermediated securities are shares and bonds held electronically through computerized credit entries.
Read more.TOPIC : Securities -
European Securities and Markets Authority Publishes Final Report on Frequent Batch Auctions
06/11/2019
The European Securities and Markets Authority has published a final report presenting the feedback to its November 2018 call for evidence, which sought to improve its understanding of "frequent batch" auction systems and their use in the circumvention of the "double volume cap" imposed under the Markets in Financial Instruments Regulation and transparency requirements under the revised Markets in Financial Instruments Directive (or MiFID II). ESMA intends to produce further guidance on areas highlighted in the report, particularly focusing on price determination and pre-trade transparency, and will review the broader effects of the MiFID II transparency regime.
Read more.TOPIC : MiFID II -
UK To Adopt Amendments to Brexit Legislation
06/10/2019
HM Treasury has laid before Parliament a draft of the Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019. The draft Regulations make amendments to certain elements of the EU exit legislation relating to financial services that has been developed by the U.K. government in preparation for the U.K.'s exit from the EU. The amendments will come into force on the later of: (i) the day after the day on which the Regulations are made; and (ii) immediately before exit day or, in the case of the amendment to the Capital Requirements Regulations, exit day.
Read more.TOPIC : Brexit for Financial Services -
UK Prudential Regulator Offers Modification of UK Capital Rules Reflecting Changes to Capital Requirements Regulation II
06/10/2019
The U.K. Prudential Regulation Authority has published a draft modification of its capital rules to correspond with changes made to the Capital Requirements Regulation II that will apply directly in Member States from June 27, 2019. Firms wishing to benefit from the modified rules should apply to the Authorisations Division of the PRA.
Read more. -
UK Competition and Markets Authority Targets Anti-Competitive Practices in Investment Consultancy and Fiduciary Management Services
06/10/2019
The U.K. Competition and Markets Authority has issued the Investment Consultancy and Fiduciary Management Market Investigation Order 2019. This is U.K. secondary legislation intended to combat anti-competitive practices in the supply and acquisition of investment consultancy and fiduciary management services to and by the pension schemes they advise. The Order was made on June 10, 2019 and enters into force on December 10, 2019. It follows the CMA's consultation on a draft version of the Order that was published for review by interested parties on February 12, 2019. In the final Order, the CMA has endeavoured to resolve a number of the issues raised in response to the consultation. These include amending the Competitive Tender Process as originally drafted by imposing a less stringent "reasonable endeavours" obligation on trustees who are required to obtain bids from three or more unrelated Fiduciary Management Providers, and excluding in-house investment advice or fiduciary management functions from the scope of the Order.
Read more. -
UK Regulator Publishes Thematic Review of Money-Laundering Risks in Capital Markets
06/10/2019
The U.K. Financial Conduct Authority has published a report on its thematic review assessing money-laundering risks posed to capital markets. The review involved 19 participants including investment banks, recognised investment exchanges, trade bodies, a custodian bank, clearing and settlement houses, inter-dealer brokers and trading firms. The report sets out what the FCA found in its review, the AML risks that were identified and fictitious case studies identifying different AML scenarios that firms may use to inform their own procedures. The FCA expects firms to review their AML systems, taking this report into account. It is considering its supervisory approach, including the possibility of utilising data supplied under MiFID II to mitigate money-laundering risks.
Read more. -
Final Investment Consultancy and Fiduciary Management Market Investigation Order Published
06/10/2019
The U.K. Competition and Markets Authority has published the final Investment Consultancy and Fiduciary Management Market Investigation Order 2019. The Order imposes legal obligations on pension scheme trustees, investment consultancy firms and fiduciary management providers, implementing the CMA's remedies to its finding of an adverse effect on competition in both the investment consultancy and fiduciary management markets. On February 11, 2019, the CMA published a draft Order for comment, and the responses to the draft Order have been published alongside the Order.
Read more. -
G20 Finance Ministers and Central Bank Governors Meet in Japan
06/09/2019
The G20 Finance Ministers and Central Bank Governors have published a Communiqué from the most recent G20 Summit held in Japan.
Read more. -
Financial Stability Board Publishes Consultation on Impact of Regulatory Reforms for SME Financing
06/07/2019
The Financial Stability Board has published a consultation paper on the effects of post-financial crisis regulatory reforms on financing for small- and medium-sized enterprises. The FSB’s analysis suggests that there have not been material or persistent negative effects on SME financing, although some evidence suggests the more stringent Basel III capital requirements may have slowed the pace and tightened the conditions of SME lending at the least capitalized banks.
Read more. -
EU Capital Requirements Directive V and Capital Requirements Regulation II Finalized
06/07/2019
The legislative amendments to the EU's Capital Requirements Regulation and the Capital Requirements Directive, widely referred to as "CRD5" or "CRR2", have been published in the Official Journal of the European Union. Subject to certain exceptions, the Regulation amending CRR will apply directly across the EU from June 28, 2021. EU Member States are required to transpose the Directive amending CRD into their national laws and to apply those provisions from December 29, 2020, subject to certain exceptions.
Read more. -
European Securities and Markets Authority Chair Queries EMIR REFIT Clearing Threshold Calculation for Certain Financial Counterparties
06/07/2019
The Chair of the European Securities and Markets Authority, Steven Maijoor, has requested clarity from the European Commission on the methodology for calculating the clearing threshold of a Financial Counterparty that is part of a non-financial group under the revised European Market Infrastructure Regulation (known as EMIR REFIT).
Read more. -
Revisions to EU Bank Recovery and Resolution Directive Finalized
06/07/2019
A new Directive amending the EU's Bank Recovery and Resolution Directive, widely referred to as "BRRD2", has been published in the Official Journal of the European Union.
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UK Prudential Regulator Consults on Resolution Assessments For Senior Managers Regime
06/07/2019
The U.K. Prudential Regulation Authority has opened a consultation on resolution assessments and reporting amendments under the Senior Managers and Certification Regime. The PRA is proposing to amend the prescribed responsibility for recovery plans and resolution packs that are a part of the SM&CR. Related changes are also being proposed to "Strengthening individual accountability in banking" (SS28/15) and "Senior Managers Regime form: Statement of Responsibilities". The changes to the prescribed responsibility will impact U.K. banks and building societies with £50 billion or more in retail deposits. The changes to the Statement of Responsibilities will affect all PRA-regulated firms. The consultation closes on August 7, 2019. The PRA intends to publish its final amendments in Q4 2019.
View the consultation paper. -
UK Regulator Publishes Policy Statement on Supervisory and Enforcement Process for Securitization Repositories, including post-Brexit
06/06/2019
The U.K. Financial Conduct Authority has published a Policy Statement setting out the final rules governing the FCA's authority to impose sanctions on persons for breaching requirements imposed under the U.K. Securitization Regulations 2018, which implements the EU Securitization Regulation. The Policy Statement also includes proposals on how the FCA will apply its existing supervisory and enforcement processes to securitization repositories (the bodies responsible for collecting and maintaining records of securitizations) after the U.K.'s exit from the EU.
Read more. -
US Commodity Futures Trading Commission Provides Margin Relief for Legacy Swaps
06/06/2019
In response to a request from the International Swaps and Derivatives Association, the Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight issued no-action relief that will permit swap dealers to make certain amendments to so-called "legacy swaps" without such swaps losing their legacy status for purposes of the CFTC's uncleared swap margin rule. Legacy swaps are exempt from the CFTC's uncleared swap margin rule because they were entered into prior to the relevant compliance date for that rule. The relief provides clarity that certain amendments to legacy swaps will not bring them within scope of the rule.
The relief will permit swap dealers to continue to treat the following as legacy swaps:- legacy swaps that are amended in an immaterial manner (defined as amendments that would not affect the economic obligations of the parties or the valuation of the swap);
- a swap resulting from the exercise of a swaption that is itself a legacy swap;
- the remaining portion of a swap following a partial termination of such legacy swap;
- the remaining portion of a swap following a partial novation of such legacy swap; and
- new swaps resulting from a multilateral compression exercise consisting solely of legacy swaps.
View the No-Action letter.TOPIC : Derivatives -
Financial Stability Board Publishes Report on Decentralized Financial Technologies
06/06/2019
The Financial Stability Board has published a report on the use of decentralized financial technologies and the implications these may have for financial stability, regulation and governance. The report has been delivered to G20 Finance Ministers and Central Bank Governors ahead of the G20 meeting on June 8-9, 2019.
Read more. -
International Bodies Seek Public Input on Central Counterparty Auctions Discussion Paper
06/05/2019
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a joint discussion paper on central counterparty default management auctions. Comments should be provided by August 9, 2019.
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UK Regulator Appoints New Chair for Financial Ombudsman Service
06/05/2019The U.K. Financial Conduct Authority has issued a press release announcing that Baroness Zahida Manzoor CBE has been appointed Chair of the Financial Ombudsman Service. Baroness Manzoor will take up the role on August 2, 2019 and takes over from Sir Nicholas Montagu, who has held the role for more than seven years. Baroness Manzoor has spent over 20 years at board level within large organizations and was appointed to the House of Lords in 2013. Between March 2018 and May 2019, she served as House of Lords Government Whip and Minister.
View the press release.TOPIC : People -
UK Regulator Publishes Findings from LIBOR Review
06/05/2019
The U.K. Financial Conduct Authority has published a report summarizing the preparations that firms are making for the market transition away from LIBOR to alternative risk-free rates by the end of 2021. The report is based on feedback from firms in response to the joint Dear CEO letter sent to major banks and insurers by the FCA and the Prudential Regulation Authority, which sought information on the action firms were taking to prepare for the phase-out of LIBOR. The report also includes suggestions for how firms might enhance their preparations.
Read more. -
Regulators Issue Recommendations on Sustainable Finance in Emerging Markets
06/05/2019
The Growth and Emerging Markets Committee, a committee of the International Organization of Securities Commissions that aims to promote the development and efficiency of emerging securities and futures markets, has published a series of recommendations on the development of sustainable finance in emerging markets and the role that securities regulators play in this arena. The report also contains an overview of sustainability-related regulatory initiatives in emerging markets and market trends arising in the sustainability sector.
Read more. -
International Task Force Report Shows Further Progress Needed for Climate-Related Financial Disclosures
06/05/2019
The Task Force on Climate-Related Financial Disclosures has issued its 2019 status report outlining progress on adoption of the TCFD disclosure recommendations for improved climate-related financial disclosures by companies. The TCFD was established by the Financial Stability Board in 2015 with the aim of managing climate-related risk in markets. In 2017, it published a set of voluntary disclosure recommendations for companies to provide information on their climate-related financial risks. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.
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European Systemic Risk Board Committee Publishes Report on Regulatory Complexity Risks
06/04/2019
The European Systemic Risk Board's Advisory Scientific Committee has published a report on the risks of excessive regulatory complexity. The report considers the key drivers of regulatory complexity, the risks it entails and sets out seven principles designed to prioritize regulatory robustness, upon which it argues the design and reform of financial regulation should be based.
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Financial Stability Board Publishes User's Guide to Overnight Risk-Free Rates
06/04/2019
The Financial Stability Board has published a user's guide to overnight risk free rates, providing an overview of such rates and how they can be calculated, as well as proposals for how they can be used in cash products. The user's guide falls in line with the development of RFRs as alternative benchmarks.
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UK Regulator Publishes Policy Statement on Peer-To-Peer and Investment-Based Crowdfunding Platforms
06/04/2019
The U.K. Financial Conduct Authority has published a Policy Statement containing its final changes to the rules and guidance governing loan-based crowdfunding platforms (or "peer-to-peer" platforms). The Policy Statement follows the FCA's July 2018 consultation paper on proposed changes to the regulation of the crowdfunding sector. Peer-to-peer platforms will need to comply with the majority of the changes by December 9, 2019, with the exception of the FCA's Mortgage and Home Finance Conduct of Business rules, which will apply to platforms that offer home finance products from June 4, 2019. The Policy Statement also reflects on the rules applicable to investment-based crowdfunding platforms (i.e. platforms that allow investors to invest in businesses directly, for instance through the purchase of shares or debt securities), in particular surrounding financial promotions for non-readily realized securities and non-mainstream pooled investments. The FCA continues to review responses to its July 2018 consultation paper in relation to these platforms and may issue additional rules and guidance in due course.
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European Securities and Markets Authority Launches Common Supervisory Action on MiFID II Appropriateness Rules
06/03/2019
The European Securities and Markets Authority has announced that it will launch a common supervisory action in the second half of 2019 on the application of the appropriateness requirements under the revised Markets in Financial Instruments Directive. The action will be undertaken as part of ESMA's mandate to build a culture of common supervision among EU national regulators.
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Financial Stability Board Consults on Resolution-Related Disclosures and Solvent Wind-Down of Derivatives and Trading Portfolios
06/03/2019
The Financial Stability Board has published two consultation papers on: (i) Public Disclosure of Resolution Planning and Resolvability; and (ii) Solvent Wind-down of Derivatives and Trading Portfolios. The first consultation paper focuses on disclosures made by financial institutions on their resolution planning and resolvability during “peace time” (i.e., times when there is no resolution commencing or in progress). The second consultation paper focuses on considerations that national regulators and global systemically important banks should take into account when commencing the solvent wind-down of a G-SIB’s derivative and trading book activities.
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EONIA Methodology and One-Off Spread Confirmed
05/31/2019
The European Money Markets Institute has adopted the EONIA working group's proposed methodology for calculating EONIA's replacement rate. The new methodology, dubbed "€STR" (or the "Euro short term rate"), will take effect as of October 2, 2019. In line with the adoption of the €STR, the European Central Bank has calculated the average risk spread between the new €STR and the existing EONIA rate as 0.0085% (8.5 basis points). The spread will be used for a limited period to calculate an adjusted EONIA rate for all existing contracts which continue to reference EONIA following the introduction of the €STR in October 2019.
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UK Financial Conduct Authority Publishes Near Final Changes to Handbook Implementing the EU Prospectus Regulation
05/31/2019
The U.K. Financial Conduct Authority has published a Policy Statement containing its near final rules implementing the EU Prospectus Regulation, which will be set out in the FCA's new Prospectus Regulation Rules sourcebook. The FCA's new rules are aimed at aligning the U.K. rules with the EU Prospectus Regulation. The changes remain subject to finalization of certain related changes under the Financials Services and Markets Act 2000 and relevant EU legislation. Issuers seeking approval of a draft prospectus on or after July 21, 2019 must ensure their draft is in line with the EU Prospectus Regulation and PRR sourcebook. In the event the U.K. leaves the EU before that date, the proposals will not come into effect, and the U.K. would use the Financial Services (Implementation of Legislation) Bill to permit alignment of U.K. rules with those of the EU. The FCA would, in that situation, expect to issue a further Consultation Paper setting out proposals for replicating the EU Prospectus Regulation in the U.K. domestic regime. The FCA has so far declined to comment on the detail of any such proposals.
Read more. -
Financial Stability Board Delivers Report on Crypto-Assets
05/31/2019
The Financial Stability Board has published a report on crypto-assets outlining the actions being undertaken by various international organizations in response to the challenges posed by crypto-assets and the FSB's own proposed course of action for the year ahead. The report will be delivered to G20 Finance Ministers and Central Bank Governors at the next G20 meeting in Japan on June 8-9, 2019.
Read more. -
UK Financial Conduct Authority Publishes Policy Statement on Shareholder Engagement
05/30/2019
The Financial Conduct Authority has published a Policy Statement containing final Handbook text and guidance on new rules to improve shareholder engagement and increase transparency around stewardship. The FCA consulted on the rules from January to March 2019. The final rules will come into effect on June 10, 2019.
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Financial Stability Board Reports on Progress to Address Correspondent Banking Declines
05/29/2019
The Financial Stability Board has published two reports as an update on the work to address correspondent banking declines - the "FSB Action Plan to Assess and Address the Decline in Correspondent Banking - Progress Report" and "Remittance Service Providers' Access to Banking Services: Monitoring of the FSB's Recommendations".
Read more. -
Revised EU Statement on the Share Trading Obligations in a No-Deal Brexit
05/29/2019
Following concerns regarding its March 19, 2019 statement, the European Securities and Markets Authority has published a revised statement on the impact of a no-deal Brexit on the trading obligation for shares where no decision on the U.K.'s equivalence as a third country market has been made. The Markets in Financial Instruments Regulation requires investment firms to conclude transactions in shares admitted to trading on a regulated market or traded on an EU trading venue, i.e. namely regulated markets, multilateral trading facilities, systematic internalisers and equivalent third-country trading venues. The U.K. has adopted this requirement in its onshored MiFID II legislation. Similarly, following its exit from the EU, the new U.K. on-shored share trading obligation would restrict trading of shares in the U.K. to trades on U.K. trading venues unless a third-country equivalence decision was made.
Read more. -
US-UK Financial Innovation Partnership Announced
05/29/2019
The U.S.-U.K. Financial Regulatory Working Group has announced the establishment of a Financial Innovation Partnership between the U.S. and the U.K. The objective of the Partnership is to strengthen bilateral engagement on emerging trends in financial services innovation. It will focus on regulatory engagement and commercial engagement by providing opportunities for the private sector in one country to engage with industry associations and market participants in the other country.
The U.S.-U.K. Financial Regulatory Working Group, formed in April 2018, is a forum for treasury staff and financial regulatory authorities to exchange views on the regulatory relationship between the United States and the U.K. The objectives of the Working Group are to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.
View the announcement. -
UK Financial Conduct Regulator Seeks Input on a Cross-Sector Sandbox
05/29/2019
The U.K. Financial Conduct Authority has published a Call for Input on a Cross-Sector Sandbox, seeking input on whether a U.K. cross-sector sandbox is needed. The FCA has observed that due to emerging technologies, business models are constantly changing in all markets and that firms are diversifying into different sectors. In addition, across all sectors, firms are increasingly using big data. As a result, the FCA believes that the different sectoral U.K. regulators need to find new practical ways of collaborating. The FCA recently undertook a study into how a cross-sector sandbox involving multiple regulators could be established, engaging with a range of regulators, such as the Civil Aviation Authority, the Gambling Commission, the Information Commissioner's Office, Ofcom, Ofgem and the Prudential Regulation Authority, a small group of firms and other stakeholders. The study showed that there is potential for a cross-sector sandbox, but that further discussion is needed to understand the degree of interest and need before an operating model can be developed.
Based on the success of the FCA's financial regulatory sandbox, the FCA suggests that a cross-sector sandbox would provide a single-point-of-entry sandbox for firms to test innovative propositions with multiple U.K. regulators. The FCA acknowledges that challenges exist to its proposal, including uncertainties about demand for the sandbox and a misunderstanding of its purpose. However, it is of the view that most of the challenges could be overcome or mitigated, as has been the case with its existing sandbox. The FCA has published the Call for Input to facilitate further discussions on the concept of a cross-sector sandbox. Responses are invited until August 30, 2019.
View the call for input on a cross-sector sandbox.TOPIC : FinTech -
EU Technical Standards on Authorization of Third-Party Firms Assessing STS Status of Securitizations
05/29/2019
A Commission Delegated Regulation specifying Regulatory Technical Standards on the applicable requirements for third party entities seeking authorization as providers of STS verification services has been published in the Official Journal of the European Union. The RTS supplement the Securitization Regulation (also known as the STS Regulation), which has applied directly across the EU since January 1, 2019. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations and requires originators and sponsors to notify the European Securities and Markets Authority when a securitization meets the STS criteria. ESMA will maintain a list of all such securitizations on its website. The Securitization Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator. The new RTS set out what the application for authorization should cover, which includes information on the entities' organizational structure, operational safeguards and internal processes to assess STS compliance and conflicts of interest.
The RTS will apply directly across the EU from June 18, 2019.
View the RTS. -
EU Secondary Legislation for Financial Reporting Formats Published
05/29/2019
A Commission Delegated Regulation establishing Regulatory Technical Standards for electronic financial reporting formats under the European Transparency Directive has been published in the Official Journal of the European Union. The Transparency Directive aims to enhance the efficiency and transparency of European securities markets by obliging security issuers to provide a regular flow of information to investors. Amongst the obligations under the Directive, issuers must publish annual financial reports in accordance with certain specifications. One such specification requires that, from January 1, 2020, reports must be in a single electronic reporting format. This reporting format is now laid out in the RTS. The RTS enter into force on June 18, 2019 and will apply to annual financial reports containing financial statements for financial years beginning on or after January 1, 2020.
Read more.TOPIC : Securities -
European Banking Authority Confirms 2019 Focus
05/29/2019
The European Banking Authority has published its annual report for 2018, setting out details of the work it undertook in 2018 and its focus areas in 2019. The EBA will, in 2019, focus on: (i) finalizing the guidelines on loan origination as part of its contribution to tackling non-performing loans in the EU; (ii) implementing the changes arising from the revised Capital Requirements Regulation, which was published in the Official Journal of the European Union on June 7, 2019; (iii) implementing the new Investment Firm Regulation and Directive by preparing various technical standards, guidelines and reports; (iv) preparing technical standards and guidelines, as required under the EU Securitization Regulation, that facilitate the use of internal models for banks investing in securitization positions; (v) assisting with the EU's implementation of Basel IV; (vi) the impact of FinTech, in particular, on payment institutions' and e-money institutions' business models; (vii) identifying regulatory and supervisory areas affected by the use of big data and developing best practices and principles for the application and implementation of data analytics by institutions; (viii) continuing to assess the risks of crypto-assets; (ix) supporting the European Commission's work on sustainable finance; and (x) improving the supervision of anti-money laundering and counter terrorism financing.
View the EBA's annual report 2018. -
European Central Bank Consults on European Mechanism for Issuance and Distribution of Debt Securities
05/28/2019
The European Central Bank, together with those national central banks that have adopted the Euro (collectively known as the Eurosystem), has launched a consultation on proposals for a harmonized European system for issuing and distributing Euro denominated debt securities within the EU. The consultation paper seeks feedback on the state of the existing market, the most appropriate ways to deal with certain issues faced by the market and the measures the Eurosystem has proposed for a potential new system.
Read more. -
EMIR Refit Regulation Published
05/28/2019
The Regulation amending the European Market Infrastructure Regulation, known as EMIR Refit or EMIR 2.1, has been published in the Official Journal of the European Union.
The EMIR Refit amendments aim to introduce a simplified and more proportionate approach to certain aspects of EMIR as part of the EU's broader "Regulatory Fitness and Performance Program".
Read more. -
European Banking Authority Publishes Draft Implementing Technical Standards For Supervisory Reporting under the Capital Requirements Regulation
05/28/2019
The European Banking Authority has published draft Implementing Technical Standards for supervisory reporting, which make changes to the existing reporting obligations of EU banks (credit institutions) and investment firms. The majority of the technical standards will apply from March 2020, with the exception of the liquidity coverage requirements, which will apply from April 2020.
Read more. -
Financial Stability Board Assesses Legal Entity Identifier Implementation
05/28/2019
The Financial Stability Board has published a thematic review on the implementation of the Legal Entity Identifier. An LEI is a unique identifier of entities that engage in financial transactions. It is intended that such an identifier will be held by all legal entities participating in financial markets across the globe. It is envisaged that the LEI system will lead to better data aggregation, enhance systemic risk monitoring and reduce costs to market participants. The thematic review provides a summary assessment of the successes of the LEI, sets out steps that are still needed to fully achieve the G20's objectives and makes recommendations, addressed to the FSB, other international bodies (such as the International Organization of Securities Commissions and Basel Committee on Banking Standards), FSB member jurisdictions, the LEI Regulatory Oversight Committee and Global LEI Foundation, to tackle the issues that are preventing wider adoption of the LEI.
View the report. -
European Commission Adopts Technical Standards on Homogeneity Conditions for STS Securitizations
05/28/2019
The European Commission has adopted draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework has applied across the EU since January 1, 2019.
Read more. -
International Body Consults on Issues Relating to Regulating Crypto-Asset Trading Platforms
05/28/2019
The International Organization of Securities Commissions has launched a consultation on the key issues to consider for regulating crypto-asset trading platforms (referred to as CTPs). The consultation paper, which aims to assist IOSCO member jurisdictions to assess the issues and risks relating to CTPs, is based on information obtained from national regulators on the operation of CTPs and their current or proposed regulatory approaches. The consultation does not cover Initial Coin Offerings, focussing instead on the secondary markets. Responses to the consultation are due by July 29, 2019.
The consultation paper describes certain issues and risks related to trading of crypto-assets on CTPs. The paper also sets out key considerations and corresponding toolkits for each consideration. The considerations are: (i) access to CTPs; (ii) safeguarding assets; (iii) conflicts of interest; (iv) operations of CTPs; (v) market integrity; (vi) price discovery; and (vii) technology. The toolkits are for regulators to use to address the key considerations and related issues and risks. In addition, IOSCO notes that useful guidance on the issues is already available in its Objectives and Principles of Securities Regulation and the Assessment Methodology.
View the consultation paper. -
European Securities and Markets Authority Consults on EMIR 2.2 Technical Advice
05/28/2019
The European Securities and Markets Authority has launched consultations on proposed technical advice on third-country CCP tiering, comparable compliance and fees under draft revisions to the European Market Infrastructure Regulation, known as EMIR 2.2. EMIR 2.2 will change the requirements for the supervision of both EU and third-country CCPs, and includes the controversial formal EU "location policy" for CCPs. The text of EMIR 2.2 was agreed between the European Parliament, the Council of the European Union and the European Commission on March 13, 2019, but has not yet been published in the Official Journal of the European Union. However, the European Commission requested technical advice from ESMA on May 3, 2019 and ESMA has begun that preparatory work. The consultations close on July 29, 2019. ESMA intends to submit its final reports and technical advice to the European Commission in Q3 and Q4 2019.
Read more. -
Financial Stability Board Publishes Progress Report on Cyber Incident Response
05/28/2019
The Financial Stability Board has published a progress report on the activities and work plan of its Cyber Incident Response and Recovery working group. The working group was established in 2018 with a mandate to develop a toolkit of practices for financial institutions and authorities in preparing for and dealing with cyber incidents.
Read more.TOPIC : Cyber Security -
Financial Conduct Authority Publishes Progress Report on Conduct Questions for Wholesale Banks
05/28/2019
The Financial Conduct Authority has published its latest report on industry progress made against the "Five Conduct Questions" it poses to wholesale banks in a bid to improve their conduct and culture. The FCA will use its findings to assess the impact that embedding good conduct is having on the wholesale banking market and to consider the potential for more sustainable mindset change. The report also includes strategic considerations that firms may address to improve their approach to conduct challenges and an assessment of whistleblowing initiatives in the wholesale banking sector. In particular, the FCA found that whistleblowing channels require improvement, and that non-financial misconduct (such as bullying, sexual harassment and other forms of personal misbehavior) is a significant problem across firms. The FCA continues to welcome face-to-face meetings with wholesale financial services firms to discuss thinking on all aspects of the report.
Read more. -
Proposed EU Guidelines for Reporting of Securities Financing Transactions
05/27/2019
The European Securities and Markets Authority has published a consultation paper proposing guidelines for reporting of securities financing transactions under the Securities Financing Transactions Regulation. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The SFTR requires, amongst other things, that all securities financing transactions be reported to EU recognized trade repositories. Such reports must include details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies, and will be phased-in according to type of entity:- banks and investment firms from April 11, 2020;
- CCPs and central securities depositories from July 11, 2020;
- other Financial Counterparties from October 11, 2020; and
- Non-Financial Counterparties from January 11, 2021.
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EU Authority Asks for Feedback on the MiFID II Position Limits Regime for Commodity Derivatives
05/24/2019
The European Securities and Markets Authority has published a Call for Evidence on position limits and position management in commodity derivatives introduced by the revised Markets in Financial Instruments Directive. MiFID II requires the European Commission to report to the European Parliament and the Council on the impact of the application of position limits and position management on liquidity, market abuse and orderly pricing and settlement conditions in commodity derivatives markets. ESMA has been asked to provide the Commission with advice regarding this new regime to support the Commission's preparation of the report.
Read more. -
EU Consultation on Proposed Amendments to Technical Standards Under the Capital Requirements Regulation
05/24/2019
The European Securities and Markets Authority has published a consultation paper in which it proposes amending the Implementing Technical Standards that specify the main indices and recognized exchanges for the purpose of the Capital Requirements Regulation (Commission Implementing Regulation (EU) 2016/1646). CRR requires a bank to hold sufficient capital to cover the risks associated with its business and prescribes how the credit risks of collateral should be treated. Securities that will be regarded as eligible as collateral are equities and convertible bonds that are constituents of a main index and debt securities that are listed on a recognized exchange. ESMA's consultation relates to the ITS setting out the main indices and recognized exchanges.
Read more. -
Chair Appointed for EU Coordination Network on Sustainability
05/23/2019
The European Securities and Markets Authority has announced that Ana María Martínez-Pina Garcia, (Vice-Chair of the Comisión Nacional del Mercado de Valores in Spain) has been appointed as Chair of ESMA's new Coordination Network on Sustainability.
View the announcement. -
Financial Stability Board Consults on Impact of the Too-Big-To-Fail Reforms
05/23/2019
The Financial Stability Board has begun its evaluation of the post-2008 financial crisis reforms on banks that were deemed "too big to fail", publishing the summary terms of reference. The evaluation will consider whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks (or SIBs). The FSB is also asking for feedback from financial institutions and other stakeholders on the impact of these reforms. In particular, the FSB is seeking input on how the reforms have achieved their objectives, the impact of the reforms on SIBs, whether the impact differs for different types of banks, the impact of the reforms on financial system resilience and whether there are any unintended consequences of the reforms. The FSB asks those submitting responses to provide evidence, where possible. Responses should be submitted by June 21, 2019. The FSB intends to use the responses to prepare a draft report on the impact, which would be issued for consultation in June 2020. The final report is expected by the end of 2020.
View the summary terms of reference.
View the request for feedback. -
European Securities and Markets Authority Launches Consultation on Trade Repository Reporting Guidelines
05/23/2019
The European Securities and Markets Authority has launched a consultation on its proposed guidelines for the information that should be reported periodically by trade repositories. The purpose of the guidelines is to assist ESMA in its supervisory role by streamlining the periodic element of the information collection process. Responses to the consultation should be submitted by August 27, 2019.
Read more.TOPIC : Financial Market Infrastructure -
Proposed EU Templates for Reporting of Intra-Group Transactions by Financial Conglomerates
05/22/2019
The Joint Committee of European Supervisory Authorities has launched a consultation on draft Implementing Technical Standards on the reporting of intra-group transactions and risk concentration for financial conglomerates under the Financial Conglomerates Directive. FICOD sets out requirements for regulated entities to report at least annually all significant intra-group transactions of regulated entities within a financial conglomerate and for information sharing between relevant regulators of conglomerates.
Read more. -
EU Authority Opinion on Equivalence of Argentina's Prudential Requirements
05/22/2019
The European Banking Authority has published an Opinion opining that the prudential supervisory and regulatory requirements in Argentina are equivalent to the EU's requirements as set out in the Capital Requirements. The EBA provided its Opinion and formal assessment for Argentina to the Commission in November 2018. However, the documents have only now been published, at the request of the Commission. An equivalence decision for Argentina by the European Commission was published in the Official Journal of the European Union on April 1, 2019. The equivalence decision means that EU banks may apply preferential risk weights and hold less regulatory capital for their exposures to Argentinian banks, investment firms, clearing houses, CCPs, exchanges as well as the Argentinian government, central bank and public bodies, including any intragroup exposures of EU subsidiaries of Argentinian banks. Such an equivalence decision under CRR is one of the factors that a national regulator must take into account when deciding whether to adopt a domestic equivalence decision on consolidated supervision under the Capital Requirements Directive (i.e. whether to exercise consolidated supervision under EU rules to non-EU parents).
View the Opinion.
View the EBA's assessment.
View details of the equivalence decision for Argentina. -
EU Delegated Regulation on Conflicts of Interest Published Under Social Entrepreneurship Fund Regulation
05/22/2019
A Commission Delegated Regulation on conflicts of interest arising in relation to European social entrepreneurship funds has been published in the Official Journal of the European Union. The Delegated Regulation sets out the parameters for conflicts of interest policies, which must be introduced by "social entrepreneurship" funds within scope of the European Social Entrepreneurship Fund Regulation. The Delegated Regulation will enter into force on June 11, 2019 and will become directly applicable in all EU Member States on December 11, 2019.
Read more. -
EU Delegated Regulation on Conflicts of Interest Published Under European Venture Capital Regulation
05/22/2019
A Commission Delegated Regulation on conflicts of interest arising in relation to European venture capital funds has been published in the Official Journal of the European Union. The Delegated Regulation sets out the parameters for conflicts of interest policies, which must be introduced by venture capital funds within scope of the European Venture Capital Regulation. The Delegated Regulation will enter into force on June 11, 2019 and will become directly applicable in all EU Member States on December 11, 2019.
Read more. -
UK Secondary Legislation Published to Combat Cyber-Attacks
05/21/2019
The Cyber-Attacks (Asset-Freezing) Regulations 2019 have been made and will come into force on June 11, 2019.
The U.K. Regulations put in place measures applicable to U.K. nationals, U.K. incorporated entities and certain regulated institutions that will help enforce the financial sanctions provisions of the EU's new Cyber-Attacks Regulation, which came into force on May 18, 2019. The Cyber-Attacks Regulation is designed to combat cyber-attacks emanating from outside the EU against EU institutions and Member States. Its provisions include granting the Council of the European Union the ability to freeze assets of persons or entities suspected of involvement in such attacks. In order to enforce the sanctions regime throughout the EU, Member States are required to put in place legislation specifying the penalties that will be imposed upon those found to be implicated in a breach of the EU Cyber-Attacks Regulation.
Read more. -
EU Supervisory Authorities Finalize Proposed Revisions to Implementing Technical Standards for Mapping of External Credit Ratings
05/20/2019
The Joint Committee of European Supervisory Authorities has published a Final Report and final draft amending Implementing Technical Standards on the mapping of External Credit Assessment Institutions' credit assessments under the Capital Requirements Regulation. The Joint Committee comprises the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The publication of the Final Report follows the consultation conducted by the ESAs between October 26, 2018 and December 31, 2018.
Read more. -
UK Conduct Regulator Warns Firms About Supervision of Appointed Representatives
05/20/2019
The FCA has published the findings of its review examining how firms in the investment management sector comply with their regulatory obligations in respect of appointed representatives used to carry out activities on their behalf. The FCA has also published a "Dear CEO" letter addressed to the Chief Executive Officers of all FCA-regulated principal firms in the sector, urging them to review their practices in relation to such representatives.
Read more. -
EU Council Regulation to Combat Cyber-Attacks Published
05/17/2019
The EU Council Regulation concerning restrictive measures against cyber-attacks threatening the European Union or its Member States came into force on May 17, 2019 and will apply directly across the EU from May 18, 2019.
Read more. -
International Swaps and Derivatives Association Consults Further on Fallbacks for the Cessation of Benchmarks
05/16/2019
The International Swaps and Derivatives Association has published two consultation papers on fallbacks for benchmarks. The first consultation paper concerns proposed amendments to ISDA's standard documentation to implement fallbacks based on alternative risk-free rates for certain key Interbank Offered Rates (USD LIBOR, Hong Kong's HIBOR, Canada's CDOR and Singapore's SOR), should the relevant IBOR be permanently discontinued. ISDA is intending to amend and restate the rate options in the 2006 ISDA Definitions to ensure that a fallback will apply to derivative transactions entered into on or after the effective date of the amendments and incorporate the 2006 ISDA Definitions. ISDA also intends to publish a protocol to help ensure inclusion of the fallbacks in pre-existing derivative transactions. This consultation follows ISDA's consultation last July on these changes for GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW. ISDA confirms that the feedback to that July 2018 consultation indicates that market participants prefer the "compounded setting in arrears rate" to address the difference in tenors, and the "historical mean/median approach" to address the difference in risk premia. Based on the feedback to both of these consultations, ISDA intends to implement fallbacks for the relevant benchmarks by the end of 2019.
Read more. -
European Commission Seeks Advice from European Securities and Markets Authority on Review of the Market Abuse Regulation
05/15/2019
The European Commission has issued a formal request for advice to the European Securities and Markets Authority on the appropriateness of certain provisions under the Market Abuse Regulation. The Commission will use ESMA's feedback to inform a report it is mandated to submit to the European Parliament and Council by July 3, 2019. The Commission will also consider proposing further legislative amendments beyond the provisions it is mandated to review and has included these in its formal request for ESMA's advice. The Commission has requested ESMA to submit its contribution by December 31, 2019 to allow time for adoption of the report by the relevant institutions.
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EONIA Working Group Seeks Feedback on Implementation of Euro Risk-Free Rates
05/15/2019
The working group charged with implementing the European market's move away from EONIA, the current reference rate used in euro-denominated financial contracts, has published a consultation paper setting out its "Legal Action Plan" for transitioning to the chosen new euro short-term rate. The current consultation paper focuses on how the new rate should be incorporated into both new and existing financial contracts so as to ensure a swift and smooth transition from EONIA. The paper seeks feedback from market participants on its proposals. Responses should be sent by June 12, 2019.
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New EU Regulatory Technical Standards under the Money Laundering Directive
05/14/2019
An EU Delegated Regulation under the Fourth Money Laundering Directive has been published in the Official Journal of the European Union. The Delegated Regulation sets out Regulatory Technical Standards specifying the measures that EU credit and financial institutions subject to the Fourth Money Laundering Directive should take to handle money laundering and terrorist financing risks arising where a majority-owned subsidiary or branch established in a non-EU country is prohibited from implementing policies its EU parent has put in place to comply with EU regulations.
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European Commission Responds to Uncertainty Regarding Scope of PRIIPs Regulation
05/14/2019
The European Commission has issued a response to concerns raised by the European Supervisory Authorities about the market impact of uncertainty around the scope of the Packaged Retail and Insurance-based Investment Products Regulation. In a letter to the Director General of the European Commission dated July 19, 2018, the heads of the ESAs raised the difficulties that manufacturers of financial products face in determining whether their products fall within the requirements of the PRIIPs Regulation. The letter describes the broader market impact that this uncertainty has caused, which includes a reduction in the availability of corporate bonds to retail investors, a reduction in the number and volume of low denomination issuances by non-financial corporates and greater difficulties for retail investors wishing to trade their bonds. In its response, issued on May 14, 2019, the European Commission refused to pass judgement on whether certain categories of products should be deemed to fall within or outside the scope of the PRIIPs Regulation and stressed that the determination of whether an instrument is a packaged retail investment product should be undertaken on a case-by-case basis.
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UK Consultation on Legal Uncertainty in the Application of English Private Law to Cryptoassets, Distributed Ledger Technology and Smart Contracts
05/09/2019
The UK Jurisdiction Taskforce has published a consultation paper on key issues of legal uncertainty regarding cryptoassets, distributed ledger technology and smart contracts. The UKJT is involved in preparing an authoritative legal statement on the status of cryptoassets and smart contracts under English private law. The final statement will consider whether English private law sufficiently covers cryptoassets, DLT and smart contracts and where legal uncertainty may arise. The issues in the consultation are limited to English private law and do not include any issues on regulatory characterization, taxation, criminal law, partnership law, data protection, consumer protection, settlement finality, regulatory capital, anti-money laundering or counter-terrorist financing.
UKJT is part of the LawTech Delivery Panel, which was established in 2018, with the aim of identifying barriers and opportunities for growth. The consultation closes on June 21, 2019.
View the consultation paper. -
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.
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European Commission Investigates Anti-Competitive EU Loan Syndication
05/05/2019
A report examining competition within the European syndicated loan market has been published, following a call by the European Commission for an examination of the sector. The report was prepared at the request of the Commission by consultancy firm Europe Economics with input from boutique competition law firm Euclid Law.
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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).
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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.
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European Banking Authority Launches Consultation on Technical Standards for Counterparty Credit Risk
05/02/2019The 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.
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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.
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US Federal Reserve Proposes Broadened Application of US Netting Provisions
05/02/2019
The Board of Governors of the Federal Reserve System has proposed amendments to Regulation EE, which implements the netting provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991. The proposed amendments would expand the definition of “financial institution” for purposes of the netting provisions to more clearly cover certain categories of entities and would clarify how the activities-based test under Regulation EE applies following the consolidation of legal entities.
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UK Prudential Regulation Authority Sets Out 2019 Systemic Risk Buffer Rates
05/01/2019
The Prudential Regulation Authority has released its first systemic risk buffer rates, which will apply from August 1, 2019. The rates determine the amount of additional regulatory capital which must be held by "systemic risk buffer institutions" (i.e. U.K. financial institutions which have been deemed to be systemically important). In scope firms are the so-called "ring-fenced bodies" within the meaning in the Financial Services and Markets Act 2000 and include large building societies holding more than £25bn in deposits. The buffer applicable to each institution is intended to reflect the relative costs to the U.K. economy if the institution in question were to fall into distress.
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Financial Conduct Authority Calls for Input on its Review of UK Financial Advice Market
05/01/2019
The Financial Conduct Authority is seeking input on its evaluation of the Retail Distribution Review and Financial Advice Market Review, two initiatives introduced in 2006 and 2015, respectively, which aimed to enhance the outcomes for retail consumers from financial advice and guidance given by institutions. The evaluation has been launched in line with a commitment by the FCA to conduct a review of the initiatives in 2019. Responses should be submitted by June 3, 2019.
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Further Extension of the EU Contracts for Difference Product Intervention Measures
04/30/2019
The European Securities and Markets Authority has issued a Decision renewing and amending the temporary restriction on the marketing, distribution or sale of contracts for difference to retail clients. This has now been published in the Official Journal of the European Union. ESMA announced on March 27, 2019, that the existing restriction would be extended on the same terms as the previously implemented temporary restrictions. The CfD Decision applies directly across the EU from May 1, 2019, for a period of three months.
View the decision. -
EU Legislation Extends the Clearing Obligation Exemption for Certain Intragroup Derivatives Transactions
04/29/2019
A Commission Delegated Regulation extending the exemption from the clearing obligation for intragroup transactions with a third-country group entity has been published in the Official Journal of the European Union. There are currently three sets of Regulatory Technical Standards made under the European Market Infrastructure Regulation that impose the clearing obligation for certain interest rate derivatives and credit derivatives. Each of these three RTS exempts from the clearing obligation certain intragroup derivatives transactions where one of the counterparties is a third-country group entity and there is no relevant equivalence decision in respect of the third country in which it is situated. An equivalence decision would enable parties that are subject to both the EU and a third country's clearing obligation to comply only with one jurisdiction's requirements, but no equivalence decisions have been made to date. Each of the three RTS sets a different expiry date for the intra-group exemption, which fall between December 21, 2018 and July 9, 2019.
The Delegated Regulation, which is substantively the same as ESMA's final draft submitted to the European Commission in September 2018, amends each of the RTS by extending the exemption period to one unified expiry date of December 21, 2020. The Delegated Regulation enters into force on April 29, 2019 and is directly applicable across the EU.
View the Delegated Regulation.TOPIC : Derivatives -
UK Regulator Delays Final Product Intervention Measures on Contracts for Difference
04/26/2019
The Financial Conduct Authority has published a statement on the delay to publication of final rules for contracts for difference products and CfD-like options. The FCA has consulted on its proposals to make European Securities and Markets Authority's temporary product intervention measures permanent in the U.K. The FCA's proposed interventions are the same in substance as ESMA's, although it is also proposing to apply its rules to closely substitutable products and on extending these measures to exchange-traded derivatives. The consultation closed on February 7, 2019.
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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.
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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.
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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.
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EU Opinion on the Nature of Passports of Payment and Electronic Money Institutions Using Agents and Distributors
04/24/2019
The European Banking Authority has published an opinion on the nature of passport notifications for agents and distributors under the revised Payment Services Directive, the Electronic Money Directive and the Fourth Money Laundering Directive. The Opinion is addressed to national regulators in the EU of payment institutions and electronic money institutions but is also useful for PIs and EMIs providing services on a cross-border basis within the EU.
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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.
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UK Conduct Regulator Further Examining Duty of Care Owed by Firms to Consumers
04/23/2019
The Financial Conduct Authority has published a Feedback Statement to its July 2018 discussion paper, "A duty of care and potential alternative approaches". In the discussion paper, the FCA raised the possibility of introducing a new duty of care for all financial services firms.
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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.
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US Authority Settles Charges Against Peer-to-Peer Virtual Currency Exchanger for Violating Registration and AML Requirements
04/18/2019
The U.S. Treasury Department's Financial Crimes Enforcement Network has announced that it has settled charges against Eric Powers, a peer-to-peer exchanger of convertible virtual currency, for violating the registration, program and reporting requirements of the Bank Secrecy Act. This marks FinCEN's first enforcement action filed against a peer-to-peer exchanger of virtual currency and represents the first time that FinCEN has disciplined an exchanger of virtual currency for failure to report currency transactions, as required under the Bank Secrecy Act.
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UK Government Consults on Implementation of the EU Fifth Money Laundering Directive
04/15/2019
HM Treasury launched a consultation on its proposed options for transposing the Fifth Money Laundering Directive into U.K. law. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive. EU Member States are required to transpose 5MLD into national laws, which must take effect by January 10, 2020. HM Treasury is consulting on how it proposes to effect the transposition, in particular where the U.K. has discretion as to how certain aspects are implemented and where gold plating provisions are proposed. Notably, the U.K. government intends to implement 5MLD irrespective of when the U.K. leaves the EU, and is committed to implementing the Financial Action Task Force's standards, focusing on those areas highlighted in the FATF's mutual evaluation report of the U.K.'s AML/CTF regime. Responses to the consultation were to be submitted by June 10, 2019.
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UK Prudential Regulator Publishes Statements on Managing Climate Change Risks
04/15/2019
The U.K. Prudential Regulation Authority has published a Policy Statement and related Supervisory Statement on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. The statements are in response to the PRA’s consultation paper published in 2018 which sought feedback on the draft Supervisory Statement. The Statements are relevant to all U.K. insurance and reinsurance firms, banks, building societies and PRA-designated investment firms.
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UK's Exit from EU Postponed to October 31, 2019
04/11/2019
The EU and the U.K. have agreed to postpone the date on which the U.K. will leave the EU from April 12, 2019 to October 31, 2019. The U.K. notified the EU under Article 50 of the Treaty on the European Union on March 29, 2017 that it would leave the EU. That notification set the date for the U.K.'s exit as March 29, 2019, unless an agreement was reached between the U.K. and the EU. That date was amended by agreement to April 12, 2019 on March 22, 2019. This is the second postponement.
The EU has implemented the postponement in European Council Decision (EU) 2019/584 taken in agreement with the United Kingdom of 11 April 2019 extending the period under Article 50(3) TEU. The U.K. implemented the extension through the European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 2) Regulations 2019, which amended the European Union (Withdrawal) Act 2018.
View the Council's Decision.
View the U.K. Regulations.TOPIC : Brexit for Financial Services -
Financial Action Task Force Reports to G20
04/08/2019
The Financial Action Task Force has published a Report to G20 Finance Ministers and Central Bank Governors on its ongoing work to fight money laundering and terrorist financing. The report summarizes the FATF's work priorities under the U.S. presidency and sets out areas in which the FATF will work in the near future. These include:- Work on virtual assets: the FATF continues to closely monitor risks involving virtual assets (the FATF uses this term to cover both virtual currencies and crypto assets). In this area, by June 2019, the FATF intends to address the challenges that arise in investigations and confiscation and update its 2015 Risk-based Approach Guidance on Virtual Currencies. The FATF will also review and consider the scope of the activities and operations that are covered by its Recommendations and Glossary.
- Improving transparency and availability of beneficial ownership information: the FATF intends to improve transparency and availability of beneficial ownership information through its mutual evaluation framework and will continue its work, initiated in February 2019, on identifying best practices on beneficial ownership to ensure legal entities are not misused for money laundering or terrorist financing and beneficial ownership information is freely available to national authorities. The work in this area is expected to be finalized by October 2019.
View the report. -
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.
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European Securities and Markets Authority Publishes Supervisory Briefing on MiFID II Appropriateness Rules
04/04/2019
The European Securities and Markets Authority has published an updated version of its supervisory briefing on appropriateness. The original appropriateness briefing was published in December 2012 to provide guidance to EU national regulators on the appropriateness requirements under the original Markets in Financial Instruments Directive. The updated appropriateness briefing reflects the amended requirements introduced by the revised Directive or MiFID II and takes into account the new version of ESMA's suitability guidelines published in May 2018 to the extent they are relevant to the appropriateness rules.
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EU Equivalence for Argentina's Prudential and Regulatory Requirements
04/01/2019
An equivalence decision on the prudential and regulatory requirements in Argentina has been published in the Official Journal of the European Union. The equivalence decision means that EU banks may apply preferential risk weights and hold less regulatory capital for their exposures to Argentinian banks, investment firms, clearing houses, CCPs and exchanges as well as the Argentinian government, central bank and public bodies. Such an equivalence decision under CRR is one of the factors that a national regulator must take into account when deciding whether to adopt a domestic equivalence decision on consolidated supervision under the Capital Requirements Directive (i.e. whether to exercise consolidated supervision under EU rules to non-EU parents).
View the equivalence decision. -
UK Financial Conduct Authority Implements Permanent Ban of Sale of Binary Options to Retail Consumers
03/29/2019
Following its recent consultation, the U.K. Financial Conduct Authority has published a Policy Statement, final rules and a Statement on the new product intervention measure it is introducing for retail binary options. Both contracts for difference and binary options are considered to have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by certain providers and distributors of the products. The FCA's product intervention powers under the Markets in Financial Instrument Regulation and, where the FCA has gone beyond those powers, the Financial Services and Markets Act 2000 allow it to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern. The FCA also consulted on product intervention rules for CfDs and those final rules are expected to be published in April this year.
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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 -
UK Prudential and Conduct Regulators Extend Deadline for Temporary Permissions Notifications by EEA Firms
03/28/2019
The U.K. Prudential Regulation Authority and U.K. Financial Conduct Authority have extended their deadlines for PRA- and FCA-regulated EEA firms to make notifications that they wish to utilize the temporary permissions regime for providing financial services in the U.K. following Brexit if no implementation or transitional period is agreed under the Withdrawal Agreement. Firms now have until April 11, 2019 to make their notification.
Read more.TOPIC : Brexit for Financial Services -
UK Conduct Regulator Publishes Post-Brexit Temporary Permissions Rules
03/28/2019
The U.K. Financial Conduct Authority has published the Exiting the European Union: Temporary Permission and Financial Services Contracts Instrument 2019, which amends the FCA Handbook to accommodate firms subject to the temporary permissions regimes that will apply following the U.K.’s exit from the EU. The amendments will come into force on the day the U.K. exits the EU, with the exception of certain provisions of the FEES manual, which will apply from the later of (i) April 1, 2019 and (ii) exit day.
Non-Handbook guidance
The Instrument also contains non-Handbook guidance specifying that the FCA expects incoming EEA-based firms within the TPR or supervised run-off firms in the Financial Services Contracts Regime to communicate with customers about any material changes to their home state investor compensation scheme coverage as a result of Brexit.
View the Exiting the European Union: Temporary Permission and Financial Services Contracts Instrument 2019.TOPIC : Brexit for Financial Services -
European Securities and Markets Authority Consults on Costs Disclosure Standards for Fund Managers
03/28/2019
The European Securities and Markets Authority has launched a consultation on its draft Regulatory Technical Standards for costs disclosure requirements under the European Long-Term Investment Fund Regulation. The consultation is relevant to ELTIF managers, alternative investment funds managers and institutional and retail investors investing into ELTIFs. Responses to the consultation should be supplied by June 29, 2019.
Read more.TOPIC : Funds -
EU Contracts for Difference Product Intervention Measures to be Extended
03/27/2019
The European Securities and Markets Authority has announced that its restrictions on the sale, distribution and marketing of contracts for difference to retail investors will be extended from May 1, 2019, for a further three months. The extension will be on the same terms as the existing product intervention measure.
View ESMA's announcement.
View details of the existing decision. -
EU Product Intervention Measures for Binary Options Extended
03/27/2019
The European Securities and Markets Authority has issued a Decision renewing the temporary prohibition on the marketing, distribution or sale of binary options to retail clients for a further three months from April 2, 2019. This has now been published in the Official Journal of the European Union. ESMA announced in February this year that the existing restriction would be extended. The binary options Decision applies directly across the EU from April 2, 2019, for a period of three months.
View the decision.
View ESMA's notification. -
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. -
European Council Publishes Brexit Extension Decision
03/22/2019
The European Council has published its decision to extend the deadline for the U.K.’s withdrawal from the EU until May 22, 2019, provided that the Withdrawal Agreement passes through the House of Commons by March 29, 2019.
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EU Securities Financing Transaction Reporting Obligation Phased-In from April 2020
03/22/2019
A Commission Delegated Regulation and Commission Implementing Regulation setting out technical standards on the reporting of securities financing transactions have been published in the Official Journal of the European Union. These technical standards supplement the EU Securities Financing Transactions Regulation, which requires, amongst other things, all SFTs to be reported to EU-recognized trade repositories. Relevant reports must include details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies. While various parts of the SFTR came into effect on January 12, 2016, the new reporting obligation is brought into force by these new technical standards.
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No-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.
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UK Prudential Regulator Announces Details of Post-Brexit Temporary Permissions Regime for EEA Firms
03/22/2019
The U.K. Prudential Regulation Authority has published details of the temporary permissions regime that will allow PRA-regulated EEA firms to continue providing financial services in the U.K. for a limited period following the U.K’s exit from the EU, in the event that no implementation or transitional period is agreed under the Withdrawal Agreement. The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 brought the TPR into force on November 7, 2018. The TPR applies to EEA firms that are authorized to conduct a regulated activity in the U.K. using passporting rights and have either: (i) applied for U.K. authorization prior to the U.K. withdrawal date; or (ii) notified the relevant U.K. regulator of their intention to continue conducting passported activities. Such firms will be entitled to continue providing financial services for up to three years from the date the U.K. leaves the EU.
Read more.TOPIC : Brexit for Financial Services -
Bank of England Announces Details of Post-Brexit Temporary Recognition Regimes for CCPs and CSDs
03/22/2019
The Bank of England has published details of its prospective new role as supervisor of financial markets infrastructure at the end of the implementation period following the U.K.’s exit from the EU.
Read more. -
UK Conduct Regulator Publishes Supplementary Directions for E-Money and Payment Services Temporary Permissions Regime
03/22/2019
The U.K. Financial Conduct Authority has published two supplementary Directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 specifying that notifications by e-money and payment services firms wishing to take advantage of the FCA’s temporary permissions regime will not be valid if they are withdrawn in writing prior to exit day. The FCA has previously issued Directions setting out how such firms should notify the FCA of their intention to make use of the temporary permissions regime.
View the FCA's supplementary Direction on withdrawal of notifications by e-money services firms.
View the FCA's supplementary Direction on withdrawal of notifications by payment services firms.
View details of the FCA’s Directions for notifications by e-money and payment services firms. -
EU Statement on the Impact of a No-Deal Brexit on the Share Trading Obligation
03/19/2019
May 29, 2019 update: ESMA's guidance of March 19, 2019 has been superseded by revised guidance issued, details of which are available here.
The European Securities and Markets Authority has published a statement on the impact of a no-deal Brexit on the trading obligation for shares. The Markets in Financial Instruments Regulation requires investment firms to conclude transactions in shares admitted to trading on a regulated market or traded on an EU trading venue, i.e. namely regulated markets, multilateral trading facilities, systematic internalisers and equivalent third-country trading venues. The requirement is not applicable to transactions in shares traded in the EU on a non-systematic, ad-hoc, irregular and infrequent basis. ESMA's statement is relevant should there be a no-deal Brexit (currently set for March 29, 2019) and there is no equivalence decision for the U.K.
Read more. -
Working Group on Sterling Risk-Free Rates Publishes Discussion Paper on SONIA Referencing Conventions
03/18/2019
The Working Group on Sterling Risk-Free Rates has published a discussion paper aimed at raising awareness for market participants of the conventions for referencing SONIA in new financial contracts. The paper focuses on the most significant conventions for contracts that reference SONIA directly. The paper concludes with a series of questions for market participants, who should submit responses by April 30, 2019.
Read more. -
UK Allows Post-Brexit Endorsement of Credit Ratings From the EU
03/15/2019
The U.K. Financial Conduct Authority has published a statement confirming that the EU regime for credit rating agencies is "at least as stringent" as the U.K.'s regime, post-Brexit. The U.K. CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may use credit ratings for certain regulatory purposes if a rating is issued by a third-country CRA under the endorsement regime. The FCA considers that the EU regime meets the conditions for endorsement. This will allow U.K.-registered CRAs to endorse credit ratings into the U.K. from EU affiliates for regulatory use under the U.K. CRA Regulation. The European Securities and Markets Authority has announced today that the U.K. regime has been positively assessed for endorsement under the EU CRA Regulation.
In addition, in preparation for a no-deal Brexit, the U.K. is establishing (i) a conversion regime for U.K. and third-country CRAs currently registered or certified by ESMA; and (ii) a temporary registration regime for newly established U.K. entities that are part of a group of CRAs with an existing ESMA registration before exit day.
View the FCA's statement on endorsement of EU credit ratings.
View details of ESMA's statement on endorsement of U.K. credit ratings. -
EU Positive Assessment of UK Post-Brexit Regime Paves Way for Endorsement of UK Credit Ratings
03/15/2019
The European Securities and Markets Authority has published a further statement on the implications of a no-deal Brexit for U.K. credit rating agencies. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may use credit ratings only 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. U.K. CRAs will lose their EU registration when the U.K. leaves the EU on a "hard Brexit."
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 -
UK Conduct Regulator Publishes Statement on Operating MiFID II Transparency Regime Post-Brexit
03/14/2019
The U.K. Financial Conduct Authority has published a Supervisory Statement on the operation of the transparency regime under the Markets in Financial Instruments Directive post-Brexit. The Statement sets out how the FCA will operate the pre- and post-trade transparency regime for the secondary markets in the event of a no-deal Brexit on March 29, 2019. The U.K.'s onshored MiFID II provides the FCA with transitional powers, for a period of four years, on how to run the transparency regime as the FCA does not yet have the technology to make the same calculations and assessments that ESMA carries out.
View the FCA's statement. -
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 Prudential Regulator Consults on Changes to Pillar 2 Capital Requirements
03/13/2019
The U.K. Prudential Regulation Authority has opened a consultation proposing changes to the Pillar 2 capital requirements for banks and large investment firms.
Responses to the consultation may be submitted until June 13, 2019. The PRA is proposing to implement the changes from October 1, 2019.
The Pillar 2 capital for firms comprises Pillar 2A and Pillar 2B. Pillar 2A is a firm's capital requirement for certain risks, including credit risk, market risk, operational risk, counterparty credit risk, credit concentration risk and interest rate risk in the non-trading book. Pillar 2B is the PRA's buffer for each firm, in addition to the buffers required under the Capital Requirements Directive. The PRA's proposals relate to changes needed to its approach to setting the Pillar 2B buffer as a result of the Bank of England's changes to the stress testing framework. The proposals also aim to: (i) clarify the PRA's approach to assessing weaknesses in risk management and governance under Pillar 2B; and (ii) explain the process for updating the benchmarks used to calculate the Pillar 2A requirement for credit risk.
The changes would be implemented by updates to:- Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital";
- Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" (SS31/15); and
- Supervisory Statement, "Implementing CRD IV: Capital buffers" (SS6/14).
View the consultation paper. -
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. -
UK Prudential Regulator Publishes Final Rules on Definition of Default for Credit Risk
03/06/2019
The U.K. Prudential Regulation Authority has published final rules and an updated Supervisory Statement alongside a Policy Statement on the definition of default for credit risk. The EU Capital Requirements Regulation's risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit commitment is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk.
The European Banking Authority developed a roadmap in 2016 to address concerns about the variability of own funds requirements arising from the internal models that firms use to calculate their minimum credit risk capital requirements under the CRR. The PRA is adopting a two-stage approach to implementing the EBA's roadmap. This first stage concerns the definition of default. The PRA will consult later on implementation of the second stage on PD and LGD estimation, once the EBA's regulatory products on this topic have been finalized.
Read more. -
EU Final Guidelines on Identifying an Economic Downturn in IRB Modelling
03/06/2019
The European Banking Authority has published a report and final Guidelines on the estimation of LGD appropriate for an economic downturn in compliance with the Capital Requirements Regulation, the Regulatory Technical Standards on the internal ratings-based assessment methodology and the final draft RTS on the specification of an economic downturn.
The Guidelines will apply from January 1, 2021 and firms should incorporate these requirements in their rating systems by that time. However, national regulators may bring forward, at their discretion, this deadline. The EBA Guidelines remind firms that the use of own estimates of LGD appropriate for an economic downturn is subject to approval by their home state regulator.
The Guidelines specify how LGD estimates appropriate for an economic downturn - identified in accordance with the draft RTS on economic downturn - should be quantified, taking into account the specificities of firm processes, underwriting standards and general response to adverse economic conditions. The Guidelines supplement the existing EBA Guidelines on Probability of Default, LGD estimation and treatment of defaulted assets.
The publication of these Guidelines marks the completion of the EBA's 2016 roadmap, designed to address concerns about the variability of own funds requirements arising from the internal models that firms use to calculate their minimum credit risk capital requirements under the CRR.
View the final report and guidelines.
View details of the EBA's consultation on the guidelines. -
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. -
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.TOPIC : Recovery & Resolution -
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 Consults on Guidelines on Credit Risk Mitigation
02/25/2019
The European Banking Authority has published a consultation paper concerning proposed guidelines on credit risk mitigation for firms using the advanced internal ratings based approach with own estimates for loss given default. The consultation follows the EBA's report on the CRM framework, published in March 2018, which should be read in conjunction with the consultation paper. Responses to the consultation should be submitted by May 25, 2019.
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.TOPIC : Recovery & 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 -
Single Resolution Board Publishes Framework for Valuation
02/19/2019
The EU Single Resolution Board has published a Framework for Valuation, setting out the principles upon which valuations for resolutions for Eurozone banks under the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation should be based. BRRD and the SRMR require resolution authorities to ensure a fair, prudent and realistic valuation of a relevant institution’s assets and liabilities is conducted by an independent valuer prior to resolution or write-down. The Framework is intended to provide an indication of best practices for independent valuers and the general public, but should not be taken to limit the independence of valuers when performing a valuation in a specific case.
Read more.TOPIC : Recovery & Resolution -
EU Product Intervention Measures for Binary Options to be Further Extended
02/18/2019
The European Securities and Markets Authority has announced that its prohibition on the marketing, distribution or sale of binary options to retail clients will be extended for a further three months from April 2, 2019. ESMA's ban has been in effect since July 2, 2018.
View ESMA's announcement.
View details of the existing product intervention measure for binary options. -
EU to Recognize Three UK CCPs in a No-Deal Brexit Scenario
02/18/2019
The European Securities and Markets Authority has announced that in the event of a no-deal Brexit, it will recognize three U.K.-established CCPs for the purposes of providing services in the EU, namely - LCH Limited, ICE Clear Europe Limited and LME Clear Limited. ESMA has adopted recognition decisions for each of the U.K. CCPs, which will take effect on the day after the U.K. leaves the EU. This follows the European Commission's earlier determination of U.K. equivalence for CCPs.
View ESMA's announcement. -
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 -
European Securities and Markets Authority Publishes Final Guidelines on Submission of Information by Credit Rating Agencies
02/12/2019
The European Securities and Markets Authority has published its final guidelines on the periodic information that credit rating agencies should submit to ESMA. The guidelines amend the existing requirements that are intended to structure and specify more clearly the information that agencies should submit to ESMA to enable it to carry out its supervisory activities. The information submitted by CRAs also allows ESMA to calculate their supervisory fees and market share.
Read more.TOPIC : Credit Ratings -
UK Competition Authority Consults on Draft Investment Consultancy and Fiduciary Management Market Investigation Order 2019
02/11/2019
The U.K. Competition and Markets Authority has published for consultation a draft Investment Consultancy and Fiduciary Management Market Investigation Order 2019. The draft Order is intended to implement the remedies proposed by the CMA in its Final Report on the Investment Consultancy and Fiduciary Management Market Investigation, published on December 12, 2018. Any feedback on the draft Order should be provided by March 13, 2019.
View the draft Order.
View the explanatory note to the draft Order.
View the notice of an intention to make an Order.
View details of the CMA's Final Report. -
European Supervisory Authorities Recommend Further Risk Warnings for Retail Investors
02/08/2019
The Joint Committee of European Supervisory Authorities has published a Final Report following their consultation on targeted 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. This is because the UCITS Directive separately requires these entities to provide investors with a Key Investor Information Document, with different but broadly similar contents requirements. 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 proposed amending the Regulatory Technical Standards under the PRIIPs Regulation by moving the UCITS KIID requirements to the PRIIPs RTS.
Read more. -
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. -
European Securities and Markets Authority Consults on Stress Tests for Investment Funds
02/05/2019
The European Securities and Markets Authority has published a consultation paper on its proposed guidelines for liquidity stress testing in Alternative Investment Funds and Undertakings for Collective Investment in Transferable Securities. The paper has been published in response to the European System Risk Board's 2018 Recommendation on mitigating liquidity and leverage risks in investment funds, which requires that ESMA produces guidance on the practice to be followed by managers for the stress testing of liquidity risk for AIFs and UCITS.
Read more.TOPIC : Funds -
European Securities and Markets Authority Outlines Derivatives Reporting Obligations in the Event of a No-Deal Brexit
02/01/2019
The European Securities and Markets Authority has published a statement on the impact of a hard Brexit on the reporting obligation under the EU European Market Infrastructure Regulation. The statement considers the following counterparty scenarios: (i) EU27-EU27; (ii) EU27-U.K.; (iii) U.K.-EU27; and (iv) U.K.-U.K. The statement clarifies the position should the U.K. leave the EU without a deal and without a transition period, including reporting by CCPs and counterparties; reconciliation and recordkeeping by trade repositories, access by EU27 authorities to reported data and portability and aggregation by trade repositories. ESMA's statement clarifies that:- to continue to comply with their reporting obligation, EU27 counterparties and CCPs should report their derivatives to an EU-recognized or registered trade repository;
- U.K. counterparties are not expected to report to an EU trade repository on or after March 29, 2019, including derivatives rejected as of March 29, 2019 and amendments to derivatives concluded before March 29, 2019;
- EU27 counterparties and CCPs should consider any risks if they delegate their report submissions to a non-EU entity; and
- U.K. trade repositories should ensure the full transfer of all data to an EU27 trade repository before March 29, 2019.
View ESMA's statement. -
International Organization of Securities Commissions Consults on Sustainable Finance in Emerging Markets
02/01/2019
The International Organization of Securities Commissions has launched a consultation on sustainable finance in emerging markets and the role of securities regulators. The consultation discusses the challenges affecting the development of sustainable finance in capital markets, focusing on sustainable assets in emerging markets and measures to facilitate market development in this area. Responses to the consultation can be submitted by April 1, 2019.
Read more. -
European Systemic Risk Board Publishes Report on CCP Interoperability Arrangements
01/31/2019
The European Systemic Risk Board has published a report on interoperability arrangements between EU central counterparties. An "interoperability arrangement" is defined in the report as a link between CCPs that involves the cross-system execution of transactions. It is relevant where multiple CCPs service the same trading venue. The arrangements allow clearing members of one CCP to centrally clear trades carried out with members of another CCP, without requiring the first counterparty to be a member of the second CCP. A key motivation for such arrangements is the reduction of fragmentation in the open positions of trading participants and/or clearing members, as open positions in the same products can be consolidated at one CCP.
Read more.TOPIC : Financial Market Infrastructure -
EU Contracts for Difference Product Intervention Measures Extended Again
01/31/2019
The European Securities and Markets Authority Decision renewing the temporary restriction on the marketing, distribution or sale of contracts for difference to retail clients has been published in the Official Journal of the European Union. ESMA announced on December 19, 2018, that the existing restriction would be extended. The CfD Decision applies directly across the EU from February 1, 2019, for a period of three months.
View the decision.
View ESMA's announcement. -
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.
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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.TOPIC : Corporate Governance -
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.
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UK Conduct Regulator Consults on Guidance on Crypto-Assets and the UK Regulatory Perimeter
01/23/2019
The U.K. Financial Conduct Authority has launched a consultation on proposed Guidance on whether certain crypto-assets fall within the U.K.'s regulatory perimeter (CP19/3). The FCA's consultation is in response to one of the commitments made by the U.K. Cryptoasset Taskforce last year in its final Cryptoassets Report. The Taskforce was established in March 2018 and comprises representatives from HM Treasury, the FCA and the Bank of England. The FCA's consultation closes on April 5, 2019. The FCA intends to publish the final Guidance on the existing regulatory perimeter in relation to crypto-assets by summer 2019.
The FCA's proposed Guidance is intended to help firms determine whether certain crypto-assets fall within the FCA's regulatory perimeter. However, the FCA notes that assessing whether a crypto-asset is within the perimeter can only be done on a case-by-case basis and that the responsibility for ensuring that it has the correct permissions lies with the firm undertaking the activity. A firm that undertakes a regulated activity without the requisite permissions will be in breach of the 'general prohibition' in the Financial Services and Markets Act 2000. Any such breach by a person is a criminal offence and the person may be imprisoned or fined, or both. The consultation is relevant to a wide range of consumers, stakeholders and firms, in particular firms that issue or create crypto-assets, firms that market, sell, buy, hold or store crypto-assets, financial advisors, investment managers and investment exchanges.
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Working Group on Euro Risk-Free Rates Publishes Guiding Principles for Fallback Provisions in New Non-Derivative Contracts
01/21/2019
The European Central Bank working group on euro risk-free rates has published guiding principles for fallback provisions in new contracts for euro-denominated cash products. Noting the work that is being undertaken by the International Swaps and Derivatives Association on fall-backs for derivatives referencing EURIBOR and other IBOR rates, the guidelines focus on non-derivative “cash products”, such as mortgages, loans, securitizations, covered bonds and secured finance transactions.
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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.
Read more.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.
Read more.TOPIC : Brexit for Financial Services -
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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Eurozone Single Resolution Board Publishes Policy Statement on Second Wave of 2018 MREL Policy
01/16/2019
The Eurozone Single Resolution Board has published the second wave of its 2018 minimum requirements for own funds and eligible liabilities as part of resolution planning required under the Bank Recovery and Resolution Directive and related Single Resolution Mechanism Regulation. The SRB published the first wave of the 2018 MREL requirements in November which applied to banks that did not have binding MREL targets in 2017.
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Basel Committee on Banking Standards Finalizes Basel Market Risk Framework
01/14/2019
Following its consultation from March to June last year, the Basel Committee on Banking Standards has announced the final revisions to the Basel III market risk capital framework. At the same time, it has also announced its 2019 priorities.
The objective of the Basel market risk framework is to ensure that banks hold enough regulatory capital to protect against losses arising from movements in market prices of instruments held in their trading book. Certain changes to the 2016 market risk framework are to:
- Clarify the scope of application. The Committee has provided further guidance on the regulatory book to which instruments should be assigned in circumstances where instruments could go into more than one book and has revised the treatment of structural foreign currency positions. The revised framework also allows equity investments in funds to be allocated to the trading book, provided that a bank: (i) is able to "look through" to the fund's underlying assets; or (ii) has access both to daily price quotes and to the information contained in the mandate of the fund.
- Revise the internal model approach to address implementation challenges, in particular, by amending the profit and loss attribution (PLA) test metric and failure consequence.
- Amend the standardized model approach. The approach to measuring risk factor losses was too high in relation to the actual risk and there was unnecessary operational burden. The changes in the standardized approach include widening the scope of currency pairs that are considered liquid in the FX risk class to ensure more currency pairs are subject to lower risk weights and introducing new "index" buckets for equity and credit spread risks so that each underlying position in an index does not need to be identified.
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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. -
UK Regulator Launches Consultation on Eligibility of Financial Collateral Under Capital Requirements Regulation
01/10/2019
The U.K. Prudential Regulation Authority has launched a consultation on proposed amendments to its Supervisory Statement on credit risk mitigation to clarify its expectations around the eligibility of financial collateral. The consultation paper is relevant for banks, building societies and PRA-designated U.K. investment firms that are subject to the Capital Requirements Regulation. The consultation closes on April 10, 2019.
Read more. -
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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UK Conduct Regulator Warns Firms About Misleading Financial Promotions
01/09/2019
The Financial Conduct Authority has published a "Dear CEO" letter addressed to the Chief Executive Officers of all FCA-regulated firms. In the letter, the FCA highlights its concerns over the practice engaged in by some firms of issuing financial promotions which suggest or imply that all of the activities or investments undertaken by the firm are regulated by the FCA and/or Prudential Regulation Authority, when they are not.
Some regulated firms undertake both regulated and unregulated business. The FCA has identified that some of these firms are issuing financial promotions which do not make clear which aspects of its business are not regulated by the FCA and/or PRA. This breaches the requirement that all financial promotions are fair, clear and not misleading and that a firm cannot indicate or imply that it is regulated or otherwise supervised by the FCA for its unregulated business. The FCA encourages all firms to reflect on the letter and ensure that their actions comply with the FCA's rules relating to financial promotions.
View the letter. -
EU Report on Regulatory Sandboxes and Innovation Hubs
01/07/2019
Fulfilling the mandate in the European Commission's March 2018 FinTech Action Plan, the Joint Committee of the European Supervisory Authorities has published a report on regulatory sandboxes and innovation hubs, together referred to as innovation facilitators. Innovation hubs are a dedicated point of contact for firms raising queries with national regulators on FinTech-related issues. Regulatory sandboxes enable firms to test innovative financial products, services or business models under the supervision of a national regulator.
The ESAs' report states that most EU member states have one or both forms of these innovation facilitators. The facilitators operate at national level and the ESAs identify this as a potential challenge to the EU objective of scaling-up FinTech. For example, national regulators are likely to adopt different approaches to the same innovation which can hinder opportunities for extending an innovation across the EU as well as present regulatory arbitrage risks. The potential absence of passporting innovative products throughout the EU can raise issues for their users.
Read more.TOPIC : FinTech -
UK Draft Directions for EEA Funds and Fund Managers Wanting to Continue to Market in the UK Post-Brexit
01/07/2019
The U.K. Financial Conduct Authority has published two draft Directives relating to Brexit under the: (1) draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019; and (2) Alternative Investment Fund Managers Regulations 2013, as amended by the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019. These draft regulations will establish a Temporary Permissions Regime enabling EEA funds that currently market in the U.K. under an EEA passport to continue to do so for three years after the U.K. exits the EU.
Read more. -
New UK Financial Policy Committee Appointments
01/03/2019
The U.K. Chancellor of the Exchequer announced the appointment of two external members to the Bank of England's Financial Policy Committee, namely Dame Colette Bowe and Dame Jayne-Anne Gadhia. They will replace Richard Sharp and Martin Taylor, who are stepping down at the end of Q1 2019 and Q2 2019, respectively.
The FPC, established in 2013, seeks to identify, monitor and take action to remove or reduce systemic risk in the U.K. financial system, while simultaneously protecting and enhancing its resilience. The FPC consists of six BoE staff and five external members selected for their experience and expertise in financial services.
Dame Jayne-Anne and Dame Colette will start their three years of service before the FPC's Q2 and Q3 meetings, respectively.
View the announcement.TOPIC : People -
EU Product Intervention Measure Banning the Sale of Binary Options is Extended
12/27/2018
The European Securities and Markets Authority has issued a Decision renewing the temporary prohibition on the marketing, distribution or sale of binary options to retail clients for a further three months from January 2, 2019. This has been published in the Official Journal of the European Union. ESMA announced in November 2018 that the existing restriction would be extended. The binary options Decision applies directly across the EU from January 2, 2019 for a period of three months.
View the Decision.
View ESMA's notification. -
EU Guidelines on Commodity Derivatives Definition Published
12/21/2018
The European Securities and Markets Authority has published amended Guidelines on definitions of commodity derivatives and their classification. The amended Guidelines, which are an update to the guidelines originally adopted under the previous Markets in Financial Instruments Directive (MiFID I), have been adapted to the new MiFID II regulatory framework without amending their substance.
Read more.TOPIC : MiFID II -
EU Grants Temporary Equivalence for Swiss Exchanges for Purpose of Share Trading Obligation
12/20/2018
The EU has granted temporary equivalence to two Swiss stock exchanges (SIX Swiss Exchange AG and BX Swiss AG) under the Markets in Financial Instruments Regulation. MiFIR requires EU investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue. EU investment firms will be able to comply with the MiFIR share trading obligation by trading shares on these Swiss exchanges from January 1, 2019 to June 30, 2019. The extension of the equivalence appears to be dependent on the progress of trade discussions between the EU and Switzerland.
View the EU equivalence decision for Swiss exchanges.TOPIC : MiFID II -
EU Consultation on Draft Guidelines For Improving Settlement Efficiency
12/20/2018
The European Securities and Markets Authority has opened a consultation on two sets of draft Guidelines under the Central Securities Depositaries Regulation. The first draft Guidelines are on settlement fails reporting by national regulators, and the second draft Guidelines concern standardized procedures and messaging protocols that investment firms must use to limit settlement fails. Feedback on each of the draft Guidelines should be submitted by February 20, 2019. ESMA aims to finalize both Guidelines by July 2019.
Read more. -
UK Regulator Consults on Technical Standards for Strong Customer Authentication in Payments as Preparation for a No-Deal Brexit
12/19/2018
The U.K. Financial Conduct Authority has launched a consultation on the proposed Technical Standards on strong customer authentication and common and secure open standards of communication (referred to as the U.K. SCA RTS). The U.K. SCA RTS would apply in the U.K. from September 14, 2019 in the event of a no-deal Brexit. The FCA's proposals will apply to payment service providers, including banks, building societies, e-money issuers, payment institutions, registered Account Information Services (AIS) and Payment Initiation Services (PIS) service providers. Responses to the consultation should be submitted by February 19, 2019. The FCA intends to publish the final Technical Standards in April 2019.
The EU SCA Regulatory Technical Standards (Commission Delegated Regulation (EU) 2018/389), which supplement the EU Payment Services Directive, came into force on March 14, 2018. The EU SCA RTS impose obligations on PSPs to increase the security of customers' payments made by card and other means and set out requirements on account servicing payment service providers (ASPSPs) relating to the third party providers of Account Information Services and Payment Initiation Services. The EU SCA RTS will apply directly across the EU from September 14, 2019.
The FCA is proposing to make the U.K. SCA RTS substantially similar to the EU SCA RTS so as not to disrupt and confuse the substantial preparations that industry has already made to implement the EU requirements. In the event of a no-deal Brexit, the U.K. SCA RTS will supplement the U.K. Payment Services Regulations 2017, as amended by the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. Without the U.K. SCA RTS, the revised-for-Brexit PSRs would be ineffective as they require compliance with U.K.SCA RTS.
View the consultation paper (CP18/44). -
EU Contracts for Difference Product Intervention Measures to be Extended Again
12/19/2018
The European Securities and Markets Authority has published a statement announcing that its various restrictions on the sale, distribution and marketing of contracts for difference to retail investors will be extended from February 1, 2019, for a further three months. ESMA has powers under the Markets in Financial Instruments Regulation to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the European Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire, and it would then fall to member states to impose similar restrictions at a national level, if they so wish.
ESMA considers that a significant investor protection concern in relation to retail clients still exists. Its statement confirms that the existing restriction, implemented on November 1, 2018, will be extended from February 1, 2019 for a further three months.
View ESMA's statement.
View details of the existing CfD restrictions. -
EU Temporary Equivalence Decisions for UK CCPs and CSDs
12/19/2018
The European Commission has adopted temporary equivalence decisions determining that the U.K. regulatory frameworks applicable to central counterparties and central securities depositories will be deemed equivalent to EU standards under the European Market Infrastructure Regulation and the Central Securities Depositories Regulation, respectively, in the event of a no-deal Brexit.
Read more. -
US Securities and Exchange Commission Finalizes Rule of Practice 194
12/19/2018
The Securities and Exchange Commission has adopted, by a 3-2 vote, Rule of Practice 194, which establishes the process for a registered security-based swap dealer or major security-based swap participant (collectively, SBS Entities) to apply to the SEC for a waiver that would allow a statutorily disqualified natural person to effect or be involved in effecting security-based swaps on behalf of the SBS Entity, subject to certain conditions. The final rule, which was first proposed in 2015, represents a continuation of the agency’s efforts to implement its security-based swap regulations pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and will become relevant when the SEC begins requiring registration of SBS Entities.
Read more.TOPIC : Derivatives -
European Commission Adopts Measures in Preparation for a No Deal Brexit
12/19/2018
The European Commission has published a Communication on Implementing the Commission's Contingency Action Plan for a no deal Brexit and has adopted all the legislative proposals and delegated acts announced in its November 2018 Contingency Plan. The actions relevant to the derivatives industry are the adoption by the Commission of:
- A temporary and conditional equivalence decision for CCPs already established and authorized in the U.K. CCPs established in third countries (which the U.K. will become on exit day) whose supervisory and legal regimes have been deemed to be equivalent to the EU regime may provide clearing services to clearing members or trading venues established in the EU. Such a CCP must be recognized by the European Securities and Markets Authority in accordance with the processes outlined in the European Market Infrastructure Regulation. The adopted decision would grant equivalence to the regulatory and legal regimes of the U.K. and Northern Ireland in relation to CCPs. The Commission's equivalence decision would apply for 12 months from exit day. ESMA remains to designate various U.K. CCPs.
Read more. -
UK Regulators Consult on the Resolvability Assessment Framework for Banks
12/18/2018
The Bank of England and Prudential Regulation Authority have launched a package of consultations on proposals for the U.K.'s resolvability assessment framework for banks, with the aim of meeting the BoE's commitment to ensure that all banks are resolvable by 2022. The PRA consultation is relevant for U.K. banks and building societies with £50 billion or more in retail deposits on an individual or consolidated basis. The BoE's consultation is wider in scope and affects all firms with bail-in or partial-transfer resolution strategies and material U.K. subsidiaries of an overseas-based banking group. Responses to the consultations should be submitted by April 5, 2019.
Read more.TOPIC : Recovery & Resolution -
US Securities and Exchange Commission Proposes Risk Mitigation Requirements for Uncleared Security-Based Swaps
12/18/2018
The Securities and Exchange Commission has proposed rules that would establish risk mitigation requirements with respect to a registered security-based swap dealer’s or major security-based swap participant’s (collectively, SBS Entities’) portfolio of uncleared security-based swaps. The proposed rules would establish requirements for SBS Entities in respect of security-based swap portfolio reconciliation, portfolio compression and trading relationship documentation, and will become relevant when the SEC commences requiring registration of SBS Entities. The proposal continues the agency’s ongoing efforts to implement its security-based swap regulations pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act and is intended to harmonize the SEC’s requirements with those of the Commodity Futures Trading Commission, which adopted similar risk mitigation requirements for uncleared swaps in 2012.
Read more.TOPIC : Derivatives -
UK Conduct Regulator Publishes Directions For E-Money and Payment Services Temporary Permissions Regime
12/18/2018
The U.K. Financial Conduct Authority has published two Directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018, specifying how and when firms subject to the Regulations should make Temporary Permissions Notifications. The Regulations set out how firms that are entitled to provide e-money or payment services immediately before the U.K.’s exit from the EU may continue to provide those services for a specified period after exit day. Firms must notify the FCA of their desire to make use of this temporary permission regime in accordance with the FCA’s Directions.
View the FCA's Direction on notifications for e-money institutions under the Regulations.
View the FCA's Direction on Notifications for payment services institutions under the Regulations.
View details of the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. -
Brexit: European Banking Authority Calls for More Communication with Clients
12/17/2018
The European Banking Authority has published a press release calling for firms to take more action in their Brexit-related communications with customers. The U.K. will depart the EU without a transitional period on March 30, 2019 if the withdrawal agreement is not ratified by that time. In June 2018, the EBA issued an Opinion that stressed the need for firms to consider their obligations to existing and prospective customers. It set out a list of minimum information that national regulators should ensure firms send to customers whose contracts or services might be affected by the end of the year. In its press release, the EBA urges firms to consider the June 2018 Opinion and to communicate to customers the risks and effects that a no-deal Brexit may have on a customer's contract with the firm.
View the press release.
View details of the EBA's June 2018 Opinion. -
European Commission Adopts Legislation to Promote Small and Mid-sized Enterprises Growth Markets
12/13/2018
Following its consultation earlier this year on a proposed regulation, the European Commission has adopted a Delegated Regulation regarding certain registration conditions to promote the use of SME Growth Markets for the purposes of the revised Markets in Financial Instruments package, known as MiFID II. SME Growth Markets are a new sub-category of multilateral trading facility introduced by MiFID II in January 2018 to facilitate access to capital for SMEs. The adopted Delegated Regulation will amend existing delegated legislation under MiFID II to address regulatory barriers to the take-up of SME Growth Markets.
Read more. -
US Consumer Financial Protection Bureau Proposes Regulatory Sandbox and Revisions to No-Action Letter Policy
12/13/2018
The Consumer Financial Protection Bureau has proposed revisions to the agency’s No-Action Letter policy and floated the idea of a federal regulatory sandbox. The proposed NAL policy would simplify and clarify the agency’s existing procedures for obtaining a NAL, while the sandbox would streamline the process for firms that seek regulatory relief when they roll out innovative products or services.
The CFPB’s proposed NAL policy would supplant the agency’s existing policy, which was implemented in 2016. Under the current policy, the CFPB has only provided one NAL. To encourage more applications for NALs, the CFPB is proposing to streamline the NAL application and review processes by eliminating several redundant or overly burdensome requirements, such as data-sharing requirements. The updated NAL policy would also eliminate assumed time-period limitations on NALs and place an emphasis on coordination with other regulators that offer NALs or similar forms of relief.
Read more.TOPIC : FinTech -
Final EU Guidelines on Simple, Transparent and Standardized Criteria for Securitizations
12/12/2018
The European Banking Authority has published two sets of finalized guidelines under the Securitization Regulation which, along with targeted amendments to the Capital Requirements Regulation, forms part of the new EU Securitization Framework for simple, transparent and standardized securitizations from January 2019. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria to be able to use the "STS" designation. ESMA will maintain a list of all such securitizations on its website.
Read more. -
UK Competition Authority Publishes Final Report on the Investment Consultants Market Investigation
12/12/2018
The U.K. Competition and Markets Authority has published its Final Report on the Investment Consultants Market Investigation. The Investigation assessed the supply and acquisition of investment consultancy services and fiduciary management services. In its Provisional Decision Report, published on July 18, 2018, the CMA concluded that there is an adverse effect on competition which may result in material detriment to customers in both the investment consultancy and fiduciary management markets, although there are more concerns with the fiduciary management market. This finding is confirmed in the Final Report.
In investment consultancy, the CMA considers that there is a low level of engagement by some customers in choosing and monitoring their provider. In addition, some customers may have difficulty in accessing and assessing the information needed to evaluate the quality of their existing investment consultant and identifying whether it would be to their advantage to use an alternative provider.
Read more. -
European Commission Adopts Amendments to Technical Standards On Systematic Internalisers' Quote Rules
12/12/2018
The European Commission has adopted a Delegated Regulation amending and correcting the Regulatory Technical Standards under the Markets in Financial Instruments Regulation on the equity transparency obligations of trading venues and investment firms. The RTS, known as RTS 1, is set out in Commission Delegated Regulation (EU) 2017/587, supplementing MiFIR. Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent to 10% of the standard market size for the quoted instrument; (ii) include both a bid and an offer price for a size that could be up to market size; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity."
Read more.TOPIC : MiFID II -
UK Financial Conduct Authority Publishes Its Final Approach to Authorization
12/12/2018
The Financial Conduct Authority has published its final document, entitled "FCA Mission: Approach to Authorisation," explaining the purpose of authorization and the FCA's approach to it. The paper sets out details of the FCA's approach to: (i) evaluating whether firms meet the requisite Threshold Conditions and assessing whether individuals are "fit and proper"; (ii) how the FCA uses authorization to promote competition; and (iii) revoking authorization.
Read more. -
US Commodity Futures Trading Commission Consults on Ether and the Potential Introduction of Ether Derivatives Contracts
12/11/2018
To further its understanding of Ether and its use on the Ethereum Network, the Commodity Futures Trading Commission has issued a request for input on several topics related to the virtual currency. The RFI poses a number of questions on Ether, including, among other things, its functionality, underlying technology, governance, markets, cybersecurity and custody. In addition, the CFTC asks several questions regarding Ether's susceptibility to market manipulation and the potential introduction of Ether derivatives contracts.
The CFTC stated that the requested feedback will inform the work of the CFTC and its LabCFTC initiative to enhance the agency's oversight of virtual currency markets and develop regulatory policy. The CFTC also noted that it hopes to gain a greater understanding of the similarities and differences between Ether and bitcoin, along with potential risks and opportunities uniquely posed by Ether.
Read more. -
EU Court Rules That the UK Can Unilaterally Revoke its Brexit Notice
12/10/2018
The Court of Justice of the European Union has ruled that the U.K. is able to unilaterally revoke its notice of intention to withdraw from the EU. Any such revocation could only be made before the draft Withdrawal Agreement entered into force or, if there is no agreement, expiration of the two-year period since the withdrawal notification was made or any extension of that two-year period in accordance with Article 50 of the Treaty on the European Union. The revocation could also only be made after a revocation decision was made by the U.K. according to its constitutional requirements.
The CJEU decision means that the U.K. Parliament has three options to consider on Brexit: remain in the EU, accept the draft withdrawal agreement negotiated by the U.K. Government or leave the EU on March 29, 2019, without an agreement (known as a "hard Brexit").
Read more.TOPIC : Brexit for Financial Services -
UK Conduct Authority Consults on Permanent Product Intervention Measures
12/07/2018
The U.K. Financial Conduct Authority has launched two consultations proposing to prohibit the sale, marketing and distribution of binary options to retail consumers and to restrict the sale, marketing and distribution of contracts for difference and similar products to retail customers. Both CFDs and binary options are considered to have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by providers and distributors of the products. The FCA's product intervention powers under the Markets in Financial Instrument Regulation and, where the FCA has gone beyond those powers, the Financial Services and Markets Act 2000, allow it to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern. The proposed rules would be permanent and would replace the temporary measures introduced, and subsequently renewed, by the European Securities and Markets Authority earlier this year.
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Further UK Legislation in Preparation for Brexit Comes Into Force
12/06/2018
Three pieces of U.K. legislation to onshore EU laws in preparation for Brexit have been made. These are:
- The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (SI 2018/1318).
A number of technical changes have been made as a result of the consultation process, but these do not affect the fundamental intention and scope of the legislation. The Regulations come into force on December 7, 2018, except for the provisions amending the European Market Infrastructure Regulation, which will come in force on exit day. Advance applications for registration of a trade repository must be submitted to the Financial Conduct Authority between December 7, 2018 and immediately before exit day, instead of on exit day.
These Regulations establish: (i) a temporary registration regime to enable U.K. and EU trade repositories to benefit - on complying with certain requirements - from temporary registration while the FCA considers their application; and (ii) a conversion regime that will allow U.K. trade repositories that are currently registered with the European Securities and Markets Authority to be registered as authorized U.K. trade repositories by the FCA from exit day.
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UK Ring-Fencing Order Brings Full Regime Into Force From January 2019
12/05/2018
The U.K. Financial Services (Banking Reform) Act 2013 (Commencement No. 12) Order 2018 has been made. The Order brings into force, from January 1, 2019, those provisions of the Financial Services (Banking Reform) Act 2013 on ring-fencing that are not already in force, including the prohibition on ring-fenced bodies to carry on excluded activities and provisions on group restructuring. The U.K. ring-fencing laws require U.K. banks which hold more than £25 billion in core deposits and banking groups whose members hold an average core deposit of more than £25 billion to separate their core retail banking business from their investment banking business. Restrictions will limit the products that a ring-fenced bank can offer and where it can conduct business. In particular, a ring-fenced bank will not be able to own a banking subsidiary or branch which is established outside of the EEA.
View the Order.TOPIC : Bank Structural Reform -
UK Regulations Implementing the EU Securitization Regulation Made
12/04/2018
The U.K. Securitization Regulations 2018 have been laid before Parliament and will come into force on January 1, 2019. The Regulations implement the EU Securitization Regulation (also known as the STS Regulation) into U.K. law.
The EU Securitization Regulation provides the criteria for identifying which securitizations will be designated as simple, transparent and standardized securitizations, a system to monitor the application of those criteria and common requirements on risk retention, due diligence and disclosure. It also allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator. Originators, sponsors or original lenders of a securitization will be required to retain on an ongoing basis a material net economic interest in the securitization of at least 5%. Related amendments to the Capital Requirements Regulation set out preferential regulatory treatment for investors, in particular, for bank investors, of their exposures to securitizations that are deemed to be STS securitizations.
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Final EU Guidelines on Contingency Mechanism Exemption for Account Servicing Payment Service Providers
12/04/2018
Following its consultation earlier in 2018, the European Banking Authority has published final guidelines on the conditions to benefit from an exemption from the contingency mechanism under the revised Payment Services Directive. PSD2 and the related Regulatory Technical Standards on strong customer authentication and common and secure communication regulate, among other things, the access by account information service providers and payment initiation service providers to customer payment account data held in account servicing payment service providers.
The RTS require, among other things, ASPSPs with payment accounts that are accessible online to offer at least one access interface ensuring secure communication with account information service providers, payment initiation service providers and payment service providers issuing card-based payment instruments. An ASPSP may choose between offering: (i) an interface that is dedicated to the communication with account information service providers, payment initiation service providers, and payment service providers issuing card-based payment instruments; or (ii) use of the interface for the identification and communication with the ASPSP's payment service users. Where a dedicated interface is elected, ASPSPs must establish a contingency mechanism to ensure that payment service providers who rely on the dedicated interface can continue to provide their services in the event that the dedicated interface suffers from unavailability or inadequate performance. ASPSPs may apply for exemption from having to provide such a mechanism, demonstrating that the dedicated interface complies with certain other specific conditions.
Read more.TOPIC : Payment Services -
UK Draft Regulations on Credit Ratings in Preparation for Brexit
11/30/2018
HM Treasury has laid before Parliament the draft Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 to onshore the EU Credit Rating Agencies Regulation for Brexit. This follows the publication of related explanatory information on October 8, 2018.
The EU CRA Regulation regulates CRAs established in the EU. The European Securities and Markets Authority directly supervises EU CRAs registered with it under the CRA Regulation. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; (ii) a third-country CRA under the endorsement regime; or (iii) a third-country CRA under the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU, provided that the rating has been endorsed by an EU CRA. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes. It does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU.
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European Supervisory Authorities Advocate Proportional Approach to Compliance With Certain Aspects of the Securitization Regulation
11/30/2018
The European Supervisory Authorities have issued a joint statement addressing two issues arising from the Securitization Regulation. The Securitization Regulation will apply directly across the EU from January 1, 2019 to securities issued under securitizations on or after January 1, 2019. Securitizations issued before that date may be referred to as STS securitizations, provided that they meet certain conditions.
The first issue addressed in the joint statement relates to disclosure requirements for EU securitizations. The Securitization Regulation requires originators and sponsors to notify ESMA of any securitization that meets the "Simple, Transparent and Standardized" criteria. ESMA will maintain a list of all such securitizations on its website. Securitization special purpose entities, originators and sponsors of a securitization will be required to make certain information available via a securitization repository to holders of a securitization position, to the national regulators and, upon request, to potential investors. The European Securities and Markets Authority and the European Commission still have to address a number of market concerns on the proposed ESMA disclosure templates (that will be introduced as Technical Standards under the Regulation) as part of these transparency requirements. This is a process that will not be concluded by January 1, 2019.
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Draft UK Legislation to Onshore the EU Reorganization and Winding Up Directives Published in Preparation for Brexit
11/30/2018
HM Treasury has published a draft statutory instrument to onshore further EU financial services legislation in preparation for Brexit - the draft Credit Institutions and Insurance Undertakings Reorganization and Winding Up (Amendment) (EU Exit) Regulations 2018. An explanatory memorandum has also been published. HM Treasury has prepared the draft SI using powers granted to it under the EU Withdrawal Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the U.K. leaving the EU.
The draft SI will onshore the EU Credit Institutions (Reorganisation and Winding Up) Directive and certain aspects of Solvency II. These Directives establish EEA frameworks for the reorganization and winding up of EEA banks, building societies, credit unions and insurers. They were transposed into U.K. law in the Insurers (Reorganization and Winding Up) Regulations 2004 (S.I. 2004/353), the Credit Institutions (Reorganization and Winding Up) Regulations 2004 (S.I. 2004/1045), and the Insurers (Reorganization and Winding Up) (Lloyd's) Regulations 2005 (S.I. 2005/1998).
Read more. -
UK Draft Regulations Governing Financial Market Infrastructure in Preparation for Brexit
11/30/2018
HM Treasury has published a new draft statutory instrument, the draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2018. The draft instrument is part of its work to ensure that the U.K.'s financial services laws are operative on exit day. The related explanatory information was published on November 22, 2018. The draft Regulations amend relevant parts of the Financial Services and Markets Act 2000 and the Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories Regulations 2001/995.
Read more. -
Proposed Exemption From EU Margin Obligations for OTC Derivatives Novated to EU Counterparties in Preparation for a "No Deal" Brexit
11/29/2018
The Joint Committee of the European Supervisory Authorities has published a final report and final draft Regulatory Technical Standards to amend the existing RTS on margin requirements for uncleared OTC derivative contracts. The ESAs are proposing the introduction of a 12-month exemption from the margin exchange obligations to facilitate the novation of uncleared OTC derivative contracts to EU counterparties in the event of a "no deal" Brexit. The European Market Infrastructure Regulation requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The RTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. The variation margin requirements have applied to all counterparties since March 1, 2017.
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European Commission Publishes Commission Delegated Regulation on the Electronic Central Register Under Payment Services Directive
11/29/2018
The European Commission has adopted Regulatory Technical Standards on the development, operation and maintenance of the electronic central register and access to the information it contains under the Payment Services Directive 2015, known as PSD2. The register will contain details of authorized payment institutions, certain exempt persons and their agents and it will identify the payment services for which each payment institution is authorized or exempt person is registered. PSD2 took effect on January 13, 2018. The electronic central register established by these RTS will be the responsibility of the European Banking Authority. It is intended that these RTS, once published in the Official Journal of the European Union, will be binding and directly applicable in all Member States from twenty days after publication.
View the Commission Delegated Regulation.TOPIC : Payment Services -
UK Payment Systems Regulator Consults on Brexit-Related Changes to Onshore Regulatory Technical Standards Under the Interchange Fees Regulation
11/29/2018
The U.K. Payment Systems Regulator has launched a consultation on its proposals to onshore the Regulatory Technical Standards supplementing the EU Interchange Fee Regulation to ensure the RTS can still operate effectively once the U.K. has left the EU. The consultation will primarily be relevant for card schemes subject to the IFR, parties contracting with card schemes and/or processing entities (e.g. issuers, acquirers) and third-party card payment processors.
The PSR is empowered by HM Treasury, under the Financial Regulators’ Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018, to correct deficiencies in the RTS and to maintain them after exit day. The RTS set out detailed requirements for payment card schemes and processing entities, to ensure there is the requisite level of independence in accounting, organization and decision-making processes. The PSR proposes to amend the RTS in line with the draft Interchange Fee (Amendment) (EU Exit) Regulations 2018, published by HM Treasury on November 16, 2018 to onshore the IFR. The PSR's consultation paper includes a draft of the Technical Standards (Interchange Fee Regulation) (EU Exit) instrument 2019.
Comments on the consultation are invited by December 17, 2018. The PSR intends that the finalized version of the EU Exit instrument will take effect on exit day in the event of a no deal scenario.
View the consultation paper (PSR CP 18/3).
View details of the draft Interchange Fee (Amendment) (EU Exit) Regulations 2018.
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Basel Committee on Banking Supervision Agrees Next Steps for Basel Standards
11/29/2018
Central bankers and banking supervisors from over eighty jurisdictions met this week in Abu Dhabi, United Arab Emirates to discuss a range of policy and supervisory topics.
On November 26-27, 2018 there was a meeting of the Basel Committee on Banking Supervision at which it was agreed that a consultation would take place next year to discuss a framework to consolidate the Committee's standards into a single integrated structure. Moreover, a number of items were agreed:- A set of targeted revisions to the market risk framework which is due to be implemented by January 1, 2022.
- A consultation on potential enhanced disclosures to reduce bank window-dressing behaviour related to leverage ratio will be pursued. The Basel Committee issued a statement in October declaring unacceptable the alleged tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has supposedly the effect of allowing banks to report and publicly disclose better leverage ratios.
- A set of revisions to the Pillar 3 disclosure framework will be published in December.
- A report will be published in December setting out the range of bank, regulatory and supervisory cyber-resilience practices across jurisdictions.
View the press release.
View details of the Basel Committee's consultation on the revised market risk framework. -
UK Treasury Policy on "In Flight" EU Legislation in Preparation for a "No Deal" Brexit
11/28/2018
Following the introduction to Parliament on November 22, 2018 of the Financial Services (Implementation of Legislation) Bill, HM Treasury has published a Policy Note on the Bill. The Bill gives HM Treasury, in a Brexit no deal scenario, powers to implement and make amendments to a specified list of "in flight" financial services legislation. The Bill covers EU financial services legislation which is proposed or published but that is out of scope of the European Union (Withdrawal) Act 2018 because it will not be operative on or before exit day. Only legislation with an implementation date falling in the two years after exit is covered. The Bill sets out a list of the legislation that is covered, namely:- the settlement discipline regime under the Central Securities Depositories Regulation (Articles 6 and 7);
- the Delegated Cash Penalties Regulation;
TOPIC : Brexit for Financial Services -
UK Financial Conduct Authority Reports on Cyber Security Resilience in Financial Services
11/27/2018
The Financial Conduct Authority has published a report entitled "Cyber and Technology Resilience: Themes from cross-sector survey 2017-2018." The FCA compiled the report by requesting 296 firms during 2017 and 2018 to provide a self-assessment of their cyber and technological capabilities, focusing on governance, delivery of change management, managing third-party risks and the effectiveness of cyber defenses. The FCA analyzed the responses and considered data from firm's responses to recent operational incidents to produce the report.
Read more. -
UK Conduct Regulator Publishes Second Consultation on Brexit-Related Changes to Its Rulebook and Binding Technical Standards
11/26/2018
The U.K. Financial Conduct Authority has published a second consultation on proposed changes to the FCA Handbook and guidance to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place and there is consequently no transitional period for firms. The proposed amendments will not take effect on exit day if the U.K. enters into a transitional period.
The consultation includes the FCA's further proposals in relation to those Binding Technical Standards that it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterwards. Since the FCA's first consultation on Brexit-related Handbook changes in October 2018, HM Treasury has published further policy notes and/or financial services "onshoring" statutory instruments with proposed amendments to retained EU law. Many of the FCA's proposals on the BTS are consequential in nature and follow the amendments proposed in the statutory instruments.
Read more. -
Financial Stability Board Appoints new Chair and Vice Chair
11/26/2018
The Financial Stability Board has announced the appointment of Randal K. Quarles (Governor and Vice Chairman for Supervision at the U.S. Federal Reserve System) as its new Chair and Klaas Knot (President of De Nederlandsche Bank) as its Vice Chair for a three-year term starting on December 2, 2018. Klass Knot will succeed Randal K. Quarles as Chair on December 2, 2021 for the next three-year term.
The current FSB Chair, Mark Carney, will step down on December 1, 2018 after seven years of leadership.
View the press release.TOPIC : People -
UK Parliamentary Committee Launches Inquiry Into Operational Resilience in the Financial Services Sector
11/23/2018
The U.K. Treasury Committee has announced the launch of a new Inquiry into IT failures in the financial services sector. The Inquiry has been launched in response to recent IT failures at a number of financial institutions that have led to consumers being unable to access their bank accounts or becoming subject to fraud.
The Committee will assess the causes and consequences of these recent IT failures. Among other things, the Committee will consider the extent to which such incidents are becoming more frequent, sources of concentration risk in the financial sector, the impact of legacy IT systems, the effect of outsourcing on operational resilience, best practices in responding to operational incidents and whether the U.K. regulators are able to regulate firms' capabilities for responding to such incidents.
Written submissions can be made to the Committee by January 18, 2019. The Committee will also appoint a special advisor to provide policy advice to the Committee on the issues. Individuals interested in the role should respond to the call for Expressions of Interest.
View the announcement. -
European Supervisory Authority Public Statement on Post-Brexit Temporary Recognition for UK CCPs if No UK-EU Deal
11/23/2018
The European Securities and Markets Authority has issued a public statement entitled "Managing risks of a no-deal Brexit in the area of central clearing." In the statement, ESMA confirms that its Board of Supervisors supports continued access to U.K. CCPs by EU market participants, to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability following the U.K.'s exit from the EU. This would appear likely to take effect pursuant to a temporary or interim equivalence and/or Qualifying CCP determination under European Market Infrastructure Regulation and the Capital Requirements Directive in respect of the U.K. and its CCPs, effective on Brexit.
Read more. -
UK Draft Legislation to Onshore EU Packaged Retail and Insurance-Based Investment Products for Brexit
11/22/2018
HM Treasury has published a draft version of the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019. The EU PRIIPS Regulation requires a standardized disclosure document (called a Key Information Document or KID) to be provided when packaged investment or insurance-based investment products are sold to retail investors.
The draft Regulations correct deficiencies in the U.K. Packaged Retail and Insurance-based Investment Products Regulations 2017 and in the directly applicable EU PRIIPS Regulation (and its secondary legislation) to be retained on Brexit. The draft Regulations will primarily be relevant for firms that manufacture, sell or advise on retail investment products that fall within the scope of the PRIIPs Regulation. This includes, but is not limited to, asset managers, insurers and investment advisors.
Read more. -
UK Prudential Regulator Proposes Minor Policy Change for Systemic Risk Buffer
11/22/2018
The U.K. Prudential Regulation Authority has published a consultation paper entitled "The systemic risk buffer: Updates to the Statement of Policy," proposing minor updates to its Statement of Policy, "The PRA’s approach to the systemic risk buffer." The consultation is relevant to "SRB institutions," which are: (i) ring-fenced bodies within the meaning in the Financial Services and Markets Act 2000; or (ii) large building societies that hold more than £25 billion in deposits (where one or more of the account holders is a small business) and shares (excluding deferred shares).
The PRA proposes to amend the Statement of Policy to:
- remove the statement that the PRA’s approach to reviewing the SoP every two years is mandated by the SRB regulations;
- replace references to the PRA's April 2018 consultation, "The PRA’s methodologies for setting Pillar 2 capital," with references to the finalized Statement of Policy that was subsequently published; and
- include references to the PRA's Supervisory Statement, "UK leverage ratio framework," that was recently updated to apply an additional leverage ratio buffer rate to SRB institutions.
As the proposals are of only a minor nature, the consultation period is short and comments on the consultation paper are invited by December 6, 2018.
View the consultation paper (PRA CP 29/18).
Return to main website. -
First EU Blockchain Industry Roundtable
11/21/2018
The European Commission has published a press release on the outcome of the first EU Blockchain Industry Roundtable, which took place on November 20, 2018. The press release notes the establishment of the "International Association for Trusted Blockchain Applications" that will be open to any firm that wishes to contribute to the use of blockchain and distributed ledger technologies in the EU. This new Association will work with the European Commission and EEA states that are part of the European Blockchain Partnership to support interoperability, develop specifications and promote standards and regulatory convergence in this area. The European Blockchain Partnership was established earlier this year and has been signed up to by Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the U.K.
View the press release.
View details of the European Blockchain Partnership.TOPIC : FinTech -
UK Sanctions and Anti-Money Laundering Act 2018 Sanctions Provisions Brought Into Force
11/21/2018
The Sanctions and Anti-Money Laundering Act 2018 (Commencement No.1) Regulations 2018 were made on November 21, 2018, bringing into force the majority of the sanctions provisions of the Act with effect from November 22, 2018.
The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.
The Act received Royal Assent and came partly into force on May 23, 2018. Provisions in force from November 22, 2018 are:- sections 1 to 31;
- sections 33 to 48;
- sections 57 and 58;
- section 59(4) (to the extent that it relates to Schedule 3, paragraphs 1 to 7 and sub-paragraphs 8(1) to 8(3)); and
- Schedule 1.
The remaining Provisions of the Act that will be brought into force at a later date include the provisions related to anti-money laundering.
View the Commencement Regulations (SI 2018/1213).
View the Sanctions and Anti-Money Laundering Act 2018. -
UK Government Publishes Guidance on Proposals to Onshore Primary Markets Legislation for Brexit
11/21/2018
HM Treasury has published explanatory guidance on a draft statutory instrument, the Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019. The statutory instrument is still under development and a draft will be published in due course. The draft Regulations will amend Brexit-related onshoring deficiencies in the U.K. legislation that implemented the EU Prospectus Directive, the Transparency Directive and the Consolidated Admissions and Reporting Directive, which together make up the EU legal framework for primary markets. No deficiencies have been identified for the CARD.
Read more. -
UK Government Publishes Guidance on Proposals to Onshore EU Market Abuse Regulation for Brexit
11/21/2018
HM Treasury has published explanatory information on a draft statutory instrument, the Market Abuse (Amendment) (EU Exit) Regulations 2018. The statutory instrument is still under development and a draft will be published in due course. The draft Regulations will affect the Financial Conduct Authority and all natural and legal persons which issue or trade in financial instruments admitted to trading or traded on an U.K. or an EU trading venue, including legal firms, professional service firms and any legal person that obtains access to the inside information of an issuer.
Read more. -
Eurozone Single Resolution Board Publishes Policy Statement on First Wave of 2018 MREL Policy
11/20/2018
The Eurozone Single Resolution Board has published its 2018 Policy Statement for firms’ minimum requirements for own funds and eligible liabilities under the first wave of 2018 resolution plans to be adopted under the Bank Recovery and Resolution Directive. The SRB is responsible for ensuring the compliance of Eurozone banks that are subject to the Single Resolution Mechanism (primarily Eurozone countries) with the Single Resolution Mechanism Regulation and BRRD. As part of this function, the SRB works with national regulators to determine relevant institutions’ MREL requirements. The purpose of the Policy Statement is to provide clarity for Eurozone banks on the SRB’s determination of 2018 MREL targets.
Read more. -
UK Government Refused Challenge of Ability of Court of Justice of the European Union to Rule on Whether Brexit Notification Can Be Revoked
11/20/2018
The U.K. Supreme Court has announced that it has refused the permission to appeal application of the Secretary of State for Exiting the European Union. The application had been made to stop the reference by the Inner House of the Court of Session in Scotland to the European Court of Justice for a preliminary ruling on whether the U.K. can unilaterally revoke its notice of withdrawal from the EU. The court's referral to the CJEU was discussed in our previous post. The Court of Session opined on September 21, 2018 that a reference should be made to the CJEU - Wightman v Secretary of State for Exiting the European Union [2018] CSIH 62.
The U.K. Department for Exiting the EU has also published a statement on the reference to the CJEU confirming that it has submitted written observations to the CJEU. The Government's position is that the reference to the CJEU is inadmissible on the basis that the CJEU does not answer hypothetical questions or provide advisory opinions.
An oral hearing before the CJEU is scheduled for November 27, 2018.
View the Supreme Court's announcement.
View the DxEU statement.
View details of the Court of Session Opinion.TOPIC : Brexit for Financial Services -
Final Report on Incentives to Clear OTC Derivatives Published by Global Standard Setting Bodies
11/19/2018
A final joint report on the incentives to clear OTC derivatives has been published by the Financial Stability Board, the International Organization of Securities Commissions, the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures. The report is part of the FSB's post-implementation evaluation of the effects of the G20 financial regulatory reforms.
The report sets out the results of an evaluation of the reforms that have been implemented to incentivize central clearing of OTC derivatives and outlines areas for further consideration by the global standard setting bodies. The reforms considered include mandatory clearing requirements, capital, liquidity and margin requirements, as well as the reforms to CCP resilience, recovery and resolution.
Read more. -
Bank of England Guidance to Firms on Valuation Capabilities to Support Resolvability
11/19/2018
The Bank of England has published the "Dear CFO" letter sent by its Resolution Directorate to the Chief Financial Officers of relevant entities in financial groups within the remit of the BoE's principles-based "Statement of Policy on Valuation Capabilities to Support Resolvability." The SoP was published in June 2018 and sets out the BoE's expectations on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. Firms within the remit of the SoP will need to ensure that suitable capabilities are in place by January 1, 2021.
Read more.TOPIC : Recovery & Resolution -
UK Legislation Made for Onshoring the EU SEPA Regulation
11/19/2018
The Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018 were made on November 19, 2018 and will enter into force on the day the U.K. exits the EU. The Regulations are relevant for all Payment Service Providers – banks, payment institutions, e-money institutions and registered Account Information Service Providers.
Read more. -
UK Legislation Published to Onshore the European Long-Term Investment Funds Regulation For Brexit
11/19/2018
HM Treasury has published a draft version of the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018. The draft Regulations correct deficiencies in the directly applicable European Long-term Investment Funds Regulation to be retained on Brexit, which governs funds that invest into infrastructure and other long-term projects. The draft Regulations will primarily affect fund managers operating ELTIFs registered in the UK.
Read more. -
UK Competition Authority Opens Investigation Into Possible Anti-Competitive Practices
11/16/2018
The U.K. Competition and Markets Authority has announced that it opened an investigation into suspected anti-competitive practices in the financial services sector on November 13, 2018. The investigation is at a very early phase, and the CMA does not consider that at this stage a statement of objections can be issued to any of the parties under investigation. Between now and August 2019 the CMA will be gathering information on the suspected infringement of the Competition Act 1998.
View the announcement.TOPIC : Competition -
2018 List of Globally Systemically Important Banks Published
11/16/2018
The Financial Stability Board has published the 2018 list of global systemically important banks. Alongside the 2018 G-SIB list, the Basel Committee on Banking Supervision has published further information relating to its 2018 assessment of G-SIBs, including:- a list of all the banks in the assessment sample;
- the denominators of each of the 12 high-level indicators used to calculate the banks' scores;
- the 12 high-level indicators for each bank in the sample used to calculate these denominators;
- the cut-off score used to identify G-SIBs in the updated list and the thresholds used to allocate G-SIBs to buckets for the purpose of calculating the specific higher loss absorbency requirements; and
- links to disclosures of all banks in the assessment sample.
The Basel Committee assessment was based on its 2013 methodology for identifying G-SIBs. The revised 2018 assessment methodology will apply from 2021, based on end-2020 data and the corresponding higher loss absorbency requirements will apply from January 1, 2023.
View the 2018 G-SIB list.
View details of the revised assessment framework for G-SIBs. -
Draft UK Legislation Published to Onshore the EU Interchange Fee Regulation for Brexit
11/16/2018
HM Treasury has published a draft version of the Interchange Fee (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will primarily affect payment system operators, payment service providers (including banks and building societies) and the businesses and individuals who rely on card payment systems. The Payment Systems Regulator will consult separately on consequential changes to its guidance on the IFR once the draft Regulations are made. The PSR will also be responsible for correcting deficiencies in the Binding Technical Standards made under the IFR.
The draft Regulations amend the EU Interchange Fee Regulation that will be retained on Brexit and the Payment Card Interchange Fee Regulations 2015. The changes are designed to ensure that current laws on interchange fees continues to operate effectively in the U.K. once the U.K. has left the EU.
Read more. -
EU Final Draft Technical Standards on Estimating and Identifying an Economic Downturn in IRB Modelling
11/16/2018
The European Banking Authority has published final draft Regulatory Technical Standards on the specification of the nature, severity and duration of an economic downturn in accordance with the Capital Requirements Regulation. The aim of the RTS is to ensure that institutions using the Internal Ratings-Based approach to calculating capital requirements can use a well-defined and common specification of the nature, duration and severity of an economic downturn for portfolios relating to comparable types of exposure.
The nature of the economic downturn is defined as a set of relevant economic factors and its severity is specified via the most severe values observed on the relevant economic factors over a given historical period. The duration of an economic downturn is specified using the concept of a "downturn period," namely the period of time where the peaks or troughs, which relate to the most severe values of one or several economic factors, are observed.
Read more. -
Financial Stability Board Progress Report on Addressing Correspondent Banking Decline
11/16/2018
The Financial Stability Board has published a progress report addressed to the G20 Finance Ministers and Central Bank Governors on the FSB's four-point action plan to assess and address the decline in correspondent banking relationships. The progress report is accompanied by an update to the Correspondent Banking Data Report published by the FSB March 2018. The updated data report includes additional data from July - December 2017 derived from information provided by SWIFT to the FSB, through the intermediation of the National Bank of Belgium. The data report shows a further decline in active correspondent banking relationships in 2017.
Read more. -
EU Legislation Published for Relocation of the European Banking Authority Post-Brexit
11/16/2018
A Regulation amending the founding Regulation of the European Banking Authority has been published in the Official Journal of the European Union. The Amending Regulation amends the EBA Regulation to change the seat of the EBA from London to Paris.
The Amending Regulation enters into force on November 16, 2018 and will take effect on March 30, 2019.
View the Amending Regulation (EU) 2018/1717.TOPIC : Brexit for Financial Services -
European Central Bank Publishes Final First Chapter of Its Guide to Internal Models
11/15/2018
The European Central Bank has published the final first chapter of its guide to internal models. The Capital Requirements Regulation requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's guide sets out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted. This chapter is on general topics, comprising overarching principles for internal models, implementation of the internal ratings-based approach, internal model governance, internal validation and audit, model use, change management and third-party involvement. The ECB recently consulted on model-specific chapters, including for credit, market and counterparty credit risks.
The ECB notes that the guide may need to be amended if the European Commission adopts a different version of the European Banking Authority's final Draft Regulatory Technical Standards on assessment methodology for the IRB approach.
View the guide.
View the feedback statement. -
Three Central Banks Explore Advantages of Wholesale Central Bank Digital Currencies
11/15/2018
The Bank of England, the Bank of Canada and the Monetary Authority of Singapore have published a joint report entitled, "Cross-Border Interbank Payments and Settlements." Referring to current industry projects to address existing problems in cross-border payments affecting end-users, commercial banks and central banks, the report analyzes these issues and discusses proposed new models for processing cross-border transactions. The report sets out three models for cross-border payments and settlements and discusses the key considerations and dependencies of each model. Each model is then assessed against the existing identified challenges in cross-border payments.
Model 1 is based on existing plans to enhance the current systems within and across jurisdictions, which is considered to be the baseline for discussions. Model 2 is based on an expanded role for domestic real-time gross settlement infrastructure, which would be "super-correspondents" in settling cross-border payments and would replace existing correspondent banks. Model 3 has three variations, all of which are based on cross-border payments between banks being settled with wholesale central bank digital currencies (W-CBDCs). The three variations are: (i) W-CBDCs that can be held and exchanged only in their home jurisdiction; (ii) W-CBDCs held and exchanged within and beyond their home jurisdictions; and (iii) a single universal W-CBDC backed by a basket of currencies issued by participating central banks.
Read more. -
UK Prudential Regulator Finalizes Supervisory Approach for New EU Securitization Framework
11/15/2018
The U.K. Prudential Regulation Authority has published a Policy Statement setting out its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The PRA consulted on its proposals in May 2018. The incoming EU framework consists of: (i) the Securitization Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation. Respondents to the PRA's consultation on its approach were largely supportive. The PRA has made some changes (outlined in the Policy Statement) to its consultation text in line with comments received.
Read more. -
Bank of England Writes to UK Firms on Upcoming Obligations for Internalized Settlement Reporting
11/15/2018
The Bank of England has published a letter sent by its Financial Market Infrastructure Directive to compliance officers of U.K. firms that may be affected by forthcoming obligations under the EU Central Securities Depositories Regulation to report internalized settlements from July 2019.
The BoE considers that the firms likely to be subject to the CSDR's obligations are those with the regulatory permissions for safeguarding and administration of assets or arranging the same. Within this subset of regulated firms, an institution will be considered a settlement internalizer if it settles transfer orders on behalf of clients on its own account rather than through a Central Securities Depository. Settlement internalizers must submit reports to the BoE.
Read more.TOPIC : Financial Market Infrastructure -
Financial Stability Board Publishes Upcoming Resolution Priorities for Banks, Insurers and CCPs
11/15/2018
The Financial Stability Board has published its 2018 resolution report, entitled "Keeping the pressure up," setting out: (i) the progress in implementing the FSB's resolution policies for CCPs and in the banking and insurance sectors; (ii) the next steps in monitoring and evaluating the effects of resolution reforms; and (iii) the actions and timelines for 2019 and beyond. The FSB highlights that, although substantial progress has been made, firms need to continue work to improve their resolvability, and authorities and lawmakers need to complete the reforms and implement them fully.
The FSB report describes the priority areas for global systemically important banks, including the implementation of technical and operational capabilities to ensure that a resolution plan can be timely and effectively executed, if needed. Another key area is implementation of the total loss absorbing capacity (TLAC) requirements, in particular, internal TLAC. In June 2018, the FSB launched a call for feedback on the technical implementation of TLAC for G-SIBS to assess whether implementation aligns with the timelines and objectives set out in the TLAC Standard. The FSB will report on the outcomes of that review during 2019. Work will also be required to ensure (i) cross-border recognition of temporary stays on early termination rights in financial contracts; and (ii) continuity of access to financial market infrastructures and FMI intermediaries.
Read more.TOPIC : Recovery & Resolution -
Financial Stability Board Discusses Financial Resources for CCP Resolution
11/15/2018
The Financial Stability Board has published a discussion paper on financial resources to support CCP resolution and the treatment of CCP equity in resolution. The FSB considers that further evidenced-based guidance is needed on this topic and the discussion paper is the first step in developing such guidance by the end of 2020. The FSB intends to use the practical experience of resolution planning that resolution authorities and Crisis Management Groups have gained to develop the guidance. The discussion paper outlines: (i) relevant considerations for evaluating whether a CCP's existing financial resources and tools are satisfactory for implementing the individual CCPs' resolution strategy, including a proposed five-step process and CCP-specific factors that warrant assessment; and (ii) factors that could steer authorities in their approaches to the treatment of CCP equity in resolution, including consideration of whether different ownership structures are relevant.
Responses to the discussion paper should be submitted by February 1, 2019. The FSB notes that responses to the discussion paper will be used to develop proposed guidance which will be consulted on at the appropriate time.
View the discussion paper. -
UK Prudential Regulator Finalizes Changes to the Leverage Ratio Rules for Ring-Fenced Banks
11/14/2018
The U.K. Prudential Regulation Authority has published a Policy Statement on applying the U.K. leverage ratio to systemic Ring-fenced Bodies and reflecting the Systemic Risk Buffer. The SRB is one of the elements of the overall capital framework for U.K. banks and building societies. It will be applied by the PRA to individual institutions and introduced at the same time that ring-fencing comes into force in 2019. RFBs are banks that hold more than £25 billion in core deposits. They must separate their core retail banking business from their investment banking business by January 1, 2019.
Read more. -
UK Conduct Regulator Wants Improvements to Banks' Whistleblowing Arrangements
11/14/2018
The U.K. Financial Conduct Authority has published the outcome of its review of firms' whistleblowing arrangements. The FCA has reviewed how retail and wholesale banks have implemented its whistleblowing rules by looking at firms' policies and procedures, the role of the whistleblowers' champion, firms' whistleblowing annual reports and the relevant training arrangements.
Both the FCA and the Prudential Regulation Authority published their whistleblowing rules in 2015 and the FCA extended certain of the requirements to U.K. branches of overseas banks in early 2017.
The FCA has published its findings, including areas of good practices, areas for improvement and the FCA's expectations of firms' whistleblowing arrangements. The FCA urges firms to consider its findings and whether they need to take action to improve their whistleblowing arrangements.
View the FCA's review webpage. -
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.TOPIC : Brexit for Financial Services -
Financial Stability Board Progress Report on Reforming Major Interest Rate Benchmarks
11/14/2018
The Financial Stability Board has published a progress report on ongoing reforms to major interest rate benchmarks. The FSB has been co-ordinating international reform work, through its Official Sector Steering Group, since 2014, when it made several recommendations aimed at addressing cases of attempted manipulation in relation to key IBORs and the decline in liquidity in certain interbank unsecured funding markets. The OSSG launched a third major initiative in 2016, to improve contract robustness to address risks of discontinuation of widely-used interest rate benchmarks. That initiative is being led by the International Swaps and Derivatives Association, which launched a consultation on fallback rates in July 2018.
The progress report provides an update since the FSB's progress report in October 2017 and covers:
- Developments in Interbank Offered Rates, including discussion of the future of LIBOR.
- Identification of and transition to risk-free rates, where appropriate, for transactions denominated in USD, EUR, JPY, GBP, CHF, AUD, BRL, CAD, HKD, MXN, SGD and ZAR.
- The development of fallback rates to enhance contractual robustness.
The FSB proposes to publish a further progress report in late 2019.
View the progress report.
View details of the October 2017 progress report.
View details of ISDA's July 2018 consultation on fallback rates.
View FSB statement welcoming ISDA's July 2018 consultation. -
International Body Proposes Framework for Assessing Fund Leverage
11/14/2018
The International Organization of Securities Commissions has launched a consultation on a proposed framework to help assess leverage used by investment funds. The consultation follows a recommendation to IOSCO from the Financial Stability Board in its January 2017 report, "Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities." The FSB recommended, among other things, that IOSCO should identify and/or develop consistent measures of leverage in funds to facilitate more meaningful monitoring of leverage for financial stability purposes and help enable direct comparisons across funds and at a global level.
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. -
EU Supervisory Authority Consults on Proposed Guidelines on Money Market Fund Reporting Requirements
11/13/2018
The European Securities and Markets Authority has launched a consultation on proposed Guidelines for Money Market Fund Managers, to assist them in complying with their obligations, under the Money Market Funds Regulation, to report information to the relevant national regulator of each MMF they manage. The reporting obligation applies on at least a quarterly basis (or annually for MMFs with total assets under management not exceeding Euro 100 million). The European Commission adopted Implementing Technical Standards in April 2018, which specify the content of a reporting template that will be developed for the information. The ITS have applied since July 21, 2018 and MMF managers must begin submitting reports under the MMF Regulation in the first quarter of 2020.
Read more. -
EU Supervisory Authority Issues Updated Supervisory Briefing on MiFID II Suitability
11/13/2018
The European Securities and Markets Authority has published an updated version of its supervisory briefing on suitability. The original suitability briefing was published in December 2012 to provide guidance to EU national regulators on the suitability requirements under the original Markets in Financial Instruments Directive. The updated suitability briefing reflects the amended requirements introduced by the revised Markets in Financial Instruments Directive and takes into account the new version of ESMA's Suitability Guidelines that was published in May 2018.
While the updated briefing is primarily aimed at national regulators, it should also assist market participants by providing indications of compliant implementation of the MiFID II suitability provisions.
Read more.TOPIC : MiFID II -
UK Legislation Published to Onshore Anti-Money Laundering and Counter-Terrorism Financing Legislation for Brexit
11/13/2018
HM Treasury has published a draft of the Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will primarily be relevant for payment service providers, anti-money laundering/counter-terrorism financing supervisory authorities and firms that are regulated through the U.K.'s AML/CTF regime. The draft Regulations introduce no material policy changes. Their purpose is to correct deficiencies in U.K. law and retained EU law to ensure that the U.K. AML/CTF regime continues to function effectively after the U.K.'s withdrawal from the EU.
The draft Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), which transposed into U.K. law the provisions of the EU Fourth Money Laundering Directive (4MLD). The draft Regulations also amend the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 and the revised EU Funds Transfer Regulation (Regulation (EU) 2015/847). This EU Regulation gives legal effect to Financial Action Task Force Recommendation 16, on the information accompanying electronic transfers of funds. Additionally, the draft Regulations revoke Commission Delegated Regulation (EU) 2018/1108, which sets out Regulatory Technical Standards for central contact points under 4MLD.
Read more. -
EU Final Draft Technical Standards and Technical Advice Published Governing Securitization Repositories and Data Access
11/12/2018
On November 12, 2018, ESMA published a series of documents delivering on some of its outstanding mandates to provide draft technical standards and technical advice to supplement the Securitization Regulation. The Securitization Regulation will apply directly across the EU from January 1, 2019. ESMA has been mandated to provide draft regulatory and implementing technical standards and technical advice to supplement a number of the Regulation’s provisions. ESMA has also published a statement on its near-term implementation of the Securitization Regulation, to assist market participants in understanding ESMA’s role and its progress on its deliverables.
View ESMA's Final Report on securitization.
View ESMA's Final Report on technical advice.TOPIC : Securities -
EU Final Draft Technical Standards and Technical Advice Published Governing Securitization Repositories and Data Access
11/12/2018
The European Securities and Markets Authority has published a series of documents delivering on some of its outstanding mandates to provide draft technical standards and technical advice to supplement the Securitization Regulation (also known as the STS Regulation). The Securitization Regulation will apply directly across the EU from January 1, 2019. ESMA has been mandated to provide draft regulatory and implementing technical standards and technical advice to supplement a number of the Regulation's provisions. ESMA has also published a statement on its near-term implementation of the Securitization Regulation, to assist market participants in understanding ESMA's role and its progress on its deliverables.
Read more.TOPIC : Securities -
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.TOPIC : Recovery & Resolution -
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.TOPIC : Cyber Security -
European Central Bank Publishes Final Guides for Capital and Liquidity Management
11/12/2018
The European Central Bank has published two finalized Guides, one on the internal capital adequacy assessment process (ICAAP) and the other on the internal liquidity adequacy assessment process (ILAAP). The ECB consulted on draft versions of the Guides between March and May 2018. The Guides, which are relevant to institutions within the Single Supervisory Mechanism, are designed to assist institutions in strengthening their ICAAPs and ILAAPs and encourage the use of best practices by explaining in greater detail the ECB's expectations.
The ICAAP and ILAAP Guides each set out seven principles that have been derived from the relevant provisions of the Capital Requirements Directive and that will be considered, among other things, by the ECB in the assessment of each institution's ICAAP or ILAAP as part of the Supervisory Review and Evaluation Process. Frequently Asked Questions have also been published alongside the Guides, along with consultation responses received and a feedback statement.
The ECB intends to use the guides to assess significant institutions' ICAAPs and ILAAPs from January 1, 2019.
View the ICAAP Guide.
View the ILAAP Guide.
View the FAQs.
View the consultation responses.
View the feedback statement. -
European Money Markets Institute Launches Second Consultation on Hybrid Methodology for Euribor
11/12/2018
The European Money Markets Institute has published a second consultation paper (dated October 17, 2018) on its proposals to introduce a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.
The consultation paper sets out a summary of EMMI's findings during the testing phase for the newly proposed hybrid methodology, which took place between May and July 2018, and provides details on EMMI's proposals for the different methodological parameters that were yet to be specified when EMMI's first consultation was issued in March 2018. The consultation paper seeks feedback from market participants on a number of questions on aspects of the proposed methodology.
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 December 3, 2020.
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.TOPIC : Brexit for Financial Services -
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.TOPIC : Brexit for Financial Services -
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. -
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. -
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 will apply to small financial counterparties and AIFs from June 21, 2019 and to non-financial counterparties from December 21, 2018 for IRS denominated in the G4 currencies, and from August 9, 2019 for IRS denominated in CZK, DKK, HUF, NOK, SEK and PLN. The CDS clearing obligation is in force for clearing members of EU CCPs, large financial counterparties and AIFs. It applies to non-financial counterparties from May 9, 2019 and to small financial counterparties and AIFs from June 21, 2019.
Read more. -
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.TOPIC : Brexit for Financial Services -
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.TOPIC : Recovery & Resolution -
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.TOPIC : Brexit for Financial Services -
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.TOPIC : Brexit for Financial Services -
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 -
US Commodity Futures Trading Commission Adopts Permanent $8 Billion Swap Dealer De Minimis Registration Threshold
11/05/2018
The Commodity Futures Trading Commission has unanimously voted to adopt a final rule that would permanently set the swap dealer de minimis registration threshold at $8 billion. Absent further action by the CFTC, the de minimis threshold was previously scheduled to drop to $3 billion on December 31, 2019.
Under the final rule, as under current requirements, firms with swap dealing activity below the aggregate gross notional amount (AGNA) threshold of $8 billion over the previous 12 months would be exempt from the CFTC's swap dealer registration requirements. The CFTC said its analysis concluded that the $8 billion threshold subjects approximately 98% of swap transactions to swap dealer regulations. In the CFTC's determination, a $3 billion threshold would only subject a small number of additional swap transactions to such regulation, but would likely decrease swap market liquidity.
The CFTC had also previously proposed several other measures in respect of the de minimis threshold, such as excluding swaps of insured depository institutions made in connection with loans from a firm's AGNA calculation. Although the CFTC did not adopt any of these additional proposals in the final rule, CFTC Chairman J. Christopher Giancarlo said he will direct CFTC staff to continue their analysis of these measures and other issues raised in comments on the rule.
View the final rule.
View the CFTC's fact sheet on the final rule.
View CFTC Chairman Giancarlo's statement.
View CFTC Commissioner Dan Berkovitz's statement.TOPIC : Derivatives -
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 -
European Securities and Markets Authority Publishes Report on Credit Rating Agency and Trade Repository Fees
11/01/2018
The European Securities and Markets Authority has published a thematic report on the fees charged by EU credit rating agencies and trade repositories for their services. Under the Credit Ratings Agencies Regulation, CRAs must ensure that fees for their services are non-discriminatory and based on actual costs. Under the European Markets Infrastructure Regulation, trade repositories must provide non-discriminatory access to their services and publically disclose their fees, which should be cost-related. ESMA directly supervises both CRAs and trade repositories that are established in the EU.
Read more. -
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. -
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.TOPIC : Bank Structural Reform -
US Securities and Exchange Commission Issues Non-Enforcement Position Regarding Security-Based Swap Business Conduct Rules
10/31/2018
The Securities and Exchange Commission has issued a non-enforcement position providing market participants, for a five-year period, with alternative means of compliance with certain business conduct standards for security-based swap dealers and major security-based swap participants (SBS Entities).
Although the SEC has adopted a set of business conduct standards for SBS Entities, compliance with those rules is not yet required, pending finalization of certain other rules and implementation of registration of SBS Entities. The SEC issued the statement, in advance of implementation, to address market participants' concerns regarding compliance difficulties presented by differences between the SEC's business conduct standards and those of the Commodity Futures Trading Commission, which are applicable to swap transactions with swap dealers.
Read more.TOPIC : Derivatives -
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.
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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.TOPIC : Recovery & Resolution -
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.TOPIC : Brexit for Financial Services -
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.TOPIC : Brexit for Financial Services -
"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.TOPIC : Brexit for Financial Services -
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. -
Bank of England Updates Non-UK CCPs 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. CCPs to provide more detail on the post-Brexit recognition of non-U.K. CCPs and the temporary permissions regime that will give temporary deemed recognized status to eligible non-U.K. CCPs.
The BoE wrote to the CEOs of non-U.K. CCPs in December 2017, outlining that forthcoming U.K. legislation would give it a new power to recognize non-U.K. CCPs and that it anticipated that, in the period immediately after Brexit, the recognition regime for non-U.K. CCPs would be materially the same as the third country recognition regime under the European Market Infrastructure Regulation, but might be reviewed later. In an update in March 2018, the BoE confirmed that non-U.K. CCPs already providing services in the U.K. should be able to continue to do so until the end of the envisaged transitional, or "implementation" period after Brexit.
This latest letter to non-U.K. CCPs provides an update following the laying before Parliament, in July 2018, of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 before Parliament in July 2018. Subject to Parliamentary scrutiny, these Regulations are expected to enter into force during Q4 2018, establishing the post-Brexit framework for non-U.K. CCP recognition. The letter outlines actions non-U.K. CCPs will need to take once the Regulations are in force.
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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.TOPIC : Recovery & Resolution -
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.
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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.
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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:
- 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.
- A PRA consultation on proposed changes to PRA rules and to the onshored BTS within the PRA's remit.
- 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.
- A BoE consultation on the onshored BTS within the BoE's remit as the U.K. resolution authority.
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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.
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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.
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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.TOPIC : Brexit for Financial Services -
European Banking Authority Sets Out Its Work Priorities for 2019
10/23/2018
The European Banking Authority has published its Work Programme for 2019, setting out details of, and planned main outputs from, 37 separate work streams across the following five key strategic priorities:
- Leading the Basel III implementation in the EU.
- Understanding risks and opportunities arising from financial innovation.
- Collecting, disseminating and analyzing banking data.
- Ensuring a smooth relocation of the EBA to Paris.
- Fostering the increase of the loss-absorbing capacity of the EU banking system.
The EBA also confirms that work related to Brexit will remain a horizontal priority for the EBA in 2019 and explains that the EBA's other activities may be affected in the future by Brexit-related developments. Should that be the case, any substantial change in the work programme will be communicated in due time, in order to seek steering and approval from its Management Board and Board of Supervisors.
View the EBA's 2019 Work Programme. -
European Commission Announces Work Plan for 2019
10/23/2018
The European Commission has published a Communication, outlining its work plan for 2019. The Communication is addressed to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. The Communication discusses the ongoing challenges for the EU in the run-up to the European Parliamentary elections and the post-Brexit Summit in Sibiu at which a new multi-annual framework for the EU27 will be finalized.
Separately published Annexes to the Communication relating to: (i) new initiatives; (ii) REFIT initiatives; (iii) priority pending proposals; (iv) legislative initiatives that have been withdrawn; and (v) a list of envisaged repeals. Priority pending proposals of particular relevance to financial institutions include legislative proposals relating to the forthcoming sustainable finance package, cross-border distribution of collective investment schemes, crowdfunding, amendments to the European Market Infrastructure Regulation, prudential regulation and supervision of investment firms and a proposed amending regulation relating to minimum loss coverage for non-performing exposures.
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UK Government Publishes Guidance on Proposed Legislation to Onshore EU Legislation on Financial Conglomerates and Groups
10/22/2018
HM Treasury has published explanatory information on the draft Financial Conglomerates and Other Financial Groups (Amendment) (EU Exit) Regulations 2018, which it intends to publish in due course. The draft Regulations will amend deficiencies in the U.K. legislation that implemented the EU Financial Conglomerates Directive. FICOD sets out specific solvency requirements designed to prevent different entities in a conglomerate from using the same capital more than once as a buffer against risk. The Directive also sets out requirements for management controls, risk management and for information sharing between relevant regulators of conglomerates. In the U.K., FICOD has been implemented by the Financial Conglomerates and Other Financial Groups Regulations 2004, as well as through provisions in regulatory rulebooks.
The explanatory information explains that the draft Regulations will amend several deficiencies to ensure the U.K.'s FICOR Regulations remain operative in a U.K.-only context.
Read more.TOPIC : Brexit for Financial Services -
UK Draft Legislation to Onshore the European Market Infrastructure Regulation Published
10/22/2018
HM Treasury has published in draft format the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 – the U.K.'s draft statutory instrument that would implement a post-Brexit EMIR regime, together with explanatory guidance. The draft EMIR Regulations will affect CCPs, clearing members, their clients, Trade Repositories, TR users and U.K. persons entering into derivatives contracts. They will also, like EMIR, have impacts for persons around the world which enter into derivatives with U.K. persons, through U.K. clearing members or that are ultimately held with CCPs that are regulated or recognized in the U.K.
The draft EMIR Regulations have been prepared to ensure that there continues to be an effective regulatory framework for OTC derivatives, CCPs and TRs in the U.K. after exit day. Onshoring of EMIR has been dealt with in three separate pieces of legislation. The draft EMIR Regulations should be read in conjunction with the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, which were published in draft form on July 24, 2018 and October 5, 2018 respectively.
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UK Ring-Fencing Regime to Remain Unchanged in a "No Deal" Brexit Scenario
10/22/2018
HM Treasury has published explanatory guidance on potential changes to the U.K.'s laws on ring-fencing in preparation for a "no deal" scenario in which the U.K. leaves the EU on March 29, 2019. The draft Ring-Fenced Bodies (Amendment) (EU Exit) Regulations 2018 have not yet been published. HM Treasury intends to publish the draft Regulations in due course and to lay them before Parliament before exit day.
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UK Conduct Regulator Evaluates Impact of UK Benchmark Reform Since 2015
10/22/2018
The U.K. Financial Conduct Authority has published an evaluation paper on the impact of bringing seven additional benchmarks within the U.K.'s regulatory and supervisory perimeter in April 2015, in response to the recommendations of the Fair and Effective Markets Review. The necessary changes to the FCA's Handbook and guidance were effected by the Benchmarks (Amendment) Instrument 2015, a legal instrument made by the FCA. In the evaluation paper, the FCA clarifies that this benchmarks-related evaluation does not cover changes due to other policies that affect benchmarks, such as the EU Benchmarks Regulation or principles set by EU or international bodies.
The evaluation has been conducted in line with the FCA's approach to ex-post evaluation of the impact of its work, which it outlined in a discussion paper in April 2018. The FCA has conducted the benchmarks-related evaluation to understand: (i) the impact of the Benchmarks (Amendment) Instrument 2015 on markets and firms' costs; and (ii) whether the FCA's regulatory intervention met its objective of increasing the robustness of benchmarks and restoring market confidence.
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Draft UK Post-Brexit Legislation Published to Onshore the EU Central Securities Depositories Regulation
10/22/2018
HM Treasury has published a draft of the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, along with explanatory information.
Read more. -
UK Serious Fraud Office Charges Former Banker With Conspiracy To Defraud For Manipulation of Euro Interbank Offered Rate
10/21/2018
The U.K. Serious Fraud Office has charged a former banker with conspiracy to defraud, as part of its investigation into the manipulation of the Euro Interbank Offered Rate.
The former banker was arrested in Italy in August 2018 after his trip to the country activated a European Arrest Warrant that had been secured by the SFO in 2016. Italian authorities ruled on October 12, 2018 that he should be extradited to the U.K. and he was charged with conspiracy to defraud at Westminster Magistrates’ court on October 20, 2018.
The next hearing will take place at Southwark Crown Court on October 24, 2018.
View the SFO's announcement. -
EU Supervisory Authority Reports on ICO and Crypto-Asset Risks and Potential Regulation
10/19/2018
The European Securities and Markets Authority has published an own-initiative report prepared by its Securities and Markets Stakeholder Group. The purpose of the report is to provide advice to ESMA on steps it might take to contain the risks of Initial Coin Offerings and crypto-assets, on top of existing regulation.
In the report, the term “crypto-assets” is used to refer to coins, tokens, virtual and cryptocurrencies or other digital or virtual assets collectively. The acronym "ICO" is used to refer to an initial offering of any crypto-asset. The report sets out a taxonomy of crypto-assets, based on the distinction between payment tokens, utility tokens, asset tokens and hybrids used by the Swiss Financial Market Supervisory Authority (FINMA).
Read more. -
UK Regulator Launches Green FinTech Challenge
10/19/2018
The U.K. Financial Conduct Authority has launched the Green FinTech Challenge for firms developing innovative products and services to assist in the U.K.’s transition to a low-carbon economy. The Challenge is part of the FCA's Innovate project. Successful applicants to the challenge will benefit from authorization support, live testing in the regulatory sandbox and FCA guidance. Applications for inclusion in the challenge should be submitted by January 11, 2019 and successful applicants will be notified by the end of Q1 2019. This is the first FinTech challenge run by the FCA and is separate from the FCA's other Innovate services, which should continue to be accessed by firms developing propositions that fall outside the scope of the challenge. Once the challenge is complete, it will consider whether to launch more challenges.
View the FCA's Green FinTech Challenge webpage.TOPIC : FinTech -
Financial Action Task Force Clarifies Virtual Asset Regulation
10/19/2018
The Financial Action Task Force has published the outcomes of its plenary on October 17-19, 2018. 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 initiatives covered by the plenary was the regulation of virtual assets. The G20 Finance Ministers & Central Bank Governors communiqué following their July 2018 Buenos Aires meeting called on the FATF to clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets. At its October plenary, the FATF adopted amendments to the FATF Recommendations and Glossary at the plenary and issued a statement on the regulation of virtual assets. The FATF has done this to clarify that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. Jurisdictions should therefore ensure that virtual asset service providers are subject to AML/CTF regulations. However, jurisdictions are able to choose which category of regulated entity virtual asset service providers should fall into.
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Basel Committee on Banking Supervision Consults on Leverage Ratio Treatment of Client-Cleared Derivatives
10/18/2018
The Basel Committee on Banking Supervision has published a consultation paper entitled "Leverage ratio treatment of client-cleared derivatives," seeking views from stakeholders on whether a targeted and limited revision of the leverage ratio exposure measure is warranted with respect to the treatment of client cleared derivatives.
On the publication of the finalized Basel III framework in December 2017, the Basel Committee stated that it would continue to monitor the impact of the Basel III leverage ratio’s treatment of client-cleared derivative transactions. It confirmed that it would review the impact of the leverage ratio on banks’ provision of clearing services and any consequent impact on the resilience of central counterparty clearing. The Basel Committee has completed its review and is of the view that only a strong evidence-based case would justify making revisions to the current leverage ratio treatment of client cleared derivatives.
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Basel Committee on Banking Supervision Highlights Concerns About Leverage Ratio "Window-Dressing"
10/18/2018
The Basel Committee on Banking Supervision has issued a statement on leverage ratio "window-dressing" behavior by banks.
To comply with the Basel III leverage ratio standard, among other things, banks are required to publicly disclose their leverage ratio, calculated on a quarter-end basis, or more frequently in certain jurisdictions. The Basel Committee has noted what may be a tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has the effect of allowing banks to report and publicly disclose higher leverage ratios.
The Basel Committee states that window dressing is unacceptable as it undermines the policy objectives of the leverage ratio standard and risks disrupting the operations of financial markets. The Basel Committee calls on banks to desist from undertaking transactions for window-dressing purposes and makes several suggestions for actions by supervisors to address these concerns. These include increasing the frequency of reporting and supervisory monitoring, focused supervisory inspections and/or additional public disclosures. The Basel Committee will continue to monitor potential window-dressing behavior and may consider adjusting the Pillar 1 minimum capital requirements and/or Pillar 3 disclosure requirements if necessary.
View the Basel Committee's Statement. -
UK Prudential Regulator Issues Update to Level One Firms on Supervising Remuneration Compliance
10/18/2018
The U.K. Prudential Regulation Authority has published a "Dear Remuneration Committee Chair" letter that it has sent to Remuneration Committee Chairs of proportionality Level One firms (that is, banks, building societies and PRA-designated investment firms with relevant total assets exceeding £50 billion as at the relevant date) ahead of its annual review of remuneration policies and practices.
In the letter, the PRA explains that, with effect from the 2018/19 remuneration review, the PRA will no longer provide a non-objection statement to the proposed communication or distribution of variable remuneration awards by Level One firms. The PRA states that its oversight of Level One firms' remuneration practices will increasingly draw on the principles for governance set out in the Senior Managers and Certification Regime, placing more emphasis on how the Chairs of firms Remuneration Committees discharge their responsibilities under the SM&CR and on how Remuneration Committees carry out their role of oversight and independent challenge under the PRA's Remuneration Rules.
Going forward, Level One firms can continue to expect engagement throughout the year from their PRA supervisors on their remuneration policies, practices and processes and, where needed, feedback on issues the firm should address. Level One firms should submit a remuneration policy statement and quantitative data tables three months ahead of the firm's preferred final feedback date (that is, the date previously referred to as the "non-objection date"), and an update to the figures at least two weeks before the final feedback date.
View the Letter. -
US Securities and Exchange Commission Launches Strategic Hub for Innovation and Financial Technology
10/18/2018
The Securities and Exchange Commission has launched its Strategic Hub for Innovation and Financial Technology (FinHub), designed to engage investors and market participants on FinTech issues and initiatives.
Valerie A. Szczepanik, the SEC's Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC's Division of Corporation Finance, will lead FinHub, which will focus on topics such as distributed ledger technology (DLT) and digital assets, automated investment advice, digital marketplace financing, artificial intelligence and machine learning. The SEC's various divisions will assign staff with expertise in the FinTech space. inHub will replace and build on the efforts of several of the SEC's internal FinTech working groups.
The SEC said that FinHub will provide a platform for market participants to engage directly with SEC staff on innovations and technological developments, publicize the SEC's FinTech-related activity on the FinHub webpage, host FinTech events (including a forum on DLT and digital assets planned for 2019) and act as a resource for SEC staff to acquire and disseminate FinTech-related information within the agency. Further, it will serve as the SEC's liaison to domestic and global regulators in respect of innovations in financial, regulatory and supervisory systems.
Read more.TOPIC : FinTech -
Basel Committee on Banking Supervision Publishes Updated Stress Testing Principles
10/17/2018
The Basel Committee on Banking Supervision has published a final version of its Stress Testing Principles, which replace its 2009 Principles for Stress Testing and Supervision. The Basel Committee conducted a review of the 2009 Principles during 2017 and launched a consultation on proposed revisions in December 2017.
The new principles reflect the growth in importance of stress testing since the 2009 version was produced and its evolution into a critical element of risk management for banks as well as a core tool for both banking supervisors and macroprudential authorities.
The new principles are also set at a higher level than the previous version, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. The principles focus on the core elements of stress testing frameworks, including the objectives, governance, policies, processes, methodology, resources and documentation that guide stress testing. Each principle is followed by a short description of considerations that are equally relevant for banks and authorities, along with additional considerations for banks or authorities.
View the Stress Testing Principles. -
UK Conduct Regulator Issues Feedback Statement on Digital Regulatory Reporting
10/17/2018
The U.K. Financial Conduct Authority has published a Feedback Statement on the Digital Regulatory Reporting project it began earlier in 2018. The Feedback Statement summarizes the feedback the FCA received from the call for input it published in January 2018 and sets out the FCA's responses.
The FCA is working with the Bank of England in the RegTech sphere to explore ways of using technology to link regulation, compliance procedures and firms' policies and standards together with firms' transactional applications and databases. Most respondents to the FCA's call for input agreed in particular that digital regulatory reporting could bring increased efficiency, among other benefits. Some respondents expressed concerns about costs of implementation and called for a period of overlap were digital regulatory reporting to be introduced. Overall, the FCA is encouraged by the feedback.
The Feedback Statement confirms that participants to a pilot launched in June 2018 to further explore the proof of concept for a move to digital regulatory reporting will publish their findings in a technical paper in Q1 2019. The FCA will continue with workstreams under the project and should a business case be made, it will launch a consultation and a cost benefit analysis. While the FCA is focusing on implementation of digital regulatory reporting in the U.K., it also believes that multinational adoption could bring benefits and is in discussions with its counterparts internationally.
View the Feedback Statement (FCA FS 18/2).
View details of the FCA's call for input.
View details of the terms of reference for the project's pilot phase.TOPIC : FinTech -
US Commissioner Quintenz Speaks on Smart Contract Regulation
10/16/2018
Commodity Futures Trading Commission Commissioner Brian Quintenz has given a wide-ranging speech at the GITEX Technology Week Conference in Dubai addressing a number of key issues faced by the CFTC in considering how to regulate smart contracts. While he acknowledged that there are still many questions to be answered on smart contract regulation, Commissioner Quintenz expressed a number of important views that should make market participants pause before assuming that activity in smart contracts will avoid CFTC scrutiny.
Commissioner Quintenz explained that, in his view, the first step the CFTC should take when considering a smart contract is to understand the basic nature of the contract and whether it is within the CFTC's jurisdiction. For example, is the contract a product that must be traded on an exchange? Does the protocol itself perform the functions of an exchange, which may trigger registration requirements? While the answers will of course be different for every smart contract, Commissioner Quintenz made clear that he believes existing CFTC regulations can and should be applied to such contracts where appropriate.
Read more.TOPIC : FinTech -
UK Conduct Regulator Publishes Finalized Approach to Competition
10/15/2018
The U.K. Financial Conduct Authority has published its finalized Approach to Competition, following feedback to its consultation between December 2017 and March 2018 on a draft of its approach document. The FCA's Approach to Competition should be read alongside the FCA Mission, which was first published in October 2016.
In the approach document, the FCA outlines its "competition objective" of promoting effective competition in the interests of consumers in particular markets and its "competition duty," which requires it to discharge its general functions in a way that promotes effective competition in the interests of consumers. It then explains how it advances its competition objective by: (i) using market studies to examine market structures and dynamics and imposing rule changes to improve consumer outcomes if necessary; (ii) using its powers under the Competition Act 1998 to investigate anti-competitive behavior under U.K. and EU law; and (iii) implementing regulation with the aim of supporting competition in the interests of consumers.
Read more.TOPIC : Competition -
UK Conduct Regulator Invites Applications for Cohort Five of Its Regulatory Sandbox
10/15/2018
The U.K. Financial Conduct Authority has announced that the application window has opened for cohort five of its regulatory sandbox. The FCA announced the successful applicants to the previous cohort in July 2018.
The FCA's sandbox is part of the FCA's Project Innovate, which was launched in 2014. The regulatory sandbox has been in operation since 2016 and provides a controlled environment for firms that satisfy the relevant eligibility criteria to test innovative products and services with real customers.
The deadline for completed applications for cohort five is November 30, 2018.
View the FCA webpage.
View details of the successful applicants to cohort four.TOPIC : FinTech -
UK Regulator Considers Potential Regulatory Refinements for Climate Change
10/15/2018
The U.K. Financial Conduct Authority has published a Discussion Paper on climate change and green finance in which it calls for comment on potential changes to its regulatory approach in these areas. The Discussion Paper sets out specific action that the FCA intends to take in the short term in four focus areas - capital markets disclosures, public reporting requirements, green finance and pensions.
First, the FCA is considering whether the regulatory approach to disclosures by issuers in the capital markets should be amended. In particular, the FCA is asking for comments on: (i) the difficulties that issuers may have in determining materiality of climate-related issues such that a specific disclosure would be warranted; (ii) whether investors would benefit from greater comparability of disclosures; (iii) whether further prescribed requirements on climate-related disclosures should be introduced to facilitate more consistent disclosures by issuers. This final point includes whether the introduction of a "comply or explain" approach to the Task Force on Climate-related Disclosures would facilitate more effective markets.
Read more. -
UK Prudential Regulator Consults on Managing Financial Risks from Climate Change
10/15/2018
The Prudential Regulation Authority has published a consultation paper on a draft Supervisory Statement on managing the financial risks from climate change. The consultation follows the PRA's publication in September 2018 of its report "Transition in thinking: The impact of climate change on the U.K. banking sector." The consultation paper is relevant to banks, insurers, re-insurers, building societies and PRA-designated investment firms. The PRA wants firms to take a strategic approach to financial risks from climate change by taking into account current and credible risks and identifying actions needed now to mitigate existing and future risks.
Read more. -
UK Conduct Regulator Consults on Enforcement Powers under the Securitization Regulation
10/12/2018
The U.K. Financial Conduct Authority has published a further consultation on implementation of the EU Securitization Regulation. The Securitization Regulation (also known as the STS Regulation) and a related amendment to the Capital Requirements Regulation came into effect on January 17, 2018. The majority of the provisions of the Securitization Regulation and the related amendment to the CRR will apply directly across the EU from January 1, 2019. While the Securitization Regulation is directly applicable, HM Treasury must make certain legislative amendments to align provisions of U.K. law with the Regulation. The FCA must also align its Handbook and launched a first consultation in August 2018 on its proposals for Handbook amendments.
In this further consultation, the FCA is consulting on proposed amendments to its Decision Procedure and Penalties manual (DEPP) and to its Enforcement Guide, to reflect the expected provisions of a Statutory Instrument which is expected to be laid before Parliament by HM Treasury in December 2018.
Read more.TOPIC : Securities -
UK Government's Guidance on Approach to Sanctions in a 'Hard Brexit' Scenario
10/12/2018
The U.K. Foreign and Commonwealth Office has published guidance on the U.K. government's approach to implementing sanctions in the event that no deal is agreed between the EU and the U.K. on the U.K.'s exit from the EU. If there is no deal, the U.K. will leave the EU on March 29, 2019.
The U.K. currently implements sanctions agreed by the UN Security Council, according to international law requirements, and the EU, as provided for in EU legislation and U.K. implementing legislation. In the event of a "hard Brexit," the U.K. would continue to implement sanctions agreed by the UN Security Council and would have the power to adopt other sanctions under the Sanctions and Anti-Money Laundering Act 2018. The FCO would publish the names of individuals and organizations subject to U.K. sanctions.
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UK Prudential Regulator Proposes Period of Overlap for Transition to New Pillar 2 Reporting Template
10/12/2018
The U.K. Prudential Regulation Authority has published a consultation proposing a six-month overlap period following the introduction of the new Pillar 2 Liquidity reporting template (PRA110) from July 1, 2019. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements, to capture those liquidity risks that are either not captured or not fully captured under the Pillar 1 framework. The final element - Pillar 3 - involves public reporting of capital. The PRA published its final Policy Statement on the introduction of its Pillar 2 framework in February 2018. The PRA110 template was scheduled to replace the existing "daily flows" and "enhanced mismatch" liquidity reports (FSA047 and FSA048) from July 1, 2019.
Since its Policy Statement, the PRA has reassessed the risks from transitioning to the PRA110 template and considers it prudent to delay the termination of FSA047 and FSA048, to ensure data quality and continuity. The PRA proposes that the PRA110 is introduced on July 1, 2019 as planned. However, between then and January 1, 2020, firms should additionally continue to submit liquidity reports using FSA047 and FSA048. The overlap will allow the PRA and firms alike to assess the quality of PRA110 reporting.
The PRA is inviting comments on the proposal by November 12, 2018. The PRA considers that the short consultation period is justified due to the fact that firms are already reporting using FSA047 and FSA048.
View the consultation paper (PRA CP22/18).
View details of the PRA's Pillar 2 Policy Statement. -
US Securities and Exchange Commission Halts Fraudulent Initial Coin Offering
10/11/2018
The Securities and Exchange Commission announced that it halted a planned initial coin offering and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the "Blockchain Exchange Commission." Blockvest and Ringgold also allegedly used the National Futures Association seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.
The SEC also charged that Blockvest and Ringgold violated the antifraud and securities registration provisions of the federal securities law. The SEC sought injunctions, return of ill-gotten gains plus interest and penalties, and a bar against Ringgold participating in any future offering of securities.
The Chief of the SEC Enforcement Division's Cyber Unit, Robert A. Cohen, said that "the SEC does not endorse investment products and investors should be highly skeptical of any claims suggesting otherwise." In addition, the SEC's Office of Investor Education and Advocacy and the U.S. Commodity Futures Trading Commission's Office of Customer Education and Outreach jointly issued an investor alert on the use of false claims regarding SEC and CFTC endorsements.
View the SEC's announcement. -
Securities and Exchange Commission Reopens Comment Period on Capital, Margin and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants
10/11/2018
The U.S. Securities and Exchange Commission has voted to reopen the comment period and request additional comments on proposals for capital, margin and segregation requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) and capital requirements for broker-dealers. The Commission approved the measure by a 4-1 vote, with only Commissioner Robert Jackson Jr. dissenting.
The Commission initially published in 2012 a proposal on capital and margin requirements for non-bank SBSDs and MSBSPs, and segregation requirements for all SBSDs. The Commission published proposed provisions to establish the cross-border treatment of these rules in 2013 and an additional capital requirement for nonbank SBSDs in 2014. By reopening the comment period, the Commission stated that it is looking to provide market participants with an opportunity to provide comments that account for regulatory and market developments since the initial publication of the proposals, as well as the potential economic effects of the proposals in light of such developments. The Commission has previously indicated that it intends to finalize these rules prior to commencing registration of SBSDs and MSBSPs.
Read more.TOPIC : Derivatives -
UK Financial Conduct Authority Consults on Guidance Under the Extended Senior Managers Regime
10/11/2018
The Financial Conduct Authority has published a consultation paper on proposed guidance on the Statement of Responsibilities (SoR) and Responsibilities Maps required under the Senior Managers and Certification regimes. The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third-country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.
Read more. -
Draft UK Post-Brexit Legislation to Onshore the EU Markets in Financial Instruments Package
10/11/2018
HM Treasury has published a draft of the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations are primarily relevant for MiFID II-authorized firms including investment banks, stock and futures exchanges, broker-dealers, investment advisers and investment managers.
The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.
Read more. -
Financial Stability Board Recommends Vigilant Ongoing Monitoring of Crypto-Assets
10/10/2018
The Financial Stability Board has published a report entitled "Crypto-asset markets: Potential Channels for future financial stability," in which it outlines its findings following its assessment of the crypto-asset markets in 2018.
The FSB has considered the primary risks present in crypto-assets markets as low liquidity, volatility, leverage risks, as well as technological and operational risks (including cyber security risks). The FSB considers that crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value or a mainstream unit of account. Based on the available information, the FSB considers that crypto-assets do not pose a material risk to global financial stability at this time. However, the FSB's report highlights that there could be financial stability implications from these primary risks through a variety of transmission channels including: (i) confidence effects; (ii) financial institutions' exposures to crypto-assets, related financial products and entities that are financially impacted by crypto-assets; (iii) the level of market capitalisation of crypto-assets; and (iv) the extent of their use for payments and settlements.
Read more. -
UK Regulator Provides Information on Brexit Process for Credit Rating Agencies, Trade Repositories and Data Reporting Services Providers
10/10/2018
The Financial Conduct Authority has published three press releases announcing how entities can register with it as a credit rating agency, a trade repository or apply for temporary authorization as a data reporting services provider in preparation for the U.K. leaving the EU without a deal. The press releases follow the draft legislation and explanatory guidance recently published by HM Treasury and the FCA's first consultation on onshoring the EU technical standards through changes to its rulebook.
For credit rating agencies, the U.K. intends to establish a conversion regime (for U.K. CRAs and third-country CRAs currently registered or certified by the European Securities and Markets Authority) and a temporary registration regime (for newly established U.K. entities that are part of a group of CRAs with an existing ESMA registration before exit day). The FCA's CRA press release informs CRAs of how they can notify the FCA of their intention to use one of these regimes and provides an indicative timeline for the legislation and regime to be put into place.
Read more.TOPIC : Brexit for Financial Services -
UK Conduct Regulator Consults on Brexit-Related Changes to Its Rulebook and Binding Technical Standards
10/10/2018
The U.K. Financial Conduct Authority has published its first consultation on proposed changes to the FCA Handbook to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place and there is consequently no transitional period for firms. The proposed amendments will not take effect if the U.K. enters into a transitional period after exit day.
The consultation includes the FCA's proposals in relation to the Binding Technical Standards it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterward. These are the retained EU "Level 2" delegated and implementing regulations that set out regulatory technical standards and implementing technical standards. The consultation also sets out the FCA's proposed approach to non-legislative "Level 3" materials such as guidelines, recommendations and opinions that will also be onshored.
The FCA states in the consultation that the majority of the proposed changes are consequential in nature and follow the amendments to retained EU law that HM Treasury is proposing, as set out in the series of financial services-related statutory instruments being made under the European Union (Withdrawal) Act 2018.
Read more. -
UK Conduct Regulator Consults on Post-Brexit Temporary Permissions Regime for EEA Firms and Funds
10/10/2018
The U.K. Financial Conduct Authority has published a consultation on its proposed approach to a Temporary Permissions Regime for EEA firms and investment funds that currently provide services in the U.K. - either via a branch or cross-border - pursuant to a single market passport. The proposed TPR is designed to minimize the potential harm caused by an abrupt loss of the passport in a "no-deal" scenario, in which the U.K. exits the EU without a ratified Withdrawal Agreement, which would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The TPR will enable EEA firms and investment funds to continue to provide services in the U.K. for a limited period following exit day.
The proposed TPR will take effect on March 29, 2019 in the event of no deal. Should the U.K. and EU negotiations lead to ratification of the Withdrawal Agreement, the TPR will not enter into force. Instead, during the transitional period, firms and investment funds would continue to have access to the same passporting arrangements as they do now.
Read more. -
Post-Brexit UK Law to Exclude EU Laws on the European Supervisory Authorities
10/09/2018
HM Treasury has published guidance stating that the laws establishing the three European Supervisory Authorities and the European Systemic Risk Board will be revoked in their entirety once the U.K. has left the EU. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. These ESAs and the ESRB are part of the EU framework for supervision and regulation of the EU financial services sector. The European Union (Withdrawal) Act 2018 automatically incorporates such EU legislation into U.K. laws when the U.K. leaves the EU.
At the point of Brexit, the ESAs and the ESRB will no longer perform functions in relation to the U.K. and the EU legislation that established them will be inoperable in U.K. laws. HM Treasury intends to use a statutory instrument to revoke those laws in their entirety so that they do not become applicable on Brexit. Where other EU legislation automatically incorporated into U.K. law refers to the ESAs or ESRB, statutory instruments will either amend the law or revoke it, as appropriate.
View the guidance.TOPIC : Brexit for Financial Services -
UK Financial Policy Committee Publishes Outcome of its October Meeting
10/09/2018
The Financial Policy Committee has published a statement from its meeting held on October 3, 2018 where it reviewed developments since June 19, 2018. The FPC continues to consider that the U.K. banking system is sufficiently robust to withstand the disruption of a "hard Brexit" and that there is no need for additional capital buffers for banks as a result. The FPC is of the view that the banking system would be able to absorb, in addition to a disorderly Brexit, further costs that might arise from trade tensions. However, the FPC is concerned about the lack of action taken by EU authorities to address the risks of disruption in the event of the U.K. leaving the EU without a deal on March 29, 2019. In particular, the FPC would like mitigating action to be taken to address the risks associated with derivatives contracts and the transfer of personal data.
Aside from the risks presented by Brexit, the FPC considers that domestic risks are still at a standard level overall. However, the FPC is concerned about the swift growth of leveraged lending and intends to: (i) assess the implications for banks in the 2018 stress test; and (ii) review the impact of the increasing role of non-bank lenders and changes in the distribution of corporate debt. The FPC has decided to maintain the U.K. countercyclical capital buffer rate at 1% and will review the rate again at its meeting on November 28, 2018.
Read more. -
European Supervisors Announce 2019 Work Priorities
10/09/2018
The Joint Committee of the European Supervisory Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published its 2019 Work Programme. EIOPA will Chair the Joint Committee in 2019. The Work Programme provides details of the Joint Committee's key workstreams for 2019.
Read more. -
UK Conduct Regulator Consults on Illiquid Assets and Open-Ended Funds
10/08/2018
The U.K. Financial Conduct Authority has launched a consultation on illiquid assets and open-ended funds, following responses from stakeholders to a discussion paper it issued early in 2017. After observing the impact of certain temporary fund suspensions following the U.K.'s 2016 referendum on exiting the EU, the FCA considers that open ended funds investing in illiquid assets have a potential structural liquidity mismatch which, under stress, can create a "first mover" advantage that may lead to runs on funds and sales of fund assets at reduced prices.
The FCA is consulting on a number of proposals to alleviate the risk of poor outcomes to retail investors in open ended funds, specifically non-UCITS retail schemes (NURSs), that invest in illiquid assets. The consultation includes a proposed approach to defining "inherently illiquid assets," examples of which include property or infrastructure investments.
In addition to the responses received to its discussion paper, the FCA's consultation proposals are also informed by its supervisory work and by the revised version of the Recommendations on Liquidity Risk Management for Collective Investment Schemes published in February 2018 by the International Organization of Securities Commissions.
Read more.TOPIC : Funds -
UK Government Proposes Temporary Transitional Powers for UK Financial Regulators to Ease Brexit Adjustments
10/08/2018
HM Treasury has published an Approach Paper setting out its proposal for a temporary transitional power to be given to the U.K. financial regulators to assist firms to adapt to the post-Brexit regulatory framework in an orderly manner in the event of a "no deal" scenario.
It is proposed that the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority are granted a temporary power to award transitional relief from regulatory requirements where the requirements have been introduced or have changed as a result of onshoring financial services legislation. The power would relate to regulatory requirements in the PRA and FCA rules, onshored EU technical standards, onshored EU financial services regulations or delegated regulations and relevant U.K. primary or secondary legislation. The regulators would be able to grant transitional relief by issuing a "direction" setting out the terms of the relief, including whether the relief would apply to particular firms, classes of firms or to all firms. The power would not be available where a specific transitional arrangement has already been put in place for firms through regulations made under the European Union (Withdrawal) Act because HM Treasury believes that additional relief would not be necessary.
Read more.TOPIC : Brexit for Financial Services -
Draft UK Post-Brexit Regulations to Onshore the EU Bank Recovery and Resolution Directive Published
10/08/2018
HM Treasury has published draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 to onshore the EU Bank Recovery and Resolution Directive in preparation for the U.K.'s exit from the EU. An explanatory guide to the draft Regulations has also been published. The draft Regulations will make changes to the existing U.K. legislation which transposed the BRRD into U.K. law, which is mainly the Banking Act 2009 and the Bank Recovery and Resolution (No 2) Order 2014, and to certain Delegated Regulations adopted by the European Commission under the BRRD. The aim of the draft Regulations is to ensure that the U.K. Special Resolution Regime is "legally and practically workable on a standalone basis" when the U.K. leaves the EU.
Read more. -
Draft UK Post-Brexit Legislation to Onshore Alternative Investment Fund Managers Directive Published
10/08/2018
HM Treasury has published a draft of the Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will onshore the Alternative Investment Fund Managers Directive for Brexit.
The draft Regulations are primarily relevant for Alternative Investment Fund Managers that are already regulated in the U.K. under the Alternative Investment Fund Managers Regulations 2013 and AIFMs currently marketing EEA AIFs in the U.K. They are also relevant for fund managers that market EEA Undertakings for Collective Investment in Transferable Securities (UCITS) into the U.K. HM Treasury has published separately the draft U.K. legislation to onshore EU legislation for UCITS funds for Brexit.
The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario addressed in the draft Regulations involves no transitional period following Brexit and the U.K. being treated as a third-country under EU law after exit day. The changes set out in the draft Regulations will not take effect on exit day if the U.K. enters a transition period.
Read more. -
Draft UK Post-Brexit Legislation to Onshore EU UCITS Directive Published
10/08/2018
HM Treasury has published a draft of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will onshore the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive for Brexit.
The draft Regulations are primarily relevant for EEA fund managers operating UCITS authorized in the U.K., fund managers marketing EEA UCITS into the U.K. and depositaries that provide services to U.K. authorized funds. HM Treasury has also published separately the draft U.K. legislation to onshore EU legislation for Alternative Investment Funds for Brexit.
The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The changes set out in the draft Regulations will not take effect on exit day if the U.K. enters a transition period.
Read more. -
UK Plans Transitional Regime for Credit Ratings for Potential "No Deal" Brexit
10/08/2018
HM Treasury has published explanatory guidance on a proposed U.K. regulation to onshore EU legislation on credit rating agencies in the event of a "no deal" scenario resulting from the EU-U.K. Brexit negotiations. If no deal is reached, the U.K. exits the EU on March 29, 2019. The draft statutory instrument is still being prepared and the approach as set out in the guidance may change as a result. It is expected that the draft SI will be published and also laid before Parliament before the end of the year.
Read more.TOPIC : Brexit for Financial Services -
European Supervisory Authority Issues Opinion on Position Limits for UK Natural Gas Derivatives
10/05/2018
The European Securities and Markets Authority has published an Opinion (dated September 24, 2018) on position limits for U.K. Natural Gas Contracts, for the purposes of the position limit regime established by the revised Markets in Financial Instruments Directive. MiFID II and its secondary legislation establish the position limits regime for commodity derivatives. For illiquid contracts, the position limits are set in the legislation. However, where contracts are liquid, position limits are set by the relevant national regulator and notified to ESMA. Secondary legislation under MiFID II sets out Regulatory Technical Standards for the methodology national regulators should use and the factors they should consider when setting position limits.
The U.K. Financial Conduct Authority notified ESMA in February 2018 of the position limits the FCA intends to set for U.K. Natural Gas commodity futures and options contracts. In its Opinion, ESMA confirms that the spot month position limit and the other months' position limit are consistent with the objectives of MiFID II and compliant with the methodology established by the relevant RTS.
Read more. -
UK Office of Financial Sanctions Implementation Publishes First Annual Review
10/05/2018
The U.K. Office of Financial Sanctions Implementation has published its Annual Review for the period from April 2017 to March 2018. OFSI was established in March 2016 with the objective of raising awareness of financial sanctions, assessing and addressing suspected sanctions breaches and providing a professional service to the public and industry. The Annual Review provides an overview of:- U.N. and EU financial sanction regimes implemented by OFSI;
- OFSI's work on asset freezing and a breakdown of funds frozen;
- action taken by OFSI following reports of suspected breaches of financial sanctions;
- licenses issued by OFSI during the period; and
- awareness-raising activities.
View the Annual Report. -
US FDIC Seeks to Improve Communication, Transparency and Accountability10/05/2018
The U.S. Federal Deposit Insurance Corporation published a notice and request for comment seeking input on how to improve the efficacy, efficiency and transparency of the agency’s communication with insured depository institutions. The notice outlines current forms of communication, including, regulations, policies, procedures and guidance; news and updates; industry data, educational materials and outreach; general communication; and direct communication. The notice requests comment with respect to the efficiency, ease of access and content of communications with insured financial institutions. Comments to the FDIC’s notice are due no later than December 4, 2018.
Read more. -
Draft UK Post-Brexit Legislation to Onshore Trade Repositories' Obligations and Establish Temporary Recognition Regime
10/05/2018
HM Treasury has published a draft of the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations are primarily relevant for Trade Repositories in both the U.K. and the EU that are currently registered with and supervised by the European Securities and Markets Authority and that are planning to continue servicing the U.K. market after the U.K.'s exit from the EU on March 29, 2019.
The draft Regulations have been prepared to ensure that the U.K.'s legal framework for reporting of derivatives trades to TRs will continue to operate effectively after exit day. The draft Regulations amend the version of the European Markets Infrastructure Regulation that will be retained on Brexit. The draft Regulations transfer to the Financial Conduct Authority the functions carried out by ESMA for the registration of TRs. They also establish: (i) a temporary registration regime that will enable U.K. and EU TRs that wish to establish a new U.K. legal entity to benefit - on complying with certain requirements - from temporary registration while the FCA considers their application; and (ii) a conversion regime that will allow U.K. TRs that are currently registered with ESMA to be registered as authorized U.K. TRs by the FCA from exit day.
Read more. -
Global Foreign Exchange Committee Update and Survey on Adoption of the FX Global Code
10/04/2018
The Global Foreign Exchange Committee has published an update on the ongoing work of its four priority working groups: (i) the cover and deal working group; (ii) the disclosures working group; (iii) the buy-side outreach working group; and (iv) the working group on embedding the FX Global Code. The GFXC was established in 2017 as a forum for participants in the wholesale foreign exchange markets and its terms of reference include addressing misconduct in FX markets by facilitating adoption of the global principles of good practice enshrined in the FX Global Code.
The update refers to the recent launch (on September 28, 2018) of a survey by the working group on embedding the FX Global Code. Completed surveys are requested by October 19, 2018. The aims of the survey are to measure awareness and adoption of the FX Global Code among market participants and to inform the GFXC's further work on embedding and integrating the code into the global FX markets. The survey results will be considered at the GFXC's next meeting, which will be held in November.
View the survey.
View the press release. -
US and Australian Regulators Agree FinTech Information Sharing Arrangement
10/04/2018
The Commodity Futures Trading Commission and the Australian Securities and Investments Commission have signed an arrangement designed to support cross-border FinTech innovation through their respective FinTech initiatives, LabCFTC and the ASIC Innovation Hub. The arrangement will facilitate information sharing between the two regulators in respect of emerging trends and developments, regulatory issues pertaining to FinTech innovations and best practices, among other things. It also includes a referral mechanism that will allow the CFTC and ASIC to refer to one another innovators that wish to operate or have questions about operating in the other's jurisdiction. The arrangement further calls for joint proofs of concept, trials and innovation competitions, where permitted, as well as periodic meetings to update each other on FinTech and RegTech trends and developments of common interest.
Read more.TOPIC : FinTech -
European Supervisory Authority Withdraws Guidelines for Algorithmic Trading Controls
10/03/2018
The European Securities and Markets Authority has published a decision (dated September 26, 2018) of its Board of Supervisors to withdraw its existing Guidelines for trading platforms, investment firms and national regulators on systems and controls in an automated trading environment.
The Guidelines were published by ESMA in 2011 to provide important clarifications to ensure a common, uniform and consistent application of the original Markets in Financial Instruments Directive and its secondary legislation (MiFID I). The content of the Guidelines has now been incorporated within, and consequently superseded by, detailed provisions in the revised Markets in Financial Instruments Directive and its secondary legislation (MiFID II) and the Market Abuse Regulation.
The Guidelines have been withdrawn effective from September 26, 2018.
View the ESMA decision.TOPIC : MiFID II -
UK Regulator Finds E-Money Firms Have Effective Anti-Money Laundering Controls
10/03/2018
The Financial Conduct Authority has published a report on the outcome of its thematic review into money laundering and terrorist financing risks in the e-money sector. The report focuses on e-money products, including prepaid cards and digital wallets. The FCA assessed the anti-money laundering and counter-terrorist financing controls of 13 authorized Electronic Money Institutions and registered small Electronic Money Institutions. The review included consideration of business models that involve distributing e-money through agents and distributors.
The FCA's review did not cover activities that are not regulated by the FCA (for instance, gift cards that can be used only within a limited network or prepaid products denominated in a cryptocurrency) or money remittance services provided by the EMIs.
Read more. -
US Federal Reserve Board Seeks Comment on Facilitating Faster Payments
10/03/2018
The U.S. Board of Governors of the Federal Reserve System published a notice and request for comment with respect to potential measures that could be taken to improve the efficiency and speed of payment services, specifically regarding the facilitation of real-time interbank settlement of “faster payments”—a term generally used to convey a future payment and settlement system that is fast, convenient and accessible. The notice highlights that while traditional payment methods, such as checks, ACH payments, and credit card transactions have created a payment systems infrastructure that is universal, safe and reliable, this does not necessarily translate into speed and efficiency. The notice suggests that the current system has resulted in a gap between the speed and efficiency of the payment systems infrastructure and user expectations. The notice provides background regarding Federal Reserve Board initiatives associated with faster payments, including its Strategies for Improving the U.S. Payment System initiative and Faster Payments Task Force, provides an overview of the faster payments construct, and introduces potential faster payment models, including deferred net settlement of interbank obligations and real-time gross settlement of interbank obligations. The notice also discusses potential actions that the Federal Reserve Board could undertake to support faster payments, including the development of “24x7x365” real-time interbank settlement and the creation of a liquidly management tool to help promote, support and drive participation in real-time interbank settlement.
View full text of the request for comments.TOPIC : Payment Services -
US Federal Financial Regulatory Agencies Release Joint Statement on Sharing Bank Secrecy Act Resources
10/03/2018
The U.S. Board of Governors of the Federal Reserve System, Financial Crimes Enforcement Network, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and National Credit Union Administration released an interagency statement regarding the sharing of Bank Secrecy Act resources among banks through collaborative arrangements intended to improve efficiency, reduce costs, and benefit from specialized expertise by pooling resources among banks.
Read more. -
European Parliament Adopts Resolution on Distributed Ledger Technologies
10/03/2018
The European Parliament has adopted a non-legislative resolution entitled "distributed ledger technologies and blockchains: building trust with disintermediation." Of particular relevance to the financial services sector, the European Parliament is requesting that the European Commission and other EU authorities take various steps to maximize the potential of this technology in the EU.
Read more. -
EU Opinion Attempts to Clarify the Market Size Calculation for Ancillary Activity Exemption under MiFID II
10/02/2018
The European Securities and Markets Authority has issued an opinion addressed to EU national regulators on the market size calculation for the ancillary activity exemption under the revised Markets in Financial Instruments Directive.
MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business at group level and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Delegated Regulation (EU 2017/592) sets out the criteria for establishing when an activity should be considered as ancillary to the main business at group level, including the rules for calculating the overall market trading activity of a firm.
ESMA's opinion provides guidance to market participants and national regulators on determining market size figures, since there is no centralized, publicly available record of transactions for commodity derivatives and emission allowances. ESMA acknowledges that the data it has used for the guidance may have limitations in terms of accuracy and completeness and states that national regulators may use alternative data provided by market participants for the calculation.
View the opinion.TOPIC : MiFID II -
European Supervisory Authorities and European Commission Disagree on Retail Fund Investor Disclosures
10/01/2018
The Joint Committee of the European Supervisory Authorities (i.e., the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) has published a letter it has sent to the European Commission, in response to a request from the European Commission on August 10, 2018 for the ESAs to develop guidance on facilitating the production and distribution of information on investment funds.
Read more.TOPIC : Funds -
UK Prudential Regulator Consults on Changes to Forms for Regulatory Transactions
10/01/2018
The U.K. Prudential Regulation Authority has launched a consultation entitled "Regulatory transactions: Changes to notification and application forms." The proposals in the consultation are for the amendment of various PRA forms that are used for applications and notifications for regulatory transactions. The PRA has chosen to combine the proposals into one substantial consultation paper to avoid having to issue multiple separate consultations on the same forms. The affected forms are located in the Passporting, Change in Control, Insurance Special Purpose Vehicles (ISPVs) and Notifications Parts of the PRA Rulebook.
The consultation proposals are relevant for PRA-authorized firms and any firms that have, or intend to acquire, a qualifying holding in a PRA-authorized firm.
Comments on the consultation are invited by November 1, 2018. The PRA expects that the proposals will take effect immediately after the publication of its planned Policy Statement.
View the consultation paper (PRA CP 21/18). -
European Securities and Markets Authority Recommends Tightening of Third-Country Requirements
10/01/2018
The European Securities and Markets Authority has published a letter (dated September 26, 2018) from ESMA Chair Steven Maijoor addressed to Valdis Dombrovskis, the Vice President of the European Commission. The purpose of the letter is to contribute to any further work the Commission may undertake on the investor protection and intermediaries-related requirements under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation.
Read more. -
UK Conduct Regulator Fines Retail Bank for Failures During a Cyber Attack
10/01/2018
The U.K. Financial Conduct Authority has published a final notice issued to a U.K. Retail Bank for breaches of Principle 2 of the FCA's Principles for Businesses. Principle 2 requires authorized firms to conduct their business with due skill, care and diligence. The Bank was subjected to a cyber-attack in November 2016, when attackers deployed an algorithm to generate authentic debit card numbers that were then used to make unauthorized transactions. While the attack did not involve loss or theft of customers' personal data, the FCA found that the attack left the Bank's personal current account holders vulnerable to a largely avoidable incident that occurred over 48 hours.
Read more. -
EU Ban Relating to Binary Options Extended
10/01/2018
Following its announcement in August 2018, the European Securities and Markets Authority has published notice of the extension of the prohibition on the marketing, distribution and sale of binary options to retail investors for a further three-month period from October 2, 2018. ESMA is extending the ban because the threat to investor protection has not been addressed yet through a change in EU legislation and national regulators have either taken no action or have taken insufficient action to address the potential harm.
Read more. -
European Securities and Markets Authority Publishes Its 2019 Priorities
10/01/2018
The European Securities and Markets Authority has published its Annual Work Programme for 2019, dated September 26, 2018. ESMA sets out its focus areas for 2019 and provides details of expected outputs within each of the areas. ESMA also indicates that a number of pieces of EU legislation may be reviewed. These include the Market Abuse Regulation and the clearing obligation under the European Market Infrastructure Regulation, in addition to the reviews that have already been announced.
Read more. -
Proposed Revisions to EU Guidelines on Stress Testing of Money Market Funds
09/28/2018
The European Securities and Markets Authority has opened a consultation on proposed updates to the Guidelines on stress test scenarios for Money Market Funds under the Money Market Fund Regulation. The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds and often regarded as a short-term cash management function alternative to bank deposits.
The MMF Regulation tasks ESMA with developing Guidelines on common reference parameters of the stress test scenarios to be included in the stress tests that managers of MMFs are required to conduct. ESMA's original Guidelines, published in March 2018, include specifications for the stress tests, including common parameters and scenarios which take into account certain hypothetical risk factors. The Guidelines must be reviewed at least annually and updated for any market developments.
The consultation paper proposes updating the section in the Guidelines on the establishment of common reference stress test scenarios, the results of which should be included in the reporting template that managers of MMFs are required to use. ESMA is seeking feedback on the methodology, risk factors, data and the calculation of the impact. The calibration of stress test scenarios is not within scope of the consultation. However, feedback on how to calibrate the scenarios would be welcomed by ESMA.
Responses to the consultation should be submitted by December 1, 2018. ESMA intends to finalize the revised Guidelines in Q1 2019.
View the consultation paper.TOPIC : Funds -
EU Contracts for Difference Product Intervention Measures to be Extended
09/28/2018
The European Securities and Markets Authority has announced that its various restrictions on the sale, distribution and marketing of Contracts for Difference to retail investors will be extended from November 1, 2018 for a further three months.
ESMA adopted two temporary product intervention Decisions under the Markets in Financial Instruments Regulation in June this year, one relating to binary options and another to CFDs. ESMA has powers under MiFIR to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire and it would then fall to member states to impose similar restrictions at a national level, if they so wish. The U.K. Financial Conduct Authority is expected to consult before the end of the year on whether to make permanent the EU's temporary prohibition on marketing, distribution and sale of binary options to retail investors. The International Organization of Securities Commissions recently published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options.
Read more. -
UK Brokerage Firm Fined for Inadequate Controls Against Potential Market Abuse
09/27/2018
The U.K. Financial Conduct Authority has published a Decision Notice (dated June 7, 2018) imposing a fine of £409,300 on a U.K. brokerage firm for failure to take reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems in relation to the detection and reporting of potential instances of market abuse.
Read more. -
UK Serious Fraud Office to Recruit New Senior Staff to Management Team
09/27/2018
The U.K.'s Serious Fraud Office has announced that it will be restructuring and expanding its management team with two new senior appointments:
- A new Head of Intelligence to enable the SFO to move to a more proactive approach to sourcing new cases. This appointment will enable the Head of Investigations to focus on advising on investigative strategy and leading the professional development of investigators.
- A new Head of Corporate Services to manage the finance, human resources, procurement and facilities management functions. This new appointment will enable the General Counsel to focus on legal matters.
The recruitment process for the new roles will run concurrently with recruitment of an appropriate replacement for the SFO's current General Counsel, who will be leaving the SFO later in the year after six years.
View the SFO press release.TOPIC : People -
EU Final Report to Extend Exemption From the Clearing Obligation for Certain Intragroup Derivatives Transactions
09/27/2018
The European Securities and Markets Authority has published a final report on the exemption from the clearing obligation for intragroup transactions with a third country group entity. There are currently three sets of Regulatory Technical Standards made under the European Market Infrastructure Regulation that impose the clearing obligation of certain interest rate derivatives and credit derivatives. Each of these three RTS exempts from the clearing obligation certain intragroup derivatives transactions where one of the counterparties is a third-country group entity and there is no relevant equivalence decision in respect of the third country in which it is situated. An equivalence decision would enable parties that are subject to both the EU and a third country's clearing obligation to comply only with one jurisdiction's requirements, but no equivalence decisions have been made to date. Each of the three RTS sets a different expiry date for the intra-group exemption. These dates fall between December 21, 2018 and July 9, 2019.
Following a consultation launched in July 2018, ESMA's final report contains final draft amending RTS setting out ESMA's proposal to extend the exemption period by amending each of the RTS to have one unified expiry date of December 21, 2020. The final draft amending RTS have been submitted to the European Commission for endorsement.
View the Final Report.TOPIC : Derivatives -
New Data Completeness Indicators to be Published for EU Trading Venues
09/27/2018
The European Securities and Markets Authority has announced that it will publish two new data completeness indicators for trading venues, detailing how venues are performing on the delivery of Double Volume Cap and bond liquidity data in compliance with their obligations under the Markets in Financial Instruments Regulation. ESMA has been working with national regulators to improve the timeliness and completeness of the data underpinning the monthly DVC and quarterly bond liquidity assessment publications. ESMA believes that the new indicators will incentivize trading venues to provide timely and complete data. For both DVC and bond liquidity data, ESMA will introduce the following completeness indicators:
- The Completeness Ratio, to provide information on the completeness of each particular venue, irrespective of the performance of other venues.
- The Completeness Shortfall, which will give an indication of a venue’s performance in terms of completeness compared to other trading venues and reflect the percentage of missing data for which a particular venue is responsible.
View the ESMA press release.TOPIC : MiFID II -
Prudential Regulator Reports on Climate-Related Financial Risks for the UK Banking Sector
09/26/2018
The U.K. Prudential Regulation Authority has published a report entitled "Transition in thinking: The impact of climate change on the U.K. banking sector".
The purpose of the report is to: (i) examine the financial risks from climate change that impact PRA regulated banks, building societies and designated investment firms; (ii) assess how those entities are responding to and managing the financial risks from climate change; and (iii) assist those entities in understanding the PRA's supervisory approach to the financial risks from climate change. The report will also be used to inform the Bank of England's wider work to assess the system-wide financial risks from climate change.
Read more. -
International Task Force Report Shows Momentum Building for Climate-Related Financial Disclosures
09/26/2018
The Task Force on Climate-related Financial Disclosures has issued a status report outlining progress on adoption of the TCFD disclosure recommendations issued in June 2017. The TCFD was established by the Financial Stability Board in 2015 and its 2017 recommendations provide a voluntary framework for companies to develop more effective climate-related financial disclosures through their existing reporting processes. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.
Read more. -
US Federal Judge Affirms Commodity Futures Trading Commission's Authority to Police Virtual Currency Fraud
09/26/2018
The U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).
The CFTC's initial enforcement order, filed in January 2018, accused the defendants of operating a fraudulent virtual currency scheme through which they solicited more than $6 million from customers throughout the U.S. by making false and misleading claims that MBC was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also were alleged to have misrepresented MBC's daily trading price in reports on its website, when no daily trading price existed because MBC was not actively being traded.
Read more. -
UK Parliamentary Committee Calls For Urgent Regulation of Crypto-Assets
09/21/2018
The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.
The Committee is also seeking various actions by the Government and the U.K. regulators.
Read more. -
European Central Bank Guide to On-site Inspections and Internal Model Investigations
09/21/2018
The European Central Bank has published its finalized Guide to on-site inspections and internal model investigations under the Single Supervisory Mechanism. The ECB is empowered under the SSM Regulation to conduct, with respect to Eurozone entities within its supervisory remit: (i) on-site inspections, which are in-depth investigations of risk, risk controls and governance; and (ii) internal model investigations, which involve in-depth assessments of internal models used for the calculation of own fund requirements.
The ECB has developed the Guide as a reference document for supervised entities and other legal entities for which the ECB has decided to launch an on-site inspection. It consulted on a draft of the Guide in July 2017 and has published a separate feedback statement on the consultation responses that were received. The Guide applies to ECB inspections of significant institutions, less significant institutions and other legal entities referred to in the SSM Regulation, including third parties to whom credit institutions have outsourced functions.
The Guide comprises three sections: (i) the general framework for inspections; (ii) the inspection process; and (iii) applicable principles for inspections. The Guide is not a legally binding document and does not replace the legal requirements laid down in the relevant applicable EU law.
View the Guide.
View the feedback statement. -
US Prudential Regulators Amend Swap Margin Rule to Reflect QFC Stay Requirements
09/21/2018
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency (together, the "Prudential Regulators") have approved amendments to their margin requirements for uncleared swaps and security-based swaps to align with regulations of the Board, FDIC and OCC relating to stays on default remedies for certain qualified financial contracts (QFC Rules). The final amendments conform the definition of "eligible master netting agreement" under the Swap Margin Rule with the "qualifying master netting agreement" definition in the QFC Rules. Therefore, master netting agreements that comply with the limitations on default remedies in the QFC Rules are not excluded from the definition of EMNA for purposes of the Swap Margin Rules. Additionally, any legacy uncleared swaps not subject to the Swap Margin Rule would not become subject to the Swap Margin Rule due solely to amendments to comply with the QFC Rules.
The final amendments are effective 30 days following their publication in the Federal Register.
View the final amendments.
View the Prudential Regulators' joint press release.TOPIC : Derivatives -
Scottish Court Says Court of Justice of the European Union Should Rule on Whether Brexit Notification Can Be Revoked
09/21/2018
The Court of Session has delivered an Opinion allowing a reference to be made to the Court of Justice of the European Union for a preliminary ruling on whether the U.K. can unilaterally revoke its notice of withdrawal from the EU - Wightman v Secretary of State for Exiting the European Union [2018] CSIH 62 (21 September 2018).
Under Article 50 of the Treaty on European Union, the United Kingdom gave notice to the EU Council on March 29, 2017 that it would leave the EU. The notification means that unless an agreement is reached between the U.K. and the EU, and absent any agreement to extend the two-year period, the U.K. will exit the EU on March 29, 2019.
Read more.TOPIC : Brexit for Financial Services -
US Agencies Issue Multiple Digital Asset-Related Enforcement Orders
09/20/2018
The Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued three digital asset-related enforcement orders, and the SEC also suspended trading in two securities that track the value of digital assets. The orders mark an uptick in digital asset enforcement from previous months.
Crypto Asset Management, LP
On September 11, 2018, the SEC alleged that hedge fund manager Crypto Asset Management (CAM) had caused its Crypto Asset Fund (CAF) to fail to register as an investment company based on its digital asset investments, marking the first time the SEC has invoked the Investment Company Act of 1940 (the 1940 Act) in an enforcement proceeding against the managing member of a pooled investment vehicle that invests in digital assets.
Read more. -
Basel Committee on Banking Supervision Provides Brief Update on Various Workstreams
09/20/2018
The Basel Committee on Banking Supervision has published a press release summarizing the outcome of its meeting on September 19-20, 2018. The Committee committed to consider Pillar 1 and Pillar 3 measures to prevent banks adjusting their balance sheets around regulatory reporting dates to manipulate reported leverage ratios. In addition, the Committee intends to further analyze banks' exposures to crypto-assets to reach a conclusion on whether action is needed to address the risks that these assets may present.
The Basel Committee will publish the following before the end of the year:- an updated 2018 list of global systemically important banks, along with the high-level indicator values of all the banks that are within the G-SIB assessment exercise;
- final revisions to the market risk framework (towards the end of the year);
- a consultation paper (in October 2018) on whether the exposure measure should be revised to alleviate its impact on client clearing, including presenting options for revising this; and
- the revised Principles on Stress Testing (in October 2018).
The Basel Committee also published responses to Frequently Asked Questions on the treatment of settled-to-market derivatives under the Liquidity Coverage Ratio and Net Stable Funding Ratio.
View the press release.
View the FAQs. -
Further Amendments to Technical Standards on EU Systematic Internalisers' Quote Rules
09/20/2018
The European Securities and Markets Authority has published an Opinion and revised draft amendments to the Regulatory Technical Standard on the equity transparency obligations of trading venues and investment firms. The RTS, known as RTS 1, is set out in Commission Delegated Regulation (EU) 2017/587, supplementing the Markets in Financial Instruments Regulation.
Read more.TOPIC : MiFID II -
UK Regulators Ask Large Banks and Insurers for LIBOR Transition Plans
09/19/2018
The Prudential Regulation Authority and the Financial Conduct Authority have published letters addressed to the CEOs of the largest banks and insurers supervised in the U.K. asking for confirmation of each firm's preparations for transition from LIBOR to risk-free rates. The regulators are requesting these firms to provide the following by December 14, 2018:- A summary of the firm's assessment of key risks relating to LIBOR discontinuation and details of actions the firm intends to take to mitigate those risks, approved by the board; and
- The names of the Senior Manager(s) responsible for the provision of the firm's response to the letter and for implementing its transition plans.
The letter relates to the ongoing global benchmark reform effort instigated by the Financial Stability Board, in particular, the transition from LIBOR to alternative rates by the end of 2021. Firms that have not received the letter are not subject to the information request, but the regulators ask those firms to nevertheless consider their LIBOR transition plans, where relevant.
View the letters. -
International Standards Body Encourages Regulatory Clampdown on OTC Leveraged Products
09/19/2018
The International Organization of Securities Commissions has published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options. This step at international level follows the temporary prohibition of the marketing, distribution or sale of binary options and the restrictions on the marketing, distribution or sale of CFDs to retail clients introduced in the EU earlier this year, which the U.K. Financial Conduct Authority fully supported.
The report covers rolling spot forex contracts, CFDs and binary options offered and sold on a domestic and cross-border basis by intermediaries to retail investors. The report includes three toolkits providing guidance to IOSCO member jurisdictions on methods for mitigating the harm to retail investors investing in these products.
Read more. -
New International Guidance Addresses Conflicts of Interest and Conduct Risks in Equity Capital Raisings
09/18/2018
The International Organization of Securities Commissions has published a final report setting out Guidance to its members to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising. IOSCO consulted on a draft version of the guidance between February and April 2018.
IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise if analysts employed by firms managing the securities offering are at risk of being under pressure to present a positive view of the issuer. During the investor education and price-formation phase, there is a risk that these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. IOSCO considers that there can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions related to the capital raising. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.
Read more. -
US-UK Financial Regulatory Working Group Holds Inaugural Meeting
09/18/2018
The U.S.-U.K. Financial Regulatory Working Group has issued a statement following its inaugural meeting held on September 12, 2018 in London. Participants discussed the outlook for financial regulatory reforms and future priorities, including possible areas for deeper regulatory cooperation to facilitate further financial services activity between U.S. and U.K. markets. Participants also discussed Brexit-related issues, including: (i) U.S.-U.K. financial regulatory issues resulting from the U.K.’s exit from the EU; and (ii) the implications of Brexit for financial stability and cross-border financial regulation, including contractual continuity and potential cliff-edge risks.
The Working Group was established in April 2018 to serve as a forum for staff from the U.S. Department of the Treasury and HM Treasury and financial regulatory authorities to exchange views on the regulatory relationship between the U.S. and the U.K. Its objectives are to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.
The next meeting of the Working Group will be held in the first half of 2019 in Washington, D.C.
View the statement. -
UK Conduct Regulator Consults on its Approach to Technical Standards and Guidelines Under the Revised Payment Services Directive
09/17/2018
The U.K. Financial Conduct Authority has launched a consultation on its approach to implementing Regulatory Technical Standards and related Guidelines developed by the European Banking Authority to supplement provisions of the revised Payment Services Directive. The FCA's consultation focuses in particular on the RTS for strong customer authentication and common and secure open standards of communication. These RTS impose obligations on payment service providers to increase the security of customers' payments made by card and other means and also set out requirements on account servicing payment service providers (ASPSPs) relating to the third party providers of Account Information Services (AIS) and Payment Initiation Services (PIS) that were brought within the regulatory regime by PSD2.
The consultation includes proposals on new fraud reporting requirements reflecting PSD2 fraud reporting guidelines published by the EBA in July 2018. The FCA is also consulting on proposed changes to its Payment Services and E-Money Approach Document to reflect other legislative changes and clarify its expectations.
The EBA consulted between June and August 2018 on proposed Guidelines on aspects of the RTS. The FCA's proposed implementation approach is premised on the assumption that the final Guidelines will be largely as consulted on and the FCA will adjust its approach if necessary when the finalized Guidelines are published.
Read more. -
Bank of England Launches Public Register for the UK Money Markets Code
09/17/2018
The Bank of England has announced that its Money Markets Committee has launched a public register to display the statements of commitment from market participants that have agreed to abide by the UK Money Markets Code and would like their statements to be included on the register. The public register is accessible via a dedicated BoE webpage.
The Code is a voluntary industry code launched in April 2017, written by market participants. It sets out best practice expected from participants in the deposit, repo and securities lending markets and incorporates revised relevant sections of the Non-Investment Products Code, and also a revision and update of the Gilt Repo Code and Securities Borrowing and Lending Code.
View the public register.
View the Money Markets Code. -
Final Defendant Sentenced in UK Regulator's Prosecution of £2.8m Investment Fraud
09/17/2018
The final defendant in an investment fraud case has been sentenced to 11 years' imprisonment following "Operation Tidworth", the U.K. Financial Conduct Authority's largest and one of its most complex fraud investigations to date. Five other defendants received prison sentences on September 4, 2018 for their roles in share fraud carried out through a series of boiler room companies which led to the loss of more than £2.8 million of investors' money. Many of the investors were elderly or vulnerable and lost life-changing sums, which in some cases amounted to their life savings. The six defendants in the fraud have together been sentenced to a total of 28.5 years' imprisonment. The final defendant was considered to be the instigator and main beneficiary of the fraud.
The final defendant must serve a total of 13 years in prison, having received an additional sentence of 2 years'; imprisonment in a separate prosecution by the Crown Prosecution Service and the City of London Police.
View the FCA press release.
View details of the sentences handed down on September 4, 2018.TOPIC : Enforcement -
European Central Bank Consults on Part 2 to Guide to Licensing Credit Institutions
09/14/2018
The European Central Bank has opened a consultation on a draft Part 2 to its Guide to Assessments of Licence Applications by banks. The ECB published the Guide to Assessment of Licence Applications in March 2018, which applies to all license applications to become a credit institution within the meaning of the Capital Requirements Regulation. The ECB developed the Guide, which is not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the Single Supervisory Mechanism.
The consultation on the draft Part 2 of the Guide focuses on assessment criteria for capital requirements and business plans, including initial capital, own funds, location, operations and structural organization, banking group and outsourcing.
The consultation closes on October 25, 2018.
View the consultation paper.
View the consultation webpage.
View details of the Guide to Assessments of Licence Applications. -
UK Regulator Publishes Application Requirements for EEA Market Operators Seeking Recognition
09/14/2018
The Financial Conduct Authority has published a direction on how EEA market operators can apply for recognition as an overseas investment exchange in preparation for Brexit. EEA market operators operating a regulated market, a multilateral trading facility or an organised trading facility currently use passports granted under the revised Markets in Financial Instruments Directive to give their U.K.-based members access to their markets. Once the U.K. has left the EU, those passports will no longer be valid and the U.K. Government does not intend to establish a temporary permissions regime in the event of a "no deal" outcome to the EU-U.K. Brexit negotiations or without an agreed implementation period. EEA market operators that engage in regulated activities when providing their U.K. members with access to their markets will need to apply for ROIE status, unless they can rely on the U.K.'s overseas persons exclusion. The FCA's direction sets out the FCA's expectations for EEA market operators.
View the FCA's statement.
View the FCA's Direction. -
UK Conduct Regulator Bans Former Trader for Euribor Manipulation
09/14/2018
The U.K. Financial Conduct Authority has issued a Final Notice to a former employee of a major EU bank, prohibiting him from performing any function in relation to any regulated financial activity. The individual had been employed to trade interest rate derivative products referenced to benchmarks including the Euro Interbank Offered Rate.
The FCA had previously issued a Decision Notice to the former trader in April 2017 imposing a prohibition and a fine of £6.5 million, following a finding that, between March 2005 and June 2009, the former trader had been knowingly concerned in a contravention by his employer of Principle 5 of the FCA's Principles for Businesses, which requires firms to observe proper standards of market conduct.
Read more. -
US and Singaporean Regulators Sign FinTech Collaboration Agreement
09/13/2018
The U.S. Commodity Futures Trading Commission and the Monetary Authority of Singapore today signed a cooperation arrangement on FinTech innovation, which is to be supported by the agencies' respective FinTech initiatives, LabCFTC and the MAS Financial Technology & Innovation Group. The arrangement will facilitate inter-agency cooperation on FinTech innovation and referrals for innovators that wish to enter the other regulator's market. In addition, it will provide an information sharing framework between the agencies focused on FinTech market trends and developments, innovations and best practices within their respective jurisdictions. The arrangement also calls for joint events, proofs of concept, trials and innovation competitions where permitted, along with periodic meetings to discuss FinTech issues of common interest.
CFTC Chairman J. Christopher Giancarlo in a statement said that he believes this collaboration with the MAS will "enhance global awareness of the critical role of regulators in 21st century digital markets," while Ravi Menon, Managing Director of the MAS, said that he hopes the arrangement will "create more opportunities for firms in both jurisdictions, especially in developing innovative business models for the derivatives market."
The arrangement follows a similar agreement reached by the CFTC and the U.K. Financial Conduct Authority this past February, and reflects the global nature of FinTech markets and the importance of cross-border collaboration between regulators.
View the cooperation agreement.
View the CFTC/FCA agreement.TOPIC : FinTech -
US Federal Deposit Insurance Corporation Seeks Comments Regarding the Treatment of Reciprocal Deposits
09/13/2018
The U.S. Federal Deposit Insurance Corporation published a notice of proposed rulemaking and request for comments regarding a limited exception for a capped amount of reciprocal deposits from treatment as brokered deposits.
Read more. -
Working Group Recommends Replacement of EONIA With New Euro Short-Term Rate
09/13/2018
The European Central Bank has announced its recommendation of the Euro short-term rate - €STR - as a euro risk-free rate by a private sector working group. The group also recommends that €STR replaces the Euro overnight index average, EONIA, because EONIA no longer complies with the EU Benchmark Regulation and will be restricted from January 1, 2020. The recommendations of the working group are not legally binding.
Read more. -
EU Delegated Regulation on Settlement Discipline Published
09/13/2018
A Commission Delegated Regulation on settlement discipline has been published in the Official Journal of the European Union. The Delegated Regulation sets out Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process. The RTS will apply directly across the EU from September 13, 2020.
View the RTS. -
US Federal Reserve Board Issues Final Rule Amending the Liability Provisions of Regulation CC
09/12/2018
The U.S. Board of Governors of the Federal Reserve System announced a final rule amending the liability provisions of Subpart C of Regulation CC to address instances where there is a dispute between banks as to whether a check has been altered or is a forgery, and the original check is not available for inspection. The final rule creates a rebuttable presumption of alteration (as that term is used in the UCC) with respect to disputes that arise between banks regarding substitute or electronic checks. The presumption is rebuttable either by proving by a preponderance of the evidence that the substitute or electronic check is forged (i.e., derives from an original check that was issued with an unauthorized signature of the drawer) or does not contain an alteration. The presumption of alteration does not apply if a copy of the original check is available for inspection by all parties or where one bank sent the original check to the other bank, even if the check was subsequently truncated and destroyed. The final rule will take effect on January 1, 2019.
View full text of the final rule.TOPIC : Payment Services -
European Commission Proposes Enhancements to the European Banking Authority's Supervisory Powers for Anti-Money Laundering
09/12/2018
The European Commission has published a Communication setting out a broad strategy for strengthening the EU's framework for anti-money laundering supervision. The Communication is accompanied by a fact sheet setting out Questions and Answers on the strategy.
The Commission notes that, despite the recent strengthening of the EU's framework, through the Fourth Money Laundering Directive (4MLD) and the forthcoming Fifth Money Laundering Directive (5MLD), there are concerns that gaps remain in the EU's supervisory framework. The Commission highlights that there is no clear articulation between the prudential and anti-money laundering rules for financial institutions. It identifies shortcomings in the reaction time of national supervisors and in the level of cooperation and information sharing both between prudential and anti-money laundering supervisors and on a cross-border basis between EU supervisors and other supervisors based both within and outside the EU. While the Commission recognizes that 5MLD will remove certain obstacles to cooperation between anti-money laundering and prudential supervisors, it also notes that further steps are necessary to ensure effective supervisory cooperation, especially where financial institutions operate across borders.
Read more. -
UK Government Consults on Transposition Measures for the EU Bank Creditor Hierarchy Directive
09/12/2018
HM Treasury has published a consultation on the U.K. Government's proposed approach to implementing the EU Bank Creditor Hierarchy Directive (also known as the Insolvency Hierarchy Directive) into U.K. domestic law. Member states are required to transpose the BCHD into national law by December 29, 2018 and must apply the laws from the date of transposition.
The BCHD is part of a package of reforms aimed at further strengthening the resilience of EU banks. It lays down harmonized rules for the insolvency ranking of unsecured debt instruments for the purposes of the EU recovery and resolution framework. The BCHD introduces statutory subordination across the EU, by amending the Bank Recovery and Resolution Directive so as to require Member States to create a new class of non-preferred senior debt in their creditor hierarchy. Instruments meeting the relevant criteria to fall within the new class will be eligible to meet subordination requirements under the provisions of the Total Loss Absorbing Capacity (TLAC) term sheet and its EU equivalent, the requirement for Minimum Requirement for Own Funds and Eligible Liabilities (MREL). HM Treasury explains in the consultation paper that the statutory subordination introduced by the BCHD will not prevent the U.K.'s preferred approach, which is to require structural subordination (i.e. subordination within the terms of capital instruments).
Read more.TOPIC : Recovery & Resolution -
UK Prudential Regulator Consults on Revisions to Supervisory Reporting Requirements
09/12/2018
The U.K. Prudential Regulation Authority has launched a consultation on changes to the PRA's reporting requirements to reflect proposed changes set out by the European Banking Authority in EBA consultations launched in August 2018. The EBA proposes a number of revisions to the existing Implementing Technical Standards on the supervisory reporting requirements under the Capital Requirements Regulation. These include proposed revisions to the financial reporting (FINREP) annexes of the ITS, which add new reporting requirements for non-performing and forborne exposures, amend the reporting of profit or loss items (in particular on expenses) and amend the reporting on leases following International Financial Reporting Standard 16. Proposed revisions to the common reporting (COREP) annexes relate to the Liquidity Coverage Requirement for credit institutions.
Read more. -
US Federal Financial Regulatory Agencies Reaffirm the Role of Supervisory Guidance
09/11/2018
The U.S. Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and Bureau of Consumer Financial Protection issued an interagency statement explaining the role and legal status of supervisory guidance.
Read more.TOPIC : Enforcement -
Bank of England Governor to Stay on Until Brexit
09/11/2018
HM Treasury has published a press release announcing that Bank of England Governor Mark Carney will remain in his position for an extended term until January 31, 2020. The extension of Dr. Carney's term will ensure continuity at the BoE until Brexit is completed. A new governor would be appointed during Autumn 2019 after the terms for the U.K.'s withdrawal and the framework for the future U.K.-EU partnership have been agreed.
Sir Jon Cunliffe, BoE Deputy Governor with responsibility for financial stability, has also been re-appointed for a term from November 1, 2018 to October 2023.
View the HM Treasury press release.
View the correspondence between Dr. Carney and the Chancellor of the Exchequer.TOPIC : People -
US Office of the Comptroller of the Currency Proposes to Permit Certain Federal Savings Associations to Operate with National Bank Powers
09/10/2018
The U.S. Office of Comptroller of the Currency published a notice of proposed rulemaking regarding permitting federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017 (“covered savings associations”), to elect to operate with the same rights and privileges as a national bank. The proposed rule seeks to implement Section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amends the Home Owners’ Loan Act, and is intended to provide business flexibility for certain federal savings associations to adapt to change without a corresponding requirement to change charters. Under the proposed rule, a covered savings association has same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association, and is subject to the same duties, restrictions, penalties, liabilities, conditions and limitations that would apply to such a national bank. The covered savings institution, however, will retain its federal savings association charter, and will be treated as a federal savings association for governance and other purposes, including consolidation, merger, dissolution, conversion, conservatorship and receivership. Treatment as a covered savings association would generally continue even after the institution’s total consolidated assets exceed $20 billion. Comments to proposed rule are due no later than November 19, 2018.
View full text of the proposal. -
US Federal Deposit Insurance Corporation Seeks to Retire Certain Financial Institution Letters
09/10/2018
The U.S. Federal Deposit Insurance Corporation published a proposal (FIL-46-2018) seeking comment with respect to the retirement of certain Financial Institution Letters. FILs are letters that typically announce various types of regulations, policies, publications, and other matters of interest to those in the banking community. The retired FILs would be archived and moved to inactive status, but would still be available for reference. The FDIC issued the proposal pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which requires the FDIC (and other agencies) to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations. In connection with this mandate, the FDIC has identified 374 FILs issued between 1995 and 2017 regarding risk management supervision that have become outdated or redundant. The FDIC is also currently reviewing FILs regarding other subject matters, and is exploring opportunities to update or streamline its remaining FILs generally. Comments to the proposal are due by October 10, 2018.
View full text of the FDIC proposal, including a list of the letters to be retired. -
Post-Brexit UK Secondary Legislation Published For Temporary Permissions Regime For Payments Services
09/05/2018
HM Treasury has published draft statutory instruments on the regulation of payments and e-money and on access to the Single Euro Payments Area in preparation for the U.K.'s withdrawal from the EU - the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 and the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018. The draft Regulations are relevant to all Payment Service Providers and registered Account Information Service Providers. The draft Regulations will amend the Payment Services Regulations 2017, Electronic Money Regulations 2011 and the SEPA Regulation to:- Create a temporary permissions regime for EEA payment firms
Read more.TOPIC : Brexit for Financial Services -
UK Financial Conduct Authority Appoints New Director of Competition
09/05/2018
The U.K. Financial Conduct Authority has issued a press release announcing the appointment of Sheldon Mills as its new director of competition. Mr. Mills is currently senior director, mergers and state aid at the Competition and Markets Authority. Mr. Mills will take up his role in November 2018.
View the FCA press release.TOPIC : People -
European Supervisory Authorities Report on Automation in Financial Advice
09/05/2018
The Joint Committee of the European Supervisory Authorities has published a joint report on automation in financial advice. The Report follows the ESA's 2015 joint discussion paper and follow-up report in 2016. The Report provides a summary of recent sectoral work by the ESAs in this area and the main findings of a survey with national regulators on the evolution of automation in financial advice in the securities, banking and insurance sectors. The ESAs observed that automated services are more often offered through partnerships between established financial intermediaries and FinTech firms than by FinTech firms alone. The ESAs also found that automation in financial advice has grown slowly and that the number of firms and customers involved is still limited. As a result, the ESAs do not consider that any of the previously identified risks have materialized and therefore that further action is unnecessary at this stage. The ESAs will conduct a new monitoring exercise if and when market developments and risks merit the work.
View the report. -
EU Disagreement on EU Technical Standards for Reporting of Securities Financing Transactions
09/05/2018
The European Securities and Markets Authority has published an Opinion on the European Commission's proposed amendments to the final draft Implementing and Regulatory Technical Standards on reporting under the Securities Financing Transactions Regulation. Various parts of the SFTR came into effect on January 12, 2016. However, the new reporting obligation for SFTs is not yet in force. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The SFTR requires, amongst other things, all securities financing transactions to be reported to EU recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.
Read more. -
Five Individuals Imprisoned for £2.8m UK Investment Fraud
09/04/2018
Five defendants have between them been sentenced to a total of 17.5 years' imprisonment, following a fraud prosecution brought by the U.K. Financial Conduct Authority.
The FCA's statement announcing the sentencing highlights the investigation as one of the FCA's most complex fraud investigations to date and the first FCA prosecution of an offense of perverting the course of justice. Between July 2010 and April 2014, the defendants cold-called members of the public and subjected them to high-pressure sales tactics to persuade them to purchase shares in a company that owned land in Madeira. A number of entirely false claims were made to persuade potential investors to invest. Many of the investors were elderly and vulnerable and suffered life-changing losses.
The FCA proposes to commence confiscation proceedings against the five defendants under the Proceeds of Crime legislation. A sixth defendant will be sentenced on September 14, 2018.
View the FCA press release.TOPIC : Enforcement -
European Commission Communication on Proposed Amendments to Technical Standards on Systematic Internalisers' Quote Rules
09/03/2018
The European Commission has published a Communication (dated August 10, 2018) on proposed amendments by the European Securities and Markets Authority to a Regulatory Technical Standard, known as "RTS1," supplementing the Markets in Financial Instruments Regulation.
Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity." ESMA submitted final draft amendments to RTS 1 in March 2018, which provided that, where a financial instrument is subject to the "minimum tick size" regime, the quotes of an SI can only adequately reflect prevailing market conditions when those quotes reflect the minimum price increments ("tick sizes") quoted by EU trading venues trading the instrument.
Read more.TOPIC : MiFID II -
UK Regulator Confirms its Expectations on Reporting for Resolution Planning
08/31/2018
The Prudential Regulation Authority has issued an update on the application of its supervisory statement, "Resolution Planning." The supervisory statement sets out the PRA's expectations on the resolution planning information that firms must submit to comply with their obligations under the EU Bank Recovery and Resolution Directive. The update confirms the approach that will be taken by the PRA and the Bank of England as the U.K.'s national resolution authority.
Read more.TOPIC : Recovery & Resolution -
US Federal Reserve Board and FDIC Extend Resolution Plan Submission Deadlines for Certain Institutions
08/30/2018
The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation announced that the agencies have extended the submission deadline for the resolution plans (commonly referred to as “living wills”) for one designated non-bank and four foreign banking organizations. The announcement extends the submission deadline for the non-bank financial company from December 31, 2018 to December 31, 2019, and extends the submission deadline for the four foreign banking organizations from July 1, 2019 to July 1, 2020. The agencies noted that the extended deadline will allow for feedback to be provided to the institutions with respect to their prior resolution plan submissions, and will also provide time for the institutions to prepare their next resolution plan submissions. The FDIC also announced that it will be extending the resolution plan submission deadline for all insured depository institutions to no sooner than July 1, 2020.
View full text of the FDIC and Federal Reserve press release.TOPIC : Recovery & Resolution -
Basel Committee Finalizes Technical Amendment to Pillar 3 Disclosure Requirements
08/30/2018
Following a consultation in March 2018, the Basel Committee on Banking Supervision has published a finalized technical amendment to the consolidated Pillar 3 disclosure technical standard that was issued in March 2017. The amendment imposes additional Pillar 3 disclosure requirements for those jurisdictions implementing an Expected Credit Loss, or ECL, accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting provisions. These additional disclosures require banks to disclose, where applicable: (i) the "fully loaded" impact of ECL transitional arrangements used in Total Loss Absorbing Capacity resources and ratios; (ii) the allocation between general and specific provisions for standardized approach exposures; and (iii) the rationale for their categorization of ECL accounting provisions in general and specific categories for standardized approach exposures.
The technical amendment will also apply to jurisdictions adopting transitional arrangements for the regulatory treatment of accounting provisions. The interim approach to, and transitional arrangements for, the regulatory treatment of accounting provisions were published separately by the Basel Committee in March 2017.
The amendments covered by the revised Technical Standard will take effect from January 1, 2019.
View the Technical Amendment.
View the consultation paper.
View the interim approach and transitional arrangements published March 2017. -
US Office of the Comptroller of the Currency Issues Guidance with Respect to Implied Sovereign Support
08/28/2018
The U.S. Office of the Comptroller of the Currency issued guidance to OCC-supervised institutions with respect to the role of informal or implied expressions of support from foreign governments in determining credit risk ratings.
Read more.TOPIC : Credit Ratings -
US Office of the Comptroller of the Currency Publishes Advanced Notice of Proposed Rulemaking with Respect to Community Reinvestment Act Modernization
08/28/2018
The U.S. Office of the Comptroller of the Currency issued an advanced notice of proposed rulemaking with respect to the modernization of the Community Reinvestment Act.
Read more. -
US Federal Reserve Board Issues Interim Final Rule Expanding the Applicability of the Small Bank Holding Company Policy Statement
08/28/2018
The U.S. Board of Governors of the Federal Reserve System issued an interim final rule increasing the asset threshold for the applicability of the Federal Reserve Board’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (Regulation Y, Appendix C) from $1 billion to $3 billion in total consolidated assets.
Read more. -
European Banking Authority Proposes Revised Implementing Technical Standards for Reporting of Securitization Information
08/28/2018
The European Banking Authority has published a consultation paper setting out proposed amendments to existing Implementing Technical Standards on supervisory reporting, to align the reporting of securitizations with the new EU securitization framework. The new securitization framework took effect in January 2018 and comprises: (i) the Securitization Regulation (also known as the STS Regulation), which lays down common due diligence for institutional investors, risk retention and transparency measures and establishes a category of simple, transparent and standardized securitization in the EU; and (ii) a Regulation making targeted amendments to the Capital Requirements Regulation to provide for the capital treatment of STS securitizations and certain SME synthetic securitizations, including measures to reduce reliance on external credit ratings.
Read more. -
European Banking Authority Proposes Revised Implementing Technical Standards for Supervisory Reporting Under the Capital Requirements Regulation
08/28/2018
The European Banking Authority has launched a consultation on proposed revisions to the existing Implementing Technical Standards for the financial reporting, or FINREP, framework under the Capital Requirements Regulation.
The proposed revisions relate to the reporting requirements for non-performing and forborne exposures. The EBA proposes revisions to existing templates to provide for additional breakdowns on performing and non-performing exposures, forborne exposures and collateral obtained. The proposals include some new templates for additional reporting by institutions with elevated levels of non-performing exposures that are not "small and non-complex." The new templates are designed to provide further insights into an institution's portfolios of performing and non-performing loans and/or or forborne loans and advances and on collateral obtained. The EBA also proposes revisions to the reporting on profit or loss items in FINREP and to account for the introduction of International Financial Reporting Standard 16 Leases, which is due to replace IAS 17 as the standard for the accounting of leases from January 1, 2019.
Read more. -
European Banking Authority Proposes Revised Supervisory Reporting Technical Standards on Liquidity Coverage Requirement
08/28/2018
The European Banking Authority has launched a consultation on proposed revisions to the Implementing Technical Standards that relate to supervisory reporting, under the common reporting, or COREP, framework, in line with the Liquidity Coverage Requirement, or LCR, under the Capital Requirements Regulation.
The proposed revisions to the ITS are intended to reflect amendments made to an existing Delegated Regulation supplementing the Capital Requirements Regulation. These amendments were made by an Amending Regulation adopted by the European Commission in July 2018. The changes introduced by the Amending Regulation require the EBA to make related changes to the ITS on LCR reporting to capture the necessary elements for its calculation and monitoring. The revisions to the ITS relate mainly to the calculation of inflows and outflows in securities financing transactions and collateral swaps or the unwind waivers envisaged for some SFTs and collateral swaps with central banks. Further minor amendments are also proposed.
Read more. -
European Securities and Markets Authority Intends to Extend Product Intervention Measures for Binary Options for a Further Three Months
08/24/2018
The European Securities and Markets Authority has announced its intention to adopt a Decision to extend the prohibition on the marketing, distribution and sale of binary options to retail investors for a further three-month period from October 2, 2018. ESMA has previously adopted intervention measures for binary options, with the current Decision set to expire on October 1, 2018.
ESMA has power under the Markets in Financial Instruments Regulation to impose prohibitions or restrictions on certain financial instruments, financial activities or practices. This may be done when, among other conditions, the exercise of ESMA's power addresses a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire. In reviewing the current Decision, ESMA has agreed to exclude from the scope of product intervention certain types of binary option that are less likely to lead to a significant investor protection concern.
Read more. -
US Federal Reserve Board, OCC and FDIC Expand 18-Month Examination Cycle for Small Banks and Branches and Agencies of Foreign Banks
08/23/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation jointly issued an interim final rule and request for comment to expand the number of insured depository institutions and U.S. branches and agencies of foreign banks eligible for an 18-month on-site examination cycle.
Read more. -
Commodity Futures Trading Commission Proposes Clearing Requirement Exemptions for Certain Financial End Users
08/23/2018
The Commodity Futures Trading Commission has proposed exempting certain bank holding companies, savings and loan holding companies and community development financial institutions from swap clearing requirements. The proposed exemptions, issued in response to comments made through the CFTC's Project KISS initiative, codify prior no-action relief provided under CFTC Staff Letters 16-01 and 16-02.
Read more.TOPIC : Derivatives -
UK Government Issues Brexit "No-Deal" Guidance for Financial Services
08/23/2018
HM Treasury has published a technical notice entitled "Banking, insurance and other financial services if there's no Brexit deal," to provide guidance about the impact of the U.K. leaving the EU without a ratified withdrawal agreement in place. The guidance is relevant to financial services firms, funds and financial market infrastructures and to their customers. The technical notice is one of the first 25 of a series of U.K. government technical notices setting out information that will enable businesses and citizens to make informed plans and preparations in the event of the U.K. exiting the EU on March 29, 2019 without a deal. These technical notices include a notice on the government's overarching approach to preparing for a "no deal" scenario.
Read more.TOPIC : Brexit for Financial Services -
European Central Bank Issues Opinion on Proposed Prudential Framework for Investment Firms
08/22/2018
The European Central Bank has published an Opinion on the legislative proposals adopted by the European Commission in December 2017 for a new framework for the prudential regulation of investment firms. The framework proposed by the European Commission comprises a proposal for a regulation on the prudential requirements of investment firms (including amendments to the Capital Requirements Regulation, the Markets in Financial Instruments Regulation and the European Banking Authority Regulation) along with a proposal for a directive on the prudential supervision of investment firms, which includes amendments to the CRD IV Directive and the revised Markets in Financial Instruments Directive. The ECB was asked by the European Parliament and the Council of the European Union to provide its opinion on the proposed framework in January 2018.
In the Opinion the ECB states that it generally supports the objectives of the proposed framework, which are to create a prudential framework better suited to the risks and business models of different types of investment firms and to subject systemically important investment firms to the same prudential rules as credit institutions.
Read more. -
US Federal Reserve Board, OCC and FDIC Issue Interim Final Rule with Respect to the Treatment of Certain Municipal Obligations as High-Quality Liquid Assets
08/22/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation jointly issued an interim final rule and request for comment to treat “liquid and readily-marketable,” investment grade municipal obligations as level 2B high-quality liquid assets (HQLAs) for purposes of the liquidity coverage ratio rule.
Read more. -
EU Final Draft Technical Standards on Reporting and Disclosure Requirements for Securitizations
08/22/2018
The European Securities and Markets Authority has published a final report and technical standards on the disclosure and reporting requirements under the EU Securitization Regulation (or STS Regulation). The Securitization Regulation requires originators and sponsors to notify ESMA of any securitization that meets the "Simple, Transparent and Standardized" criteria. ESMA will maintain a list of all such securitizations on its website. Securitization special purpose entities, originators and sponsors of a securitization will be required to make certain information available via a securitization repository to holders of a securitization position, to the national regulators and, upon request, to potential investors. The Securitization Regulation will apply directly across the EU from January 1, 2019 to securities issued under securitizations on or after January 1, 2019. Securitizations issued before that date may be referred to as STS securitizations provided that they meet certain conditions.
Read more. -
UK Releases Draft Legislation to Onshore EU Regulatory Capital Requirements Legislation Post-Brexit
08/21/2018
HM Treasury has released another draft statutory instrument in preparation for Brexit, the Capital Requirements (Amendment) (EU Exit) Regulations 2018 - the draft Capital Requirements Regulations. The EU regulatory capital requirements framework for banks, building societies and investment firms comprises the Capital Requirements Regulation, the Capital Requirements Directive and secondary legislation in the form of technical standards. The CRD is implemented into U.K. law through various sector-specific legislation, for example, the Regulated Covered Bonds Regulations 2008, the Capital Requirements Regulations 2013, the Capital Requirements (Country-by-Country Reporting) Regulations 2013, and the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 as well as through PRA and FCA rules. The CRR and the technical standards are directly applicable across the EU.
This draft Capital Requirements Regulations will amend the CRR to ensure that it continues to operate effectively in the U.K. when the U.K. leaves the EU. The domestic legislation implementing CRD is also amended to ensure that it continues to function as intended. The Prudential Regulation Authority and the Financial Conduct Authority will be responsible for amendments to the technical standards and for updating their rulebooks. They are expected to consult in Autumn 2018 on these aspects.
Read more.TOPIC : Brexit for Financial Services -
Commodity Futures Trading Commission Finalizes Amendments to Rules Governing Chief Compliance Officer Duties and Annual Reporting Requirements for Certain Registrants
08/21/2018
The Commodity Futures Trading Commission has unanimously approved final amendments to clarify and simplify its regulations governing the duties and annual reporting requirements for chief compliance officers at futures commission merchants, swap dealers and major swap participants. The amendments, first proposed in May 2017, are designed to clarify certain requirements (including as to the annual CCO report) as well as harmonize the CFTC's requirements with similar Securities and Exchange Commission rules that will be applicable to security-based swap dealers.
Read more. -
US Federal Deposit Insurance Corporation Announces Modifications to its Statement of Policy Regarding Section 19 of the Federal Deposit Insurance Act
08/20/2018
The U.S. Federal Deposit Insurance Corporation issued modification to its Statement of Policy with respect to Section 19 of the Federal Deposit Insurance Act, which (among other things) prohibits persons with convictions for certain criminal offenses, or those who have entered into pretrial diversion or similar programs with respect to the same, from participating in the affairs of a FDIC-insured financial institution without prior approval of the FDIC.
Read more.TOPIC : Conduct & Culture -
US Federal Reserve Board Division of Research and Statistics Director, David Wilcox, to Retire
08/20/2018
The U.S. Board of Governors of the Federal Reserve System Announced that David Wilcox, the director of the Federal Reserve Board’s Division of Research and Statistics, would retire at the end of the year. Mr. Wilcox has served as the director of the division for 7 years, and in his 30 years of service has also held positions on the staff of the President's Council of Economic Advisers, as assistant secretary for economic policy at the Treasury Department and as deputy director of the Division of Research and Statistics.
View full text of the Federal Reserve Press.TOPIC : People -
Global Authorities Consult on Governance for OTC Derivatives Data Elements
08/16/2018
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a consultation paper on governance arrangements for OTC derivatives data elements other than the Unique Transaction Identifier and the Unique Product Identifier. Critical data elements are an important aspect of reporting derivatives transactions to a trade repository. The consultation paper proposes the key criteria for the CDE maintenance and governance, the different areas of CDE governance and governance functions and allocation of the governance functions to different bodies.
Responses to the consultation should be submitted by September 27, 2018 using the dedicated response form, available through the links below.
View the press release.
View the consultation paper.TOPIC : Derivatives -
Financial Stability Board Consults on Implementation of the Legal Entity Identifier
08/16/2018
The Financial Stability Board has launched a thematic peer review on implementation of the Legal Entity Identifier and is inviting feedback on implementation of the LEI at the same time. The objective of the LEI system is for unique identifiers to be held by all legal entities participating in financial markets across the globe. It is envisaged that the LEI system will lead to better data aggregation, enhance systemic risk monitoring and reduce costs to market participants.
Using the peer review, the FSB will: (i) consider the approaches and strategies used by FSB members to implement the LEI, including its adoption for regulatory requirements; (ii) assess whether current levels and rates of LEI adoption are sufficient to support the ongoing and anticipated needs of FSB member authorities; (iii) identify the challenges in further advancing the implementation and use of the LEI; and (iv) if appropriate, make recommendations for addressing any challenges.
Read more. -
UK Government Releases Post-Brexit Draft Legislation for Deposit Protection
08/15/2018
HM Treasury has published draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018. The draft regulations are expected to be laid before Parliament in autumn 2018 and to come into force mostly on the day the U.K. withdraws from the EU. These draft regulations are part of HM Treasury's measures to onshore EU legislation under the provisions of the European Union (Withdrawal) Act 2018. The key changes proposed are:- transferring the power to review, adjust and set the coverage level from EU bodies to the Prudential Regulation Authority, with approval from HMT; and
- removing the cooperation arrangement under which the U.K. Financial Services Compensation Scheme administers compensation payments to depositors at U.K. branches of EEA banks on behalf of EEA deposit guarantee schemes. A transitional provision will allow the FSCS to continue after Brexit to accept instructions and funds from EEA DGS should an EEA firm operating in the U.K. fail immediately before Exit Day.
View the draft Regulations.
View the explanatory guidance.TOPIC : Brexit for Financial Services -
EU Implementing Regulations for Benchmark Regulation Published
08/09/2018
Two Commission Implementing Regulations supplementing the Benchmark Regulation have been published in the Official Journal of the European Union. The Benchmark Regulation, which took effect 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.
Read more.TOPIC : Securities -
UK Post-Brexit Secondary Legislation on Short Selling Published
08/09/2018
Draft U.K. secondary legislation has been published to onshore the EU Short Selling Regulation on the day the U.K. exits the EU. The draft Short Selling (Amendment) (EU Exit) Regulations 2018 (or U.K. SSRs) are expected to be laid before Parliament in Autumn 2018 and to come into force mostly on the day the U.K. withdraws from the EU. The draft U.K. SSRs are made under the provisions of the European Union (Withdrawal) Act 2018 to address failures of retained EU law relating to short selling to operate effectively and other deficiencies arising from Brexit.
The explanatory guide to the U.K. SSRs states that changes for firms with shares admitted to trading on a U.K. venue should be minimal. The procedure for notifying U.K. instruments to the Financial Conduct Authority will be kept and instruments admitted to trading on U.K. venues will continue to have the same restrictions applied to them.
Read more.TOPIC : Brexit for Financial Services -
EU and UK Authorities Clarify Trading Obligation Expectations for Pension Schemes
08/08/2018
The European Securities and Markets Authority has published a further statement on the transitional exemption from the clearing obligation for pension scheme arrangements under the European Market Infrastructure Regulation and delegated regulations. Transitional provisions provide for PSAs to be exempt from the clearing obligation until August 16, 2018. There is no provision in EMIR that would allow for a further extension of this exemption period. It is proposed that this exemption will be further extended under the proposal to amend EMIR, known as EMIR Refit. ESMA issued a statement on July 3, 2018 stating that national regulators are expected not to prioritize "their supervisory actions towards entities that are expected to be exempted again in a relatively short period of time and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner."
This new statement clarifies that ESMA does not expect national regulators to focus on any non-compliance by PSAs with the related trading obligation under the Markets in Financial Instruments Regulation. Financial counterparties that are exempt from the clearing obligation under EMIR are also exempt from the trading obligation under MiFIR. It is likely that the clearing obligation exemption will expire before it is extended under EMIR Refit and therefore the trading obligation exemption would also lapse.
Read more. -
UK Financial Conduct Authority Confirms it is Open to a Range of Booking Models for Brexit Preparations
08/08/2018
The U.K. Financial Conduct Authority has published a "Dear CEO" letter on firms' cross-border booking models in preparation for Brexit. In the letter the FCA reminds firms that where the firm is expanding its European presence, it must still be possible for the FCA to supervise the firm's U.K. business and firms must still meet their threshold conditions. However, unlike other EU regulators, the FCA is not stipulating specific requirements for booking models. Instead, the FCA states that it is "open to a broad range of legal entity structures or booking models. This includes those making use of back-to-back and remote booking, providing their associated conduct risks are effectively controlled and managed. Our starting point is therefore not to restrict business models but to understand the principles and practice involved and how the conduct risks that arise from them are managed."
Read more.TOPIC : Brexit for Financial Services -
Global Bodies Consult on Incentives to Centrally Clear OTC Derivatives
08/07/2018
A consultation paper on incentives to centrally clear OTC derivatives has been jointly published by the Financial Stability Board, the International Organization of Securities Commissions, the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures. The paper is part of the FSB's post-implementation evaluation of the effects of the G20 financial regulatory reforms. The consultation paper sets out the results of an evaluation of the reforms that have been implemented to incentivize central clearing of OTC derivatives, including mandatory clearing requirements, capital, liquidity and margin requirements, as well as the reforms to CCP resilience, recovery and resolution. The evaluation found that:- the changes observed in OTC derivatives markets are consistent with the G20 Leaders' objective of promoting central clearing as part of mitigating systemic risk and making derivatives markets safer.
- the relevant post-crisis reforms, in particular the capital, margin and clearing reforms, taken together, appear to create an overall incentive, at least for dealers and larger and more active clients, to centrally clear OTC derivatives.
TOPIC : Derivatives -
Regulators Unveil Plans to Launch Global Financial Innovation Network
08/07/2018
12 international financial regulators and related organizations have announced the launch of the Global Financial Innovation Network. The announcement, which was accompanied by a consultation paper on the role and objectives of the GFIN, serves as part two of a whitepaper published earlier this year by the U.K. Financial Conduct Authority on the possibility of forming a "global sandbox." The GFIN, as proposed, would consist of three components: (i) information sharing and collaboration through a network of regulators; (ii) joint policy work and regulatory trials; and (iii) cross-border firm trials.
The GFIN hopes to build upon existing information sharing agreements to allow information sharing to take place on a larger and quicker scale, which would allow regulators to fill information gaps related to innovation, technological trends and emerging issues. This would help FinTech firms navigate international regulations by providing a comprehensive forum through which to interact with multiple regulators. In addition, the GFIN aims to provide a space to encourage joint policy work and address areas of divergence between financial services regulators, particularly with respect to emerging technologies and legacy business models and regulatory frameworks. As envisioned, the GFIN would also facilitate cross-border trials of emerging technologies across global jurisdictions.
Read more.TOPIC : FinTech -
Upcoming Priorities for the Global FX Code
08/06/2018
The Global Foreign Exchange Committee has published a paper entitled: "The FX Global Code at One Year: a Look Back and a Look Ahead." The FX Global Code was published by the GFXC in May 2017. It superseded and substantively updated existing guidance for participants in FX markets previously provided by the Non-investment Products (NIPs) Code. The Code comprises a set of global principles of good practice for the FX market, covering a broad range of areas, including ethics, governance, execution, information-sharing, risk management, compliance, trade confirmation and settlement.
The paper discusses the achievements of the GFXC and the way in which the Code has been received by market participants over the past year. These include increased awareness of and commitment to the Code, further integration of the Code into the business practices of FX market participants and evolution of the Code with changes in the FX market, in particular for transparency and disclosure.
The GFXC's upcoming priorities are outlined in the paper. These include:- continuing the existing GFXC working groups - the disclosures working group and the cover and deal working group; and
- establishing two new GFXC working groups - one on buy-side outreach and the other to further integration of the Code.
View the paper. -
Bank of England Establishes Enforcement Decision Making Committee and Appoints Members
08/03/2018
Following a consultation that ran between November 2017 and February 2018, the Bank of England has published a policy statement on the procedure and necessary revisions to existing policies and procedures required for the establishment of an Enforcement Decision Making Committee.
The EDMC has been established as a response to a recommendation from HM Treasury arising from its review of enforcement decision-making at the U.K. financial regulators. HM Treasury had recommended the establishment of a functionally-independent decision-making committee composed of independent members with expertise suited to the Prudential Regulation Authority's regulatory focus. The BoE has gone beyond HM Treasury's original recommendation and, going forward, the EDMC will be the BoE's decision-making body in contested enforcement cases that relate to all areas in which the BoE has enforcement powers (that is, prudential regulation, financial market infrastructure, resolution and note issuances). It will ensure the necessary functional separation between the BoE's investigation teams and decision-makers.
Alongside the Policy Statement, the BoE has published revised statements of policy and procedures reflecting the EDMC's establishment. These cover the EDMC's remit and operation and the selection, appointment, remuneration and governance of EDMC members. The BoE has also issued a press release announcing its appointment of six EMDC members. Members are appointed for renewable, fixed, three-year periods and cannot serve more than two consecutive terms.
Read more. -
UK Conduct Regulator Consults on Rule Alignments for EU Securitization Framework
08/01/2018
The U.K. Financial Conduct Authority has launched a consultation on proposed changes to its rules to ensure consistency with the provisions of the directly applicable EU Securitization Regulation (also known as the STS Regulation) and related amendments to the Capital Requirements Regulation, which take effect across the EU on January 1, 2019. This forthcoming EU legislation will introduce a new framework for simple, transparent and standardized securitizations, intended to make the EU securitization market function more effectively.
Read more. -
UK Financial Conduct Regulator Proposes to Apply Principles and Conduct Rules to Payment Service Providers and Electronic Money Firms
08/01/2018
The U.K. Financial Conduct Authority has launched a consultation on general standards and communication rules for the payment services and e-money sectors.
Payment Service Providers and e-money firms are authorized or registered under the Payment Services Regulations 2017 and Electronic Money Regulations 2011, respectively. The Payment Services Regulations 2017 brought certain of these firms within the scope of the FCA's rulemaking powers.
Read more.TOPIC : Payment Services -
UK Conduct Regulator Reminds Firms of Obligations on Selling High-Risk Products to Retail Clients
08/01/2018
The U.K. Financial Conduct Authority has issued a statement on selling high-risk speculative investments to retail clients following the European Securities and Markets Authority's product intervention on contracts for difference products.
ESMA issued decisions in March and June 2018 to temporarily prohibit the marketing, distribution or sale of binary options and to impose restrictions on the marketing, distribution or sale of CFDs to retail clients. In the CFD decision, ESMA had clarified that turbo certificates were outside the scope of the CFD restrictions. However, in its recently updated Q&A on its product intervention, ESMA acknowledges that turbo certificates have comparable features to CFDs, such as leverage.
Read more. -
Global Recommendations for Trading Venues to Manage Extreme Volatility
08/01/2018
The International Organization of Securities Commissions has published a report on mechanisms used by trading venues to manage extreme volatility and preserve orderly trading. Following its consultation earlier this year, IOSCO is making eight recommendations for trading venues and their regulators to consider when implementing, operating and monitoring volatility control mechanisms to preserve orderly trading.
Read more. -
US Office of the Comptroller of the Currency Begins Accepting National Bank Charters from FinTech Companies
07/31/2018
The U.S. Office of the Comptroller of the Currency announced that it would begin accepting national bank charter applications from non-depository FinTech companies that seek to engage in the business of banking. In connection with the announcement, the OCC released a policy statement that outlines the OCC’s chartering authority with respect to non-depository FinTech companies, the OCC’s stated support for reasonable innovation, and the chartering standards and supervisory expectations applicable to such institutions.
Read more.TOPIC : FinTech -
US Treasury Publishes Report on Nonbank Financials, Fintech, and Innovation
07/31/2018
The U.S. Department of the Treasury released its report on Nonbank Financials, Fintech, and Innovation. The FinTech report is the fourth in a series mandated by U.S. President Donald Trump’s Executive Order 13772 on Core Principles for Regulating the United States Financial System.
Read more.TOPIC : FinTech -
US Office of the Comptroller of the Currency Publishes Updated Business Combinations Booklet
07/31/2018
The U.S. Officer of the Comptroller of the Currency released an updated version of the Comptroller’s Licensing Manual Business Combinations booklet. The booklet, which was updated in November of 2017, has been revised to make certain technical corrections and process updates with respect to clarifications regarding the public notice and comment period and a change in the public comment calculation period.
View full text of the revised booklet. -
Final Draft EU Technical Standards on Securitization Risk Retention Requirements
07/31/2018
The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation (or STS Regulation) on the risk retention requirements for originators, sponsors and original lenders. The Securitization Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The final draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.
The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU twenty days after publication in the Official Journal of the European Union.
The Securitization Regulation, which will apply from January 1, 2019, has replaced the risk retention requirements in the Capital Requirements Regulation. Once the final RTS enter into force, the existing Commission Delegated Regulation ((EU) No 625/2014) on risk retention requirements, made under the Capital Requirements Regulation, will be repealed.
View the final draft RTS.
View the existing Delegated Regulation on risk retention requirements.
View details of the EBA's consultation on the draft RTS. -
Final Draft EU Technical Standards on Homogeneity Conditions for STS Securitizations
07/31/2018
The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework will apply across the EU from January 1, 2019.
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Final Draft EU Technical Standards on Home-Host Regulatory Cooperation Under the Revised Payment Services Directive
07/31/2018
The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the revised Payment Services Directive on cooperation between national regulators in home and host states of a payment institution that operates cross-border in the EU. PSD2 took effect on January 13, 2018. The final report summarizes the feedback the EBA received to the proposed draft RTS and sets out the EBA's responses. The EBA confirms that it has made a number of the changes to the text of the final draft RTS as a result of the feedback.
The final draft RTS specify the framework for cooperation between supervisors of payment institutions operating on a cross-border basis, including the method for cooperation and details of information that should be provided between regulators. The final draft RTS also specify the means, details and frequency of reporting that a host national regulator may request from payment institutions concerning activities carried out in its territory through agents or branches. The final draft RTS will further apply to the framework for cooperation, and for the exchange of information, between national regulators for electronic money institutions providing services cross-border in the EU.
The EBA has submitted the final draft RTS to the European Commission for endorsement. The final RTS will apply across the EU twenty days after publication in the Official Journal of the European Union.
View the final report and final draft RTS.TOPIC : Payment Services -
UK Payment Systems Regulator Reports on the UK Contactless Mobile Payment Sector
07/31/2018
The U.K. Payment Systems Regulator has published a Report setting out its understanding of the Contactless Mobile Payments sector, following information-gathering during 2016 and 2017. CMPs are in-store payments made by consumers, using apps installed on their mobile devices, usually using Near Field Technology for communication between the mobile device and the retailer's point-of-sale terminal and with payment security enabled via a "tokenization" process.
The PSR conducted two calls for information in 2016 and 2017, to increase its understanding of:- whether the way CMPs operate and the way they are being offered in the U.K. potentially affects competition, innovation and the interests of people and organizations that use payment systems (and, if so, how); and
- whether there were any restrictions affecting the provision of tokenization services.
The Report explains how CMPs work from a functional and technical perspective, outlines the main participants and their respective roles, summarizes the PSR's consideration of particular issues and proposes next steps.
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International Swaps and Derivatives Association Publishes ISDA 2018 US Resolution Stay Protocol to Facilitate Compliance with US Stay Regulations
07/31/2018
The International Swaps and Derivatives Association has published the ISDA 2018 U.S. Resolution Stay Protocol. The protocol was developed to facilitate compliance with regulations issued by the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency that require global systemically important banking organizations to include contractual stays on early termination rights within in-scope qualified financial contracts, including swaps and repurchase agreements.
Adherence to the protocol will allow covered entities to comply with the U.S. stay regulations by amending in-scope QFCs to ensure that they are consistent with the limits on counterparties' exercise of default rights under Title II of Dodd-Frank and the Federal Deposit Insurance Act. The protocol will also limit counterparties' ability to exercise cross-default rights based on the insolvency or resolution of an affiliate of a covered entity.
ISDA members and non-members may adhere to the protocol beginning from the second half of August 2018. ISDA also announced it would also publish frequently asked questions to provide market participants with additional background information on the protocol and the U.S. stay regulations.
The first compliance date for the U.S. stay regulations is January 1, 2019.
View the protocol.
View ISDA's press release.
View Shearman & Sterling's client alert regarding the U.S. stay regulations. -
UK Financial Conduct Authority Proposes Changes to Rules Governing Peer-to-Peer Lending Platforms
07/27/2018
The Financial Conduct Authority has launched a consultation on new rules for loan-based crowdfunding platforms, also known as peer-to-peer lending platforms. 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.
The FCA began a post-implementation review of the crowdfunding sector and the applicable regimes in 2016. In the post-implementation review, the FCA identified that harm may be caused to investors as a result of poor business practices and due to the business models that some platforms have adopted. The consultation paper summarizes the FCA's findings from that review and sets out the FCA's proposals to change certain rules and guidance.
Read more. -
European Commission Requires Drafting Amendments to Proposed Technical Standards for Reporting of Securities Financing Transactions
07/27/2018
The European Commission has published a Communication announcing its intention to adopt, with amendments, the Regulatory Technical Standards and Implementing Technical Standards prepared by the European Securities and Markets Authority under the Securities Financing Transactions Regulation. ESMA submitted final draft RTS and ITS to the Commission in March 2017.
The Commission has amended the draft RTS on the details of Securities Financing Transactions to be reported to Trade Repositories and the draft ITS on the format and frequency of reports on the details of SFTs to TRs. The draft RTS and ITS had contained wording to the effect that ESMA would have the power to endorse global unique trade identifiers for transactions or the global legal identifier system as it applies to the branch of an entity. This wording would have had the effect of delegating regulatory powers on potential future reporting requirements directly to ESMA, which is not possible under the legal framework for the European Supervisory Authorities. The Commission has made amendments to clarify that the Commission, rather than ESMA, has the responsibility to introduce changes to the reporting requirements, on the basis of a proposal by ESMA.
Read more. -
UK Regulator Consults on Changes to Definition of Default for Credit Risk
07/27/2018
The Prudential Regulation Authority has opened a consultation on proposals to implement the European Banking Authority's recent regulatory products on the definition of default in the Capital Requirements Regulation. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit commitment is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk.
The EBA developed a roadmap of regulatory products that aim to reduce unwarranted variability in the risk weighted assets calculated using banks' Internal Ratings-Based models. Three of these products pertain to the definition of default: the Regulatory Technical Standards on the materiality threshold for credit obligations past due, the Guidelines on the application of the definition of default and the EBA Opinion on the use of the 180 days past due criterion.
Read more. -
Financial Action Task Force Publishes Report on Professional Money Laundering
07/26/2018
The Financial Action Task Force has published a report on professional money laundering. The report is intended to assist authorities to target professional money launderers and the structures that they set up and use to launder money and to disrupt the organizations of their criminal clients. PMLs are referred to by the FATF as "individuals, organisations and networks that are involved in third-party laundering for a fee or commission." PMLs specialize in providing professional money laundering services, such as locating investments or purchasing assets, establishing companies or legal arrangements, acting as nominees, recruiting and managing networks of cash couriers or money mules, providing account management services and creating and registering financial accounts. By providing detailed explanations of the roles performed by PMLs, the FATF aim to facilitate the identification and understanding of how PMLs operate. The report provides recent examples of financial organizations acquired by criminal operations or co-opted to aid money laundering and focuses on some of the common methods used to launder funds, such as trade-based money laundering, account settlement mechanism and underground banking.
Read more. -
UK Regulator Seeks Input on EU Packaged Retail and Insurance-based Investment Products Regulation
07/26/2018
The Financial Conduct Authority has issued a call for input on the Packaged Retail and Insurance-based Investment Products Regulation. 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 FCA is seeking input about the initial experience of: (i) those producing, advising on, or distributing PRIIPs and preparing and providing KIDs; and (ii) consumers using KIDs to decide whether to invest in these investment products. In addition, the FCA is asking for feedback on the scope of the PRIIPs Regulation, in particular, which instruments fall in or out of the scope of the requirements, and on practical aspects of certain cost and risk disclosure requirements.
Feedback to the call for input should be provided by September 28, 2018. The FCA intends to publish a feedback statement in Q1 2019.
View the call for input.TOPIC : Consumer Protection -
US Federal Reserve Board Launches New Consumer Protection Bulletin
07/26/2018
The U.S. Board of Governors of the Federal Reserve System launched the Consumer Compliance Supervision Bulletin. The bulletin will be published by the Federal Reserve Board’s Division of Consumer and Community Affairs, and will provide high-level summaries of supervisory issues, highlight violations that have been identified, include practical guidance with respect to the management of consumer compliance risks and enhance transparency with respect to the Federal Reserve Board’s consumer compliance supervisory program. The current issue of the bulletin includes content with respect to fair lending, unfair or deceptive acts or practices and regulatory and policy developments.
View full text of the bulletin.TOPIC : Consumer Protection -
UK Payment Systems Regulator Will Review Supply of Card-Acquiring Services
07/24/2018
The U.K. Payment Systems Regulator has published for consultation its draft terms of reference for a planned market review into the supply of card-acquiring services in the U.K. Merchants that accept card payments from customers purchase card-acquiring services from specialist providers to enable card payments to be accepted and processed on their behalf. The market review is a response to concerns raised by stakeholders that the supply of these services may not be working well for some merchants and, ultimately, consumers.
The market review will examine: (i) the nature and characteristics of card-acquiring services; (ii) the providers of these services and how their market shares have developed historically; (iii) how merchants buy card-acquiring services; (iv) the availability of credible alternatives to card-acquiring services for some or all merchants; and (v) how competition is working in the sector, including looking at issues around the fees merchants pay and the quality of service they receive.
The PSR is inviting feedback on its draft terms of reference until September 14, 2018. The PSR intends to publish finalized terms of reference, including a timetable for the review, before the end of 2018.
View the draft terms of reference for the review (MR 18/1.1). -
UK Secondary Legislation Published to Align Ring-Fencing With Financial Sanctions Legislation
07/24/2018
The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018 has been made and will come into force on October 31, 2018.
The Amendment Order amends the definition of a "core deposit" (set out in The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014) for the purposes of the U.K. framework for the ring-fencing of retail from wholesale/investment banking. Under the U.K. framework, if a deposit is not a "core deposit," then carrying on the regulated activity of accepting deposits in relation to that non-core deposit can take place in the non-ring-fenced bank.
Read more. -
European Banking Authority Makes Policy Recommendations for Proposed Introduction of European Secured Notes
07/24/2018
The European Banking Authority has published a final report in response to a call for advice from the European Commission, in the context of the Commission's Capital Markets Union project, to help the Commission assess the case for introducing European Secured Notes, an additional instrument which would be available for institutions to gain funding on the capital markets, particularly infrastructure loans and loans to Small and Medium Sized Enterprises. ESNs are defined in the call for advice as "dual recourse financial instruments on an issuer's balance sheet applying the basic structural characteristics of covered bonds to two non-traditional cover pool assets - SME bank loans and infrastructure bank loans."
The Commission asked the EBA to assess whether a dual recourse instrument, similar to covered bonds, may provide a useful funding option to banks engaged in lending to SMEs and infrastructure projects and to determine an appropriate EU framework and regulatory treatment for this new product.
In the final report, the EBA: (i) assesses the business case for ESNs; (ii) analyzes the potential implications of issuances of ESNs on asset encumbrance; and (iii) considers the risk profile of SME loans and project finance. The EBA makes suggestions on the pool eligibility criteria and the structure and features of ESNs and on their potential regulatory treatment. The EBA makes five main policy recommendations on crucial aspects for the Commission to consider when possibly designing the legislative framework for ESNs. These relate to the structure, cover assets and regulatory treatment of SME ESNs, the EBA's reservations about introducing Infrastructure ESNs and the impact of ESNs on asset encumbrance.
View the final report.TOPIC : Securities -
UK White Paper Published on How the Withdrawal Agreement Will Be Implemented in the UK
07/24/2018
The U.K.'s Department for Exiting the EU has published a further Brexit white paper, entitled: "Legislating for the Withdrawal Agreement between the United Kingdom and the European Union." The paper describes the Bill that will implement the terms of the Withdrawal Agreement in the U.K. The Bill, which must pass before exit day (March 29, 2019) will only be introduced once Parliament has approved the finalized Withdrawal Agreement as required under the EU (Withdrawal) Act 2018. In the paper, the Government sets out how it envisages the Bill will implement the U.K.'s withdrawal and provides detail on those parts of the draft Withdrawal Agreement that have been agreed so far: citizens' rights, the implementation period and the negotiated financial settlement. The final provisions of the Bill will be subject to the final terms of the Withdrawal Agreement. The paper also sets out the procedures for Parliament's approval of the terms of the final Withdrawal Agreement.
Read more.TOPIC : Brexit for Financial Services -
UK Legislation Published for a Post-Brexit Recognition Regime for CCPs
07/24/2018
A draft of the Central Counterparties (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 has been laid before Parliament. The finalized Regulations will come into force partly on the day after the day they are made and fully on the day the U.K. withdraws from the EU.
The draft Regulations have been prepared using the power under the European Union (Withdrawal) Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the withdrawal of the U.K. from the EU. These draft Regulations deal with "onshoring" certain aspects of the European Market Infrastructure Regulation that relate to the regulatory framework for CCPs. The Bank of England wrote to non-U.K. CCPs in December 2017, outlining how it envisaged that non-U.K. CCPs will be recognized to provide services in the U.K. once the U.K. has withdrawn from the EU. Recognized status under EMIR enables third-country CCPs to provide clearing services to clearing members or trading venues established in the EU. The BoE explained in its letter that U.K. domestic law requirements for the recognition of non-U.K. CCPs would be substantially the same as the current requirements under EMIR, although references to international MoUs being in place would change, such that these must be established between third countries and relevant U.K. authorities.
Read more. -
UK Secondary Legislation Published for Post-Brexit Temporary Permissions Regime
07/24/2018
A draft of one of several pieces of U.K. legislation has been published, that will establish a temporary permissions regime after the U.K.'s withdrawal from the EU. Temporary permission will be available for EEA firms currently operating in the U.K. under financial services passports. The draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 are expected to be laid before Parliament in Autumn 2018 and to come into force mainly on the day after they are made, apart from some provisions that will apply on the day the U.K. withdraws from the EU. The draft Regulations also amend the Financial Services and Markets Act 2000 and related legislation to remove references to EEA passport rights.
The draft Regulations have been prepared under the provisions of the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.
Read more.TOPIC : Brexit for Financial Services -
UK Plans Temporary Designation Regime for Settlement Finality Designation Post-Brexit
07/24/2018
The U.K. Government has announced that it intends to legislate to ensure, after U.K. withdrawal from the EU, the continuation of U.K. settlement finality protections currently provided under the Settlement Finality Directive and implemented in the U.K. by the Financial Markets and Insolvency (Settlement Finality) Regulations 1999. The SFRs establish various insolvency carve-outs for designated market infrastructure systems and also legislate for finality of transactions within such systems. However, only EU systems are in scope.
The SFD requires Member States to notify the European Securities and Markets Authority with information concerning the national systems (and the respective system operators) they have designated to be included within the scope of the SFD protections. Member States must also designate the national authorities that must be notified when insolvency proceedings are opened against a participant or a system operator. Under the protections afforded by the SFD, transfer orders which enter into designated systems within certain deadlines are guaranteed to be finally settled, regardless of whether the sending participant has become insolvent or transfer orders have been revoked in the meantime. Under the SFD, each Member State automatically recognizes systems that have been designated by other Member States.
Read more. -
G20 Sets October 2018 Deadline for Financial Action Task Force to Clarify AML/CTF Standards For Crypto Assets
07/23/2018
The G20 Finance Ministers & Central Bank Governors have issued a communiqué following their meeting in Buenos Aires on July 21 - 22, 2018. Among other things, the communiqué requests that the Financial Action Task Force clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets.
The FATF's global standards (also known as the 40 Recommendations) promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. However, the FATF standards do not refer explicitly to crypto assets or the associated service providers and intermediaries, which creates uncertainty as to the scope of AML/CTF obligations that may apply to them.
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US Federal Reserve Vice Chairman Randal Quarles Sworn in for Second Term
07/23/2018
Randal Quarles, current Vice Chairman for Supervision, was sworn in for his second term as a member of the U.S. Board of Governors of the Federal Reserve System. Vice Chairman Quarles’s term as Vice Chairman for Supervision ends in 2021, while his term as a member of the Federal Reserve Board ends in 2032.
View full text of the Federal Reserve Board press release.TOPIC : People -
UK Proposals for a Register of Beneficial Ownership for Foreign Entities
07/23/2018
The U.K.'s Government Department for Business, Energy & Industrial Strategy has launched a consultation on a draft Bill that would introduce a register of beneficial owners for overseas legal entities that own U.K. property. Since April 6, 2016, the U.K. has required U.K. companies, limited liability partnerships and societates europaeae to establish and maintain a register of persons with significant control over them and since June 30, 2016 and those entities have been required to file such information with Companies House where it is publicly available on the People with Significant Control register.
Currently, information about overseas owners of land or property is often limited to the entity's name and territory of incorporation and it is unclear who ultimately owns and/or controls the entity. The aim of the draft Bill is to prevent and combat the use of land in the U.K. by overseas entities for the purposes of laundering money or investing illicit funds.
Read more. -
Five EU Banks Fined for Issuing Credit Ratings Without Authorization
07/23/2018
The European Securities and Markets Authority has fined five EU banks for issuing credit ratings without being authorized to do so by ESMA. The Credit Rating Agencies Regulation requires firms to register with ESMA as a Credit Rating Agency before issuing credit ratings to ensure that such ratings are independent, objective and of adequate quality.
ESMA found that the banks had each issued credit research to their clients that included shadow ratings and opinions. ESMA deemed that these aspects of the reports amounted to a credit rating as defined in the CRA Regulation. None of the five banks have been authorized by ESMA under the CRA Regulation, nor have any of them applied for such authorization.
The banks have a right of appeal to the Board of Appeal of the European Supervisory Authorities.
View ESMA's press release and decision notices. -
Bank of England Confirms its Renewed Real-Time Gross Settlement System Can Interface With DLT
07/23/2018
The Bank of England has published the outcomes from a "Proof of Concept" it ran to understand how its renewed Real-Time Gross Settlement service could be capable of supporting settlement in systems operating on innovative payment technologies, such as those built on Distributed Ledger Technology. The BoE has operated the RTGS service since 1996 to provide a safe and reliable means of settling high-value cash payments in real time in sterling central bank money. The BoE published a blueprint for renewal of the RTGS in May 2017, setting out how it proposed to overhaul the system to ensure higher resilience, broader access, wider interoperability, improved user functionality and strengthened end-to-end risk management of the high-value payment system.
Read more. -
UK Working Group Outlines Risk Mitigation Considerations for Bond Market Participants During Transition From LIBOR
07/23/2018
The U.K. Working Group on Sterling Risk-Free Reference Rates has published a paper to raise awareness among market participants of some of the current market uncertainties surrounding issuance of long-dated bonds referencing LIBOR. The Working Group is tasked with helping to bring about broad-based transition to the Sterling Overnight Index Average rate by end-2021 across Sterling bond, loan and derivative markets. SONIA has been selected as the preferred alternative risk-free rate for Sterling and, among other work, the Working Group is in the process of developing market conventions for SONIA-linked bonds. A key milestone for the Working Group will be its publication, later in 2018, of best practice for referencing SONIA in bond markets.
In the paper, the Working Group outlines some of the risks faced by bond market participants who are continuing to issue, offer and purchase new Sterling bonds referencing LIBOR, in particular where those bonds are long-dated. "Long-dated" refers to bonds set to mature beyond the end of 2021, when banks' commitments to submit data for purposes of LIBOR are due to end. The Working Group suggests certain steps market participants could take to mitigate some of the risks arising where LIBOR continues to be referenced in new Sterling bonds issued in the interim period before market conventions and infrastructure for referencing alternatives to LIBOR are fully developed.
View the paper. -
UK Law Commission Seeks Input on Proposals for Reform of Anti-Money Laundering and Counter-Terrorism Financing Law in England and Wales
07/20/2018
The Law Commission has published a substantial consultation paper entitled "Anti-Money Laundering: the SARs Regime," seeking views on proposals to reform the law of England and Wales governing anti-money laundering. In particular, the report considers issues around Suspicious Activity Reports, which are the mechanism by which the private sector make disclosures relating to money laundering and terrorism financing.
The Law Commission has identified a number of legal difficulties that arise from the current regime and, following extensive fact-finding meetings with stakeholders, it has also identified a number of issues in the current regime that are causing particular practical difficulties. In the consultation paper, the Law Commission: (i) identifies the most pressing problems and proposes provisional solutions to improve the current regime; (ii) consults on reforming the consent regime within the Proceeds of Crime Act 2002 (POCA), which sets out the process whereby an individual who suspects that they are dealing with the proceeds of crime can seek permission to complete a transaction by disclosing their suspicion to the U.K. Financial Intelligence Unit of the National Crime Agency; and (iii) seeks to generate and consider ideas for long term reform.
Read more. -
UK Conduct Regulator Confirms Policy on Recognizing Industry Codes of Conduct in Unregulated Markets
07/20/2018
The U.K. Financial Conduct Authority has published a Policy Statement outlining its final policy and rule amendments on its approach to recognizing industry codes of conduct in unregulated markets, including the process and criteria for doing so. In the FCA's view, industry codes of conduct can be useful in helping firms to communicate what is expected of individuals to meet their conduct obligations under the Senior Managers and Certification Regimes. The SM&CR, which currently only applies to banks, credit unions, building societies and large investment firms (including EEA branches), will be extended to insurers from December 2018 and to all other FCA-regulated firms from December 2019.
The FCA consulted in November 2017 on proposals to formally recognize industry codes of conduct in markets that are outside the regulatory perimeter and to publish a list of recognized industry codes on its website. The consultation set out the criteria to be met for recognition of industry codes and proposed that recognition would apply for a renewable period of three years.
Read more.TOPIC : Conduct & Culture -
European Banking Authority Publishes Final Revised Pillar 2 Guidelines
07/20/2018
Following a consultation between October 2017 and January 2018 on a package of revisions to certain of its Guidelines, the European Banking Authority has published three final reports and revised Guidelines aimed at strengthening the Pillar 2 framework.
The revised Guidelines have been prepared in line with the EBA's April 2017 Roadmap for revisions of the Pillar 2 framework, to keep the SREP Guidelines that were published in December 2014 (and in force from January 2016) up to date with respect to the EU and international standards. The EBA also aims to promote best supervisory practices and address issues identified in the EBA's ongoing work on assessment of supervisory convergence.
Read more. -
Upcoming Changes to the EU Single Resolution Board's Composition
07/20/2018
The EU Single Resolution Board has announced that Sr. Mauro Grande, Board Member and Director of Resolution Strategy and Cooperation, intends to leave his position. Sr. Grande has been with the SRB since its inception in March 2015. Sr. Grande will vacate the position once a successor is appointed, which is expected in the next few months. The European Commission and the SRB have jointly published a vacancy notice and applications for the position can be made until September 12, 2018.
View the SRB's announcement.TOPIC : People -
UK Conduct Regulator Outlines Scope of Digital Regulatory Reporting Pilot
07/20/2018
The U.K. Financial Conduct Authority has published the terms of reference (dated June 2018) for the pilot phase of its Digital Regulatory Reporting project. The FCA is working with the Bank of England in the RegTech sphere to explore ways of using technology to link regulation, compliance procedures and firms' policies and standards together with firms' transactional applications and databases.
The FCA published a Call for Input in February 2018 following a TechSprint in November 2017, at which a 'proof of concept' was achieved, showing that it was feasible to make regulatory reporting requirements machine readable and executable. Using this "Digital Regulatory Reporting" would allow firms to map their regulatory requirements directly to the data that they hold. Potential benefits include automated, straight-through processing of regulatory returns, greater accuracy in data submissions and faster implementation of changes in regulatory requirements, as well as cost reduction and improvements to competition.
Read more.TOPIC : FinTech -
European Banking Authority Responds to Caius Capital LLP's Challenge Against Regulatory Capital Treatment of UniCredit CASHES
07/20/2018
The European Banking Authority has published a response following allegations by Caius Capital LLP that UniCredit S.p.A.'s regulatory capital treatment in respect of a 2008 issuance of convertible and subordinated hybrid equity-linked securities (CASHES), which had been sanctioned by regulators including the European Central Bank, was incorrect. On May 3, 2018, Caius wrote a letter to the EBA, asking it to open an investigation for a breach of EU law on the basis that the structure of the transaction called into question the eligibility of ordinary shares underlying the CASHES as CET1 capital under the EU Capital Requirements Regulation. Caius has since published further letters restating and expanding upon its arguments that a portion of UniCredit's regulatory capital currently recognized as CET1 under the EU rules is ineligible for such classification.
Read more. -
EU Consultation on Revised Guidelines on Periodic Reporting by Credit Rating Agencies
07/19/2018
The European Securities and Markets Authority has launched a consultation on proposed revised Guidelines on periodic reporting by credit rating agencies. Under the EU Credit Rating Agencies Regulation, ESMA is responsible for direct supervision of EU CRAs registered with it. ESMA wishes to update its existing Guidelines, first published in 2015, to better reflect ESMA's supervisory powers and duties. In particular, ESMA does not consider that the current approach of determining reporting requirements according supervisory fees matches its risk-based approach to supervision. ESMA is proposing to establish reporting categorizations for CRAs as well as reporting calendars based on reporting categorization. Furthermore, ESMA is proposing to standardize the reporting templates and to provide additional reporting instructions.
The consultation closes on September 26, 2018. ESMA intends to publish the Final Report on the Guidelines before the end of 2018.
View the consultation.TOPIC : Credit Ratings -
US Federal Reserve Vice Chairman Randal Quarles Discusses the SOFR Reference Rate
07/19/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the evolution of reference rates at the Alternative Reference Rates Committee (ARRC) Roundtable at the Federal Reserve Bank of New York. Vice Chairman Quarles stated his view that certain markets relevant to some LIBOR tenors are relatively illiquid. He contrasted this with the newly established secured overnight financing rate (SOFR). SOFR is the product of a collaborative effort by the Federal Reserve Bank of New York, the Federal Reserve Board and the U.S. Office of Financial Research, and was created in response to the ARRC's interest in establishing a Treasury repo rate benchmark that would span the widest possible scope of the market. Vice Chairman Quarles further noted that the implementation timetable for SOFR is ahead of schedule, that market participants have begun offering clearing of SOFR overnight index and basis swaps, and that futures markets for SOFR have been introduced on the Chicago Mercantile Exchange.
View full text of Vice Chairman Quarles’s remarks. -
Financial Action Task Force Reports to G20 and Announces Priority Work for 2018-2019
07/19/2018
The Financial Action Task Force has published its report to the G20 Finance Ministers and Central Bank Governors. The report gives an overview of recent FATF work and its proposed next steps in its current workstreams. The United States takes over the FATF Presidency for the period July 2018 to June 2019 and has separately published a document summarizing its priority and other initiatives for the duration of its presidency.
Read more. -
UK Serious Fraud Office Confirms Benchmark Manipulator Sentencing and Will Pursue Retrial of Bankers for Benchmark Manipulation
07/19/2018
The U.K.'s Serious Fraud Office has announced that two former bankers that had been convicted of conspiracy to defraud for manipulating the Euro Interbank Offered Rate (EURIBOR) have been sentenced to a combined total of just over 13 years' imprisonment. The SFO has also announced that it is going to pursue a retrial of three other bankers for whom the jury could not reach verdicts.
View the SFO's announcement.TOPIC : Enforcement -
European Commission Presses for Step Up in Brexit Preparations
07/19/2018
The European Commission has published a Communication on preparing for the withdrawal of the U.K. from the EU on March 30, 2019. Alongside the Communication, a factsheet has been published entitled, "Seven Things Businesses in the EU27 Need to Know in Order to Prepare for Brexit." In the Communication, the Commission warns all stakeholders that "[p]reparation must therefore be stepped up immediately at all levels and taking into account all possible outcomes." The Commission highlights that it is not yet certain that an agreement will be in place by exit day (March 30, 2019) and that a cliff-edge scenario could still occur. Without ratification of the Withdrawal Agreement, there will be no transitional period providing a further 21 months to prepare for when EU law ceases to apply to and in the U.K. and the Commission is urging all stakeholders to prepare for all scenarios.
In the Communication, the Commission counsels the financial services sector (see page 14) to prepare for a "hard Brexit." The Commission advises that ensuring that there is no disruption to their current business model and that they can continue to serve clients is the responsibility of all operators in all financial services sectors. Notably, the Commission is not concerned, at this stage, about any contractual continuity issues on the principle that the performance of existing obligations can continue post-Brexit. However, the Commission notes that "every type of contract needs to be looked at separately."
Read more.TOPIC : Brexit for Financial Services -
UK Competition Authority Consults on Proposed Remedies to Adverse Competition in the Investment Consultancy and Fiduciary Management Markets
07/18/2018
The U.K. Competition and Markets Authority has published a Provisional Decision Report in respect of the Investment Consultants Market Investigation in which it is assessing the supply and acquisition of investment consultancy services and fiduciary management services. The CMA has already published several working papers and an Issues Statement as part of the investigation.
The Provisional Decision Report sets out the CMA's assessment of the investment consultancy and fiduciary management markets, its general conclusions on competition, its provisional decision on competition and provisional remedies to address the identified competition issues. The CMA's provisional finding is that there is an adverse effect on competition which may result in material detriment to customers in both the investment consultancy and fiduciary management markets, although there are more concerns with the fiduciary management market.
Read more. -
Final EU Guidelines Clarify the Third-Country Endorsement Regime for Credit Ratings
07/18/2018
The European Securities and Markets Authority has published a final report on the application of the endorsement regime under the EU Credit Rating Agencies Regulation. The report contains ESMA's feedback statement for its earlier consultation on draft supplementary Guidelines as well as the final supplementary Guidelines.
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. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU provided that the rating has been endorsed by an EU CRA. The CRA Regulation sets out various conditions for such an endorsement.
Read more.TOPIC : Credit Ratings -
Financial Stability Board Consults on Initial Evaluation of the Impact of Regulatory Reforms on Infrastructure Finance
07/18/2018
The Financial Stability Board is seeking feedback on an initial evaluation of the effects of the post-financial crisis regulatory reforms on infrastructure finance. The initial evaluation focuses on infrastructure finance provided by the financial sector, for which the financial regulatory reforms are of immediate relevance. The FSB has established a framework for assessing whether the reforms are achieving their intended outcomes and whether there are any material unintended consequences to be addressed.
The initial evaluation shows the results of a qualitative and quantitative analysis of the Basel III reforms to regulatory capital and the OTC derivatives reforms. The results of a qualitative analysis of reforms that are at an earlier stage of implementation, such as investment funds rules and accounting standards, are also presented.
Feedback on the initial evaluation is invited by August 22, 2018. The FSB will consider the feedback in finalizing its report to the G20, due to be published towards the end of November 2018.
View the consultation paper. -
US Federal Reserve Vice Chairman Randal Quarles Discusses Streamlining the Supervision and Regulation of Large Financial Institutions
07/18/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the tailoring of supervision and regulation for large financial institutions. Vice Chairman Quarles noted that post-crisis regulations made the financial system demonstrably stronger and more resilient, and that there was some degree of tailoring that occurred in the initial creation of the post-crisis regulatory framework. Vice Chairman Quarles stressed that while steps have been taken since to improve the efficiency and efficacy of regulation, more can be done to streamline this framework. He noted that there are still improvements that can be made to allow for greater differentiation in the supervision and regulation of large firms and further tailoring, a theme he has reiterated in several prior speeches.
Read more. -
EU Final Guidelines on Fraud Reporting Under the Payment Services Directive
07/18/2018
The European Banking Authority has published final Guidelines on fraud reporting under the revised Payment Services Directive. PSD2 aims to increase the security of electronic payments and decrease the risk of fraud. The Directive, which has applied since January 13, 2018, requires Payment Service Providers to provide, at least on an annual basis, data on fraud relating to different means of payment to their national regulator. The regulators must in turn provide such data in aggregated form to the EBA and the European Central Bank. Existing data reporting practices vary across the EU. The EBA has worked with the ECB to develop these Guidelines to ensure that data is reported consistently and that the data is comparable and reliable.
The final Guidelines are addressed to PSPs, except account information service providers, and to their national regulators. The Guidelines cover payment transactions that have been initiated and executed, including the acquiring of payment transactions for card payments, identified by reference to: (a) fraudulent payment transactions data over a defined period of time; and (b) payment transactions over the same defined period. The Guidelines also set out how national regulators should aggregate the data.
Read more. -
Financial Action Task Force and Egmont Group Publish Research Findings on Concealment of Beneficial Ownership
07/18/2018
The Financial Action Task Force has issued a detailed report on the concealment of beneficial ownership, assessing how legal persons, legal arrangements and professional intermediaries can help criminals conceal wealth and illicit assets. The aim of the report is to help national authorities including financial intelligence units, financial institutions and other professional service providers in understanding the nature of the risks that they face. The report was prepared in conjunction with the Egmont Group of financial intelligence units.
The FATF and the Egmont Group together identified the need for further analysis of the vulnerabilities associated with beneficial ownership, with a particular focus on the involvement of professional intermediaries, to guide global responses. Their joint report brings together the results of analysis of open-source research, public intelligence reports, classified intelligence holdings and public and private sector experience and expertise. It sets out a comprehensive overview of the main characteristics and vulnerabilities that lead to the misuse of legal persons and arrangements, and the exploitation of professional intermediaries, to conceal beneficial ownership.
The report identifies a number of issues for consideration to help address the vulnerabilities associated with the concealment of beneficial ownership.
View the FATF-Egmont Group report. -
Financial Stability Oversight Council Announces Proposed Decision to not Apply "Hotel California" Provision to Large US National Bank
07/18/2018
The U.S. Financial Stability Oversight Council issued a proposed decision with respect to a national bank’s petition to not treat the surviving entity of a bank holding company parent merging into its large U.S. national bank subsidiary as a nonbank financial company supervised by the U.S. Board of Governors of the Federal Reserve System pursuant to Section 117 of the Dodd Frank Act (commonly referred to as the “Hotel California” provision). Section 117 applies to any entity, or its successor entity, that received financial assistance under, or participated in, the Capital Purchase Plan established under the Troubled Asset Relief Program and was a bank holding company with total consolidated assets of at least $50 billion as of January 1, 2010.
Read more. -
US Federal Financial Regulators Publish Proposed Changes to the Volcker Rule
07/17/2018
The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission published their previously announced notice of proposed rulemaking entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds in the Federal Register. The proposed rules seek to simplify and tailor the Volcker Rule. Comments to the proposal are due by September 17, 2018.
View proposed changes to the Volcker Rule.
View full text of the proposal. -
UK Brings First Service Provider to Payment Systems Within Special Administration Regime
07/17/2018
The Financial Market Infrastructure Administration (Designation of VocaLink) Order 2018 has been laid before Parliament. The Order relates to the special administration regime for operators of financial market infrastructures, which came into force on July 13, 2018. Relevant FMIs are operators of recognized payment systems, excluding recognized CCPs (which are already subject to the Banking Act resolution regime in the U.K.) and recognized central securities depositories operating a securities settlement system. However, HM Treasury is able to designate certain service providers to FMIs as infrastructure companies and so bring them within the FMI administration regime.
The Order designates VocaLink as an infrastructure company in connection with its provision of services to the operators of Faster Payments Service, Bacs and LINK. HM Treasury judges that an interruption in VocaLink's services to these operators of payment services would have a serious adverse effect on their operation.
The Order comes into force on August 9, 2018.
View the Order (SI 2018/858).
View the explanatory memorandum. -
Final Draft Technical Standards Under the EU Prospectus Regulation Published
07/17/2018
The European Securities and Markets Authority has published a final report setting out Regulatory Technical Standards supplementing the Prospectus Regulation, which will apply fully across the EU from July 21, 2019. ESMA consulted on draft RTS in December 2017. The final draft RTS cover:- the content and format of key financial information for the summary;
- the data necessary for the classification of prospectuses and the practical arrangements to ensure machine readability of that data;
- advertisements;
- situations requiring a supplement to the prospectus to be published;
- requirements on the publication of the prospectus; and
- technical arrangements for the notification portal for passporting prospectuses.
ESMA has submitted the final draft RTS to the European Commission for endorsement.
View ESMA's final report.TOPIC : Securities -
UK Conduct Authority Contemplates Introducing a New Duty of Care
07/17/2018
The Financial Conduct Authority has published its Approach to Consumers alongside a discussion paper on the potential introduction of a new duty of care and possible alternative approaches. The Approach to Consumers forms part of a series of formal approach documents explaining the FCA's approach to regulation in more depth. It should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.
The Approach to Consumers sets out the FCA's approach to regulating for retail customers. The document sets out the FCA's vision for well-functioning markets that work for consumers, the relevant regulatory and legal framework, when and how the regulator will act to protect consumers, the FCA's policy position on key issues and its strategy for ensuring that its consumer protection objective is advanced with the greatest impact.
Read more. -
Bank of England Consults on Term SONIA Reference Rates
07/17/2018
The Bank of England's Working Group on Risk-Free Reference Rates has launched a consultation on term reference rates for the Sterling Overnight Index Average.
The Working Group is tasked with facilitating the transition across sterling bond, loan and derivatives markets from the use of sterling LIBOR to the use of SONIA. The Working Group notes that SONIA is an overnight rate, while LIBOR is commonly referenced in longer tenors of three or six months. Some end-users in loan and debt capital markets have reported that term rates are essential for their business needs.
Read more. -
UK Secondary Legislation Laid Before Parliament Amending Building Societies Legislation
07/16/2018
A draft of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force on the day the U.K. withdraws from the EU.
The draft Regulations have been prepared using the power under the European Union (Withdrawal) Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the withdrawal of the U.K. from the EU. The draft Regulations make amendments to various U.K. primary and secondary legislation that relate to building societies. The amendments remove references to EEA countries and territories, EU directives and EU member states that will no longer be appropriate following the U.K.'s withdrawal. In addition, the amendments remove provisions that provide reciprocal treatment to borrowers whose loans are secured on land in an EEA state and to bodies incorporated in an EEA state.
Read more.TOPIC : Brexit for Financial Services -
Final Draft Technical Standards Under the Securitization Regulation Published
07/16/2018
The European Securities and Markets Authority has published final draft technical standards under the Securitization Regulation (also known as the STS Regulation). Among other things, the Securitization Regulation, which will apply directly across the EU from January 1, 2019, provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations. The Securitisation Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The Securitization Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.
ESMA is mandated under the Securitization Regulation to develop Regulatory Technical Standards and Implementing Technical Standards on these elements. ESMA consulted on proposed draft Technical Standards in December 2017.
Read more.TOPIC : Securities -
UK Secondary Legislation Laid Before Parliament on Regulators' Powers to Onshore EU Technical Standards on Brexit
07/16/2018
A revised draft of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force the day after the day on which they are made.
The draft Regulations, which include some changes to the original draft published in April 2018, among other things empower the Bank of England, the Financial Conduct Authority, the Prudential Regulation Authority and the Payment Systems Regulator to make EU Exit instruments and to make any necessary amendments to the Regulatory Technical Standards and Implementing Technical Standards that comprise "level 2" of the EU financial services legislation that will be onshored (that is, converted into U.K. law) on the U.K.'s withdrawal from the EU. A schedule to the draft Regulations sets out a full list of technical standards that will be onshored and allocates responsibility for making EU Exit instruments to one or more of the regulators.
The draft Regulations have been prepared under the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.
View the draft Regulations.
View the draft explanatory memorandum.
View details of the proposed approach to onshoring EU legislation.
View details of the EU (Withdrawal) Act 2018.TOPIC : Brexit for Financial Services -
UK Conduct Regulator Publishes Interim Report on Investment Platforms Market Study
07/16/2018
The U.K. Financial Conduct Authority has published an Interim report as part of its market study to ascertain whether competition between investment platforms is working in the interests of consumers. The FCA launched the investment platforms market study in July 2017 after potential competition issues in the sector were highlighted in the course of its asset management market study, on which it issued its final report in June 2017.
The FCA has been assessing competition in the sector by exploring a range of areas, namely: barriers to entry and expansion; business models; platform profitability; the impact of financial advisers; and consumer preferences and behaviour. Noting the increasing vertical integration in the sector, the FCA has also been examining commercial relationships between platforms, asset managers, discretionary investment managers and financial advisers.
The FCA has found that the market appears largely to be working well for both advised and non-advised consumers and that customer satisfaction is currently high. However, the FCA has found that there are some customers for whom the market is not working as well as it should. The interim report highlights the issues the FCA has identified and consults on proposed remedies. The report is supported by eight annexes covering elements of the FCA's research and findings so far.
Read more. -
Financial Stability Board Reports on the Work of International Bodies on Crypto-Assets
07/16/2018
The Financial Stability Board has issued a report to the G20 providing an overview of its current work on crypto-assets and that of the international standard setters, namely the Committee on Payments and Market Infrastructures, the International Organization of Securities Commissions and the Basel Committee on Banking Supervision. The G20 Ministers of Finance and Central Bank Governors issued a communiqué in March 2018 stating that they were concerned that crypto-assets raise a number of problematic issues in the contexts of consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. The G20 highlighted that crypto-assets may also have implications for financial stability and called on the FSB to provide a report on ongoing work by July 2018.
Read more.TOPIC : FinTech -
EU Court Annuls European Central Bank Leverage Ratio Decisions for Six Banks
07/13/2018
The General Court of the European Union has annulled decisions of the European Central Bank, refusing to allow six French banks to exclude from the calculation of the leverage ratio certain exposures connected to French savings accounts. Banque Postale, BPCE, Confédération Nationale du Crédit Mutual, Société Générale, Crédit Agricole and BNP Paribas applied to the ECB, as their direct prudential supervisor under the Single Supervisory Mechanism, for permission to exclude exposures consisting of sums in a number of savings accounts taken out with them and transferred to the Caisse des Dépôts et Consignations, a French public investment vehicle. National regulators and the ECB have discretion to allow banks to exclude exposures that satisfy a number of conditions from the calculation of the leverage ratio under the Capital Requirements Regulation.
Read more. -
EU Secondary Legislation for Money Market Funds Published
07/13/2018
A Commission Delegated Regulation amending and supplementing the European Money Market Funds Regulation has been published in the Official Journal of the European Union. The MMF Regulation, which applies directly across the EU from July 21, 2018, allows MMFs to invest in securitizations or asset-backed commercial paper and incentivizes the investment in simple, transparent and standardized securitizations. The Delegated Regulation amends the MMF Regulation (or MMFR) by applying the requirements for STS securitizations provided for in the Securitization Regulation (also known as the STS Regulation).
The MMF Regulation also allows an MMF to enter into a reverse repurchase agreement provided that certain conditions are met. The assets received by the MMF under that agreement must be money market instruments that meet certain requirements. A derogation from those requirements provides that an MMF may also receive instruments that are either: (i) issued or guaranteed by the EU, a central authority or central bank of a Member State, the European Central Bank, the European Investment Bank, the European Stability Mechanism or the European Financial Stability Facility; or (ii) issued or guaranteed by a central authority or central bank of a third country. The Delegated Regulation supplements the MMF Regulation by providing the quantitative and qualitative liquidity requirements for the assets that an MMF receives under a reverse repurchase agreement where the derogation is being used.
Read more. -
EU Proposals to Amend MiFID II's Tick Size Regime
07/13/2018
The European Securities and Markets Authority has launched a consultation on proposed amendments to the Regulatory Technical Standards (Commission Delegated Regulation (EU) 2017/588, also known as RTS 11) providing for the tick size regime under the Markets in Financial Instruments package, known as MiFID II. The tick size regime subjects orders in shares and depositary receipts to minimum tick sizes that are determined according to both the: (i) average daily number of transactions on the most relevant market in terms of liquidity; and (ii) price of the order. RTS 11 calibrates the minimum tick size based on the most liquid market in the EU, without any consideration being given to the liquidity on non-EU trading venues. The result is that EU trading venues have experienced a drop in market share in third-country financial instruments since January 3, 2018 when MiFID II came into effect. The trading venues have highlighted that the decrease in market share is because the RTS 11 methodology requires them to have in place larger price increments than those of their third-country competitor trading venues.
Read more.TOPIC : MiFID II -
European Commission Adopts Regulatory Technical Standards Under the EU Benchmarks Regulation
07/13/2018
The European Commission has adopted a series of Commission Delegated Regulations comprising all of the Regulatory Technical Standards to supplement the EU Benchmarks Regulation. The Benchmark Regulation, which took effect 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. The RTS adopted by the Commission are based on draft RTS prepared by the European Securities and Markets Authority in March 2017.
The European Parliament and the Council of the European Union will now have three months in which to raise any objections to the Delegated Regulations. The Delegated Regulations will take effect 20 days after their publication in the Official Journal of the European Union.
Read more. -
EU Secondary Legislation Adopted Amending Liquidity Coverage Requirement
07/13/2018
The European Commission has adopted an Amending Regulation to make amendments to an existing Delegated Regulation (Regulation (EU) 2015/61) supplementing the Capital Requirements Regulation. The existing Delegated Regulation sets out detailed requirements on the Liquidity Coverage Requirement 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 European Commission consulted on a draft of the Amending Regulation between January and February 2018. The Amending Regulation makes changes to the existing Delegated Regulation with the objective of improving its practical application, relating to:- 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.
Read more. -
European Securities and Markets Authority Consults on Minimum Standards for an Exemption from Providing a Prospectus Under the Prospectus Regulation
07/13/2018
The European Securities and Markets Authority has published a consultation paper on its draft technical advice to the European Commission on the minimum information content of documents provided for the purpose of describing a takeover, merger or division. ESMA was mandated by the Commission in February 2017 to provide it with technical advice for the circumstance where, under the Prospectus Regulation, issuers can benefit from an exemption to the requirement to supply a prospectus when they offer or admit securities connected with a takeover, merger or division. Issuers may, as an alternative to a prospectus, make available to investors an alternative document, which describes the transaction and its impact on the issuer.
ESMA's technical advice sets out the minimum information content of documents describing a merger, division or takeover which is necessary for an exemption from the obligation to publish a prospectus. ESMA invites comments on a range of questions on the content of the following sections of such "exempted documents": (i) operative provisions and definitions; (ii) Minimum Information Content Simplified Disclosure Regime for the Issuer; (iii) the Minimum Information Content Securities; (iv) the Minimum Information Content Description and Impact of Takeover, Merger and Division.
The consultation on the draft technical advice closes on October 5, 2018. ESMA expects to publish its final report on its technical advice in Q1 2019.
View the consultation.TOPIC : Securities -
European Securities and Markets Authority Seeks Feedback on Proposed Risk Factors Guidelines Under the Prospectus Regulation
07/13/2018
The European Securities and Markets Authority has published a consultation paper setting out draft guidelines for national regulators on risk factors under the Prospectus Regulation. ESMA has prepared the draft guidelines following a mandate from the European Commission to assist national regulators in their review of the specificity and materiality of risk factors within prospectuses and of the presentation of risk factors across categories depending on their nature.
The draft guidelines cover: (i) specificity; (ii) materiality; (iii) corroboration of the materiality and specificity; (iv) presentation of risk factors across categories; (v) focused/concise risk factors; and (vi) risk factors in the summary.
Comments on the draft guidelines are invited by October 5, 2018.
View the consultation paper.TOPIC : Securities -
European Commission Adopts Regulations Clarifying Duties of Third-Party Custodians Safe-Keeping Fund Assets
07/12/2018
The European Commission has adopted revisions to the Delegated Regulations on the safekeeping duties of depositaries under both the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive. The Commission consulted on the proposed changes between May 29 and June 26, 2018. Following feedback received during that consultation the Commission has agreed to defer the date from which the revisions will apply to 18 months after publication in the Official Journal of the European Union. It had been proposed that the revisions would apply from six months of publication. In addition, the Commission has made certain changes to the text to improve the clarity of the requirements without introducing any further substantive changes.
The adopted Delegated Regulations are subject to review by the European Parliament and the Council of the European Union. If there is no objection from either of those bodies, the revised Delegated Regulations should apply directly across the EU from Spring 2020.
View the amending Delegated Regulation under AIFMD.
View the amending Delegated Regulation under UCITS.
View details of the proposed revisions to the Delegated Regulations.TOPIC : Funds -
UK Special Administration Regime for Financial Market Infrastructure Brought Into Force
07/12/2018
A U.K. Order, the Financial Services (Banking Reform) Act 2013 (Commencement No. 1) (England and Wales) Order 2018, has been made. The Order brings into force, from July 13, 2018, the provisions in the Financial Services (Banking Reform) Act 2013 relating to the special administration regime for operators of financial market infrastructures. Relevant FMIs are operators of recognized payment systems, excluding recognized CCPs (which are already subject to the Banking Act resolution regime in the U.K.) and recognized central securities depositories operating a securities settlement system.
Read more.TOPIC : Recovery & Resolution -
Two Bankers Found Guilty by UK Court of Manipulating EURIBOR
07/12/2018
The U.K.'s Serious Fraud Office has announced that two former bankers have been found guilty by a jury of conspiracy to defraud for manipulating the Euro Interbank Offered Rate (EURIBOR). One other former banker has been found not guilty by a jury. The findings follow an investigation launched by the SFO 2012.
The jury could not reach verdicts on the case of three other bankers. By July 20, 2018, the SFO will inform the court whether it intends to proceed with a retrial. The two convicted bankers will be sentenced on July 20, 2018.
View the SFO's press release.TOPIC : Enforcement -
European Securities and Markets Authority Urges UK Financial Institutions to Apply for EU Authorizations Now
07/12/2018
The European Securities and Markets Authority has issued a public statement urging U.K.-based financial institutions to prepare for a hard Brexit. In particular, ESMA states that firms wishing to continue providing services across the EU after the U.K. has exited the EU must make timely applications for authorization to the relevant national regulators in the EU member state in which the firm wants to relocate its business. ESMA notes that it has seen an increase in applications being made and highlights that some national regulators have stipulated that applications needed to be received in June/July 2018 for approval to be granted in time.
View ESMA's statement.TOPIC : Brexit for Financial Services -
UK Prudential Regulator Provides Hurdle Rate Change Information for 2018 Stress Test
07/12/2018
The U.K. Prudential Regulation Authority has published a statement on Systemic Risk Buffers and Pillar 2A in stress test hurdle rates. The Bank of England announced in its March 2018 Key Elements of the 2018 Stress Test that it would be making four changes to the way hurdle rates are calculated. Hurdle rates are the level that a firm's capital ratio falls to during a stress scenario relative to the level of capital a firm is expected to maintain during the scenario. The PRA's statement provides details on two of the ways in which hurdle rates will change: (i) hurdle rates will incorporate buffers to capture domestic systemic importance, in addition to global systemic importance; and (ii) the calculation of minimum capital requirements (incorporated in the hurdle rates) will more accurately reflect how they would evolve in a real stress scenario.
The PRA has not commented on when further details of the other changes to hurdle rates will be published. The BoE expects to publish the results of the stress test in Q4 2018.
View the statement.
View details of the Key Elements of the 2018 stress test. -
International Swaps and Derivatives Association Consults on Fall Backs Based on Overnight Risk-Free Rates for Certain Derivatives
07/12/2018
The International Swaps and Derivatives Association has launched a consultation in which it proposes to amend its standard documentation to implement fall-backs based on alternative risk-free rates for certain key Interbank Offered Rates - GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW. ISDA states that the back-ups will apply if the relevant IBOR is permanently discontinued, based on defined triggers.
ISDA is seeking feedback on the approach to address certain technical issues arising from the necessary adjustments that will apply to the RFRs if the fall backs are triggered.
ISDA intends to consult on the technical issues for these changes for derivatives referencing USD LIBOR, EUR LIBOR and EURIBOR at a later date. It requests preliminary feedback on the technical issues associated with fall-backs for these benchmarks in this consultation.
Responses to the consultation should be submitted by October 12, 2018. ISDA will determine which approach to adopt based on the feedback and will publish the final approach for review and comment before implementing any changes to the ISDA standard documentation.
The FSB issued a statement on the same day welcoming ISDA's consultation and encouraging market participants to respond to the proposals.
View ISDA's consultation.
View details of the FSB's statement. -
Financial Stability Board Welcomes ISDA Consultation on Fall Backs Risk-Free Rates for Derivatives
07/12/2018
The Financial Stability Board has published a statement welcoming the consultation by the International Swaps and Derivatives Association on fall backs based on overnight risk-free rates for certain derivative contracts. The statement has been issued to provide market participants with the FSB's views ahead of the consultation by ISDA. The FSB's view is that overnight RFRs are more robust than interbank or term rates because they are based on active and liquid underlying markets. Overnight RFRs are considered by the FSB to be a better choice than term rates for markets where participants do not need forward-looking term rates. The FSB stated that for those markets where the IBOR may cease, citing the example of LIBOR, a transition to new reference rates will be crucial. The FSB acknowledges the work to reform some IBORS excluding LIBOR. It is therefore unclear whether the FSB has factored in the recently announced changes to LIBOR methodology in making this assessment and reaching these conclusions.
Read more. -
UK Government Publishes White Paper on the Future Relationship Between the UK and the EU
07/12/2018
The U.K. Government has published a White Paper setting out its approach and proposals for a future relationship between the U.K. and the EU. The Government is proposing new economic and regulatory arrangements for financial services that would give both the EU and the U.K. autonomy over decisions regarding access to its market. The Government acknowledges that both the EU and the U.K. will want to legislate for their own interests to take account of the differences in the EU and U.K. markets, business models as well as financial stability exposures.
The Government does not intend to replicate the existing EU passporting regime, which is reserved for countries falling within the single market. Instead, the Government intends that the new arrangements would be based on an enhanced equivalence regime that would enable the cross-border provision of the most important financial services and would preserve regulatory and supervisory cooperation. The Government states that the existing equivalence frameworks would need to be expanded, because the EU's equivalence regime does not cover the breadth of U.K. and EU financial services provision and because there are no provisions which ensure a transparent and predictable process with lasting effect.
Read more.TOPIC : Brexit for Financial Services -
US FDIC Publishes Updates to Interagency Forms
07/11/2018
The U.S. Federal Deposit Insurance Corporation announced updates to four of its interagency forms: (i) the Biographical and Financial Report (OMB Control Number 3064-0006); (ii) the Bank Merger Act Application (OMB Control Number 3064-0015); (iii) the Notice of Change in Control form (OMB Control Number 3064-0019); and (iv) the Notice of Change in Director or Senior Executive Officer form (OMB Control Number 3064-0097). The U.S. Board of Governors of the Federal Reserve System also published updated versions of these forms (FR 2081c, FR 2070, FR 2081a and FR 2081b, respectively) to its website on July 11, 2018. The FDIC announcement notes that these updates are based upon the comments and recommendations of an interagency working group, comprised of representatives from the FDIC, the Federal Reserve Board and the U.S. Office of the Comptroller of the Currency. The changes to the forms were made to improve the clarity of the specific information requested in the forms, provide additional transparency to financial institutions completing the forms, make changes to reflect new laws, regulations, capital requirements and accounting rules and to delete information requests that have been determined to be unnecessary. The changes to the FDIC forms are effective immediately.
View full text of the FDIC Financial Institution Letter. -
EU Consultation on Extending the Exemption From the Clearing Obligation for Intragroup Transactions with Third Country Group Entities
07/11/2018
The European Securities and Markets Authority has opened a consultation on the exemption from the clearing obligation for intragroup transactions with a third country group entity. There are three Regulatory Technical Standards made under the European Market Infrastructure Regulation that provide for the clearing obligation of interest rate derivatives and credit derivatives - the RTS on the clearing obligation for IRS denominated in G4 currencies, the RTS on the clearing obligation for IRS denominated in certain other currencies and the RTS on the clearing obligation for CDS. Each of the RTS also exempt from the clearing obligation intragroup derivative transactions that meet certain conditions where one of the counterparties is a third country group entity and there is no relevant equivalence decision. An equivalence decision enables parties subject to both the EU and a third country's clearing obligation to only comply with one jurisdiction's requirements.
Each of the RTS sets a different expiry date for the exemption period. These dates are:- December 21, 2018 in the RTS on the clearing obligation for IRS denominated in G4 currencies (RTS 2015/2205);
- May 9, 2019 in the RTS on the clearing obligation for CDS (RTS 2015/592); and
- July 9, 2019 in the RTS on the clearing obligation for IRS denominated in certain other currencies (RTS 2016/1178).
ESMA is proposing to extend the exemption period by amending each of the RTS to have one unified expiry date of December 21, 2020.
Comments on the proposals should be provided by August 30, 2018. ESMA will consider the feedback in finalizing the draft amending RTS for submission to the European Commission.
View the consultation paper.TOPIC : Derivatives -
FICC Markets Standards Board Consults on Statement of Good Practice on Algorithmic Trading
07/11/2018
The FICC Markets Standards Board has launched a consultation on a transparency draft of a Statement of Good Practice on algorithmic trading in the wholesale fixed income, commodity and currency markets. The draft SGP forms part of the FMSB's work to build up a body of Standards and Statements of Good Practice to improve conduct and raise standards in the wholesale FICC markets. The FMSB Standards and SGPs do not impose legal or regulatory obligations on FMSB members, nor do they take the place of regulation. Instead, an SGP is intended to be considered to the extent it is possible to follow it in compliance with applicable laws.
For the purposes of the consultation paper, "algorithmic trading" is defined as trading in instruments where a computer algorithm, with limited or no human intervention, automatically determines individual parameters of orders, such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission.
Read more. -
UK Financial Conduct Authority Confirms UK Rule Alignments for the EU Money Market Funds Regulation
07/11/2018
The U.K. Financial Conduct Authority has published a Policy Statement outlining the rule changes necessary to align its rulebook with the provisions of the EU Money Market Funds Regulation.
The FCA has made changes to amend, delete or disapply rules in its Handbook to MMFs to ensure those rules do not conflict with the MMFR. The regulator consulted on the proposed changes between January and March 2018. The amended rules apply from July 21, 2018 to new MMFs, including funds with substantially similar objectives to MMFs, once they are authorized as MMFs under the MMFR. Funds already operating as either MMFs or funds falling within the current definition of short-term money market funds in the FCA's rules will benefit from transitional provisions and will have until July 21, 2019 to apply for authorization under the MMFR.
The MMFR takes effect directly across the EU from July 21, 2018. The effect of the MMFR in the U.K. will be that authorized unit trusts, authorized contractual schemes, open-ended investment companies and alternative investment funds can all apply to be authorized as MMFs. As a directly applicable EU regulation, the MMFR does not require transposition into national law. However these changes have been made to ensure the U.K. rules are in line with EU laws and empower the FCA to authorize funds as MMFs, to levy fees and to enforce requirements under the MMFR.
View the Policy Statement (FCA PS 18/17).
View details of the FCA consultation on proposed Handbook changes.
View details of the U.K. implementing regulations for the MMFR. -
UK Conduct Regulator Chair Supports New Standards for Data Ethics
07/11/2018
Charles Randell, Chair of the Financial Conduct Authority and Payment Systems Regulator,delivered a speech on big data, regulation and data protection entitled, "How can we ensure that big data does not make us prisoners of technology?"
Discussing the risks associated with big data and artificial intelligence, Mr. Randell highlighted that in order to innovate ethically, thought needs to be given to the questions posed by big data, AI and behavioural science. In particular, the FCA Chair is concerned that technical innovation could increase social exclusion and reduce access to financial services if it was used, for example, to identify the most profitable or most risky customers.
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UK Legislation Published to Permit Islamic Bonds to be Traded on More Venues
07/10/2018
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been made and comes into force on July 11, 2018. The Order amends the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The result of the amendment is that AFIBs, such as Sukuk, will be permitted to trade on multilateral trading facilities or organised trading facilities and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.
The amendment removes a glitch creating disparity of treatment between AFIBs and conventional bonds, which had created an obstacle to the use of U.K. venues for the issue and trading of AFIBs. This was contrary to the U.K. Government's standing commitment to provide a level playing field for Islamic finance instruments in regulation and taxation in the U.K.
Read more.TOPIC : Securities -
US Federal Reserve Board and US FDIC Publish Public Sections of July 2018 Resolution Plans
07/09/2018
The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation published the public portions of the July 2018 resolution plans for four foreign banking organizations, which plans focus on the institutions’ U.S. operations. The public sections of the resolution plans summarize certain elements of the plans and how the resolution plans would be executed. The public portions of the resolution plans are published exactly as submitted by the institutions and are available on the Federal Reserve Board and FDIC websites.
View full text of the FDIC release.
View full text of Federal Reserve Board press release.TOPIC : Recovery & Resolution -
EU Regulatory Technical Standards Published on Assessment Methodology For Use of Advanced Measurement Approaches for Calculating Operational Risk Capital Requirements
07/06/2018
A Commission Delegated Regulation has been published in the Official Journal of the European Union, which supplements the Capital Requirements Regulation with Regulatory Technical Standards on the assessment methodology to be used by national regulators when deciding whether to permit institutions to use Advanced Measurement Approaches for operational risk. The RTS cover: (i) the qualitative and quantitative criteria that firms must meet before they are granted permission to use AMA models for calculating their capital requirements to cover operational risk; (ii) the criteria for the supervisory assessment of key methodological components of the operational risk measurement system; and (iii) common standards for the supervisory assessment of a bank’s operational risk governance.
The Delegated Regulation was made by the European Commission on March 14, 2018 and is based on final draft RTS submitted to the European Commission by the European Banking Authority in June 2015. The Delegated Regulation comes into effect across the EU on July 26, 2018. For institutions currently using AMA models or whose application to do so is pending, the Delegated Regulation will apply from July 26, 2019 and certain provisions related to correlation will not apply until July 26, 2020.
View the Commission Delegated Regulation (EU) 2018/959. -
Financial Action Task Force Seeks Input on Draft Risk-Based Approach Guidance for the Securities Sector
07/06/2018
The Financial Action Task Force has published for consultation draft Risk-Based Approach Guidance for the securities sector. The FATF is developing the Guidance to assist countries, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering financing of terrorism. The draft Guidance aims to assist in the risk-based design and implementation of applicable AML/CFT measures by providing general guidelines and examples of current practices and facilitate the effective implementation and supervision of national AML/CFT measures by focusing on risks and on mitigation measures. The FATF is also hoping that the draft Guidance will aid the development of a common understanding of what the risk-based approach to AML/CFT entails in the context of the securities sector. The Guidance will not be binding once it is finalized. The draft Guidance 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.
Read more. -
UK Financial Conduct Authority Updates Guidance on its Approach to Payment Services and Electronic Money
07/06/2018
The U.K. Financial Conduct Authority has updated its Approach Document on payment services and electronic money, to reflect final guidelines issued in December 2017 by the European Banking Authority on security measures for mitigating operational and security risks under the revised Payment Services Directive. The changes will affect all payment service providers. The FCA has also updated its webpage on reporting requirements for payment services providers and e-money issuers to reflect these changes. The webpage includes a link to the revised version of the FCA's REP018 (operational and security risk) reporting form.
The FCA will expect payment services providers to comply with the EBA guidelines, which cover issues such as operational and security risk management framework governance, the use of models, outsourcing and how functions, processes and assets should be identified, classified and risk-assessed. The EBA guidelines also cover security of data integrity, systems and confidentiality as well as physical security and asset control and communication of the security measures to payment service users. PSPs will be expected to report at least annually to the FCA on their operational and security risk management frameworks.
Read more. -
UK Draft Regulations Restricting the Assignment of Receivables Published
07/06/2018
The draft Business Contract Terms (Assignment of Receivables) Regulations 2018 have been laid before Parliament. The draft Regulations will invalidate terms in business contracts that prohibit or restrict the assignment of receivables, including terms that prevent the enforcement of a receivable. A receivable in this context is a right to be paid under a contract for the supply of goods, services or intangible assets. The Regulations will not apply if the person to whom the receivable is owed is a large enterprise or a special purpose vehicle.
Read more.TOPIC : Financial Services -
US Federal Reserve Board Seeks Comment on Changes to Fedwire Funds Service Message Format
07/05/2018
The U.S. Board of Governors of the Federal Reserve System published a notice of proposed service enhancement and request for comment with respect to adopting the International Organization for Standardization (ISO) 20022 message format for the Fedwire Funds Service. The new format would replace the service’s current proprietary message format. The proposal notes that the decision to implement the ISO 20022 message format standard is the result of a multi-year process, where the Federal Reserve Board and U.S. Federal Reserve Banks sought input from a number of stakeholders and industry participants, including The Clearing House Payments Company, which owns and operates the other main large-value payment system in the United States. The Federal Reserve Banks have also performed extensive public outreach on this topic, including the formation of advisory groups, the distribution of customer surveys, and the preparation of educational materials regarding the ISO 20022 standard. The proposal suggests that switching to the ISO 20022 standard may result in a number of benefits, including a richer and more structured message format, improved domestic and cross-border interoperability and the ability for financial institutions to provide additional services to customers. The proposal notes that the implementation of the ISO 20022 standard will consist of three phases, with a target final implementation date of November 2023. Comments to the proposal are due by September 4, 2018.
View full text of the FRB proposal.TOPIC : Payment Services -
Basel Committee Finalizes Revised Assessment Framework for G-SIBs
07/05/2018
The Basel Committee on Banking Supervision has published a revised methodology and the higher loss absorbency (HLA) requirement for the assessment of Global Systemically Important Banks. The revised framework updates and replaces the Basel Committee's July 2013 publication, "Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement."
The Basel Committee committed, on the introduction of the G-SIB framework, to review the framework every three years. It consulted on potential enhancements to the framework between March and June 2017. Following feedback to that consultation, the Basel Committee is proposing no changes to the fundamental structure of the G-SIB framework and states that it is generally recognized that the G-SIB framework is meeting its primary objective of requiring systemically important banks to hold higher capital buffers. The framework is also providing incentives for G-SIBs to reduce their systemic importance.
The proposed revisions to enhance the framework include a timetable for implementation. The revised assessment methodology will apply from 2021, based on end-2020 data. The corresponding HLA requirements based on the revised methodology will apply from January 1, 2023.
Read more. -
UK Regulators Seek Views on Improving Operational Resilience of Firms and Financial Market Infrastructures
07/05/2018
The Bank of England, the U.K. Prudential Regulation Authority and the U.K. Financial Conduct Authority have published a joint discussion paper entitled "Building the UK financial sector’s operational resilience." The Discussion Paper is aimed at opening a dialogue with the financial services industry on achieving what the Authorities view as a "step change" in the operational resilience of firms and Financial Market Infrastructures and at generating debate about the expectations regulators and the wider public might have of the operational resilience of financial services institutions.
While the existing regulatory framework already supports operational resilience, the BoE, PRA and FCA are together considering the extent to which they might supplement existing policies, to improve the resilience of the financial system as a whole and increase the focus on operational resilience within firms and FMIs.
Read more. -
US Federal Financial Regulators Release Statements Regarding Implementation and Impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act
07/05/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation released statements regarding the implementation and impact of the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act.
Read more.
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UK Conduct Regulator Issues Near-Final Rules on Extension of Individual Accountability Regime to All Financial Services Firms
07/04/2018
The U.K. Financial Authority has published Policy Statements confirming the rule changes it will apply to extend the application of the Senior Managers & Certification Regimes to all FCA solo-regulated firms (that is, firms for which the FCA is both conduct and prudential regulator). At this stage, the rules are near-final as they are subject to commencement regulations that will be made by HM Treasury and they may also be amended by subsequent changes related to, for example, Brexit or SM&CR optimizations. The FCA also plans to consult separately on rules for benchmark-related activities.
The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.
While insurance intermediaries, which are solo-regulated by the FCA, will fall within the FCA's new rules, the FCA and the Prudential Regulation Authority have separately published policy statements on the extension of the SM&CR to insurers.
Read more. -
UK Regulators Finalize Rule Changes For Extending Individual Accountability Regime to Insurers
07/04/2018
The U.K. Financial Conduct Authority and Prudential Regulation Authority have published Policy Statements confirming the near-final and final rule changes they will apply to extend the application of the Senior Managers & Certification Regimes to insurers. The Policy Statements do not make an changes to the prudential rules implementing Solvency II or to the wider U.K. regulatory framework for insurers.
The extended SM&CR will apply from December 10, 2018, subject to commencement regulations being made by HM Treasury. The SM&CR will apply to all insurers and reinsurers regulated by the FCA and the PRA. The Policy Statements will be of specific interest to Solvency II firms (that is, all firms within the scope of the U.K. rules implementing the Solvency II Directive), insurance special purpose vehicles (undertakings with permission to carry on the regulated activity of insurance risk transformation), insurers outside the scope of the Solvency II Directive (so-called Non-Directive Firms) and small run-off firms (all insurers with less than £25 million technical provisions that no longer have permission to write or acquire new business).
Read more. -
UK Financial Conduct Authority Consults on a New Directory For Financial Services Workers
07/04/2018
The Financial Conduct Authority has published a consultation paper setting out proposals to introduce a new directory of financial services workers.
In the consultation paper, the FCA explains that one effect of the extension of the Senior Management and Certification Regimes to all financial services firms will be that the Financial Services Register will contain the details of fewer individuals. Currently the Financial Services Register contains details of individuals who have been approved by the FCA or PRA. This includes individuals in senior management roles, individuals approved to hold controlled functions and individuals who hold customer-facing roles. However, this will change following the extension of SM&CR to all firms, because Individuals in customer functions, for example, will need to be assessed as fit and proper by firms rather than being approved by the regulators. Only individuals in specified senior manager roles will be approved by the relevant regulators and entered on the Register.
Read more.TOPIC : Financial Services -
UK Financial Policy Committee Outlines Steps to Reduce Risks to the UK's Financial Stability
07/03/2018
The Bank of England has published a Financial Stability Report, dated June 2018, and a record of the Financial Policy Committee Meeting held on June 19, 2018. The Report sets out the FPC's view of the U.K.'s financial stability, the resilience of the U.K.'s financial system and the risks posed to each of those. Where applicable, the Report also notes the steps that the FPC is taking to address the risks. The record of the meeting provides a summary of issues discussed by the FPC in June.
Read more. -
First UK Statutory Instrument Made Under the European Union (Withdrawal Act) 2018
07/03/2018
The European Union (Withdrawal) Act 2018 (Commencement and Transitional Provisions) Regulations 2018 have been made. These Regulations are the first statutory instrument to be made under the EU (Withdrawal) Act 2018, which was made on June 26, 2018. The Regulations bring into force some of the provisions of the Act. The Act, which was also formerly referred to as the Great Repeal Bill, ensures that the U.K.'s laws will continue to operate from the day the U.K. exits the EU.
View the Regulations.
View details of the EU (Withdrawal) Act 2018.TOPIC : Brexit for Financial Services -
EU and UK Authorities Clarify Clearing Obligation Expectations for Pension Schemes
07/03/2018
The European Securities and Markets Authority has published a statement on the transitional exemption from the clearing obligation for pension scheme arrangements under the European Market Infrastructure Regulation and delegated regulations. Transitional provisions provide for PSAs to be exempt from the clearing obligation until August 16, 2018. There is no provision in EMIR that would allow for a further extension of this exemption period. It is proposed that this exemption will be further extended under the proposal to amend EMIR, known as EMIR Refit. The length of the extension is yet to be agreed as part of the EMIR Refit legislative process between the European Parliament (which advocates a two-year extension) and the Council of the European Union (which supports a three-year extension). Parliament is also proposing to backdate the application of the new transitional period to August 16, 2018 if EMIR Refit enters into force after the expiry of the existing exemption so as to prevent a gap between the two exemptions periods, providing legal certainty for PSAs and their counterparties.
Read more.TOPIC : Derivatives -
New UK Standard on Risk Management Transactions for New Issuances for the Fixed Income Markets
07/03/2018
The U.K. Fixed Income, Currency and Commodities Markets Standards Board has published a new Standard on Risk Management Transactions for New Issuances for the Fixed Income markets.
The FMSB has created several Standards to improve conduct in the FICC markets since its establishment in 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the Financial Conduct Authority. FMSB members commit to applying the FMSB Standards but the Standards do not impose legal or regulatory obligations.
The new Standard describes expected behaviors to improve the practice and awareness regarding risk management activities conducted in and around the new issuance of bonds and includes 12 Core Principles. Following its consultation at the end of 2017 on the proposed Standard on Risk Management Transactions for New Issuances, the FMSB has made some minor changes, including providing more detail on the nature of the conduct risks and amending the Principle on dissemination of information (Core Principle 9).
Read more. -
European Central Bank Publishes Best Practices for Eurozone Recovery Plans
07/03/2018
The European Central Bank has published a report on recovery plans. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. Under that remit, the ECB has analyzed the recovery plans of numerous Eurozone banks. The report sets out the ECB's experience of that process and best practices that have been adopted by some banks. The report is intended to assist Eurozone banks to improve their recovery planning, although the report itself is restricted to the recovery plans of significant institutions.
View the ECB's report.TOPIC : Recovery & Resolution -
European Commission Formally Withdraws Proposals for an EU Regulation on Bank Structural Reform
07/03/2018
Following its announcement in its 2018 Work Programme of its intention to withdraw 15 pending EU legislative proposals, the European Commission has announced the formal withdrawal of that legislation, which includes the 2014 Proposal for a Regulation on structural reform of the EU banking sector.
The original proposal built on the 2013 recommendations of a high level expert group on reforming the structure of EU banking sector, chaired by Bank of Finland Governor and European Central Bank Governing Council member Erkki Liikanen. For banks within its scope, the provisions of the proposed regulation would have imposed a ban on proprietary trading and would have empowered supervisors to require banks to ring-fence certain trading activities from a deposit-taking entity.
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European Central Bank Consults on Materiality Threshold for Credit Obligations Past Due
07/03/2018
The European Central Bank has launched a consultation on a proposed Regulation on the materiality threshold for credit obligations past due under the Capital Requirements Regulation. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and must set the materiality threshold for these banks. The ECB must take into account the Regulatory Technical Standards on the materiality threshold for credit obligations past due that supplement the CRR requirements on the conditions for use of the internal ratings-based approach.
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UK Prudential Regulator Consults on Reflecting the Systemic Risk Buffer Framework Within the Leverage Ratio Framework for UK Systemic Ring-Fenced Bodies
07/03/2018
The U.K. Prudential Regulation Authority has published a consultation paper entitled "UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer."
The Systemic Risk Buffer is one of the elements of the overall capital framework for U.K. banks and building societies. It is applied by the PRA to individual institutions and will be introduced at the same time that ring-fencing comes into force in 2019. SRB institutions are banks falling within the definition of Ring-fenced Bodies in the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits (where one or more of the accountholders is a small business) and shares (excluding deferred shares).
Read more. -
UK Regulator Announces Successful Applicants to Cohort Four of Its Regulatory Sandbox
07/03/2018
The Financial Conduct Authority has published a press release confirming the acceptance of 29 firms to begin testing in the fourth cohort of its regulatory sandbox.
The FCA's regulatory sandbox is part of Project Innovate, the FCA's initiative for encouraging innovation in the interest of consumers. On its launch in June 2016, the FCA sandbox was the first in the world and has since been emulated by regulators globally. The sandbox is open to authorized and unauthorized firms of all sizes and provides a controlled live environment for participating firms to test product and service innovations on a time-limited basis. Applicants to the sandbox must satisfy strict eligibility criteria to be able to test in the sandbox and testing is subject to appropriate safeguards for consumer protection which are set on a case-by-case basis. Cohort 4 had 69 applicants, which is the largest number of applicants to date.
Read more.TOPIC : FinTech -
European Banking Authority Publishes First Outputs from Its FinTech Roadmap
07/03/2018
Following the publication of its FinTech Roadmap in March 2018, the European Banking Authority has published two reports contemplated by the Roadmap.
The first report sets out the results of a thematic review of the impact of FinTech on the business models of incumbent credit institutions. The second report outlines the perceived benefits and potential prudential risks of seven FinTech use cases.
The EBA has also established a FinTech Knowledge Hub for the sharing of information and experience and promotion of emerging trends among EU national regulators.
Read more.TOPIC : FinTech -
UK Competition and Markets Authority to Impose Confidentiality Ring for Provisional Decision Report on the Investment Consultants Market Investigation
07/02/2018
The U.K. Competition and Markets Authority has published a notice of intention to operate a confidentiality ring, following publication of the Provisional Decision Report on the Investment Consultants Market Investigation. The CMA is assessing the supply and acquisition of investment consultancy services and fiduciary management services. As part of the investigation, the CMA has received information and/or data from a number of parties. This data has been used by the CMA in the investigation, in particular in preparing the Provisional Decision Report, which will be published in mid-July 2018. The notice:- provides a description of the data that has been used;
- sets the timing of the confidentiality ring - from 9.30 am on the date of publication of the Provisional Decision Report until 5 pm on the date five weeks thereafter; and
- stipulates the access conditions under the confidentiality ring, including completion of an undertaking by those wishing to access the confidentiality ring, the form of which is set out in an annex.
View the CMA's notice.
View the form of undertaking. -
UK Payments Regulators Announce Full Consolidation of UK Retail Payment Systems
07/02/2018
The Payment Systems Regulator and the New Payment System Operator have issued press releases confirming that the consolidation of U.K. retail payment systems is now complete. Consolidation of the three U.K. payment systems was one of the recommendations made in the Payments Strategy Forum's November 2016 report, which set out a wide-ranging strategy for reforming the U.K. retail payments industry.
The NPSO assumed responsibility for Bacs Payment Schemes Limited and Faster Payments Scheme Ltd on May 1, 2018. The NPSO's press release confirms that, as of July 1, 2018, the Cheque and Credit Clearing Company Limited has become a subsidiary of the NPSO and the NPSO has assumed responsibility for oversight of running and managing the cheque paper and cheque image clearing systems. All payments will continue to be processed through the cheque clearing systems. The NPSO has also acquired UK Payments Administration Ltd, which is the service company responsible for providing people, facilities and business services to the U.K. payments industry.
Read more. -
Financial Stability Board Issues Consultation on Developing a Cyber Lexicon
07/02/2018
As part of its work on the protection of financial stability against the malicious use of information and communication technologies, the Financial Stability Board has published a draft cyber lexicon for consultation.
In March 2017, the FSB was asked by the G20 Finance Ministers to review and produce a stock-take report on the existing regulation, supervisory practices and guidance on cyber security in the financial sectors of G20 jurisdictions. The G20 welcomed the FSB's stock-take report in October 2017 and asked the FSB to continue its work and to develop a common lexicon of cyber terms.
The FSB stresses that the lexicon is not intended for use in the legal interpretation of any international arrangement or agreement or any private contract. The use of the cyber lexicon will not be mandatory. Its purpose is to support the work of the FSB, standard-setting bodies, national authorities and private sector participants to address, and develop guidance on, cyber security and cyber resilience in the financial sector. In particular, the aim of the cyber lexicon is to create a cross-sector common understanding of relevant cyber security and cyber resilience terminology and to facilitate assessment and monitoring of financial stability risks in cyber risk scenarios.
Read more.TOPIC : Cyber Security -
US Regulators Extend Resolution Plan Filing Deadline for 14 US Financial Institutions
07/02/2018
The U.S. Federal Reserve Board and FDIC have announced that they were extending the filing deadline for the resolution plans of 14 U.S. financial institutions to December 31, 2019. The agencies note that the deadline was extended to allow for additional time to provide feedback to these institutions with respect to their last resolution plan submissions and for the institutions to file their next resolution plan submissions. The agencies also reiterated that, pursuant to the Economic Growth, Regulatory Reform, and Consumer Protection Act, financial institutions with less than $100 billion in total consolidated assets are no longer subject to resolution plan requirements, and that over the course of the next 18 months, the agencies will determine which financial institutions with $100 billion or more, but less than $250 billion in total consolidated assets will be subject to the resolution plan process going forward.
View the FDIC press release.
View the Federal Reserve press release.TOPIC : Recovery & Resolution -
UK Regulations Implementing Parts of the Prospectus Regulation Published
06/29/2018
The Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018, dated June 27, 2018, have been laid before Parliament. The U.K. Regulations will come into force on July 21, 2018, implementing parts of the Prospectus Regulation that will apply from that date. The Prospectus Regulation will replace the existing Prospectus Directive and sets out the requirements for a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The Prospectus Regulation aims to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions. The remainder of its provisions take effect on July 21, 2019.
U.K. law is not needed to transpose the Prospectus Regulation, which will be directly applicable across the EU. However, certain U.K. legislation will need to be amended to ensure that there is no conflict of laws. The U.K. Regulations amend the Financial Services and Markets Act by increasing the threshold, from €5 million to €8 million, for which a prospectus is required for an offer of securities to the public within the U.K. The U.K. Regulations also amend the U.K. legislation that implemented the Markets in Financial Instruments Directive, including by correcting the definition of a MiFID investment firm.
View the U.K. Regulations (S.I. 2018/786).
View the explanatory memorandum. -
EU Draft Amended Technical Standards on Benchmarking of Internal Models
06/29/2018
The European Banking Authority has published amended draft Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk under the EU Capital Requirements Directive. The EBA consulted on proposed changes to the ITS in Q4 2017 and Q1 2018.
The amended ITS include all the portfolios that will be used for the 2019 benchmarking exercise, provided that the amended ITS are adopted by the European Commission. For market risk benchmarking, major changes have been made to the portfolios, including the introduction of a new set of portfolios comprising vanilla instruments. Minor changes have been made to the credit risk portfolios including changes to the information requested from firms.
Regarding the 2018 benchmarking exercise, the EBA has confirmed that firms do not have to resubmit the same data as a result of the difference between the submission dates in the draft ITS published by the EBA and the final ITS published on May 18, 2018 in the Official Journal of the European Union.
View the amended ITS.
View details of the EBA's consultation on amending the ITS. -
US Federal Reserve Board and US Federal Deposit Insurance Corporation Seek Comment on 2019 Resolution Plan Guidance
06/29/2018
The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation have published revised resolution plan (or "living wills") guidance for the eight largest and most complex U.S. banking institutions. The proposed guidance would be applicable to resolution plans submitted beginning in 2019. The proposed guidance is largely based upon, and consistent with, prior guidance issued by the Federal Reserve Board and FDIC in 2016 - through the publication of Guidance for 2017 §165(d) Annual Resolution Plan Submissions by Domestic Covered Companies that Submitted Resolution Plans in July 2015 - and has been informed by, and updated as a result of, Federal Reserve Board and FDIC review of recent resolution plan submissions by these institutions. Consistent with prior guidance published by the Federal Reserve Board and FDIC, the proposed guidance is organized into six substantive areas: (1) Capital; (2) Liquidity; (3) Governance Mechanisms; (4) Operational; (5) Legal Entity Rationalization and Separability; and (6) Derivatives and Trading Activities. The proposed guidance includes updates to the Derivatives and Trading Activities and Operational: Payment, Clearing, and Settlement Activities Sections, and makes other clarifying changes. The changes and updates are intended, in part, to help streamline submissions by these institutions and to provide additional clarity with respect to the process. Comments to the proposed guidance will be due 60 days from its publication in the Federal Register.
View the full text of the proposal.TOPIC : Recovery & Resolution -
UK Prudential Regulator Sets out Expectations on Firms' Exposures to Crypto-Assets
06/28/2018
The U.K. Prudential Regulation Authority has published a "Dear CEO" letter, addressed to the Chief Executive Officers of banks, insurance companies and designated investment firms. The purpose of the letter is to remind firms of their relevant obligations under the PRA rules and to communicate the PRA's expectations regarding firms' exposures to crypto-assets.
Crypto-assets have exhibited high price volatility and relative illiquidity and may also be vulnerable to fraud and manipulation, which raises concerns about potential misconduct and poses issues for market integrity. The PRA's letter does not define crypto-assets, but the Financial Conduct Authority uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. The FCA recently published a "Dear CEO" letter outlining best practice for firms in handling the financial crime risks that crypto-assets can pose.
Read more. -
UK Prudential Regulator Confirms Changes to Large Exposures Framework
06/28/2018
Following a consultation in October 2017, which closed on January 4, 2018, the U.K. Prudential Regulation Authority has published a Policy Statement on changes to its large exposures framework.
The Policy Statement sets out the PRA's feedback on the responses received to its consultation. Respondents were largely supportive of the proposals. The PRA is implementing its proposals largely as consulted on, with only minor changes. The Policy Statement outlines the changes as follows:
(i) Changes to the relevant part of the PRA Rulebook on large exposures and regulatory reporting - the text of the changes is set out in a PRA Rulebook Instrument, "CRR Firms: Large Exposures Amendment Instrument".
(ii) An update to the PRA's supervisory statement on large exposures (SS16/13) to reflect the PRA's expectations on the resolution exemption and to provide additional guidance to firms on Core UK Group and Non-core Large Exposures Group permissions.
(iii) An update to the PRA's supervisory statement, Guidelines for completing regulatory reports (SS34/15), to remove the requirement to submit the UK integrated groups - large exposures data item (FSA018).
Read more. -
US Federal Reserve Board Releases 2018 CCAR Results
06/28/2018
The U.S. Board of Governors of the Federal Reserve System announced the results of this year's Comprehensive Capital Analysis and Review process. This year, 35 financial institutions participated in the CCAR process. The CCAR process consists of a quantitative assessment, which evaluates an institution's capital adequacy and planned capital distributions against its ability to continue operating and lending throughout times of economic and financial market stress. In addition to the quantitative analysis, institutions that are designated "large and complex firms" or supervised by the Large Institution Supervision Coordinating Committee are subject to a qualitative assessment, which evaluates the reliability of each institution's analyses and other processes for capital planning. Of the 35 institutions that participated, 18 were subject to both quantitative and qualitative assessments, while the remaining 17 were only subject to the quantitative assessment. In connection with the CCAR process, the Federal Reserve Board objected to the capital plan of one institution due to qualitative concerns. Two institutions were issued a conditional no-objection to their capital plans and will be required to maintain their capital distributions at the levels paid by these institutions in recent years. A third institution was issued a conditional no-objection to its capital plan, subject to the institution "taking certain steps regarding the management and analysis of its counterparty exposures under stress."
View the full text of the 2018 CCAR results.TOPIC : Recovery & Resolution -
US Office of the Comptroller of the Currency Releases Updated Supervision Booklets
06/28/2018
The U.S. Office of the Comptroller of the Currency has announced updates to a number of supervision booklets, including the "Bank Supervision Process," "Community Bank Supervision," "Compliance Management Systems" and "Large Bank Supervision" booklets of the Comptroller's Handbook, and the "Federal Branches and Agencies Supervision" booklet. The updated booklets replace previously issued booklets of the same titles. The OCC also provided a table of previously issued bulletins and publications that have been rescinded and incorporated into the updated booklets. At a high level, the revisions and updates clarify the applicability of the booklets for financial institutions of differing size; add content with respect to asset management, including assessing Bank Secrecy Act, anti-money laundering and Office of Foreign Assets Control compliance; incorporate aspects of the Dodd-Frank Act; make technical corrections, including clarified terminology and to reflect the integration of the Office of Thrift Supervision into the OCC; include revised concepts and references; and incorporate references to OCC issuances published since each booklet's last publication date.
View the full text of the OCC press release and revised booklets. -
European Money Markets Institute Confirms Certain Changes for Euribor
06/28/2018
The European Money Markets Institute has published a feedback summary report on its March 2018 consultation on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.
EMMI consulted on: (i) introducing a three-level "hybrid" methodology for calculating Euribor; (ii) producing an overnight tenor for Euribor following the implementation of the hybrid methodology; (iii) discontinuing the calculation of three of the eight tenors; (iv) clarifying Euribor's underlying interest; (v) ceasing the publication of individual Panel Banks' submissions; and (vi) simplifying the publication process.
Read more. -
US Commodity Futures Trading Commission Approves Proposed Amendments to Self-Regulatory Organization Surveillance Programs for Futures Commission Merchants
06/28/2018
The Commodity Futures Trading Commission has proposed to simplify its standards for a self-regulatory organization's financial surveillance program for futures commission merchants. The proposed amendments result from the CFTC's Project KISS initiative to simplify and modernize the Commission's regulations.
Under CFTC Regulation 1.52, a third-party examinations expert is required to evaluate an SRO's FCM supervisory program and the application of the program at least once every three years. The proposed amendments would narrow the scope of this evaluation to only consider whether the SRO's FCM examination standards are consistent with auditing standards issued by the Public Company Accounting Oversight Board. The proposal would also reduce the frequency of reviews by an examination expert, to once every five years or after the issuance of new or amended audit standards by the PCAOB that require material changes to the SRO's FCM examination standards.
Comments on the proposed amendments are due September 4, 2018.
View the CFTC’s press release.
View the proposed amendments.TOPIC : Derivatives -
US Commodity Futures Trading Commission and the Securities and Exchange Commission Approve New Arrangements to Harmonize Title VII Rulemakings
06/28/2018
The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission have approved a new Memorandum of Understanding between the two agencies. The MOU, which updates and enhances an MOU approved by the agencies in 2008, is aimed at fostering cooperation and information sharing in order to harmonize joint rulemakings mandated under Title VII of Dodd-Frank, which governs the regulation of swaps and security-based swaps.
The MOU outlines several measures intended to increase coordination. These include holding inter-agency meetings and consultations to enhance coordination and cooperation, sharing information relating to firms registered with both agencies and specific incidents that are of common regulatory interest to both agencies, and informing the other agency in advance of developments that may impact its regulatory interests.
CFTC Chairman J. Christopher Giancarlo said the MOU will enhance the agencies' "oversight efforts and reduce unnecessary complexity, and lessen costs on both regulators and market participants," and SEC Chairman Jay Clayton added that the agreement will support a "coherent and coordinated approach to regulation."
The MOU will become effective on the date of its signing and will remain effective unless terminated by either agency. Revisions and modifications may be made upon agreement or as required by changes in law.
View the joint press release.
View the MOU.TOPIC : Derivatives -
UK Government and Regulators Set Out Approach to Onshoring Financial Services Legislation for Brexit
06/27/2018
Following the enactment of the European Union (Withdrawal) Act 2018, HM Treasury has set out its approach to "onshoring" EU financial services legislation under the Act. The Bank of England, the Financial Conduct Authority and the Payment Systems Regulator have each also issued statements on their respective roles in preparing for the U.K.'s withdrawal from the EU.
Read more.TOPIC : Brexit for Financial Services -
US Federal Reserve Vice Chairman for Supervision Discusses the Promotion of Global Financial Stability
06/27/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the importance of the promotion of global financial stability at the Utah Bankers Association 110th Annual Convention. Vice Chairman Quarles began by discussing financial stability in the United States, noting that the implementation of post-financial crisis reform is largely complete and is now in the process of being reviewed and revised to promote efficiency and efficacy. Vice Chairman Quarles also noted how this review and revision process is easing the regulatory burden on community and regional banks, through reforms such as the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act, the Bank Exams Tailored to Risk program and the implementation of a new streamlined Call Report form in 2017. With respect to global financial stability, Vice Chairman Quarles discussed the role of the Financial Stability Board, explaining that the FSB helps to improve access to information on an international scale and promote minimum standards in areas such as resolution planning. Vice Chairman Quarles also highlighted that while the FSB may set international regulatory standards, it has no enforcement powers and no legal authority to direct its members to act. Instead, the FSB promotes effective dialogue by functioning by consensus, which allows international stakeholders to have meaningful input in the decisions that are made.
View the full text of Vice Chairman Quarles's speech. -
UK Regulator Provides Update on its Retail Banking Business Model Review
06/27/2018
The U.K. Financial Conduct Authority has published a Progress Report on its Strategic Review of Retail Banking Business Models. The FCA launched the Review in April 2017 and published a purpose and scope document in October 2017. The FCA is conducting the Review to gain a picture of how profits are generated by the sector, of the relative competitive advantages and disadvantages of different business models and of barriers to entry and expansion. The Review covers retail banking services to personal and small business customers. It focuses on the products and services that are used on a regular basis by large numbers of consumers and small businesses. This includes current accounts, savings products, mortgages, personal loans, credit cards, and business finance.
The FCA explains that its early analysis indicates that a key component of the competitive advantage enjoyed by retail banks to date has been the combination of personal current accounts and large branch networks. This combination has brought a number of benefits including a funding cost advantage (from personal current accounts paying zero interest or lower interest than other providers), significant additional income from fees and charges on personal current accounts (including overdrafts), the opportunity to cross-sell lending products to personal current account holders and the ability to cross-sell business accounts and associated business savings balances.
Read more. -
UK Brexit Legislation Receives Royal Assent
06/26/2018
The EU (Withdrawal) Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the EU (Withdrawal) Act 2018. The Act, which was also formerly referred to as the Great Repeal Bill, is necessary to ensure that the U.K.'s laws continue to operate from the day the U.K. exits the EU.
From the date of the U.K.'s exit from the EU, the Act will (i) end the supremacy of EU law in U.K. law by repealing the European Communities Act 1972; (ii) convert EU law as it stands at the moment of exit into domestic law before the U.K. leaves the EU; and (iii) maintain the current scope of devolved decision making powers in areas currently governed by EU law.
The Act also creates powers to make secondary legislation, including temporary powers to enable corrections to be made to the laws that would otherwise no longer operate appropriately once the U.K. has left the EU and to implement the withdrawal agreement under Article 50 of the Treaty on European Union. The Government will now start work to begin laying before Parliament the expected 800 pieces of secondary legislation that will be required to prepare the U.K.'s statute book for EU withdrawal.
Read more.TOPIC : Brexit for Financial Services -
European Banking Authority Warns Financial Institutions to Prepare for a Hard Brexit
06/25/2018
The European Banking Authority has published an Opinion on preparations for the withdrawal of the U.K. from the EU. The Opinion is addressed to EU national regulators and regulators in the European Free Trade Area States (Norway, Liechtenstein and Iceland), the European Central Bank and the Single Resolution Board. The Opinion concerns the activities of financial institutions in the context of preparing for the U.K.'s withdrawal. Financial Institutions comprise credit institutions, investment firms, payment service providers, electronic money institutions, creditors and credit intermediaries.
The purpose of the Opinion is to encourage national regulators to ensure that financial institutions are adequately considering the risks that arise from the possible departure of the U.K. from the EU in March 2019 without a ratified withdrawal agreement in place (a so-called "hard" Brexit). The EBA also seeks to ensure that national regulators draw the attention of financial institutions to their consumer protection obligations should that eventuality occur.
Read more.TOPIC : Brexit for Financial Services -
European Securities and Markets Authority Issues Opinion on CCP Liquidity Risk Assessment
06/22/2018
The European Securities and Markets Authority has published an Opinion on the liquidity risk assessment that a CCP must undertake under the European Market Infrastructure Regulation. The Opinion is addressed to national regulators that supervise CCPs.
EMIR requires a CCP to measure its potential liquidity needs on a daily basis and to ensure that it has access at all times to adequate liquidity to perform its services and activities. A CCP must, therefore, ensure it has access to credit lines or other arrangements with liquidity providers in case the financial resources at its disposal are not immediately available. In measuring its liquidity needs, a CCP is required to take into account the liquidity risk generated by the default of at least the two clearing members to which it has its largest exposures (the liquidity risk "Cover-2" test). EMIR and related delegated legislation provide detail on how a CCP should assess the liquidity risk arising from each of its relationships with its clearing members and its liquidity providers.
Read more. -
European Banking Authority Proposes Updated Guidelines on Outsourcing by Financial Institutions
06/22/2018
The European Banking Authority has launched a consultation on draft Guidelines on outsourcing arrangements. The proposed Guidelines are intended to update and replace the outsourcing guidelines issued in 2006 (by the EBA's predecessor, the Committee of European Banking Supervisors) that applied to outsourcing by credit institutions. The proposed Guidelines will 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, payment institutions and electronic money institutions. The proposed Guidelines also integrate the recommendation on outsourcing to cloud service providers that was published by the EBA in December 2017.
The proposed Guidelines set out a definition of outsourcing in line with delegated legislation under the revised Markets in Financial Instruments Directive. They cover: (i) proportionality and group application; (ii) the nature of outsourcing arrangements; (iii) the applicable governance framework; (iv) the outsourcing process; and (v) guidelines on outsourcing addressed to competent authorities. A separate Annex provides an illustrative template that could be used for complying with the requirement in the proposed Guidelines to maintain a register of all outsourcing arrangements at institution and group level where applicable.
Read more. -
UK Conduct Regulator Issues Statement on PSD2 Strong Customer Authentication and Common and Secure Communication Provisions
06/22/2018
Following the publication by the European Banking Authority of an Opinion and draft Guidelines on Regulatory Technical Standards under the revised Payment Services Directive for strong customer authentication and common and secure communication, the U.K. Financial Conduct Authority has published a statement on its website. The RTS under PSD2 set out how third-party providers of account information and payment initiation services (TPPs) and account servicing payment service providers (ASPSPs) should interact and communicate securely to enable TPPs to provide their services to customers with the customer's consent. The Opinion relates to the implementation of the RTS and the draft Guidelines relate to the availability of an exemption for ASPSPs from a requirement to build a contingency access mechanism.
The FCA welcomes the EBA's Opinion and draft Guidelines and confirms that, assuming the Guidelines remain as drafted, it expects to comply with them. The FCA will be consulting in Summer 2018 on proposed changes to its rules and guidance to reflect the RTS, the Opinion and the draft Guidelines. The consultation will outline the proposed process and level of information that the FCA will require from firms to make an exemption assessment. The FCA raises a number of issues that ASPSPs and TPPs should be considering, along with some key points from the Opinion and draft Guidelines of which they should take note in advance of the consultation.
Read more.TOPIC : Payment Services -
European Commission Clarifies Ancillary Activity Exemption Under MiFID II
06/22/2018
The European Commission has published a letter, dated May 31, 2018, from the President of the European Commission, Valdis Dombrovskis, to Steven Maijoor, Chair of the European Securities and Markets Authority, following ESMA's request in April for clarification on how to interpret the ancillary activity exemption under the revised Markets in Financial Instruments Directive.
MiFID II exempts non-financial entities that deal on own account, or provide investment services to clients, in commodity derivatives from having to obtain authorization as an investment firm under MiFID II provided that, among other things, this activity is ancillary to their main business. The wording of both MiFID II and related Regulatory Technical Standards suggests that the tests for whether an activity is ancillary to the main business should be carried out at the level of the entity's group. However, ESMA stated in its letter to the Commission that some drafting amendments that were introduced by the Commission have led to uncertainty as to whether the tests should be carried out at the level of the entity rather than at group level.
The Commission has confirmed that MiFID II requires that the ancillary activities test needs to be calculated by each entity within a group that engages in either of the two relevant MiFID activities for which the exemption is available. In consequence, the ancillary activities test must be calculated as many times as necessary for each separate entity which trades in commodity derivatives within a group.
View the letter to ESMA.
View ESMA's request for clarification.TOPIC : MiFID II -
Federal Reserve Bank of New York Executive Vice President and Director of Research Discusses Supervisory Stress Testing Objectives
06/22/2018
Federal Reserve Bank of New York Executive Vice President and Director of Research, Beverly Hirtle, discussed the macroprudential objectives of supervisory stress testing; focusing on structural and cyclical macroprudential considerations.
Read more.TOPIC : Recovery & Resolution -
Financial Stability Board Finalizes Guidance to Support G-SIB Resolution Planning
06/21/2018
Following consultation on draft guidance in November 2017, the Financial Stability Board has published two finalized guidance papers on aspects of the recovery and resolution of global systemically important banks.
The first guidance paper sets out Principles on Bail-in Execution. The Principles are designed to assist resolution authorities developing bail-in resolution strategies and making resolution plans for G-SIBs operational. The Principles cover six aspects of bail-in execution: (i) bail-in scope; (ii) valuation; (iii) exchange mechanic; (iv) securities law and securities exchange requirements; (v) governance and (vi) communications.
Read more.TOPIC : Recovery & Resolution -
US Board of Governors of the Federal Reserve System Announce Stress Test Results
06/21/2018
The U.S. Board of Governors of the Federal Reserve System announced the results of the eighth and latest round of Dodd-Frank Act stress testing.
View full text of the 2018 DFAST Methodology and Results.
Read more.TOPIC : Recovery & Resolution -
European Central Bank Consults on Assessing Potential Successors to the EONIA Benchmark
06/21/2018
The European Central Bank has published a consultation on behalf of the Working Group on Euro Risk-Free Rates. The ECB provides the secretariat for this Working Group. The Working Group is tasked, among other things, with identifying and recommending alternatives to Euro lending benchmark rates, namely EURIBOR and EONIA.
The administrator of EONIA announced in February 2018 that, due to prolonged structural change in the underlying interbank lending market that uses EONIA as a benchmark, EONIA's compliance with the EU Benchmarks Regulation by January 2020 "cannot be warranted" and that the ongoing review of EONIA would therefore be discontinued. The consultation invites comments on three euro risk-free rates that could potentially replace EONIA. These are:- The euro short-term rate (ESTER), a new wholesale unsecured overnight bank borrowing rate that the ECB proposes to launch before 2020;
- GC Pooling Deferred, a one-day secured, centrally cleared, general collateral repo rate, which is produced by STOXX, a wholly-owned subsidiary of Deutsche Börse Group; and
- RepoFunds Rate, a one-day secured, centrally cleared, combined general and specific collateral repo rate, which is produced by NEX Data Services Limited, a wholly owned subsidiary of NEX Group plc, soon to be acquired by CME Group.
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European Banking Authority Updates Recommendations on Equivalence of Non-EU Confidentiality Regimes
06/20/2018
The European Banking Authority has published an updated Final Report on recommendations on the equivalence of confidentiality regimes under the Capital Requirements Directive. The Final Report was originally published in April 2015.
The EBA has added three third-country national regulators to the current list of third-country national regulators whose confidentiality regimes can be regarded as equivalent with those in the EU, following an assessment of the professional secrecy and confidentiality frameworks under which they operate.
The new entries are:- The Guernsey Financial Services Commission (the Bailiwick of Guernsey);
- The Superintendence of the Financial Services of the Central Bank of Uruguay (the Oriental Republic of Uruguay); and
- The Bank of Korea (the Republic of Korea).
The updated recommendations apply from June 21, 2018. The recommendations are intended to assist national regulators in the EU in their assessment of third-country equivalence with the aim of facilitating cooperation with third-country supervisory authorities and their participation in supervisory colleges overseeing international banks.
View the updated Final Report. -
European Central Bank Updates its Asset Quality Review Manual
06/20/2018
The European Central Bank has published a revised version of its manual on the methodology for phase 2 of its Asset Quality Review, which forms part of the Comprehensive Assessment that the ECB and national regulators must make of relevant Eurozone banks under the EU Regulation on the Single Supervisory Mechanism. This revised version replaces the earlier version of the AQR manual published in 2014.
In Frequently Asked Questions published alongside the updated AQR manual, the ECB explains that the AQR manual has been updated to reflect the entry into force of the new accounting rules of International Financial Reporting Standard 9 on January 1, 2018. This has required some changes to the provisions of the AQR manual, in particular to incorporate new approaches to determining impairments and classifying financial instruments. The manual has also been updated to reflect their view that bank business models focused on investment services have become increasingly important for ECB Banking Supervision, in particular in the context of Brexit.
Read more. -
European Securities and Markets Authority and UK Financial Conduct Authority End Concessionary Period for Legal Entity Identifier Requirements
06/20/2018
The European Securities and Markets Authority has published a statement on the requirements under the Markets in Financial Instruments Regulation for a Legal Entity Identifier. In response to concerns that institutions would not all be able to obtain LEI codes in time for MiFIR's effective date, January 3, 2018, ESMA had issued a statement in December 2017 providing temporary concessions for a period of six months. Those temporary concessions permitted investment firms to provide a service triggering the obligation to submit a transaction report to a client from which they had not obtained an LEI code, provided that, before providing the service, they obtain the necessary documentation from the client to apply for an LEI code on the client's behalf. Trading venues were also permitted to report their own LEI codes instead of LEI codes of non-EU issuers while reaching out to those non-EU issuers.
Read more.TOPIC : MiFID II -
Kathleen Kraninger Nominated to Serve as US CFPB Director
06/20/2018
U.S. President Donald Trump announced that he had nominated Kathleen Kraninger to serve as Director of the U.S. Bureau of Consumer Financial Protection. Ms. Kraninger is nominated to replace former CFPB Director Richard Cordray, who resigned in November of 2017. Mick Mulvaney currently serves as Acting Director of the CFPB.
View full White House press release.TOPIC : People -
EU's Fifth Money Laundering Directive to Enter into Force July 2018
06/19/2018
The Fifth Money Laundering Directive has been published in the Official Journal of the European Union and will enter into force on July 9, 2018. Member States must transpose the directive into their national laws within 18 months of that date. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive.
The key changes introduced by 5MLD are:
1. Extending the scope of "obliged entities" to include providers of exchange services between virtual and fiat currencies as well as custodian wallet providers. These entities will need to register in their home Member State.
2. Harmonizing the application of enhanced customer due diligence for third countries that are determined by the European Commission to be high risk countries. Member States will be able to apply additional measures, where appropriate.
Read more. -
European Securities and Markets Authority Publishes Annual Report
06/19/2018
The European Securities and Markets Authority has published its Annual Report, dated June 15, 2018. The report sets out ESMA's key achievements against its 2017 objectives of promoting supervisory convergence, assessing risks to investors, markets and financial stability, completing a single rulebook for the EU financial markets and directly supervising trade repositories, credit rating agencies and third-country CCPs. The report also discusses ESMA's contributions to the work of the Joint Committee of the European Supervisory Authorities.
The report does not consider the focus areas for ESMA in 2018, which are set out in ESMA's work programes. However, ESMA indicates that in 2018 it will be, among other things: (i) issuing further opinions on pre-transparency waivers under the Markets in Financial Instruments package; (ii) engaging with credit rating agencies and trade repositories on their strategy, governance, operational matters and preparations for Brexit; and (iii) continuing its work to finalize the technical standards and technical advice under the EU Prospectus Regulation.
View ESMA's Annual Report. -
Bank of England Finalizes Fee-Levying Regime for Financial Market Infrastructures
06/19/2018
The Bank of England has published a Policy Statement outlining the fees it intends to levy on Financial Market Infrastructures, namely CCPs, central securities depositaries, recognised payment systems and specified service providers to recognised payment systems.
The BoE is empowered under the Banking Act 2009 to levy fees on FMIs but has not so far exercised its power to do so. The BoE has instead funded its supervision of FMIs through the Cash Ratio Deposit scheme. The Policy Statement follows a recommendation in February 2017 from the BoE's independent evaluation office that the BoE review its approach to funding FMI supervision and consider whether levying fees on supervised FMIs would be appropriate. The BoE consulted in August 2017 on proposals to introduce a new funding structure for FMI supervision. A further joint consultation was launched by the BoE and HM Treasury in March 2018 on the detail of the proposed fee-levying regime and the proposed fees for the 2018/19 fee year. The rationale for introducing an FMI fee-levying regime is to allocate the costs of FMI supervision to those entities that directly benefit from the BoE's supervision.
Read more. -
European Banking Authority Consults on Use of Purchased Receivables Approach for Capital Requirements for Securitized Exposures
06/19/2018
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the conditions to allow institutions to calculate capital requirements, including on expected loss, arising from securitized exposures (known as KIRB) in accordance with the purchased receivables approach under the Capital Requirements Regulation.
As part of the new EU Securitization framework that will apply from January 1, 2019, an Amending Regulation makes amendments to the CRR to revise the capital requirements for securitizations.
Read more. -
Federal Reserve Bank of New York President John C. Williams Discusses Banking Culture Reform
06/18/2018
The Federal Reserve Bank of New York’s new President, John C. Williams, discussed banking cultural reform at the FRBNY’s annual Governance and Culture Reform Conference. His speech kicked off a full day of panels discussing various aspects of bank culture reform. President Williams noted that while the economy and regulation of the financial system have improved markedly since the financial crisis, more work needs to be done with respect to promoting good bank culture. President Williams highlighted that bank culture is often overlooked, especially in prosperous times when hard numbers, such as profits, losses, capital and liquidity, often look very positive. With respect to reform, President Williams suggested that effectuating change in bank culture is a multi-year process, and that maintaining good bank culture is an ongoing exercise that requires clearly defined expectations and values, a board and management who are committed to maintaining and promoting high standards of conduct and culture and an environment that empowers employees to speak up when they have concerns.
View full text of President Williams’s remarks.TOPIC : Conduct & Culture -
John C. Williams Becomes 11th President and CEO of the Federal Reserve Bank of New York
06/18/2018
John C. Williams became the 11th President and Chief Executive Officer of the Federal Reserve Bank of New York. President Williams replaces outgoing President William C. Dudley, whose last day as president was June 17, 2018. In a statement given on his first day in office, President Williams noted that his goals as President included openness and transparency, objectivity and independence of thought and a commitment to the diverse needs of constituents across the Federal Reserve Bank of New York’s District.
View President Williams’s full statement.TOPIC : People -
European Banking Authority Issues Annual Report for 2017
06/18/2018
The European Banking Authority has published its Annual Report for 2017.
The Annual Report summarizes the progress made in a number of workstreams undertaken by the EBA in 2017, including the EBA's work on: (i) developing and maintaining an EU Single Rulebook for banking; (ii) promoting supervisory convergence; (iii) developing resolution policies and promoting common approaches for the resolution of failing financial institutions; (iv) determining and monitoring key risks in the banking sector across Europe; (v) strengthening the EBA's role as EU data hub for the collection, use and dissemination of banking data; (vi) protecting consumers, monitoring financial innovation and contributing to easy retail payments in the EU; (vii) Brexit preparations; (viii) international engagement; and (ix) cross-sectoral work by the European Supervisory Authorities under the Joint Committee.
Read more. -
Professor Julia Black and Jill May Appointed to the Prudential Regulation Committee
06/18/2018
HM Treasury has announced the appointment, by the Chancellor, Philip Hammond, of two new external members of the Prudential Regulation Committee for a three-year term: Professor Julia Black and Jill May. In addition, Norval Bryson has been re-appointed to the PRC for a further three-year term.
View the announcement.TOPIC : People -
European Banking Authority Mediates Disagreement on Two Cross-Border Banking Groups' Resolution Plans
06/18/2018
The European Banking Authority has published a redacted Decision on the disagreement between the Single Resolution Board and the National Bank of Romania, in their capacity as national resolution authorities under the EU Bank Recovery & Resolution Directive and the Single Resolution Mechanism Regulation. The Decision is the first that the EBA has made in its role as mediator between two resolution authorities responsible for agreeing the resolution plan for a EU cross-border banking group. The SRB and NRB failed to reach agreement on the resolution plan for two different banking groups. The EBA's Decision relates to both cases as the underlying facts and situation were similar.
The EBA's Decision requires the SRB and NRB to include detailed resolvability assessments and a consideration of the impediments to resolvability within any resolution plan that is adopted by either or both of the parties. Both resolution authorities must report within one month of the Decision to the EBA on the steps that they have taken to comply with the Decision and must make subsequent reports on a quarterly basis until the adoption of a joint decision on a group resolution plan.
View the Decision.TOPIC : Recovery & Resolution -
UK Prudential Regulator Confirms Algorithmic Trading Expectations
06/15/2018
Following its consultation in February 2018, the Prudential Regulation Authority has published a Policy Statement and final new Supervisory Statement on Algorithmic Trading. The Supervisory Statement sets out the PRA's supervisory expectations of firms in relation to their algorithmic trading activities and covers: (i) governance; (ii) a firm's algorithmic approval process; (iii) testing and deployment; (iv) inventories and documentation; and (v) risk management and other systems and controls functions.
The Supervisory Statement applies to firms that engage in algorithmic trading and that are subject to the PRA's rules on algorithmic trading as well as the Regulatory Technical Standards on the organizational requirements of investment firms engaged in algorithmic trading (Commission Delegated Regulation (EU) 2017/589) under the Markets in Financial Instruments package. The Supervisory Statement applies to all of a firm's algorithmic trading activities, including those related to unregulated financial instruments.
Read more.TOPIC : MiFID II -
European Central Bank Confirms Appointment of Petra Senkovic as Director General
06/15/2018
The European Central Bank has announced the appointment of Petra Senkovic as Director General, in the Directorate General Secretariat to the Supervisory Board, from July 1, 2018. Ms. Senkovic has been acting Director General since February 2018. The appointment follows the reorganization of the ECB's banking supervision division.
View the announcement.TOPIC : People -
US Office of the Comptroller of the Currency Issues Clarifications Regarding CRA Evaluation
06/15/2018
The U.S. Office of the Comptroller of the Currency has issued clarifying guidance with respect to the examination and evaluation of institutions under the Community Reinvestment Act. The bulletin issued by the OCC notes that clarifications with respect to CRA evaluation processes were previously communicated to examiners, and that effective June 1, 2018, the OCC rescinded its previous "Large Bank CRA Examiner Guidance," issued December 29, 2000 (OCC Bulletin 2000-35). The OCC bulletin provides clarification with respect to a number of aspects of the CRA evaluation process, including the frequency and timing of CRA performance evaluations, the applicable CRA performance evaluation period, full-scope and limited-scope reviews, the evaluation of various components of CRA evaluations and the timing for the finalization of CRA performance evaluations when there is an open investigation regarding potential discriminatory or other illegal credit practices. The OCC bulletin also outlines the guidance provided to examiners with respect to CRA evaluations, including the factors to consider in the evaluation process, communication with supervised institutions during the evaluation process and the presentation and analysis of performance data.
View the full text of the OCC bulletin. -
US Comptroller of the Currency Discusses Agency Priorities before House and Senate Committees
06/14/2018
U.S. Comptroller of the Currency Joseph M. Otting has discussed the priorities of the U.S. Office of the Comptroller of the Currency before the U.S. House Financial Services Committee and U.S. Senate Committee on Banking, Housing, and Urban Affairs. Comptroller Otting identified the following as his key priorities: modernizing the OCC's approach to the Community Reinvestment Act, encouraging institutions to meet the short-term, small-dollar credit needs of their customers, enhancing Bank Secrecy Act and anti-money laundering compliance, simplifying regulatory capital requirements, simplifying the Volcker Rule and promoting efficacy and efficiency in the supervisory activities of the OCC.
View the full text of Comptroller Otting’s prepared testimony before the two committees, here, here and here. -
US Federal Reserve Board Approves Final Rule Regarding Single-Counterparty Credit Limits for Bank Holding Companies and Foreign Banking Organizations
06/14/2018
The U.S. Board of Governors of the Federal Reserve System approved a final rule, which implements section 165(e) of the Dodd-Frank Act, and establishes single-counterparty credit limits for bank holding companies and foreign banking organizations with $250 billion or more in total consolidated assets (including any U.S. intermediate holding company of these foreign banking organizations with $50 billion or more in total consolidated assets) and any other bank holding company classified by the Federal Reserve Board as a global systemically important bank.
Under the final rule, a U.S. GSIB cannot have aggregate net credit exposure to another single global systemically important banking organization or a nonbank financial company supervised by the Federal Reserve Board that exceeds 15% of its tier 1 capital, and cannot have aggregate net credit exposure that exceeds 25% of its tier 1 capital to any other counterparty (defined under the final rule to include a company (including any consolidated affiliates of the company); a natural person (including the person's immediate family collectively where the exposure to the natural person exceeds 5% of the institution's tier 1 capital); a U.S. state (including all of its agencies, instrumentalities, and political subdivisions); foreign sovereign entities that are not assigned a zero risk weighting under the risk-based capital rules (including their agencies and instrumentalities); and political subdivisions of foreign sovereign entities (including their agencies and instrumentalities)). Other financial institutions subject to the final rule (other than U.S. IHCs subject to the rule) cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of an institution's tier 1 capital.
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EU Report on Penalties Under the European Market Infrastructure Regulation
06/13/2018
The European Securities and Markets Authority has published its first annual report on penalties imposed by national regulators for infringement of obligations under the European Market Infrastructure Regulation. The report focuses on supervisory measures and penalties imposed by EU national regulators in relation to the EMIR clearing obligation, the reporting obligation, obligations on non-financial counterparties and the risk mitigation techniques for uncleared derivatives. The obligations on CCPs and Trade Repositories are out of scope of the report.
The report has been provided to the European Commission, the Council of the European Union and the European Parliament. ESMA notes that the report can be used to identify best practices as well as areas which might benefit from increased harmonization.
Read more.TOPIC : Derivatives -
European Banking Authority Clarifies Strong Customer Authentication Requirements for Account Servicing Payment Service Providers
06/13/2018
The European Banking Authority has published an Opinion on the implementation of the Regulatory Technical Standards on strong customer authentication and common and secure communication. It has also published a consultation paper on draft Guidelines on the conditions that an account servicing payment service provider (ASPSP) must meet if it wants to provide access via a dedicated interface and be exempt from the obligation to have a fall-back option in place.
PSD2 requires that SCA is used for accessing a payment account online, initiating a payment transaction and carrying out a transaction through a remote channel. The RTS on SCA and CSC will apply directly across the EU partly from March 14, 2019 and predominantly from September 14, 2019.
Read more.TOPIC : Payment Services -
Bank of England Confirms Approach to Valuation Capabilities of Firms to Support Resolvability
06/13/2018
Following its consultation in August 2017, which closed in November 2017, the Bank of England has published its Statement of Policy on its expectations on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. In the BoE's view, limitations to a firm's valuation capabilities may constitute an impediment to resolvability where those limitations would not reliably enable valuations that support the firm's intended resolution strategy.
The BoE has made several changes to its proposed Statement of Policy following consultation responses. Briefly, these are: (i) extending the compliance deadline to January 1, 2021 and introducing a provision for firm-specific compliance dates to be set in certain cases; (ii) explicitly requiring operational documentation of how capabilities would be used in a resolution scenario; and (iii) including a provision whereby certain smaller and simpler firms may not need to have resolution valuation models in place.
Read more.TOPIC : Recovery & Resolution -
UK Prudential Regulator Confirms its Approach to MREL Reporting
06/13/2018
The U.K. Prudential Regulation Authority has published a Policy Statement on reporting the minimum requirement for own funds and eligible liabilities and an updated Supervisory Statement "Resolution Planning", following a consultation which ran from January 8 to April 9, 2018. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.
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Bank of England Confirms its Approach to Setting Internal MREL in Groups
06/13/2018
The Bank of England has published a Policy Statement setting out its feedback to the responses it received to its October 2017 consultation on its approach to setting a minimum requirement for own funds and eligible liabilities. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top-up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.
The BoE's October 2017 consultation set out proposals for changes to the BoE's 2016 Statement of Policy on its approach to setting "external" MREL for resolution entities, to include the BoE's approach to "internal" MREL, i.e. instruments that are issued to a resolution entity from other legal entities in a group. Internal MREL is intended to cover U.K.-headquartered banking groups as well as U.K. subsidiaries of overseas banking groups.
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UK Payment Systems Regulator Publishes Discussion Paper on Use of Data in the Payments Industry
06/12/2018
The U.K. Payment Systems Regulator has published a discussion paper seeking feedback on the use of data in the payments industry. The PSR is the regulator for designated payment systems in the U.K. These are currently BACS, CHAPS, Cheque & Credit, the Faster Payments Scheme, LINK, Northern Ireland Cheque Clearing, Mastercard and Visa Europe.
As the U.K. payments sector undergoes rapid evolution and the collection, analysis and use of payments data plays an increasingly important part in the payments industry, the PSR wants to gain an understanding of the role it might play in ensuring that new uses of data work well for businesses and individuals using payment systems. "Payments data" in this context includes a mix of financial, transactional, behavioural and other types of data, which payment service providers collect in the course of providing payment services to end-users.
Read more.TOPIC : Payment Services -
US Federal Reserve Board Nominations Approved by US Senate Banking Committee
06/12/2018
The U.S. Senate Committee on Banking, Housing, and Urban Affairs approved the nominations of the Honorable Richard Clarida to be a Member and Vice Chairman of the Federal Reserve Board and Ms. Michelle Bowman to be a Member of the Federal Reserve Board. The approved nominations will now advance to the full U.S. Senate for confirmation votes.
View further information regarding the nominations.TOPIC : People -
US Federal Banking Regulators Issue Policy Statement Regarding Coordination of Enforcement Actions
06/12/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation issued a policy statement with respect to notification and coordination of formal enforcement actions. The policy statement was issued in response to the rescission of the Federal Financial Institutions Examination Council's "Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies" revised policy statement, which was issued on February 20, 1997. The interagency policy statement provides that when a federal banking regulator determines that it will take a formal enforcement action against any federally insured depository institution, depository institution holding company, non-bank affiliate, or institution-affiliated party, the agency should consider whether the enforcement action involves the interests of another federal banking regulator. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should notify the other relevant federal banking agency or agencies at the earlier of when written notification is provided to the subject financial institution regarding the enforcement action, or when the respective agency determines that an enforcement action is expected to be taken. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should provide sufficient information to allow the other federal banking regulator to take necessary action in examining or investigating the financial institution or institution-affiliated party.
Read more.TOPIC : Enforcement -
UK Financial Conduct Authority Sets out Good Practice for Handling Financial Crime Risks from Crypto-Assets
06/11/2018
The U.K. Financial Conduct Authority has published a "Dear CEO" letter to U.K. authorized banks, setting out its views on best practice that banks should adopt for handling the financial crime risks that may be posed by so-called crypto-assets. The FCA uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. Crypto-assets include crypto-currencies, a well-known example of which is Bitcoin. The FCA acknowledges that crypto-assets can be used without any criminal motives. However, the fact that crypto-assets can be held relatively anonymously and can be readily transferred between countries can make them attractive for criminal purposes. Banks should adopt proportionate measures to mitigate the risk that they are used to facilitate financial crimes involving crypto-assets.
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UK Implementing Regulations for the Money Market Funds Regulation Published
06/11/2018
The Money Market Funds Regulations 2018 have been laid before Parliament and will enter into force partly on June 28, 2018 and fully on July 21, 2018. The EU Money Market Funds Regulation came into force on July 20, 2017 and will apply directly across the EU from July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds, often used by institutions as a short-term cash management function as an alternative to bank deposits. The effect of the MMFR in the U.K. will be that authorized unit trusts, authorized contractual schemes, open-ended investment companies and alternative investment funds can all apply to be authorized as MMFs.
The MMFR does not require transposition into the national law of EU Member States. However, U.K. legislation must be amended to empower the Financial Conduct Authority to authorize funds as MMFs, to levy fees and to enforce requirements under MMFR.
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US Board of Governors of the Federal Reserve System Announces Scheduled Release Date for Stress Test and CCAR Results
06/07/2018
The U.S. Board of Governors of the Federal Reserve System announced the dates for the release of the results from the most recent round of supervisory stress tests conducted as part of the Dodd-Frank Act and related Comprehensive Capital Analysis and Review exercise. The results from the D-FAST supervisory stress tests and CCAR will be released on June 21, 2018, and June 28, 2018, respectively.
View Full text of the Federal Reserve Board press release.TOPIC : Recovery & Resolution -
EU Agrees Countering Money Laundering by Criminal Law Directive
06/07/2018
The Council of the European Union and the European Parliament have announced their agreement on new EU criminal sanctions for money laundering. The proposed Countering Money Laundering by Criminal Law Directive will complement the Fifth Money Laundering Directive, which was adopted in May 2018.
The new Directive establishes minimum rules on the definition of criminal offences and sanctions in the area of money laundering. Member states will be required to implement national laws providing for money laundering offences by individuals to be punishable by a maximum term of imprisonment of at least four years. National laws will continue to provide for additional measures, such as fines, temporary or permanent exclusion from public tender procedures, grants and concessions, and national laws will also provide for national courts to take into account any aggravating factors for sentencing.
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European Money Markets Institute Announces Cessation of Three Euribor Tenors
06/07/2018
The European Money Markets Institute has announced the planned cessation of three of the current tenors for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.
EMMI published a consultation paper in March 2018 seeking views from stakeholders on a proposed hybrid determination methodology for Euribor that will transition Euribor away from a quote-based to a transaction-based methodology. As part of that consultation, EMMI sought feedback on whether to discontinue the calculation and publication of three of the eight tenors it publishes, due to low levels of activity underpinning the markets those tenors represent. The majority of respondents to the consultation supported the discontinuation of the two week, two month and nine month tenors and consequently EMMI will proceed with its proposal.
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Bao Nguyen and Ted Dowd Named Deputy Chief Counsels of the US Office of the Comptroller of the Currency
06/06/2018
The U.S. Office of the Comptroller of the Currency announced that it had selected Bao Nguyen and Ted Dowd to serve as Deputy Chief Counsels in the OCC’s Office of the Chief Counsel. Mr. Nguyen will serve as the Principal Deputy Chief Counsel and the OCC Law Department’s chief operating officer. Mr. Nguyen will also supervise the Bank Activities and Structure and the Community and Consumer Law divisions, and the Northeast district counsel office. Mr. Dowd will supervise the OCC’s Legislative and Regulatory Activities and Securities and Corporate Practices divisions, and the Central and Western district counsel offices.
View full text of the OCC press release.TOPIC : People -
Bank of England Consults on Phased Move to Global Messaging Standards for UK Payment Systems
06/06/2018
The Bank of England has published a consultation on adopting ISO 20022, the global messaging standard for payments which was first introduced in 2004 by the International Organization of Securities Commissions. Ten jurisdictions have already implemented the standard and another nine are intending to implement it by 2023, including the U.S., Canada, Singapore and the Eurozone. The consultation has been prepared in conjunction with the U.K. New Payment System Operator and the U.K. Payment Services Regulator.
It is intended that ISO 20022 will be adopted across the U.K.'s three main interbank payment systems, namely CHAPS, BACS and Faster Payments. The BoE took over responsibility for the operation of the CHAPS system in November 2017 and the NPSO is responsible for the operation of BACS and Faster Payments. The fact that the three payment systems currently all have different information requirements, methodologies, formats, standards and rulebooks means that it can be difficult and expensive to move customers' payments between the systems and costly for new entrants wishing to participate in payment systems. Moving to ISO 20022 will address these and related issues.
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Financial Stability Board Seeks Comment on Technical Implementation of TLAC
06/06/2018
The Financial Stability Board is seeking feedback on the technical implementation of standards on the adequacy of total loss-absorbing and recapitalization capacity for Global Systemically Important Banks in resolution - the TLAC Standard. The FSB wants to assess whether implementation aligns with the timelines and objectives set out in the TLAC Standard. The TLAC Standard is being phased in, with G-SIBs expected to reach the first minimum requirement by January 1, 2019.
The FSB is due to report to the G20 on the implementation of TLAC by the end of 2019. The comments provided in response to the call for feedback will help the FSB to prepare that report. The FSB highlights that the objective of the call for feedback is to monitor implementation by jurisdictions of the TLAC Standard and to identify whether there are any technical issues or operational challenges in implementation. The aim is not to seek views on the substantive aspects of the standard or whether any changes should be made to it. The FSB will consider whether further implementation guidance is needed based on the feedback.
The FSB requests views and evidence on:
1. the regulatory adoption of the TLAC principles and Term Sheet;
2. cross-border aspects of the implementation of the TLAC Standard;
3. G-SIBs' issuance strategies and overall progress towards meeting external and internal TLAC requirements;
4. distribution of TLAC instruments and liabilities in the market; and
5. any technical issues or material factors impacting implementation of the TLAC Standard.
Responses to the call for feedback should be submitted via email by August 20, 2018.
View the call for feedback. -
Basel Committee on Banking Supervision's 2018-2019 Work Program
06/05/2018
The Basel Committee on Banking Supervision has published its 2018-2019 work program, setting out its focus areas for policy development, supervision, implementation and monitoring. Industry will welcome the news that the Committee intends to adopt a limited number of new policy initiatives, concentrating primarily on cyber risk, operational resilience and proportionality. On the implementation of the Committee's post-crisis reforms, one of the more immediate actions will be to finalize the revised market risk framework, which is due to be implemented by January 1, 2022. Other revisions to be finalized include the assessment framework for Global Systemically Important Banks and the Pillar 3 disclosure framework. Other work will include:- Furthering discussions on the regulatory treatment of sovereign exposures.
- Continuing to promote strong supervision, which will involve holding discussion sessions and workshops on emerging challenges for supervision, such as how supervisors should comprehensively assess risks when banks change their business models, oversight of third-party origination practices and oversight of risk management practices, in particular, lending standards, collateral management and valuation practices.
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Jelena McWilliams Sworn in as Chair of US Federal Deposit Insurance Corporation
06/05/2018
Jelena McWilliams was sworn in as the 21st Chair of the U.S. Federal Deposit Insurance Corporation. Chair McWilliams succeeds Martin J. Gruenberg, who served as Chairman of the FDIC since November of 2012 and as a Member of the FDIC Board of Directors since August of 2005.
View full text of the FDIC press release.TOPIC : People -
US Federal Financial Regulators Propose First Major Revisions to Volcker Rule
06/05/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission released for public comment a proposal that would simplify and tailor the Volcker Rule. The joint notice of proposed rulemaking includes 342 specific questions for public comment largely focused on reducing compliance burdens under the Volcker Rule.
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Major European Investment Bank Settles Charges of Manipulation, Attempted Manipulation and False Reporting of Reference Rates
06/04/2018
On June 4, 2018, the Commodity Futures Trading Commission filed and settled charges against a major European investment bank, and the U.S. Department of Justice entered into a deferred prosecution agreement with the bank relating to charges of manipulation and attempted manipulation of LIBOR and Euribor at various points from 2006 to 2012.
The CFTC and DOJ alleged that from around 2010 to 2012, the investment bank made deliberately false reports of USD and Euro LIBOR and Euribor to artificially lower the bank's submissions to create the appearance that the bank was able to borrow money at more favorable rates and was therefore more creditworthy than it was.
Read more.TOPIC : Enforcement -
Commodity Futures Trading Commission Proposes to Maintain $8 Billion Swap Dealer De Minimis Threshold and Approves Proposed Changes to the Volcker Rule
06/04/2018
At the Commodity Futures Trading Commission's open meeting on June 4, 2018, the CFTC voted to propose rules that would permanently maintain the swap dealer de minimis registration threshold at $8 billion. The Commission voted 2-1 to issue the proposal, with Chairman J. Christopher Giancarlo and Commissioner Brian Quintenz voting in favor and Commissioner Rostin Behnam dissenting.
Under the proposed rule, firms with less than $8 billion in notional value of OTC derivatives would be exempted from the CFTC's swap dealer registration requirements, as under the current regime. The proposed rule also would exclude swaps of insured depository institutions made in connection with loans from a firm's notional calculation. The proposal seeks comment on a number of other potential exclusions from the de minimis threshold, and Chairman Giancarlo stated that the CFTC is exploring with its counterparts at the Securities and Exchange Commission and prudential regulators further potential exclusions from swap dealer registration.
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Financial Stability Board Launches Third Thematic Peer Review on Bank Resolution Planning
06/04/2018
The Financial Stability Board has launched its third thematic peer review on bank resolution planning, with the aim of evaluating implementation, by FSB member jurisdictions, of the resolution planning standard contained in the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions and associated guidance for banks.
The third thematic peer review will cover resolution planning for all globally or domestically systemically important banks in FSB member jurisdictions and any other banks that could be systemic in failure and that are included in resolution planning at a jurisdictional level. Given that much of the FSB's work has focused on G-SIBs in recent years, the focus of this third review will be on banks other than G-SIBs. It will consider how, and to what extent, the expectations in FSB guidance have been applied to these institutions.
Read more.TOPIC : Recovery & Resolution -
Transitional Periods Further Extended for Own Funds Requirements for Exposures to CCPs
06/04/2018
A Commission Implementing Regulation has been published in the Official Journal of the European Union, following a consultation by the European Commission in April 2018 which closed on May 15, 2018. The Commission Implementing Regulation extends the transitional periods related to own funds requirements for exposures to CCPs that are set out in the Capital Requirements Regulation and the European Market Infrastructure Regulation.
Thirty-two third-country CCPs have been recognized by the European Securities and Markets Authority to date. However, a number of third-country CCPs are still awaiting recognized status and their recognition process is not scheduled to be completed by the expiry of the existing CRR and EMIR transitional periods on June 15, 2018. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are awaiting recognized status.
The Commission Implementing Regulation takes effect on June 7, 2018 and will apply directly across the EU. The effect of the Commission Implementing Regulation is to extend the transitional periods by a further six months, to expire on December 15, 2018.
View the Commission Implementing Regulation ((EU) 2018/815). -
US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Issue Final Rule to Shorten Settlement Cycle
06/01/2018
The US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation issued a final rule shortening the settlement cycle for securities purchased and sold by OCC- and FDIC-supervised financial institutions. This final rule follows the transition from a T+3 settlement cycle to a T+2 settlement cycle that occurred in the securities industry on September 5, 2017. The final rule codifies existing OCC and FDIC guidance published in June and July of 2017, respectively, which notified institutions that they should be in compliance with the T+2 settlement cycle by September 5, 2017. The final rule follows a September 2017 notice of proposed rulemaking published by the OCC and FDIC suggesting two alternatives to the wording of the final rule; one that made specific reference to the T+2 settlement cycle and one that made reference to the “standard settlement cycle followed by registered broker dealers in the United States.” The OCC and FDIC settled on the latter of these two options in order to maintain better alignment with the settlement cycle followed by the securities industry going forward. The final rule takes effect 30 days from the date of its publication in the Federal Register.
View full text of the final rule.TOPIC : Securities -
European Securities and Markets Authority Adopts First Product Intervention Measures for Contracts for Difference and Binary Options
06/01/2018
The European Securities and Markets Authority has adopted two Decisions on the provision of Contracts for Difference and binary options to retail investors. The effect of the Decisions is to prohibit the marketing, distribution and sale of binary options to retail investors and to impose a number of restrictions on the marketing, distribution and sale of Contracts for Difference to retail investors. Both CFDs and binary options are considered to have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by providers and distributors of the products.
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Proposed UK Good Practice on Information Confidentiality for the FICC Markets
06/01/2018
The U.K. Fixed Income, Currency and Commodities Markets Standards Board has published for consultation a Transparency Draft of a new Statement of Good Practice on Information and Confidentiality for fixed income and commodities markets. The proposed Statement of Good Practice will apply in the European Fixed Income and Commodities markets. It is not intended to apply to the FX markets to which the FX Global Code applies, or to the precious metals markets, which are covered by the Precious Metals Code. The aim of the proposal is to clarify data sharing in the relevant markets and dealing with confidential information within a firm, including what information should not be shared with parties outside of a firm and what can be revealed when discussing "market color." The proposed Statement of Good Practice consists of nine Statements of Good Practice and an explanation of the rationale for each statement.
The consultation closes on August 31, 2018. The FMSB intends to publish the final Statement of Good Practice shortly thereafter. The Statements of Good Practice are not part of the FMSB Standards and are not binding on FMSB members, but reflect the FMSB's view of what constitutes good or best practice in the areas covered.
View the consultation paper. -
EU Authorities Raise Concerns About Proposed Data Waiver for Non-Performing Loans
06/01/2018
The European Banking Authority and the European Central Bank have written to the European Commission, the European Parliament and the Council of the European Union expressing concerns about the impact of proposed data waivers for non-performing loans. The letter refers to a proposal put forward by certain stakeholders, in particular the Bank of Italy, that losses due to the sale of NPLs should be permanently eliminated from the dataset used for the Loss Given Default (LGD) estimation for the firm disposing of the NPLs. The proposal is based on the belief by some stakeholders that the disposal of NPLs and the corresponding capital release is hindered by the regulatory framework for internal models, in particular the requirements in the Capital Requirements Regulation for LGD estimation.
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New Chair Appointed to Bank of England's Governing Body
05/31/2018
The Bank of England has announced the appointment of Bradley Fried as Chair of the Court of the BoE, replacing Sir Anthony Habgood, as of July 1, 2018. The Court is the BoE's governing body that manages its affairs except for the formulation of monetary policy. In addition, the BoE announced the appointment of Diana Noble and Anne Glover as non-executive directors to the Court and that Tim Frost had rotated off the Court, each as of May 31, 2018.
View the announcement.TOPIC : People -
EU Authorities Highlight Importance of Bail-In Risk Disclosures for Retail Investors in Bank Debt Liabilities
05/30/2018
The European Banking Authority and the European Securities and Markets Authority have published a joint statement on the treatment of retail holdings of debt financial instruments under the EU Bank Recovery and Resolution Directive and the revised Markets in Financial Instruments Directive. The EBA and ESMA highlight that care is needed when bail-in is implemented in relation to debt liabilities held by retail customers. There have been a number of mis-selling cases as a result of firms not complying with the investor protection requirements at the point of sale of banks' debt liabilities to retail investors.
The EBA and ESMA emphasize that to ensure that debt instruments are distributed to clients for whom they are suitable, firms must properly implement the MiFID II investor protection requirements. Those requirements oblige firms to, among other things, act honestly, fairly, professionally and in the best interests of clients, disclose certain information to potential and existing clients and conduct suitability assessments. In addition, the product governance framework requires manufacturers and distributors of financial products to act in the client's best interests at all stages of the life-cycle of products or services. In particular, firms must identify the target market for complex products to a greater level of detail than other products. Instruments subject to bail-in must be classified as complex products.
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EU Consultation on Duties of Third-Party Custodians Safe-Keeping Fund Assets
05/29/2018
The European Commission is consulting on revisions to the Delegated Regulations on the safekeeping duties of depositaries under both the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive. Both the AIFMD and the UCITS Directive require that where a depositary delegates safekeeping functions to third party custodians, the assets also need to be segregated at the level of the delegate. 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 proposed changes follow the European Securities and Markets Authority's Opinion, "Asset segregation and application of depositary delegation rules to CSDs", issued on July 20, 2017. In its Opinion, ESMA identified that the delegation rules are being applied in different ways by EU Member States' national regulators and market participants and invited the Commission to make clarifications to the rules. The Commission concurs that the Delegated Regulations need to be amended to ensure a more uniform approach is adopted across the EU.
Read more.TOPIC : Funds -
European Securities and Markets Authority Finalizes Guidelines on Anti-Procyclicality Margin Measures for CCPs
05/28/2018
The European Securities and Markets Authority has published a Final Report, setting out Guidelines for national regulators of CCPs on the application of rules under the European Market Infrastructure Regulation that require CCPs to adopt anti-procyclicality margin measures.
EMIR requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions taking into account any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. This has been controversial, since U.S. regulators impose no such requirements in practice on U.S. CCPs, leading to more expensive margin requirements in Europe. The Guidelines seek to clarify and ensure consistent application of the requirements across the EU.
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European Central Bank Updates Guide to Management Body Fit and Proper Assessments
05/28/2018
The European Central Bank has published an updated Guide to Fit and Proper assessments for the suitability of members of the management body and key function holders in significant institutions. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The ECB Guide covers fit and proper assessments of members of management bodies, both in their management function (executives) and supervisory function (non-executives). It applies to all institutions under the direct supervision of the ECB, namely in-scope credit institutions, financial holding companies and mixed financial holding companies. In the context of licensing or qualifying holdings, the ECB Guide will also apply to less significant institutions.
The ECB Guide has been updated following the publication of the joint European Banking Authority and European Securities and Markets Authority Guidelines on the suitability of management body members and key function holders, which will apply from June 30, 2018, and the EBA Guidelines on Internal Governance.
Read more. -
European Securities and Markets Authority Issues Final Guidelines on MiFID II Suitability
05/28/2018
The European Securities and Markets Authority has published a Final Report setting out finalized Guidelines on aspects of the suitability requirements under the revised Markets in Financial Instruments Directive. ESMA consulted previously on a draft version of the Guidelines between July and October 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.
Read more.TOPIC : MiFID II -
Jelena McWilliams Confirmed as Chair of the US Federal Deposit Insurance Corporation
05/24/2018
The U.S. Senate voted to confirm the nomination of Jelena McWilliams as Chair and Member of the Board of Directors of the U.S. Federal Deposit Insurance Corporation.
View Information regarding Chair Mc Williams’s nomination.
View confirmation of Member of the Board of Directors.TOPIC : People -
US President Trump Signs Dodd-Frank Act Reform Bill
05/24/2018
U.S. President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act; the first major financial services reform bill since the enactment of the Dodd-Frank Act in 2010. While the act is not a wholesale repeal of the Dodd-Frank Act, and does not offer the broad regulatory relief that was proposed under the Financial Choice Act of 2017, it does modify or eliminate certain requirements on community and regional banks and nonbank financial institutions in particular that have been perceived to be especially burdensome. The key aspect of the act may be the increase, from $50 billion to $250 billion, of the threshold at which a large banking organization automatically becomes subject to enhanced prudential standards. The act contains several other important provisions, including: exempting banks with less than $10 billion in total consolidated assets from the Volcker Rule and easing certain fund naming restrictions under the Volcker Rule; exempting certain deposits held by custodial banks from the calculation of the supplementary leverage ratio; reducing reporting and supervision requirements applicable to community banks; and easing certain securities law requirements. Many of the provisions in the act are self-executing, although a number of other provisions require positive action to be taken by U.S. federal financial regulatory agencies.
View more detailed discussion of the act.
View full text of the act. -
US Office of the Comptroller of the Currency Publishes its Spring Semiannual Risk Perspective
05/24/2018
The U.S. Office of the Comptroller of the Currency announced the publication of its spring 2018 Semiannual Risk Perspective. The OCC report discusses risks facing national banks and federal savings associations and provides high-level overviews of the economic operating environment, bank performance, and trends in supervisory actions. The report highlights key risks in three areas: easing underwriting practices with respect to credit underwriting practices, elevated operational risk, due, in part, to cybersecurity and increased use of third-party service providers, and compliance risk, particularly with respect to high BSA/AML/OFAC compliance risk, changing regulatory landscape and evolving risks outpacing compliance management systems. The report also focuses on risk that is emerging with respect to rising interest rates and their effect on increased uncertainty in deposits. With respect to trends in supervisory actions, the report notes that the number of banks with composite ratings of 4 or 5 have declined year-over-year through the end of 2017, that the number of outstanding matters requiring attention has been declining over the past few years, and that the number of outstanding enforcement actions has declined since 2010.
View full text of the OCC report. -
UK Authorities Publish Progress Report on the Fair and Effective Markets Review
05/24/2018
The Bank of England, the Financial Conduct Authority and HM Treasury have published a progress report on the Fair and Effective Markets Review, outlining the progress made in responding to the FEMR recommendations that were originally published in June 2015 and followed by an implementation report in June 2016.
The three authorities commend the significant progress that has been made by firms, both collectively and individually, in driving up standards in the Fixed Income, Currency and Commodities Markets since the implementation report. The progress report sets out the assessment of the three authorities of the impact of the FEMR's recommendations.
Read more.TOPIC : Conduct & Culture -
European Commission Publishes Proposal for a Regulation on Sovereign Bond-Backed Securities
05/24/2018
The European Commission has published a proposal for a Regulation to provide an enabling framework for a market-led development of Sovereign Bond-Backed Securities, following the publication of an inception impact statement in January 2018. The proposal forms part of the Commission's efforts to enhance the Banking Union and Capital Markets Union.
SBBSs are to be defined as instruments created by the private sector, whereby a private sector entity would assemble an underlying portfolio of sovereign bonds from the market and would subsequently transfer them to a legally separate, self-standing entity, specifically established for the sole purpose of issuing to investors a series of securities representing claims on the proceeds from this underlying portfolio. Losses from the portfolio would be borne in a certain sequence by tranches of issued securities.
Read more.TOPIC : Securities -
European Commission Proposes Legislation to Promote SME Growth Markets
05/24/2018
The European Commission has published a proposal for a Regulation to amend the Market Abuse Regulation and the new Prospectus Regulation. The aim of the proposed Regulation is to promote the use of SME Growth Markets by making technical adjustments to the MAR and the new PR to make the regulatory framework applying to listed Small and Medium-sized Enterprises more proportionate and to foster the liquidity of equity instruments listed on SME Growth Markets, while maintaining a high level of investor protection and market integrity. The proposed Regulation is in line with the objectives of the EU Capital Markets Union of reducing the overreliance on bank funding and diversifying market-based sources of financing for European companies.
SME Growth Markets are a new sub-category of multilateral trading facility introduced by the revised Markets in Financial Instruments Directive in January 2018. Companies listed on an SME Growth Market are required to comply with MAR and the PR and are impacted by some aspects of MiFID II. The adjustments in the proposal for a Regulation are designed to lower the administrative burden and costs for issuers on SME Growth Markets stemming from compliance with MAR and the PR and to address regulatory shortcomings in MAR that can affect the liquidity of SME financial instruments. The European Commission has also published a separate proposal for a regulation amending delegated legislation under MiFID II to address regulatory barriers to the take-up of the SME Growth Markets.
Read more. -
European Commission Proposes MiFID II Amendments to Promote SME Growth Markets
05/24/2018
The European Commission has published for consultation a draft Delegated Regulation on registration conditions to promote the use of SME Growth Markets for the purposes of the revised Markets in Financial Instruments Directive. MiFID II introduced SME Growth Markets as a new sub-category of multilateral trading facility in January 2018 to facilitate access to capital for Small and Medium-sized Enterprises. The proposed delegated regulation will amend existing delegated legislation under MiFID II to address regulatory barriers to the take-up of SME Growth Markets. The European Commission has also published separately a legislative proposal to make adjustments to the Market Abuse Regulation and the Prospectus Regulation is to promote the use of SME Growth Markets.
Read more. -
European Commission Proposes Legislative Package on Sustainable Finance
05/24/2018
The European Commission has published a package of legislative reforms on sustainable finance. The aim of the package of reforms, which form part of the Commission's broader Capital Markets Union initiative, is to ensure that environmental, social and governance considerations are consistently integrated into the investment and advisory process across sectors. The proposed measures comprise:
(i) a proposed Regulation on the establishment of a framework to facilitate sustainable investment. This will establish an EU-wide classification system for environmentally sustainable economic activities and ensure that investment strategies are oriented towards economic activities that genuinely contribute to achieving environmental objectives. The proposed Regulation will empower the European Commission to adopt delegated acts to specify technical screening criteria to assess the contribution of a given economic activity to a particular environmental objective as substantial. A list of six environmental objectives is set out in the proposed regulation, namely: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; and protection of healthy ecosystems (which includes biodiversity conservation).
Read more. -
US Office of the Comptroller of the Currency Encourages Banks to Meet Consumers’ Short-Term, Small-Dollar Credit Needs
05/23/2018
The U.S. Office of the Comptroller of the Currency issued a bulletin encouraging banks to offer responsible short-term small-dollar loans to help meet the credit needs of their customers. The OCC reminded banks, however, that any short-term small-dollar lending should be done in accordance with three core lending principles, including: (i) that all bank products should be consistent with safe and sound banking, treat customers fairly and comply with applicable laws and regulations, (ii) that banks should effectively manage the risks associated with the products they offer, including credit, operational, compliance and reputational risk, and (iii) that all credit products should be underwritten based upon reasonable policies and practices, including guidelines governing the amounts borrowed, frequency of borrowing and repayment requirements. The OCC bulletin also lists a number of policies and procedures topics specific to short-term small dollar lending, including with respect to loan pricing and repayment terms, effective management of credit risk, loan servicing and timely reporting of repayment activities to credit bureaus. In addition, the OCC bulletin encourages banks to discuss their plans to offer short-term small-dollar lending products with their OCC portfolio manager or other OCC supervisory authority, especially if the offering of these products represents a substantial deviation from a bank’s existing business plan.
View full text of the OCC bulletin.TOPIC : Financial Services -
UK Sanctions and Anti-Money Laundering Act 2018 Receives Royal Assent
05/23/2018
The Sanctions and Anti-Money Laundering Act 2018 has received Royal Assent and came partly into force on May 23, 2018. The majority of the provisions of the Act will enter into force on a day appointed by the Secretary of State. The Act will provide a domestic sanctions framework after the U.K. leaves the EU, enabling the U.K. to continue to meet its international obligations and use sanctions as a national security and foreign policy tool.
The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.
View the Sanctions and Anti-Money Laundering Act 2018. -
European Banking Authority Consults on Standards for Estimating and Identifying an Economic Downturn in IRB Modelling
05/22/2018
The European Banking Authority has launched two consultations on standards for estimation and identification of an economic downturn in Internal Ratings Based modelling.
The first consultation sets out draft Regulatory Technical Standards on the specification of the nature, severity and duration of an economic downturn in accordance with the Capital Requirements Regulation. The nature of the economic downturn is defined as a set of relevant economic factors and its severity is specified via the most severe values observed on the relevant economic factors over a given historical period. The duration of an economic downturn is specified using the concept of a "downturn period", namely the period of time where the peaks or troughs, which relate to the most severe values of one or several economic factors, are observed. The aim of the RTS is to ensure that institutions using the IRB approach can use a well-defined and common specification of the nature, duration and severity of an economic downturn for portfolios relating to comparable types of exposure.
Read more. -
UK Prudential Regulation Authority Consults on Its Approach to New EU Securitization Framework and Significant Risk Transfer
05/22/2018
The U.K. Prudential Regulation Authority has published a Consultation Paper, setting out the PRA's proposals on its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The incoming EU framework consists of: (i) the Securitization Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation.
Read more. -
New Memorandum of Understanding Signed Between UK Financial Conduct Authority and Insolvency Service
05/21/2018
The U.K. Financial Conduct Authority and the Insolvency Service have signed a Memorandum of Understanding to establish a framework for their cooperation in matters of common interest.
Both the FCA and the IS have statutory powers of investigation and enforcement under their respective enabling legislation. Both organizations are also legally obliged, from May 25, 2018, to handle personal information according to the requirements of the EU General Data Protection Regulation.
The areas of cooperation include misconduct, investigations and enforcement within their respective remits.
The MoU outlines the structure and process for the FCA and IS to be able to exchange information (including personal data) and intelligence, in a lawful and proportionate manner, to further their respective objectives. The MoU includes details of the circumstances in which the FCA will be permitted to disclose confidential information (such disclosure generally being prohibited under the Financial Services and Markets Act 2000) and outlines how each of the two organizations will treat information that is subject to legal professional privilege, including the circumstances in which privilege might be waived. The FCA and IS have agreed to apply a number of principles for the exchange and use of information, including the sharing of intelligence, the use of information for investigations and enforcement or other action, how data security controls will be applied and how data breaches will be handled.
The FCA and IS will monitor the effectiveness of the MoU and review it from time to time as necessary. The MoU has been published on the website of each organization.
View the MoU. -
Updated Guidance on Monetary Penalties for Financial Sanctions Breaches Published by UK Office of Financial Sanctions Implementation
05/21/2018
The Office of Financial Sanctions Implementation has published an updated version of its guidance on monetary penalties for breaches of financial sanctions. The guidance was first published in April 2017. The update sets out more detail on OFSI's expectations around voluntary disclosure of breaches of financial sanctions. The chapter on the right of individuals to appeal to the Upper Tribunal has also been updated.
View the updated guidance. -
EU Secondary Legislation Published on the Exclusion of Transactions With Non-EU Non-Financial Counterparties From Credit Valuation Adjustment Risk Charges
05/18/2018
A Commission Delegated Regulation has been published in the Official Journal of the European Union, setting out Regulatory Technical Standards on procedures for excluding from the own funds requirement for credit valuation adjustment risk transactions with non-financial counterparties that are established in a third country and that do not hold positions over the clearing threshold under the European Market Infrastructure Regulation (so called NFC-s). The RTS supplement the requirements of the Capital Requirements Regulation.
Under the CRR, transactions between an institution and a NFC- are excluded from the own funds requirements for CVA risk, irrespective of whether that NFC- is established in the EU or in a third country. As NFC-s established in third countries are not subject directly to EU regulation, the RTS clarify that EU firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds.
Read more. -
EU Implementing Regulation Published for Revised Benchmarking Portfolios, Reporting Templates and Reporting Instructions under the Capital Requirements Directive
05/18/2018
A Commission Implementing Regulation has been published in the Official Journal of the European Union, setting out changes to Implementing Technical Standards contained in a Commission Implementing Regulation published in 2016. The ITS cover benchmarking portfolios, reporting templates and reporting instructions for the purposes of the supervisory benchmarking exercise under the Capital Requirements Directive. The benchmarking exercise is conducted at least annually to assess the internal approaches used by firms for calculating own funds. The European Banking Authority consulted on the proposed revisions to the ITS in a consultation which closed in January 2018 and subsequently submitted draft revised ITS to the European Commission, on which provisions of the Amending Regulation are based.
Read more. -
UK Joint Money Laundering Steering Group Publishes Revised AML/CTF Guidance For Asset Finance and Syndicated Lending
05/17/2018
The U.K. Joint Money Laundering Steering Group has finalized minor changes to Part II of its anti-money laundering and counter-terrorist financing guidance in relation to two sectors, namely asset finance and syndicated lending.
The JMLSG consulted on the proposed changes in a consultation that closed on March 30, 2018. The revisions do not make substantive changes to the existing guidance. Instead, the revised guidance provides clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.
View the JMLSG announcement.
View details of the JMLSG consultation. -
US Federal Reserve Board Vice Chairman for Supervision Randal Quarles Discusses Cross-Border Resolution
05/16/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the importance of finding the correct balance in cross-border resolution.
Read more.TOPIC : Recovery & Resolution -
FinCEN Provides Temporary Exception Under the Beneficial Ownership Rule for CDs and Loan Accounts that Automatically Rollover or Renew
05/16/2018
The U.S. Financial Crimes Enforcement Network announced that it was granting a 90-day exception from compliance with the beneficial ownership requirements under its Customer Due Diligence Requirements for Financial Institutions rule.
Read more. -
Implementing Technical Standards Published For Reporting by Money Market Fund Managers
05/15/2018
A Commission Implementing Regulation has been published in the Official Journal of the European Union, setting out Implementing Technical Standards for a standard reporting template to be used by money market fund managers when complying with their reporting requirements under the Money Market Funds Regulation. The Commission Implementing Regulation is based on the final draft ITS submitted by the European Securities and Markets Authority to the European Commission in November 2017.
The MMFR requires MMF managers to report quarterly to the relevant national regulator, supplying information including on the characteristics, portfolio indicators, assets, and liabilities of the MMF. This information is required to enable those national regulators to detect, monitor and respond to risks in the MMF market. The information is also forwarded to ESMA, which maintains a central database of MMFs.
Read more. -
EU Fifth Money Laundering Directive Adopted
05/14/2018
The Council of the European Union has adopted the EU's Fifth Money Laundering Directive, following the agreement reached between the European Parliament and the Council in December 2017. 5MLD will amend the existing EU Money Laundering Directive.
Read more. -
International Bodies Publish Identification Criteria and Capital Treatment for Simple, Transparent and Comparable Short-Term Securitizations
05/14/2018
The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have published an updated version of the sound practices document, "Criteria for identifying simple, transparent and comparable short-term securitisations", which was originally published in 2015. The Basel Committee has also published an updated version of its standards document, "Capital treatment for simple, transparent and comparable short-term securitisations".
The Basel Committee and IOSCO consulted on the proposed updated Criteria in July 2017. The Basel Committee consulted at the same time on proposed additional guidance and requirements for the purpose of applying preferential regulatory capital treatment for banks acting as investors in, or as sponsors of, STC short-term securitizations, typically in asset-backed commercial paper structures.
Read more. -
FFIEC Publishes Customer Due Diligence and Beneficial Ownership Overviews and Examination Procedures
05/11/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency, and U.S. Federal Deposit Insurance Corporation published the customer due diligence and beneficial ownership examination sections of the Federal Financial Institutions Examination Council BSA/AML Examination Manual.
Read more. -
UK Competition and Markets Authority Issues Working Paper on Gains from Engagement as Part of Its Investment Consultants Market Investigation
05/10/2018
The U.K. Competition and Markets Authority has issued the latest in a series of working papers as part of its Investment Consultants Market Investigation. This latest Working Paper sets out the CMA's findings following its analysis of whether pension schemes that are more engaged with the market receive better outcomes, in terms of price, than pension schemes that are less engaged. It should be read alongside the Issues Statement on the investigation, published in September 2017, as well as the other working papers, published earlier in 2018.
The CMA's emerging findings are that engaged schemes pay significantly less, and disengaged schemes pay significantly more, when schemes transition into fiduciary management with the same provider as they used for investment consultancy services. The CMA believes that this is indicative that the market is not working well for disengaged schemes, or for schemes facing barriers to engagement.
Read more.TOPIC : Competition -
Draft UK Legislation Published to Broaden Range of Permitted Trading Venues for Islamic Finance Instruments
05/09/2018
A draft of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been laid before Parliament. The draft Order makes amendments to the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
AFIBs, such as Sukuk, are currently not permitted to trade on multilateral trading facilities or organised trading facilities, due to the wording of the AFIB definition in the RAO, however conventional bonds can be traded on these venues. This disparity of treatment between AFIBs and conventional bonds creates an obstacle to the use of U.K. venues for the issue and trading of AFIBs and is contrary to the U.K. Government's standing commitment to provide a level playing field for Islamic finance instruments in regulation and taxation in the U.K. The draft Order amends the RAO to expand the criteria for AFIBs to qualify as a specified investment under the RAO. This will allow AFIBs to be traded on U.K. MTFs and OTFs and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.
Read more.TOPIC : Securities -
Jens Weidmann Re-Elected as Chair of the Bank of International Settlements Board
05/08/2018
The Board of Directors of the Bank for International Settlements has announced the re-election of Jens Weidmann, President of the Deutsche Bundesbank, as Chair of the BIS Board.
View the announcement.TOPIC : People -
Eurozone Risk Data Aggregation and Risk Reporting Needs Strengthening
05/08/2018
The European Central Bank has published a report on the thematic review on effective risk data aggregation and risk reporting. The ECB launched the thematic review in 2016 to carry out an in-depth assessment of credit institutions' governance, data aggregation capabilities and reporting practices. The thematic review was based on 25 Eurozone significant institutions and took into account the Basel Committee on Banking Supervision's principles for effective risk data aggregation and risk reporting.
The ECB has ascertained that implementation of the Basel Committee's principles is unsatisfactory and that the issues are mostly as a result of a lack of clarity around responsibility for data quality. The ECB considers that further efforts are needed to enhance the effectiveness of risk data aggregation and risk reporting.
View the report. -
Final Global Strategy to Address Wholesale Payments Fraud
05/08/2018
Following a consultation late last year, the Committee on Payments and Market Infrastructure has published the final strategy for reducing the risk of wholesale payments fraud related to endpoint security. The strategy is directed to all relevant public and private sector stakeholders in reducing the risk of wholesale payments fraud, including the operators of wholesale payments systems and messaging networks, their participants and relevant regulators and authorities responsible for supervising these operators and participants.
The strategy comprises seven elements that are intended to work holistically for preventing, detecting, responding to and communicating about wholesale payments fraud. The elements are:
1. Identifying and understanding the range of risks;
2. Establishing endpoint security requirements;
3. Promoting adherence;
4. Providing and using information and tools to improve prevention and detection;
5. Responding in a timely way to potential fraud;
6. Supporting ongoing education, awareness and information-sharing; and
7. Learning, evolving and coordinating.
The CPMI and each of its member central banks have committed to promoting the effective operationalization of the strategy within and across jurisdictions and systems. They will be monitoring progress in 2018 and 2019 with a view to assessing whether further action is needed.
View the strategy. -
US Department of Labor Issues Guidance on Fiduciary Rule Compliance
05/07/2018
The U.S. Department of Labor issued a Field Assistance Bulletin regarding an anticipated mandate by the United States Court of Appeals for the Fifth Circuit effectuating its opinion that vacates the Fiduciary Rule and related exemptions and amendments in their entirety. The DOL guidance notes that fiduciaries may continue to rely on its previously issued temporary enforcement policy, which notes that the DOL will not pursue prohibited transaction claims against fiduciaries who are working in good faith to comply with certain prohibited transaction exemptions issued in connection with the Fiduciary Rule or treat those fiduciaries as violating the applicable prohibited transaction rules. In addition, the temporary enforcement policy notes that investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit’s decision.
View full text of the DOL bulletin.TOPIC : Consumer Protection -
US Federal Reserve Board Approves Amendments to Regulation A
05/07/2018
The U.S. Board of Governors of the Federal Reserve System approved final amendments to Regulation A (Extensions of Credit by Federal Reserve Banks). The amendments make technical changes to provisions regarding establishing the primary credit rate in a financial emergency and delete obsolete provisions of Regulation A. With respect to the former, Regulation A will be amended to provide that in a financial emergency (defined as “a significant disruption to the U.S. money markets resulting from an act of war, military or terrorist attack, natural disaster, or other catastrophic event”), the primary credit rate will be the target federal funds rate or, if the Federal Open Market Committee has established a target range for the federal funds rate, a rate corresponding to the top of the target range. The amendments also delete references to credit ratings for Term Asset-Backed Securities Loan Facilities, given that the program has expired. The amendments to Regulation A will take effect on June 8, 2018.
View full text of the final rule. -
European Banking Authority to Provide Technical Advice on Implementation of Final Basel III Reforms
05/07/2018
The European Banking Authority has announced that the European Commission had requested technical advice on implementing the final Basel III reforms into EU law. The Basel Committee on Banking Supervision published the final revisions to Basel III on December 7, 2017. The revisions cover the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards will take effect from January 1, 2022, except for the output floor which may be phased-in until January 1, 2027.
The Commission has asked the EBA to provide technical advice on the potential impact of the revisions on the EU banking sector and the wider EU economy and on any potential implementation challenges. The Commission has also requested that the EBA consider the potential changes to the Basel market risk framework, on which the Basel Committee is currently consulting.
Read more. -
Financial Stability Board Consults on Reporting on the Use of Compensation Tools to Address Misconduct Risk
05/07/2018
The Financial Stability Board has published proposed Recommendations for consistent national reporting of data concerning the use of compensation tools to address misconduct risk in significant financial institutions. The FSB is proposing a supervisory framework for the collection and reporting of data, which can be used by supervisors for monitoring and analyzing the effectiveness of compensation frameworks in addressing misconduct risk. The information so collected is intended to assist supervisors to understand and review: (i) the importance of individual conduct within the firm's incentive compensation framework and the role of compensation policy in establishing a sound risk and conduct culture; and (ii) the use of compensation tools in practice and their role in ensuring accountability when misconduct occurs.
Read more. -
European Commission Adopts Delegated Legislation on Central Contact Points for AML/CTF Purposes
05/07/2018
The European Commission has adopted a draft delegated regulation under the Fourth Money Laundering Directive. The draft regulation sets out Regulatory Technical Standards on the criteria that EU Member States should use when deciding whether or not payment service providers or electronic money institutions that are headquartered in another EEA Member State and that operate establishments (other than a branch) in their territory should appoint a central contact point for compliance with anti-money laundering and counter-terrorist financing obligations. The draft regulation also sets out RTS on the functions that may be entrusted to such a central contact point.
The draft regulation will now be subject to a three-month scrutiny period by the European Parliament and the Council of the European Union. Following this period, should neither of the co-legislators object, the draft regulation will then be published in the Official Journal of the European Union and enter into force twenty days later. Once in force, the delegated regulation will have direct effect across the EU.
View the draft delegated regulation. -
US Federal Reserve Board Vice Chairman for Supervision Randal Quarles Discusses Liquidity Regulation and the Federal Reserve Board’s Balance Sheet
05/04/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the relationship between liquidity and other post-crisis regulation and the Federal Reserve Board’s balance sheet.
Read more. -
EU Supervisory Authorities Consult on Aligning EMIR Clearing and Risk-Mitigation Obligations For Securitizations With Those For Covered Bonds
05/04/2018
The Joint Committee of the European Supervisory Authorities has published two consultations on proposed amendments to: (i) Regulatory Technical Standards on the clearing obligation under the European Market Infrastructure Regulation for certain classes of OTC derivatives; and (ii) RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP. The proposed changes aim to incorporate the provisions of the Securitization Regulation (also known as the STS Regulation), which entered into force on January 17, 2018.
The Securitization Regulation notes that there is a degree of substitutability between covered bonds and securitizations. The Securitization Regulation therefore amends EMIR, among other things, to ensure consistency of treatment between the regime for derivatives transactions associated with covered bonds and the one for securitizations, with respect to the clearing obligation and the margin requirements for non-centrally cleared OTC derivatives. The ESAs have been mandated to make the necessary changes to existing RTS to effect consistent treatment.
Read more.TOPIC : Derivatives -
FINRA Updates AML Rules to Conform to Upcoming Customer Due Diligence Requirements
05/03/2018
The Financial Industry Regulatory Authority published amendments to FINRA Rule 3310, the anti-money laundering compliance program rule. The FINRA amendments seek to harmonize Rule 3310 with the Customer Due Diligence Requirements for Financial Institutions rule issued by the U.S. Financial Crimes Enforcement Network on May 11, 2016. Amended Rule 3310 requires firms to conduct ongoing customer due diligence, establish procedures to understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, maintain and update customer information, including information regarding the beneficial ownership of legal entity customers. Amended Rule 3310 becomes effective on May 11, 2018, which coincides with the compliance date for FinCEN’s CDD Rule.
View full text of Regulatory Notice 18-19. -
EURIBOR Administrator Starts 3-Month Testing Phase for Hybrid Methodology
05/02/2018
The European Money Markets Institute has announced the start of the testing phase for a new hybrid methodology it proposes to introduce to determine Euribor. The testing phase will run from May 2, 2018 to July 31, 2018.
EMMI launched a consultation on the introduction of the hybrid methodology and on some related issues in March 2018. That consultation closes on May 15, 2018 and EMMI intends to publish a summary of responses in June 2018.
The testing phase will involve EMMI conducting data analysis and assessing the methodology's parameters. EMMI hopes to gain a better understanding of panel banks' overall contribution patterns and how they make submissions using Level 3 of three-level "hybrid" methodology. Based on the results, EMMI will launch a second consultation in Q3 2018.
It is intended that the new hybrid methodology will be launched by Q4 2019 at the latest, in line with the transitional period provided by the EU Benchmarks Regulation.
View the EMMI announcement.
View details of the March 2018 consultation. -
New Payment Systems Operator for UK Retail Payment Systems
05/01/2018
The Bank of England and the Payment Systems Regulator have announced that the New Payment System Operator is now responsible for the operation of BACS and Faster Payments, two U.K. retail payment systems. The NPSO is expected to assume responsibility for the Cheque and Credit Clearing Company over the next few months. The consolidation of the three payment systems was one of the recommendations made in the Payments Strategy Forum's November 2016 report, which sets out a wide-ranging strategy for reforming the U.K. retail payments industry. The NPSO will also be responsible for delivering the New Payments Architecture, which is an industry-led initiative to increase competition, resilience and innovation across the payments and banking industry.
View the BoE and PSR announcement.
View the NPSO press release.TOPIC : Payment Services -
US District Court Dismisses Challenge to US Office of the Comptroller of the Currency FinTech Charter
04/30/2018
The U.S. District Court for the District of Columbia granted the U.S. Office of the Comptroller of the Currency’s motion to dismiss a lawsuit brought by the Conference of State Bank Supervisors challenging the OCC’s authority to grant special purpose national bank charters to companies that provide bank-like services but do not accept deposits (largely FinTech companies.) The D.C. District Court’s decision follows the December 2017 dismissal by the U.S. District Court for the Southern District of New York of a similar lawsuit filed by the New York State Department of Financial Services against the OCC. The court found that CSBS did not have standing to bring the action, as it did not plead an injury in fact and that any of the grounds asserted by the CSBS were speculative and contingent on whether the OCC in fact charters a FinTech company, and that regardless, CSBS failed to identify an imminent injury to a particular member of its organization. In addition, the court dismissed the action on ripeness grounds, citing, among other reasons, that the OCC still has yet to issue a charter to a FinTech company.
View full text of the court’s decision.TOPIC : FinTech -
US Treasury Counselor to the Secretary Craig Phillips Discusses Regulatory Reform
04/30/2018
U.S. Treasury Counselor to the Secretary, Craig Phillips, spoke at the International Swaps and Derivatives Association’s 33rd annual general meeting regarding regulatory policies of relevance to ISDA members.
Read more.TOPIC : Derivatives -
UK Prudential Regulation Authority Finalizes Policy on Groups and Double Leverage
04/30/2018
The U.K. Prudential Regulation Authority has published a Policy Statement setting out its proposals to amend the Groups policy framework it has in place for the application of prudential standards to firms on an individual and consolidated basis within banking groups.
The PRA consulted between October 2017 and January 2018 on proposals to enable: (i) assessment and mitigation of the risks to group resilience due to the use of "double leverage" (which occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally); (ii) assessment and mitigation of the risks highlighted by prudential requirements applied by local national regulators on overseas subsidiaries of U.K. consolidation groups; and (iii) improved monitoring of the distribution of financial resources across different group entities.
Following feedback received, the PRA has made three changes to the proposals, which it does not consider to be significant changes. The first and second changes affect the PRA Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" by: (a) changing the definition of "double leverage" so that it is accounting based to reflect the reporting practices of stand-alone holding companies; and (b) clarifying the level of application of the double leverage formula. The third change affects the PRA Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital" by amending the formula for double leverage.
Read more. -
UK Prudential Regulation Authority Finalizes Model Risk Management Principles for Stress Testing
04/30/2018
The U.K. Prudential Regulation Authority has published a Policy Statement and a finalized Supervisory Statement following a consultation which ran from December 2017 to March 2018 on model risk management principles for stress testing. In the consultation, the PRA proposed that firms that use stress testing models, and that participate in the Bank of England's annual concurrent stress test, should follow in full a set of four proposed principles when establishing and adopting risk management practices in relation to their models. Firms not participating in the BoE's annual stress test should instead seek to apply the four principles on a proportionate basis, taking into account their size, complexity, risk profile and the relevance to the firm of using stress test models.
The Policy Statement sets out feedback on the three responses it received to the consultation. The PRA has made a number of changes to the consultation draft of the Supervisory Statement to address issues raised by respondents. In particular, the PRA has made changes to the wording of Principles 1.2 (Model Inventory), 2.1 (Board oversight), 2.3 (Model developers, owners, users and control functions), 3.1 (Model purpose and design), 3.7 (Business Involvement), 3.8 (Model uncertainty), 3.9 (Model Monitoring), 4.1 (Scope and validation of review) and 4.2 (Independence). In addition, it has included a further section in the Supervisory Statement to set out its expectations on the application of materiality considerations.
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UK Regulator Confirms Revised Pillar 2 Reporting Requirements
04/30/2018
The Prudential Regulation Authority has published a Policy Statement confirming that updated Pillar 2 reporting requirements will apply from October 1, 2018 for banks, building societies and PRA-designated investment firms. This follows the PRA's consultation on the proposed updates, which ran from December 6, 2017 to March 5, 2018. The PRA proposed a new data item to capture stress-testing data currently included in firms' Internal Capital Adequacy Assessment Process documents. This change aims to increase transparency and comparability in stress test data provided alongside ICAAP documents and to decrease the operational risks associated with capturing stress test data manually. The PRA also proposed reducing the frequency of reporting of the data items in the Reporting Pillar 2 part of the PRA Rulebook for some firms as well as consolidating the definition of several reporting parts of the PRA Rulebook into the Glossary.
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Thomas M. Hoenig Steps Down as US Federal Deposit Insurance Corporation Vice Chairman
04/27/2018
Thomas M. Hoenig announced that, effective April 30, 2018, he was stepping down as Vice Chairman and Member of the Board of Directors of the U.S. Federal Deposit Insurance Corporation. Mr. Hoenig served a full six-year term at the FDIC, since joining in April of 2012. Prior to his service with the FDIC, Mr. Hoenig served as President of the Federal Reserve Bank of Kansas City, and was a member of the Federal Open Market Committee.
View full text of the FDIC press release.TOPIC : People -
EU and UK to Establish Technical Working Group for Risk Management Around Brexit
04/27/2018
The European Commission and HM Treasury have announced that the European Central Bank and the Bank of England will establish a technical working group on risk management in the period around March 30, 2019 for financial services. The U.K. leaves the EU on March 29, 2019, although the provisionally agreed transition period means that most EU laws will continue to apply in the U.K. until December 31, 2020.
The Terms of Reference for the working group state that the European Commission and HM Treasury will attend the group as observers. Other regulatory authorities will be invited to attend on an issue-specific basis.
View the announcement.
View the terms of reference.TOPIC : Brexit for Financial Services -
European Banking Authority Consults on Draft Guidelines on Disclosure of Non-Performing and Forborne Exposures
04/27/2018
The European Banking Authority has launched a consultation on draft Guidelines on disclosure of non-performing and forborne exposures. Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks' viability and lending capabilities. The European authorities have agreed various actions to tackle NPLs in Europe, resulting in several recent steps being taken by the European Commission, the European Central Bank and the EBA.
The proposed Guidelines set out the content, format and frequency of disclosures for non-performing exposures, forborne exposures and foreclosed assets. The draft Guidelines would apply to all banks that are subject to any of the disclosure requirements under the Capital Requirements Regulation and would apply to all exposures that fall within the definition of either non-performing or forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The level and frequency of disclosure will depend on the significance of a firm and the level of NPEs.
The draft Guidelines should be read with the EBA's proposed Guidelines on sound risk management practices for banks for managing NPEs, FBEs and foreclosed assets.
As with the proposed risk management Guidelines, the EBA intends to publish the finalized disclosure Guidelines before the end of 2018 and for the Guidelines to apply from January 1, 2019. Feedback on the proposed Guidelines can be provided by June 27, 2018. The EBA is holding a public hearing on the draft Guidelines on June 27, 2018.
View the consultation paper.
View the EBA's proposed Guidelines on sound risk management practices for NPEs.
View the Commission's proposals to address the build-up of NPLs. -
Clarification on Scope of EMIR Obligations for Public Entity Clearing Members Needed
04/27/2018
The Chair of the European Securities and Markets Authority, Steven Maijoor, has written to the European Commission recommending that clarification of certain provisions of the European Market Infrastructure Regulation should be made during the current revision of EMIR. EMIR requires clearing members of CCPs to provide initial margin and default fund contributions. ESMA has noticed that CCPs across the EU, as well as their national regulators, are adopting different approaches to these requirements for public entities. Some CCPs and national regulators exempt public entity clearing members from the requirement to provide initial margin and default fund contributions while others grant no exemptions.
ESMA requests the Commission to consider whether the scope of EMIR needs to be clarified and whether a specific amendment could be made to EMIR during the current review process.
The European Commission published legislative proposals to amend EMIR in May - the technical revisions in so-called EMIR 2.1 - and June 2017 - the Brexit-driven CCP "location policy" or so-called EMIR 2.2, which attempts to force the relocation of UK CCPs to the Eurozone. The legislative procedures to finalize those changes are ongoing.
View the letter.
View the Commission's technical amendments legislative proposal.
View the Commission's location policy legislative proposal. -
Financial Stability Board Publishes Second Consultation on Governance of the Unique Product Identifier
04/26/2018
The Financial Stability Board has opened a second consultation on governance of the Unique Product Identifier. The FSB identified UPIs in September 2014 as a critical element towards a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique transaction identifier and the harmonization of other key data elements. The receipt of aggregated derivatives reporting data will enable national regulators to better assess systemic risk and perform other market oversight functions.
The purpose of the UPI is to uniquely identify OTC derivatives products that regulators require, or may require in the future, to be reported to trade repositories. The UPI system will assign a code to each OTC derivative product which maps to a set of data elements describing the product in a corresponding reference database, the UPI Reference Data Library. The Library will be administered by either one or a number of UPI Service Provider(s).
This second consultation paper seeks feedback on specific issues relating to the UPI Governance Arrangements, including fee models and cost recovery, intellectual property, standardization and potential restrictions on the activities of a UPI service provider. The FSB is also asking for feedback on whether a single UPI service provider model would be more suitable than having a competitive multi-UPI service provider model.
The consultation closes on May 24, 2018. The FSB intends to finalize the UPI governance arrangements and identify one or more UPI service provider(s) by mid-2019.
View the consultation paper.TOPIC : Derivatives -
UK Competition and Markets Authority Consults Further on Aspects of the Investment Consultants Market Investigation
04/26/2018
The U.K. Competition and Markets Authority has published three more consultative working papers as part of its Investment Consultants Market Investigation. The CMA is assessing the supply and acquisition of investment consultancy services and fiduciary management services. These working papers should be read alongside the Issues Statement on the investigation, published in September 2017, as well as the other working papers, published earlier this year.
The first working paper is on barriers to entry and expansion in the investment consultancy and fiduciary management sectors. The paper sets out the CMA's emerging findings, focusing on the financial and other costs of entry and expansion. The CMA has neither identified, nor concluded whether there is, any adverse effect on competition in relation to barriers to entry or expansion. The CMA's separate emerging finding in relation to new market entrants is that the barriers are not excessively high but are greater in the fiduciary management sector than in the investment consultancy sector. In relation to barriers to expansion, the CMA's emerging finding is that the potential barriers to winning new clients are greater than the barriers to new entry and are also greater in the fiduciary management sector than in the investment consultancy sector.
Read more.TOPIC : Competition -
ICE LIBOR Administrator Sets Out Transition Plan for New Submission Methodology
04/25/2018
ICE Benchmark Administration, the administrator of the LIBOR benchmark, has published a report setting out how it proposes to transition panel banks to the new "Waterfall Methodology" outlined in its ICE LIBOR Output Statement, which was updated following a feedback statement in March 2017 on the evolution of the London Interbank Offered Rate. LIBOR is a widely used benchmark for short-term interest rates. It is produced for five currencies and seven tenors, resulting in the publication of 35 rates every applicable London business day.
The ICE LIBOR Output Statement sets out a single LIBOR definition and a more standardized, transaction data-driven methodology for LIBOR panel banks’ submissions. IBA’s intention in introducing the new methodology is to publish, in all market circumstances, a wholesale funding rate anchored in unsecured, wholesale funding transactions to the greatest extent possible.
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European Commission Adopts Revised Implementing Technical Standards on Mapping of External Credit Ratings
04/24/2018
A Commission Implementing Regulation has been published in the Official Journal of the European Union. This Amending Regulation, which takes effect on May 15, 2018, revises a Commission Implementing Regulation adopted in October 2016 under the Capital Requirements Regulation.
Under the CRR, firms that use the Standardised Approach for the purposes of calculating their capital requirements for credit risk can use external credit assessments to determine the credit quality of exposures. These external credit assessments must be made by External Credit Assessment Institutions. ECAIs are either credit rating agencies registered under the CRA Regulation or central banks that issue credit ratings (which are exempt from the application of the CRA Regulation). The 2016 Implementing Regulation set out Implementing Technical Standards for the mapping of the credit quality of exposures (obtained from ECAIs) to their corresponding risk weights.
The Joint Committee of the European Supervisory Authorities consulted in July 2017 on the need to make changes to the 2016 Implementing Regulation to reflect the fact that, since it was adopted, five additional ECAIs had been recognized and one ECAI had been de-registered. The Joint Committee submitted draft revised ITS to the Commission in December 2017 and the Commission has adopted them in the Amending Regulation.
View the Amending Regulation ((EU) 2018/634).
View details of the July 2017 consultation. -
Financial Action Task Force Publishes Outcomes of its 2018 Private Sector Consultative Forum
04/24/2018
The Financial Action Task Force held its annual private sector consultative forum in Vienna on April 23 – 24, 2018. The annual forum provides a platform for the FATF to learn more about the private sector's views and concerns on issues related to anti-money laundering and countering the financing of terrorism. Attendees at the forum included representatives from the financial sector and other businesses and professions subject to AML/CTF obligations.
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Basel Committee on Banking Supervision Progress Report on Basel III Implementation
04/23/2018
The Basel Committee on Banking Supervision has published its 14th progress report on implementation of the Basel III prudential framework, based on responses from Basel Committee member jurisdictions, and reports the status as of the end of March 2018. The Report sets out in tabular form the results of the Basel Committee's monitoring of the adoption progress of all Basel III standards agreed to date, which will come into effect by 2022. The table omits details of those Basel III standards that have already been implemented by all Basel Committee member jurisdictions. It sets out the ongoing implementation progress of each member jurisdiction on aspects of the risk-based capital standards, leverage ratio requirements, liquidity requirements, the requirements for systemically important banks, interest rate risk in the banking book, the supervisory framework for large exposures and the Pillar 3 disclosure requirements.
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European Commission Proposes Protective Legislation for Whistleblowers Reporting EU Law Breaches
04/23/2018
The European Commission has published a proposal for a Directive on the protection of persons reporting on breaches of Union law. Whistleblowers help prevent damage and detect threat or harm to the public interest that may otherwise remain hidden, but fear of retaliation can often discourage them from reporting concerns.
The importance of providing effective whistleblower protections for safeguarding the public interest has been acknowledged both at European and international level. At EU level, whistleblower protections are currently provided only for specific sectors and to varying degrees. This means that, in many situations, whistleblowers are not properly protected against retaliation. The proposed Directive will address this fragmentation by encompassing "the broadest possible range of categories of persons, who, by virtue of work-related activities (irrespective of the nature of these activities and whether they are paid or not), have privileged access to information about breaches." Areas covered include financial services, money laundering and terrorist financing.
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Corrigendum to the Revised Payment Services Directive Published
04/23/2018
A two-page corrigendum to the revised Payment Services Directive has been published in the Official Journal of the European Union. The corrigendum makes 11 corrections to the text of the PSD2 across one recital and eight of the directive's articles.
In addition to minor textual corrections, the corrigendum makes important clarifications to provisions on: (i) the liability of a payment service provider for initiation or execution of payment transactions; (ii) liability in respect of payment initiation services among those provisions of PSD2 that can be disapplied, or applied only in part, by agreement between a payment service provider and a non-consumer payment service user; (iii) the limited circumstances in which a payment services provider is permitted to charge for fulfilling information obligations or performing corrective or preventive measures; and (iv) the circumstances in which compensation can be obtained by a payment service provider from another payment service provider or intermediary for losses incurred for non-execution or defective execution of a payment order.
View the corrigendum.TOPIC : Payment Services -
Bank of England Confirms Implementation of SONIA reforms
04/23/2018
The Bank of England has confirmed that it has implemented its reforms to the SONIA interest rate benchmark. SONIA, the Sterling Overnight Index Average Rate, which has been administered since April 2016 by the BoE, is the existing unsecured reference rate for the sterling Overnight Indexed Swap market.
The BOE announced in October 2017 that the methodology for calculating SONIA would move from being based on a market for brokered deposits (which has limited transaction volumes) to a methodology involving a volume-weighted trimmed mean. The BOE has also separately published the key features and policies for SONIA, which summarize how SONIA is calculated and administered, including the governance arrangements. The BoE intends to publish an assessment of the benchmark's compliance with the International Organization of Securities Commissions' Principles for Financial Benchmarks in Summer 2018.
View the BoE press release.
View the SONIA key features and policies document. -
Financial Stability Board Publishes Toolkit to Abate Misconduct Risk
04/20/2018
The Financial Stability Board has published a report, "Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors." The report is part of the FSB's work on measures to reduce misconduct in the financial sector and follows the FSB's stocktake of endeavors by international bodies, national authorities, industry associations and firms.
The Toolkit is designed to provide firms and authorities with a set of tools that can be used, taking into account the applicable legislative, judicial and regulatory frameworks. Rather than creating an international standard or adopting a prescriptive approach, the FSB's Toolkit allows firms and supervisors to decide whether and how to use the Toolkit to address misconduct risk. The FSB also states that firms and their supervisors can use individual tools separately or in combination.
The Toolkit comprises 19 tools, divided into three categories and assigned between firms and national authorities.
Read more. -
European Banking Authority Consults on Simple Transparent and Standardized Criteria for ABCP and non-ABCP Securitizations
04/20/2018
The European Banking Authority has published consultations on two sets of draft guidelines under the Securitization Regulation (also known as the STS Regulation) which, along with targeted amendments to the Capital Requirements Regulation, forms part of the new EU Securitization Framework for simple, transparent and standardized securitizations from January 2019. The STS Regulation establishes two sets of criteria for STS securitizations, namely for term (i.e. non-Asset Backed Commercial Paper) securitizations and for short-term (i.e. ABCP) securitizations respectively. The EBA is mandated under the STS Regulation to develop, by October 18, 2018, (i) guidelines and recommendations interpreting the STS criteria applicable to non-ABCP securitization; and (ii) guidelines and recommendations interpreting the transaction level and programme level criteria applicable to ABCP securitization.
Read more.TOPIC : Securities -
US Federal Reserve Board Governor Lael Brainard Discusses Cyclical Regulation
04/19/2018
U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Global Finance Forum regarding maintaining resiliency across economic cycles. Governor Brainard drew comparisons between the current state of the economy and the economy prior to the financial crisis, noting positive growth, but highlighting elevated risks in asset valuation and business leverage. Governor Brainard discussed that post-crisis regulation has greatly improved the capital and liquidity positions of financial institutions, and highlighted the importance of maintaining a dynamic capital regime, but cautioned against purely backward-looking analysis, rather than proactively seeking out emerging risks. Governor Brainard discussed the importance of properly tailoring and calibrating existing regulations, such as the countercyclical capital buffer rule, but also stressed the importance of implementing additional critical regulatory elements, such as finalizing the net stable funding ratio, which she noted was close to finalization, and the Dodd-Frank Act limits on large counterparty exposure. Governor Brainard also expressed her support for improving the efficiency of the Volcker Rule without undermining its efficacy, and for moving forward with minimum haircuts for securities financing transactions. Governor Brainard distinguished these regulations, designed to promote the resiliency of large financial institutions, with the regulation of smaller institutions, suggesting that with respect to the latter, regulations should be appropriately tailored to reduce regulatory burden.
View full text of Governor Brainard's speech. -
US Federal Reserve Board Vice Chairman for Supervision Randal Quarles Delivers Semi-Annual Supervision and Regulation Testimony to Congress
04/19/2018
U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding the Federal Reserve Board’s regulation and supervision of financial institutions. Vice Chairman Quarles submitted identical remarks to the U.S. House Financial Services Committee two days earlier on April 17, 2018.
Read more. -
UK Regulator Warns CEOs of Listed Companies About Their Obligations on Irredeemable Preference Shares
04/19/2018
The U.K. Financial Conduct Authority has published a "Dear CEO" letter to the Chief Executive Officers of U.K. listed companies on capital instruments expressed to be perpetual, irredeemable or in some other way that suggests permanence. The FCA wishes to ensure that investors have access to all the information necessary for them to be able to assess properly the risks and rewards attaching to such shares. The letter lists the information that listed companies may wish to make readily accessible to all holders and potential holders of such shares, including:- the terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer or admission of the shares, and details of any changes made after the issue of the shares;
- the articles of association of the issuer, particularly the articles relevant to the shares concerned; and
- a Q&A or similar publication.
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US and UK Establish Financial Regulatory Working Group
04/19/2018
The U.S. Treasury Department and HM Treasury have issued a joint statement announcing the establishment of a Financial Regulatory Working Group. The Working Group will be a forum for treasury staff and financial regulatory authorities to exchange views on the regulatory relationship between the United States and the U.K. The objectives of the Working Group will be to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.
View the statement. -
US Securities and Exchange Commission Proposes Broker-Dealer Standard of Care and Guidance on Investment Advisers’ Fiduciary Standard
04/18/2018
The U.S. Securities and Exchange Commission published three proposed rules with request for public comment that would seek to enhance and clarify the standards of care applicable to broker-dealers and investment advisers when dealing with retail clients. The three proposals are designed to be interlocked and complementary, and, as noted by SEC Chairman Jay Clayton in his introduction of the proposals, are aimed, in part, at better aligning regulations and obligations of broker-dealers and investment advisers with the expectations of retail investors, and preserving retail investor choice.
Read more.TOPIC : Securities -
US Federal Reserve Board Governor Lael Brainard Discusses Modernization of the Community Reinvestment Act
04/17/2018
U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Federal Reserve Bank of Richmond Baltimore Community Development Gathering regarding efforts to modernize the Community Reinvestment Act. Governor Brainard provided a brief summary of the history and importance of the CRA, noting that the current CRA regulations date back to 1995 and are in need of update to better reflect how banks currently operate and the customer base they serve, given structural and technological changes in the banking industry.
Read more. -
US Federal Financial Regulators Propose Revisions to Capital Rules to Reflect Change in US AAP Relating to Credit Losses
04/17/2018
The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation announced proposed revisions to the agencies’ regulatory capital rules to reflect changes to U.S. generally accepted accounting principles regarding credit losses. The proposed revisions will identify which of the new credit loss allowances will be eligible for inclusion in a financial institution’s regulatory capital. The proposal will further provide for an optional transition period that will allow financial institutions to phase in the adverse effects on certain regulatory capital components over a three-year period. The proposal also seeks to amend the stress testing regulations to allow covered institutions that have adopted these changes to U.S. GAAP to not include the effects from adopting this new standard until the 2020 stress test cycle. The proposed amendment will also make conforming changes, including with respect to certain definitions, disclosures and regulatory reporting forms. Comments to the proposal are due 60 days from the proposal’s publication in the Federal Register.
View full text of the agencies’ proposal. -
European Banking Authority Proposes Draft Guidelines on the Exposures to be Associated With High Risk
04/17/2018
The European Banking Authority has launched a consultation on draft Guidelines on certain types of exposures and the circumstances in which they can be categorized as being associated with high risk for regulatory capital purposes. The Capital Requirements Regulation provides that when firms use the Standardised Approach for determining minimum capital requirements for credit risk, risk weightings must be allocated to an exposure, based on its exposure class. One of the exposure classes is "exposures associated with particularly high risk," which are: investments in venture capital firms or private equity, speculative immovable property financing and investments in Alternative Investment Funds where the fund's mandate allows a higher leverage than required in the UCITS Directive. An exposure that is of particularly high risk receives a risk weight of 150%.
The EBA's mandate is to prepare guidelines on the types of exposures other than those set out in the CRR that must be associated with particularly high risk and under which circumstances. The EBA's draft Guidelines aim to implement that mandate by specifying that firms should classify exposures as items of high risk where the exposure has a "high risk of loss due to being structurally different from common exposures of the same asset class." The EBA provides a list of those exposures that would fall within the scope of this category.
Read more. -
European Commission Proposes Legislation Broadening Access to Centralized Financial Information
04/17/2018
The European Commission has published a proposal for a directive aimed at increasing security within EU member states and across the EU by improving access to financial information, including bank account information, to the relevant authorities and bodies in charge for the prevention, investigation and prosecution of serious forms of crimes. It is envisaged that this will enhance their ability to conduct financial investigations and analysis and improve their cooperation. In addition, the proposal contains measures to improve the ability of Financial Intelligence Units to carry out their tasks under the 4th Money Laundering Directive.
Currently, most EU national authorities competent for the prevention, detection, investigation or prosecution of criminal offences do not have direct access to information on the identity of bank account holders held in centralized account registries or data retrieval systems. Indeed, such registries and systems are currently only operational in 15 EU member states and the relevant authorities only have direct access in 6 of those member states. This lack of, or lack of access to, centralized information means the relevant authorities must send blanket information requests to all financial institutions. Delays in replies to these blanket requests can significantly hamper criminal investigations.
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European Commission Consults on Again Extending the Transitional Measures for Exposures to CCPs
04/17/2018
The European Commission has published a legislative proposal to extend until December 15, 2018 the transitional periods related to own funds requirements for exposures to CCPs set out in the Capital Requirements Regulation and European Market Infrastructure Regulation. Thirty-two third-country CCPs have been recognized by the European Securities and Markets Authority to date. However, there are still third-country CCPs that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized.
Feedback on the proposal can be provided until May 15, 2018.
The proposals to amend the CRR include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third-country CCP.
View the proposed ITS and the consultation feedback page. -
President Donald Trump Announces Intent to Nominate Two New Board Members of the US Board of Governors of the Federal Reserve System
04/16/2018
President Donald Trump announced his intent to nominate Michelle Bowman and Richard Clarida to serve as Members of the U.S. Board of Governors of the Federal Reserve System. Ms. Bowman, currently the Kansas State Bank Commissioner, is to be nominated to serve as a Member of the Federal Reserve Board as the Community Bank Representative representing Region eight. She is being nominated to serve the remainder of a 14-year term that expires on January 31, 2020. Mr. Clarida, currently the Lowell Harriss Professor of Economics at Columbia University, is to be nominated to serve as Vice Chairman of the Federal Reserve Board for a 4-year term, and to serve the remainder of a 14-year term as a Member of the Federal Reserve Board representing Region 1, expiring on January 31, 2022.
View full text of the White House press release.TOPIC : People -
European Banking Authority Proposes Revised Technical Standards for Resolution Reporting
04/16/2018
The European Banking Authority has published a final report and final revised draft Implementing Technical Standards on resolution reporting requirements. The EBA proposes to replace the existing ITS with the revised ITS to reflect the evolution in the policy and practices applied by authorities in the development of resolution plans for financial institutions. The new framework is proposed to become operational in 2019 when resolution authorities collect information as of December 31, 2018.
The revised draft ITS set out the procedures and a minimum set of standard templates for use by institutions when providing information to resolution authorities that is needed to draw up and implement resolution plans. The power of resolution authorities to apply simplified obligations or to require further information from a firm is specifically provided for in the revised draft ITS, in line with the EU Bank Recovery and Resolution Directive. In addition, the revised draft ITS specify the information required from groups and from individual entities. Furthermore, the revised draft ITS set the frequency, reference dates and remittance dates and the format for submission of information.
The EBA confirms that the final draft revised ITS take into account comments received during consultation and provides a summary of the main changes that have been made.
Read more.TOPIC : Recovery & Resolution -
Director of US Office of Foreign Assets Control, John E. Smith to Step Down
04/12/2018
The U.S. Department of the Treasury announced that John E. Smith will be stepping down as director of the U.S. Office of Foreign Assets Control in early May 2018. Mr. Smith’s 11-year career with OFAC includes serving as Acting Director/Director of OFAC since February 2015, and previously serving as OFAC’s Deputy Director and as an Associate Director. OFAC Deputy Director Andrea M. Gacki will serve as Acting Director upon Mr. Smith’s departure.
View the full text of the Treasury Department announcement.TOPIC : People -
UK Competition Authority Consults on Trustee Engagement With Investment Consultancy and Fiduciary Management
04/12/2018
The U.K. Competition and Markets Authority has published a working paper seeking views on its initial analysis on trustee engagement with investment consultancy and fiduciary management service providers. This is the fourth working paper in the CMA's Investment Consultants Market Investigation in which it is assessing the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018. The second working paper, on asset manager product recommendations, was published on March 22, 2018. The third working paper was published on March 29, 2018 and covered competition issues that may arise when firms offer both investment consultancy and fiduciary management services. This working paper builds on the CMA's second working paper, analyzing the information available to pension trustees on the fees and quality of investment consultants and fiduciary managers.
Read more.TOPIC : Competition -
European Supervisory Authorities Make Recommendations to Address Risks in EU Securities, Banking and Insurance Sectors
04/12/2018
The Joint Committee of the European Supervisory Authorities has published a report on risks and vulnerabilities in the EU financial system. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. The ESAs make recommendations for policy actions by the ESAs, national regulators and financial institutions. A summary of the risks and recommendations contained in the report is set out below.- To combat cyber risks, the ESAs recommend that financial institutions should continue to improve IT systems, explore risks in the context of information security and take steps to resolve risks surrounding connectivity and outsourcing to third-party providers. The ESAs will continue to keep these risks under review. ESMA is launching a supervisory project on cloud computing outsourcing and will continue work to address supervisory convergence. The EBA is developing guidelines on the management of information and communication technology risks. EIOPA is conducting a qualitative exercise on cyber risk with national regulators and the industry.
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Two US Banking Regulators Propose Amendments to Supplementary Leverage Ratio Calculations for GSIBs and Their Insured Depository Institution Subsidiaries
04/11/2018
The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.
Read more. -
US Federal Financial Institutions Examination Council Issues Joint Statement Regarding Cyber Insurance
04/11/2018
The U.S. Federal Financial Institutions Examination Council members released a joint statement with respect to cyber insurance and its role in risk management. FFIEC members include the U.S. Board of Governors of the Federal Reserve System, the U.S. Office of the Comptroller of the Currency and the U.S. Federal Deposit Insurance Corporation. The statement and corresponding press release note that the frequency, sophistication and severity of cybersecurity incidents are increasing. As a result, general insurance policies may not provide adequate coverage in the event of a cybersecurity event and cyber insurance options are increasing and evolving in response to these factors. The statement highlights that cyber insurance options vary greatly, and can be in the form of either a standalone policy or an endorsement to an existing insurance policy. The statement cautions, however, that cyber insurance should be viewed as a risk mitigation tool and not as an alternative to sound internal controls, policies and procedures to guard against cybersecurity events. The statement notes that institutions, in considering cyber insurance, should assess their existing cybersecurity risk framework to determine the potential impact and magnitude of residual risk. In weighing cost and benefits of cyber insurance, the statement suggests that institutions should consider involving multiple stakeholders in the decision-making process, perform adequate due diligence to fully understand available policies and coverage options and incorporate cyber insurance into their annual budgeting processes.
View full text of the FFIEC statement.TOPIC : Cyber Security -
Two US Banking Regulators Propose Amendments to Supplementary Leverage Ratio Calculations for GSIBs and Their Insured Depository Institution Subsidiaries
04/11/2018
The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.
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US Federal Reserve Board Proposes to Integrate its Regulatory Capital and Stress Test Rules for Large Banks
04/10/2018
The U.S. Board of Governors of the Federal Reserve System published a notice of proposed rulemaking and request for comment intended to integrate its capital and stress rules and thereby simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets and to the U.S. intermediate holding companies of foreign banking organizations.
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European Central Bank Consults on Cyber Resilience Oversight Expectations for Eurozone Financial Market Infrastructures
04/10/2018
The European Central Bank has launched a consultation on draft "cyber resilience oversight expectations" for financial market infrastructures.
The CROE use, as a basis, the Guidance on Cyber Resilience for Financial Market Infrastructures that was published jointly in June 2016 by the Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions. FMIs were required to implement immediately that Guidance, which was supplemental to the Principles for Financial Market Infrastructures published in 2012 by IOSCO and the Committee on Payment and Settlement Systems. The PFMIs were adopted by the Governing Council of the ECB in June 2013. In developing the CROE, the ECB also took into account existing international guidance documents, in particular the Cyber Security Framework published by the U.S. National Institute of Standards and Technology, the ISO/IEC 27002 good practice standard for information security, the COBIT 5 framework for the governance and management of enterprise IT, the Information Security Forum's Standard of Good Practice for Information Security and the U.S. Federal Financial Institutions Examination Council's Cybersecurity Assessment Tools.
Read more. -
European Banking Authority Reports on Compensation Trends in EU Credit Institutions and Investment Firms
04/10/2018
The European Banking Authority has published a report entitled "Benchmarking of remuneration practices at the European Union level and data on high earners." The report sets out the EBA's analysis of the compensation data provided to it by national regulators for 2016, which the EBA has compared with data from 2015 and 2014. The Capital Requirements Directive requires the EBA to benchmark remuneration trends in credit institutions and investment firms at EU level and to publish aggregated data on high earners earning EUR 1 million or more per financial year. National regulators are required to collect the relevant information from credit institutions and investment firms and to submit it to the EBA.
The analysis shows a slight decrease in 2016 in the number of high earners paid EUR 1 million or more. There was also a significant decrease in the number of identified staff subject to a cap on the ratio of fixed to variable compensation, although the EBA notes that this was due to a significant reduction by two banks of their numbers of identified staff. The EBA also notes that the supervisory framework for compensation practices is still not sufficiently harmonized, with significant differences among Member States and among institutions in the application of deferral and payout in instruments.
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International Standard Setters Publish Framework for Supervisory Stress Testing of Multiple CCPs
04/10/2018
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a Framework for the supervisory stress testing of CCPs, following a joint consultation launched in June 2017.
In April 2015 the CPMI and IOSCO were asked by the G20 to develop, in conjunction with the Financial Stability Board and the Basel Committee on Banking Supervision, a "CCP workplan" for identifying and addressing remaining gaps and potential financial stability risks related to CCPs that are systemic across multiple jurisdictions and for helping to enhance their resolvability.
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European Securities and Markets Authority Seeks Clarity on the Ancillary Activity Exemption under MiFID II
04/09/2018
The European Securities and Markets Authority has published a letter from its Chair, Steven Maijoor, to the European Commission seeking clarification on how to interpret the ancillary activity exemption under the revised Markets in Financial Instruments Directive.
MiFID II exempts non-financial entities that deal on own account, or provide investment services to clients, in commodity derivatives from having to obtain authorization as an investment firm under MiFID II provided that, among other things, this activity is ancillary to their main business. The provisions of MiFID II are supplemented by a Commission Delegated Regulation setting out the Regulatory Technical Standard on the criteria to establish when an activity is considered to be ancillary to the main business. The wording of both MiFID II and the RTS suggest that the tests for whether activity is ancillary should be carried out at the level of the entity's group. However, some drafting amendments that were introduced by the Commission have led to uncertainty as to whether the tests should be carried out at the level of the entity rather than at group level.
ESMA states that it would not be appropriate for it to address this uncertainty through its usual Questions and Answers and invites the Commission to provide further guidance on the interpretation and implementation of the ancillary activity criteria, in particular on the level at which the tests should be applied.
View the ESMA letter.
View the Commission Delegated Regulation (2017/592). -
UK Financial Conduct Authority Publishes its 2018/19 Business Plan
04/09/2018
The Financial Conduct Authority has published its Business Plan for 2018/19 which sets out its key priorities for the coming year. The FCA confirms that it will continue to focus on issues relating to the U.K.'s withdrawal from the EU by working with the Government, ensuring appropriate transition measures for EEA firms, working towards operational readiness and cooperating at international level.
The FCA divides the remainder of its priorities into cross-sector priorities and sector priorities. There are seven cross-sector priorities: firms' culture and governance; financial crime and anti-money laundering; data security, resilience and outsourcing; innovation, big data, technology and competition; treatment of existing customers; long-term savings, pensions and intergenerational differences; and high-cost credit. There are seven sector priority areas: wholesale financial markets; investment management; retail lending; pensions and retirement income; retail investments; retail banking; and general insurance and protection. The FCA also published Sector Views for each of these sectors which provide an FCA view of how each sector was performing as of mid-2017.
Read more. -
Final Global Technical Guidance on Critical OTC Derivatives Data Published
04/09/2018
The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions have published final Technical Guidance on the harmonization of critical OTC derivatives data reported to trade repositories. The Technical Guidance does not cover the Unique Transaction Identifier and Unique Product Identifier. The Financial Stability Board identified the development of a UTI, UPI and other key data elements as critical for a mechanism to produce and share global aggregated derivatives reporting data. The Technical Guidance sets out the definition, format and allowable values of critical elements that would facilitate consistent aggregation of reported data at global level. It does not specify which data elements must be reported because those requirements are set by the relevant authorities in each jurisdiction. The Guidance is for national authorities to use and it is not intended to function as a set of rules for market participants.
View the Technical Guidance.TOPIC : Derivatives -
UK Financial Conduct Authority Consults on Ex Post Impact Evaluation
04/09/2018
The Financial Conduct Authority has published a discussion paper on its proposed approach to using ex post impact evaluation to assess the impact of its work on consumers, firms and markets. The consultation paper sets out what the FCA means by ex post impact evaluation, why it is important to the FCA, the scope of ex post impact evaluations, how the FCA will select which work to evaluate, how such evaluations will be conducted and the key challenges involved in ex post impact evaluations. The FCA is seeking feedback on its proposed approach.
Responses to the discussion paper should be submitted by July 9, 2018.
View the discussion paper.TOPIC : Financial Services -
UK Prudential Regulation Authority Publishes its 2018/19 Business Plan
04/09/2018
The Prudential Regulation Authority has published its Business Plan for 2018/19 which sets out its strategic goals and workplan to deliver those goals. The PRA also published a consultation paper on its fees and levies for 2018/19 alongside the Business Plan as well as a report to the Prudential Regulation Committee on the adequacy of PRA resources and independence of PRA functions.
Read a summary of the PRA's goals and workplan. -
European Commission Reports on the Potential Procyclical Effects of the EU Regulatory Capital Framework
04/09/2018
The European Commission has published a report on the effects of the EU regulatory capital framework on the economic cycle. The Capital Requirements Regulation requires the Commission to assess periodically whether risk-sensitive regulatory requirements contained in the CRR and the Capital Requirements Directive create unintended procyclical effects and to consider whether it would be appropriate to implement any remedies. The report is addressed to the European Parliament and the Council of the European Union and was prepared in cooperation with the European Banking Authority, the European Systemic Risk Board and Member States.
The Commission analyzed whether capital ratio requirements are procyclical and, if so, if they have an impact of the level of capital held by banks. The Commission has concluded that there is only weak evidence of any procyclical effects resulting from the requirements in CRR and CRD. The EU regulatory framework already provides various tools that deal with procyclical effects, such as the capital conservation buffer, the countercyclical capital buffer, the leverage ratio and risk weight adjustments for specific exposures. The Commission does not consider that any major changes to the EU framework are required at this time.
View the report. -
UK Financial Conduct Authority Confirms Regulatory Status of Cryptocurrency Derivatives
04/06/2018
The Financial Conduct Authority has published a statement confirming the regulatory requirements applicable to firms engaged in cryptocurrency derivatives. The FCA does not regulate cryptocurrencies, provided that they do not form part of other regulated services or products. However, the FCA states that cryptocurrency derivatives may be categorized as financial instruments under the revised Markets in Financial Instruments Directive II and that firms carrying out regulated activities in cryptocurrency derivatives should comply with the FCA's Handbook rules as well as the directly applicable EU provisions. The FCA points out that dealing in, arranging transactions in, advising on or providing other services that are regulated activities in relation to derivatives that reference cryptocurrencies or tokens issued through an Initial Coin Offering will require FCA authorization.
View the FCA's statement. -
UK Financial Conduct Authority Finalizes Rules Enhancing Governance of Authorized Fund Managers
04/05/2018
The Financial Conduct Authority has published a Policy Statement and final rules relating to strengthening the governance arrangements of U.K. authorized fund managers. The need to enhance these arrangements was identified by the FCA in the Asset Management Market Study launched in 2015. The final AMMS report was published in June 2017 and set out remedies the FCA intended to implement to address identified issues. At the same time, the FCA published a consultation paper on the first set of proposals.
The Policy Statement sets out the FCA's response to the feedback on its proposals and the final rules and guidance. The new rules and guidance applies to U.K. AFMs in relation to their management of authorized funds (that is, authorized open-ended collective investment schemes). The rules will apply either on April 1, 2019 or on September 30, 2019, depending on the lead time that the FCA considers the industry needs to implement the required changes.
Read more for a summary of the FCA's decision on the various consultation points. -
UK Financial Conduct Authority Consults on Proposals to Improve Disclosure to Fund Investors by Authorized Fund Managers
04/05/2018
The Financial Conduct Authority has published a second consultation paper on remedies arising out of the Asset Management Market Study. This consultation concerns improving disclosure by authorized fund managers to their investors and should be read with the Policy Statement, final rules and revised guidance on enhanced governance arrangements for U.K. AFMs, which were published alongside the consultation paper. The FCA is proposing:- new guidance on how AFMs should make fund objectives and investment policies clear and more useful for investors;
- new rules requiring managers to be clear about why (or why not) a benchmark has been used and how investors should assess the performance of the fund;
- new rules requiring AFMs that use benchmarks to use and reference them consistently across marketing materials;
- new rules requiring that where managers present past performance they must do so in an appropriate and consistent manner; and
- amending the performance fee rules to require that performance fees be calculated on performance net of other fees.
View the second consultation on remedies arising from the AMMS.
View details of the Policy Statement and final rules.
View the AMMS final report and the first consultation paper. -
International Standards Body Recommendations for Secondary Corporate Bond Market Transparency and Regulatory Reporting
04/05/2018
The International Organization of Securities Commissions has published a final report on regulatory reporting and public transparency in the secondary corporate bond markets. The report discusses the importance to robust capital markets of making information accessible to regulators and the public via regulatory reporting requirements and pre- and post-trade transparency requirements respectively. The report discusses the approach taken in various jurisdictions to impose these requirements before setting out seven recommendations for national regulators.
The recommendations update IOSCO's 2004 report, "Transparency of Corporate Bond Markets," which discussed the then-existing transparency arrangements for corporate bond markets, as well as the regulatory regimes that were in place in member jurisdictions and set out Core Measures for national regulators to consider to ensure adequate transparency and regulatory reporting arrangements. The recommendations also take into account IOSCO's 2017 report, "Examination of the Liquidity of the Secondary Corporate Bond Markets," which set out the findings of an evidence-based examination of the state of secondary corporate bond markets from 2004 until approximately 2015 and provided a detailed overview and discussion of the markets and how they had evolved since 2004.
Read more. -
John C. Williams Named President and CEO of the Federal Reserve Bank of New York
04/03/2018
The Federal Reserve Bank of New York announced that John C. Williams has been named its president and chief executive officer. Mr. Williams currently serves as the president and chief executive officer of the Federal Reserve Bank of San Francisco, a position he has held since 2011. Mr. Williams joined the Federal Reserve Bank of San Francisco in 2002, and prior to his appointment as president, served as executive vice president and director of research. Mr. Williams has also served as a senior economist at the White House Council of Economic Advisers. Mr. Williams will begin as president and chief executive officer on June 18, 2018, succeeding current president William C. Dudley, who is retiring.
View Tte full text of the Federal Reserve Bank of New York announcement.TOPIC : People -
US Federal Reserve Bank of New York Introduces Three New Reference Rates
04/03/2018
The U.S. Federal Reserve Bank of New York, in conjunction with the U.S. Office of Financial Research, introduced three new reference rates. These three rates, the Secured Overnight Financing Rate, the Broad General Collateral Rate and the Tri-Party General Collateral Rate, are based upon overnight repurchase agreement transactions collateralized by Treasury Securities. The Federal Reserve Bank of New York has previously published indicative historical data for these three new rates. In connection with the production of these new rates, the Federal Reserve Bank of New York indicated that it plans to update its International Organization of Securities Commissions statement of compliance during the second quarter of 2018 to include these rates.
View the FRB of NY's announcement.TOPIC : Credit Ratings -
US Department of the Treasury Releases Report Outlining Community Reinvestment Act Recommendations
04/03/2018
The U.S. Department of the Treasury issued recommendations to the U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation regarding the modernization of the Community Reinvestment Act. The report is a follow-up to Treasury’s 2017 report to the President entitled A Financial System That Creates Economic Opportunities: Banks and Credit Unions.
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US Financial Crimes Enforcement Network Releases Customer Due Diligence FAQs
04/03/2018
The U.S. Financial Crimes Enforcement Network released answers to 37 frequently asked questions regarding its final rule on Customer Due Diligence Requirements for Financial Institutions, which was published in the Federal Register on May 11, 2016 and amended on September 29, 2017. This is the second series of FAQs FinCEN has released. The FAQs cover various topics in connection with the requirement that financial institutions obtain beneficial ownership information for legal entity customers, including the beneficial ownership threshold and its interaction with other AML program obligations, collection and verification of identifying information, particularly for legal entity customers with complex ownership structures and the definition of “legal entity customer,” including the treatment of foreign financial institutions. The FAQs also provide guidance regarding the beneficial ownership certification requirement, including when a single customer opens multiple accounts and in respect of product or service renewals, obligations to update beneficial ownership information and requirements to understand the nature and purpose of the customer relationship.
View FinCEN FAQs. -
European Securities and Markets Authority Publishes Final Technical Advice under the Prospectus Regulation
04/03/2018
The European Securities and Markets Authority has published its final report on its technical advice to the European Commission to supplement the provisions of the Prospectus Regulation with delegated legislation. The Prospectus Regulation entered into force on July 20, 2017 and certain provisions took effect directly across the EU on July 20, 2017. It will further take effect partly on July 21, 2018 with the remainder of its provisions taking effect on July 21, 2019. The Prospectus Regulation is a major part of the European Commission's drive towards EU Capital Markets Union. It will repeal and replace the existing Prospectus Directive as well as its supplemental Regulation on the form and content of a prospectus.
ESMA was mandated by the European Commission to provide technical advice on possible delegated acts on the format and content of the prospectus, the content, format and sequence of the EU Growth Prospectus (a new type of prospectus for small and medium-sized enterprises and in certain cases non-SMEs for small issuances) and scrutiny and approval of the prospectus. ESMA consulted on its draft technical advice in three consultations launched in July 2017. ESMA has made a number of amendments to its technical advice, based on feedback received on the consultations.
Read more.TOPIC : Securities -
US Consumer Financial Protection Bureau Releases Semi-Annual Report
04/02/2018
The U.S. Consumer Financial Protection Bureau published its semi-annual report. The report, which is mandated by the Dodd-Frank Act, highlights and summarizes various topics the CFPB is working on, including a list of rules, orders and initiatives to be undertaken in the upcoming period. The report notes upcoming proposed and final rules, including reconsideration of certain aspects of Regulation C (Home Mortgage Disclosure), finalization of amendments to Regulation P (Annual Privacy Notice Requirements Under the Gramm-Leach-Bliley Act), and finalizing an amendment to Regulation Z (Federal Mortgage Disclosure Requirements under the Truth in Lending Act). In his introductory letter to the report, CFPB Acting Director Mick Mulvaney was critical of past actions by the CFPB, contending that the CFPB was too powerful and subject to very little oversight. Acting Director Mulvaney noted that the CFPB “will continue to execute the law, but will no longer go beyond its statutory mandate.” In addition, Acting Director Mulvaney requested Congress enact four changes in order to promote and establish CFPB accountability: funding the CFPB through the congressional appropriations process; requiring congressional approval of major CFPB rules; ensuring that the CFPB Director is accountable to the President in the exercise of executive authority; and creating an independent Inspector General for the CFPB.
View the CFPB report.TOPIC : Consumer Protection -
US Federal Financial Regulators Issue Final Rule Exempting Commercial Real Estate Transactions of $500,000 or Less from Appraisal Requirements
04/02/2018
The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation issued a final rule that exempts commercial real estate transactions of $500,000 or less from the appraisal requirements promulgated under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The final rule raises the threshold from $250,000 to $500,000, for which appraisals are not required in connection with commercial real estate transactions. The agencies originally proposed to increase the threshold to $400,000, but they determined that an increase to $500,000 would not pose a threat to the safety and soundness of financial institutions, and would result in a material reduction in the compliance-related regulatory burden for financial institutions. For purposes of the final rule, “commercial real estate transaction” is defined as “a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.” The final rule clarifies that construction loans of $500,000 or less secured by a single 1-to-4 family residential property are not exempted from the appraisal requirement. In lieu of an appraisal, financial institutions are required to obtain an evaluation of the collateral that is sufficient to support the institution’s decision to engage in the transaction and consistent with safe and sound business practices. The final rule took effect on April 9, 2018.
View full text of final rule. -
U.S. Board of Governors of the Federal Reserve System Commission Study Regarding Payments Fraud and Security Vulnerabilities
03/29/2018
The U.S. Board of Governors of the Federal Reserve System announced that it is undertaking a study that will begin this month with respect to fraud in the U.S. payments system. The study will identify causes and contributing factors to fraud in the U.S. payments system, such as payment security vulnerabilities, and will measure the costs associated with such fraud. The study was commissioned as part of the Federal Reserve Board’s Next Steps in the Payment Improvement Journey paper that was released last year. A global management consulting firm will conduct the study, which is expected to last up to six months. The study is intended to provide data to assist the Federal Reserve with its collaboration with the payments system industry with respect to the security of the payments system.
View the full text of the Federal Reserve Board announcement.TOPIC : Payment Services -
UK Authority Considers Competition Issues Arising From the Provision of Investment Consultancy Services and Fiduciary Management Services
03/29/2018
The U.K. Competition and Markets Authority has published the third in a series of working papers on specific aspects of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, which was published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018. The second working paper on asset manager product recommendations was published on March 22, 2018.
The third working paper provides the CMA's initial analysis of competition issues arising when firms offer both investment consultancy and fiduciary management services, in particular, where customers receiving investment consultancy services are directed towards a firm's fiduciary management services. The CMA is concerned that customers may not always receive the solution or deal that is in their best interests. In addition, conflicts of interest may arise between the firm and its clients. The CMA is of the view that it is not clear whether existing regulation fully addresses these potential conflicts of interest.
Read more.TOPIC : Competition -
U.S. Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig Discusses Finding the Correct Regulatory Balance
03/28/2018
Outgoing U.S. Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the importance of attaining meaningful regulatory relief without undermining the safety and soundness of the financial system. Citing a few historical examples, Vice Chairman Hoenig discussed the similarities among past crises, as well as the deregulatory attitude that has followed these crises once the economy begins to recover. Vice Chairman Hoenig noted that with a strong regulatory foundation, including strong capital and constraints on the reliance on government bail-outs, a number of costly administrative rules could be minimized or eliminated.
Read more. -
European Commission Proposes Extending Fee Cap to Non-Eurozone Member States
03/28/2018
The European Commission has published a proposed Regulation to amend the Regulation on cross-border payments in the EU. The Regulation on cross-border payments provides, among other things, that charges for cross-border euro payments within the Eurozone must be the same as charges for domestic euro payments. Member States outside of the Eurozone were given the option to extend the application of the Regulation to their domestic currency. Only Sweden opted to do so.
The proposed amending Regulation extends the scope of the fee cap provisions to EU Member States outside of the Eurozone for euro-denominated payments. A payment service providers' charges for cross-border euro payments will be required to be the same as that charged by the PSP for a domestic payment of the same value in the official currency of the customer's Member State. Cross-border transactions in currencies other than the euro are outside of the scope of the fee cap proposals. The proposals aim to put an end to the high cost of intra-EU cross-border transactions in euro.
Read more.TOPIC : Payment Services -
European Central Bank Consults on Guide to Internal Models
03/28/2018
The European Central Bank has begun a consultation on the first chapter of a proposed guide to internal models. The Capital Requirements Regulation requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's proposed guide aims to set out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted.
The consultation covers only the first chapter of the proposed guide. This chapter is on general topics comprising overarching principles for internal models, implementation of the internal ratings-based approach, internal model governance, internal validation and audit, model use and change management as well as third-party involvement. The ECB intends to consult on model-specific chapters, including for credit, market and counterparty credit risks, at a later date.
The consultation closes on May 25, 2018.
View the consultation paper. -
Final EU Guidelines on Internalized Settlement Reporting Under the Central Securities Depositories Regulation
03/28/2018
The European Securities and Markets Authority has published final Guidelines on Internalized Settlement Reporting under the Central Securities Depositories Regulation. The CSDR, which introduces common standards for settlements across the EU, will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and, from January 1, 2025, to all transferable securities. The CSDR requires settlement internalizers to report the aggregated volume and value of all securities transactions that they settle outside of securities settlement systems to their national regulator on a quarterly basis. Settlement internalizers are firms that execute transfer orders on behalf of clients or on own account other than through a securities settlement system. National regulators must, without delay, transmit the information received from settlement internalizers to ESMA and inform ESMA of any resulting potential risk. Regulatory Technical Standards on internal settlement (Commission Delegated Regulation (EU) 2017/391) provide the content of internalized settlement reporting and Implementing Technical Standards (Commission Implementing Regulation (EU) 2017/393) provide the templates and procedures for reporting and transmission of the information.
The Guidelines on Internalized Settlement Reporting aim to ensure the consistent application of the requirements under CSDR and the related technical standards. The Guidelines set out the scope of data to be reported to national regulators and the entities responsible for reporting the information. The Guidelines also provide the process for submission of information by national regulators to ESMA.
The Guidelines will apply to national regulators and to settlement internalizers from the date that they are published on ESMA's website in the official languages of the EU.
View the final Guidelines on reporting internalized settlement.TOPIC : Securities -
European Banking Authority Proposes Extending the Scope of the Complaints-Handling Guidelines
03/28/2018
The European Banking Authority has published proposals to extend the Joint Committee Guidelines on complaints-handling for the securities and banking sectors to the new institutions established under the revised Payment Service Directive and the Mortgage Credit Directive. The Joint Committee's Guidelines on complaints-handing for the securities and banking sectors, published in June 2014, apply to national regulators responsible for supervising complaints-handling by credit institutions, investment firms, certain fund managers, payment institutions and electronic money institutions where complaints are made by natural or legal persons about the regulated activities carried out by these entities.
The MCD, which has applied since March 2016, covers non-bank creditors. Similarly, PSD2, in application since January 2018, introduced two new providers of payment services - payment initiation service providers and account information service providers. Complaints-handling by these entities do not currently fall within the scope of the Guidelines.
The EBA is proposing to extend the scope of the existing Guidelines to these entities to ensure that consumers receive the same level of protection when they interact with these new entities as when they interact with in-scope regulated entities. The extended Guidelines would only apply to security-related complaints for account information services provided by account information service providers under PSD2. The EBA proposes that national regulators should apply the extended Guidelines on a proportionate basis, taking into account the nature, scale and complexity of the business of each entity as well as the nature and range of services they offer.
The consultation closes on May 27, 2018.
View the consultation paper.
View the existing Guidelines. -
UK Regulators Confirm Approach to Authorization and Supervision of International Banks, Investment Firms, Insurers and CCPs Under Brexit Transitional Agreement
03/28/2018
Following the announcement on March 19, 2018 that a transitional period for Brexit had been agreed between the U.K. and the EU, the U.K. regulators have published statements setting out their expectations regarding firms' preparations for the U.K.'s withdrawal from the EU. The agreed transitional period is from March 29, 2019 until December 31, 2020 and EU law will remain applicable in the U.K. during that time. Both the Financial Conduct Authority and the Bank of England have stated that, subject to the ratification of the transitional agreement, firms carrying on regulated activities in the U.K. through an EU passport can plan to continue doing so during the implementation period on the same basis as they do now and that U.K. authorization would only be needed by the end of that period.
The BoE has also confirmed its approach to the authorization and supervision of international banks, designated investment firms and insurers. The Prudential Regulation Authority has published "Dear CEO&" letters addressed to the CEOs and branch managers of banks, insurers and designated investment firms that undertake cross-border activities between the U.K. and the rest of the EU, together with updated Policy Statements and Supervisory Statements on the PRA's approach to the branch authorization and supervision of EEA banks, insurers and designated investment firms. Following consideration of feedback to the PRA's consultation on updating its approach to branch authorization and supervision, the PRA confirms that it has not made any significant changes to the versions it consulted on, except that the threshold for liabilities protected by the Financial Services Compensation Scheme has been increased from £200 million to £500 million. The PRA's new approach for banks, investment firms and insurers comes into effect on March 29, 2018.
Read more.TOPIC : Brexit for Financial Services -
European Securities and Markets Authority Confirms Product Intervention for Contracts for Difference and Binary Options
03/27/2018
The European Securities and Markets Authority has confirmed that it will use its product intervention powers under the Markets in Financial Instruments Regulation to prohibit the marketing, distribution and sale of binary options to retail investors. It will also impose a number of restrictions on the marketing, distribution and sale of Contracts for Difference to retail investors. Both CFDs and binary options have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by providers and distributors of the products.
Read more. -
European Securities and Markets Authority Issues Final Guidelines for Position Calculation by Trade Repositories
03/27/2018
The European Securities and Markets Authority has published finalized Guidelines on position calculation by trade repositories under the European Market Infrastructure Regulation. ESMA consulted on a draft version of the Guidelines at the end of 2017.
EMIR requires that derivatives contracts are reported to a trade repository by the parties to the contract or by the CCP. Reporting parties do not have to report their trades to the same trade repositories. Instead, trade repositories must take steps to reconcile records among one another. Trade repositories are required to calculate the positions by class of derivatives and the reporting entity, based on the reports received. Trade repositories are also required to publish aggregate positions by class of derivatives.
ESMA has introduced new Guidelines to provide a framework for trade repositories to provide the relevant calculations in a common format and follow a consistent methodology and timeline. This will promote the provision to relevant authorities with more consistent and harmonized position data in relation to derivatives and higher standards as regards the data that is made available to authorities.
Read moreTOPIC : Derivatives -
EU Authority Seeks to Clarify the Third-Country Endorsement Regime for Credit Ratings
03/27/2018
The European Securities and Markets Authority has opened a consultation on proposed supplementary guidance on the application of the endorsement regime under the EU Credit Rating Agencies Regulation. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes where such ratings have been issued by CRAs established in the EU and registered with ESMA. Credit ratings issued in a third country may only be used for such regulatory purposes in the EU under an endorsement regime or an equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA and endorsed by an EU CRA to be used for regulatory purposes in the EU. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes - it does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU. However, the equivalence regime requires an affirmative assessment by ESMA and the Commission as to the legal regime for credit ratings agency in the third country.
In November 2017, ESMA published an updated version of the Guidelines on the endorsement regime, which clarified that ESMA expects an endorsing CRA to verify, and be able to demonstrate, that the third-country CRA has established internal requirements which are at least as stringent as the corresponding requirements in the relevant provisions of the CRA Regulation, or that the third-country CRA fulfills the endorsement requirements under the CRA Regulation.
Read more.TOPIC : Credit Ratings -
UK Regulator Proposes Guidance on Obligations to Counter Insider Dealing and Market Manipulation
03/27/2018
The Financial Conduct Authority has launched a consultation on adding a proposed chapter on insider dealing and market manipulation to its Financial Crime Guide. The Financial Crime Guide is not part of the FCA's rules but it is a guide to assist firms in implementing the regulator's rules. A firm that does not comply with the Guide is not necessarily deemed by the FCA to be in breach of the rules. However, the FCA expects firms to use the guide to inform their financial crime systems and controls.
The FCA is proposing to add a new chapter on insider dealing and market manipulation to the Financial Crime Guide. The EU Market Abuse Regulation, which applies directly across the EU, requires firms arranging or executing transactions to establish and maintain effective arrangements, systems and controls to detect and report suspicious transactions. The FCA emphasizes that the U.K. rules extend these obligations under MAR and require firms to also counter the risk of financial crime. The FCA explains that this 'countering' obligation extends to insider dealing and market manipulation.
The consultation paper also covers other minor amendments proposed by the FCA, including updating the Guide to reflect the introduction of the Money Laundering Regulations 2017 and removing outdated references on Sanctions.
Responses to the consultation are due by June 28, 2018. The FCA intends the final revised Guide to come into effect on October 1, 2018
View the consultation paper.
View the existing Financial Crime Guide. -
Federal Reserve Bank of New York President William Dudley Discusses the Role of Incentives in Ensuring a Resilient and Robust Financial System
03/26/2018
Federal Reserve Bank of New York President William Dudley spoke at the U.S. Chamber of Commerce regarding the role incentives play in ensuring a resilient and robust financial system. In his remarks, President Dudley noted the considerable progress that has been made since the financial crisis in creating a more robust and resilient financial system, including with respect to the safety and soundness of, and to the resolution process for, systemically important financial institutions.
Read more. -
European Money Markets Institute Consults on Hybrid Methodology for Euribor
03/26/2018
The European Money Markets Institute has published a consultation paper seeking views from stakeholders on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.
Euribor is currently determined using a survey approach entailing the collection of quotes from contributing panel banks active in the euro money markets, supplemented by expert judgement. In line with the Financial Stability Board's 2014 report, "Reforming Major Interest Rate Benchmarks", EMMI has been working towards a methodology which will strengthen Euribor by underpinning it, to the greatest extent possible, with real transaction data. In 2016, EMMI proposed a new determination methodology for Euribor that was fully anchored in real transactions. However, viability testing of the proposed methodology revealed that a seamless transition from a quote-based to a fully transaction-based methodology was not feasible.
EMMI is now proposing a three-level "hybrid" methodology, under which the calculation of Euribor at particular defined tenors is supported by euro money market transaction data from contributing panel banks whenever available and relies on other related market pricing sources or banks' own appreciation of their funding costs when necessary.
Read more. -
Final Draft EU Technical Standards Amending Systematic Internalisers' Quote Rules
03/26/2018
The European Securities and Markets Authority has published a final report and final draft amending Regulatory Technical Standards to amend the RTS on the equity transparency obligations of trading venues and investment firms (Commission Delegated Regulation (EU) 2017/587, known as RTS 1). The Markets for Financial Instruments Regulation requires Systematic Internalisers to make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity".
ESMA considers that this concept needs to be further elaborated and consulted on proposed amendments last year. ESMA has not made any changes to its proposal. The final draft amending RTS provide that the quotes of an SI can only adequately reflect prevailing market conditions when the quotes reflect the minimum price increments ('tick sizes') quoted for a financial instrument on a trading venue.
Read more.TOPIC : MiFID II -
European Regulatory Technical Standards under ELTIF Regulation published
03/23/2018
A Commission Delegated Regulation has been published in the Official Journal of the European Union. The Delegated Regulation supplements the Regulation on European Long-Term Investment Funds, setting out Regulatory Technical Standards to specify the criteria for establishing the circumstances in which the use of financial derivative instruments solely serves hedging purposes, the circumstances in which the life of a ELTIF is considered sufficient in length and the criteria to be used for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets and the facilities available to retail investors.
The Delegated Regulation will enter into force on April 12, 2018.
View the Commission Delegated Regulation ((EU) 2018/480).TOPIC : Funds -
Financial Stability Board Launches Survey on Legal Barriers to Reporting OTC Derivatives Trades
03/23/2018
The Financial Stability Board has launched a survey seeking feedback from financial institutions and other reporting entities on legal barriers that prevent or hinder them from reporting full transaction information on over-the-counter derivatives trades to Trade Repositories.
Legal barriers that can prevent full trade reporting include blocking laws, client confidentiality laws, data protection laws and related requirements or restrictions. Trade reporting is an important component of the comprehensive reforms of OTC derivatives markets agreed by the G20 in 2009. A thematic peer review of derivative trade reporting conducted by the FSB in 2015 revealed a number of legal barriers to trade reporting. These barriers can hamper national regulators in carrying out their regulatory obligations, such as monitoring and analyzing systemic risk and market activity. The FSB has previously published progress reports in 2016 and 2017 setting out steps FSB member jurisdictions have taken and are planning to take. FSB member jurisdictions have committed to take action to remove legal barriers by June 2018.
Read more.TOPIC : Derivatives -
European Central Bank Issues Final Guides on Licensing Credit Institutions and FinTech Credit Institutions
03/23/2018
The European Central Bank has published finalized versions of its guides “Guide to Assessments of Licence Applications” and “Guide to Assessments of FinTech Credit Institution Licence Applications”, following consideration of the responses to consultations on draft versions of the guides, which the ECB ran between September and November 2017.The ECB has been exclusively competent, since November 2013, to authorize all Eurozone credit institutions and credit institutions established in any other EU Member States that participate in the Single Supervisory Mechanism via close cooperation arrangements.
The ECB exercises its competence in close cooperation with the relevant national regulators. The ECB has developed the Guides, which are not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the SSM. These should serve as practical tools to support applicants and all other entities involved in the process of bank authorization to ensure a smooth and effective procedure and assessment.
Read more. -
Consultation on Proposed EU Technical Standards for Securitization Repositories
03/23/2018
The European Securities and Markets Authority has published two consultation papers relating to the regulation of EU securitization repositories under the Securitization Regulation (also known as the STS Regulation). The first consultation paper proposes draft technical standards on applications for registration of a securitization repository and draft Guidelines on data portability between securitization repositories. The second consultation paper consults on draft advice to the European Commission on supervisory fees payable by securitization repositories.
The Securitization Regulation requires, among other things, securitization special purpose entities, originators and sponsors of a securitization to make certain information available via a securitization repository to holders of a securitization position, to national regulators and, upon request, to potential investors. ESMA will register and supervise securitization repositories, as it does trade repositories under the European Market Infrastructure Regulation and the Securities Financing Transactions Regulation. Unlike EMIR and SFTR, the Securitization Regulation does not contemplate non-EU firms as securitization repositories.
Read more. -
Financial Action Task Force Launches Survey on Correspondent Banking Guidance
03/23/2018
The Financial Action Task Force has launched an online private sector survey on correspondent banking and the usefulness of its 2016 Guidance on correspondent banking services. The Guidance was published in response to increased concerns about so-called "de-risking," whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The FATF considers that de-risking is inconsistent with FATF Recommendations, that it has negatively impacted correspondent banking and that it may result in financial transactions being directed into less regulated areas, which would reduce transparency and increase exposure to money laundering and terrorist financing risks.
The FATF wants to assess whether its Guidance is helping to address the de-risking issues. The survey is intended to track their understanding of adoption and usefulness of the guidance.
The survey is open until April 16, 2018.
View the survey.
View the 2016 Guidance on correspondent banking. -
U.S. Federal Financial Institutions Examination Council Provides Update on Examination Modernization Project
03/22/2018
The U.S. Federal Financial Institutions Examination Council announced an update regarding its Examination Modernization Project. The project initially grew out of the regulatory review process undertaken pursuant to the Economic Growth and Regulatory Paperwork Reduction Act, and is intended to identify potential improvements that can be made in the efficiency and efficacy of the community financial institutions safety and soundness examination processes. The project has focused primarily on leveraging improved technology to streamline and simplify the examination process for community financial institutions. As part of the project, the FFIEC has identified four key areas where the supervisory burden can potentially be reduced, including, better communication throughout the examination process, using technology to move examination tasks offsite, tailoring examinations based upon risk and improving electronic file transfer systems. While the FFIEC will first focus on these four areas, the Examination Modernization Project is envisioned as a long-term process, and the FFIEC will continue to identify new parts of the examination process that could benefit from further improvement. To facilitate improvements in the first key area regarding transparency, the U.S. federal financial regulatory agencies have committed to issue reinforcing and clarifying guidance to examination staff about the importance of being transparent and communicative throughout the examination process.
View full tex of FFIEC press release. -
UK Government Launches FinTech Sector Strategy
03/22/2018
HM Treasury has published a document entitled "FinTech Sector Strategy: Securing the Future of U.K. FinTech" to coincide with the U.K. government's second International Fintech Conference.
The Strategy Paper provides an overview of the work already conducted by successive U.K. governments to support the FinTech sector by promoting competition and removing barriers to entry. Drawing on the findings of the 2017 "UK FinTech Census," which set out a comprehensive review of the sector and the challenges it faces, the government has identified further action it might take to remove barriers to entry and growth faced by FinTech firms. These further actions focus on reducing the cost of regulatory compliance, ensuring access to skilled talent, improving FinTech firms' access to equity finance, improving the take-up of new FinTech services, increasing competition and providing access to new markets.
Read more.TOPIC : FinTech -
Basel Committee Updates Frequently Asked Questions on Basel III Standards
03/22/2018
The Basel Committee on Banking Supervision has published updated versions of its frequently asked questions on two aspects of the Basel III prudential framework.
The Basel Committee has updated the FAQ it published in August 2015 on the standardized approach for measuring counterparty credit risk exposures, providing answers to additional questions concerning collateral taken outside of netting sets, the treatment of Eurodollar futures, supervisory delta adjustments for negative interest rates, credit derivatives and effective notional calculations. The Basel Committee has also updated the FAQ it published in January 2017 on market risk capital requirements, with the addition of answers to three new questions on the standardized approach, the internal models approach and the trading book boundary and scope of application.
View the updated FAQ on the standardized approach for counterparty credit risk.
View the updated FAQ on market risk capital requirements. -
UK and Australian Regulators Agree Enhancements to FinTech Bridge
03/22/2018
The U.K. Financial Conduct Authority and the Australian Securities and Investments Commission have signed an enhanced cooperation agreement on FinTech innovation. The new agreement supersedes the previous cooperation agreement entered into by the two countries' regulators in March 2016. It aims to enable public officials and private parties to work together to foster Fintech innovation and help early-stage Fintech firms to expand their businesses. The FCA and ASIC will, through their Innovation Hubs, explore ways to speed up the process of authorization of innovative businesses that are already authorized in the other jurisdiction. The framework agreed between the regulators includes a referral mechanism and mutual access to regulatory sandbox testing environments, enabling the two authorities to refer FinTech businesses between their respective sandboxes. The Authorities also plan to share and use information on innovation in their respective markets.
Commenting on the enhanced cooperation agreement, U.K. Chancellor of the Exchequer Philip Hammond stated that "This is our most ambitious collaboration to date, bringing together regulators, policy-makers and private sector leaders to collaborate on growing our respective fintech markets in tandem."
View the Enhanced Cooperation Agreement.
View the FCA press release.TOPIC : FinTech -
UK Competition and Markets Authority Publishes Second Working Paper on its Investment Consultancy Investigation
03/22/2018
The U.K. Competition and Markets Authority has published the second in a series of working papers on specific aspects of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, which was published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018.
Read more.TOPIC : Competition -
Basel Committee on Banking Supervision Consults on Amending Pillar 3 Disclosure Requirements
03/22/2018
The Basel Committee on Banking Supervision has published a consultation document on a technical amendment to the Pillar 3 disclosure requirements and the regulatory treatment of accounting provisions. The proposals are relevant in jurisdictions implementing an expected credit loss accounting model and for those adopting transitional arrangements for the regulatory treatment of accounting provisions. The Basel Committee is proposing to introduce a new requirement in the Pillar 3 standard to reflect any transitional effects for the impact of ECL accounting on regulatory capital.
The consultation closes on May 4, 2018.
View the consultation paper. -
Basel Committee Consults on Proposed Revisions to Minimum Capital Requirements for Market Risk
03/22/2018
The Basel Committee on Banking Supervision has published a consultation on proposed revisions to the standard it published in January 2016 on the minimum capital requirements for market risk. The Basel Committee has been monitoring the implementation of the standard and its impact on banks' market risk capital requirements since the standard was published and has identified several issues.
Read more. -
UK Secondary Legislation on Regulatory Treatment of Peer-to-Peer Borrowers
03/21/2018
The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 has been published. This Amendment Order amends the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 to clarify the position of borrowers who raise funds through peer-to-peer lending platforms.
The Amendment Order provides that, subject to a number of conditions, if a borrower using peer-to-peer lending uses the capital of, or interest on, money received by way of deposit solely to finance its other business activities, this is to be regarded as evidence indicating that the borrower is not carrying on the business of accepting deposits. This clarifies that only firms whose core business involves borrowing through a peer-to-peer platform would need to obtain a banking license and be regulated as a "deposit taker." The Amendment Order resolves uncertainty for businesses borrowing via peer-to-peer platforms (and for the platforms themselves) by clarifying the circumstances in which those borrowers would be considered to be carrying on the regulated activity of accepting deposits.
The Amendment Order comes into force on March 22, 2018.
View the Amendment Order (S.I. 2018 No. 394)..
View the explanatory memorandum.TOPIC : FinTech -
European Banking Authority Final Guidelines on Internal Governance Under the Capital Requirements Directive
03/21/2018
The European Banking Authority has published a compliance notification form on its website, seeking confirmation, by May 21, 2018, of compliance (or intention to comply) with the Final Guidelines on Internal Governance it published in September 2017.
The EBA was mandated under the Capital Requirements Directive to provide guidelines on the corporate governance arrangements, processes and mechanisms required under that Directive. CRD IV requires that institutions must have robust governance arrangements, which include a clear organizational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures and remuneration policies and practices that are consistent with and promote sound and effective risk management. The EBA consulted in October 2016 on proposed updates to its previous guidelines on internal governance, which were published in September 2011.
Read more. -
European Banking Authority Reports on the Credit Risk Mitigation Framework
03/21/2018
The European Banking Authority has published a report following its assessment of the credit risk mitigation framework under the Capital Requirements Regulation. Credit risk mitigation is defined in the CRR as a "technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold". The incentive for institutions in using CRM techniques is that CRM can attract a reduction in capital requirements.
This CRM report forms the fourth and final phase of the EBA's roadmap for the implementation of the regulatory review of the internal models based approach. That roadmap, launched in February 2016, favoured continued use of the IRB approach (that is, the Foundation IRB Approach and the Advanced IRB Approach) and set out plans for the introduction, in four phases, of changes which aim at harmonizing definitions and supervisory practices in the definition of default, the estimation of risk parameters and treatment of defaulted assets, credit risk mitigation techniques and disclosure in four phases.
The EBA considers that increased clarity of the CRM framework is an integral part of the IRB review and the EBA has analyzed, in the CRM report, whether an overhaul of the CRM framework as presented in the CRR would be beneficial.
Read more. -
European Securities and Markets Authority and European Banking Authority Final Guidelines on Suitability of Management Body Members and Key Function Holders
03/21/2018
Following consultation in late 2017, the European Securities and Markets Authority and European Banking Authority have jointly published final Guidelines on the assessment of the suitability of members of management bodies and key function holders in credit institutions, investment firms, financial holding companies and mixed financial holding companies. These assessments are required under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive.
Under the CRD and MiFID II, an assessment of the suitability of members of a management body should take into account factors such as sufficiency of time commitment, honesty, integrity and independence of mind of a member of the management body. The management body must have adequate collective knowledge, skills and experience among its members. Firms should devote adequate human and financial resources to the induction and training of such members. Diversity is also to be taken into account when selecting members of the management body. In the case of key function holders, the Guidelines also specify requirements regarding the suitability of the heads of internal control functions and the chief financial officer of credit institutions and certain investment firms. The Guidelines apply to any other persons assessed as key function holders under the firm's risk-based approach. An Annex is provided as a template for firms to record the results of relevant assessments.
Read more. -
UK Regulator Consults on Mission Approach Documents for Supervision and Enforcement
03/21/2018
The U.K. Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to supervision and enforcement. The two documents, once finalized, will form part of a series of formal "approach documents" explaining the FCA's approach to regulation in more depth. They should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.
Read more.TOPIC : Enforcement -
European Securities and Markets Authority Issues Opinion on Application of MiFIR Trading Obligation to Package Orders
03/21/2018
The European Securities and Markets Authority has published an Opinion on the treatment of package orders in the context of the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation requires that the trading of certain derivatives must take place on a regulated market, multilateral trading facility, organised trading facility or on an equivalent third-country trading venue.
Package orders are used by investment firms and their clients to conduct trades for risk management and hedging purposes. They are composed of two or more financial instruments that are priced as a single unit. The execution of each component is simultaneous and contingent upon on the execution of all the other components. Under MiFIR, the trading obligation is designed to apply at instrument level, not package level – the obligation attaches to the components of a package, but not to the package as a whole. Difficulties may arise where a package order contains a mixture of instruments, where some are subject to the trading obligation while others are not. ESMA considers that the components of a package need to be executed on a trading venue only where it is feasible to do so without creating undue operational or execution risk.
Read more. -
Wolfsberg Group Issues Frequently Asked Questions on Country Risk
03/20/2018
The Wolfsberg Group has published a set of Frequently Asked Questions on financial crime country risk. Country risk is the additional risk created by investing in, or lending cross border to, a foreign country in the context of credit facilities.
The FAQs cover: (i) the meaning of country risk in the context of financial crime compliance; (ii) the data sources that should be considered when developing a methodology to assess country risk; (iii) the frequency with which data sources should be refreshed; (iv) how sanctions should be considered in country risk methodologies; (v) the models or methodologies available to financial institutions to measure country risk, and how (and how frequently) financial institutions should test and validate their effectiveness; (vi) matters to be considered when purchasing and using an off-the-shelf commercial product to determine financial crime country risk ratings; (vii) whether there is standard or conventional methodology to assess country risk; (viii) how missing data points should be dealt with; (ix) whether overrides or discretionary risk rating changes should be allowed; (x) who should maintain ownership of the organization's FCCR Methodology; (xi) who uses the assessment results and how are the ratings disseminated; (xii) how the FCCR rating methodology should drive customer due diligence and enhanced due diligence requirements; and (xiii) whether a financial institution should have a country risk assessment expressed as a country risk rating.
Read more. -
Financial Stability Board Publishes Progress Update on its Work to Develop a Cyber Lexicon
03/20/2018
The Financial Stability Board has published a Progress Update on its work on the creation of a common lexicon of terms to support the work of the FSB, standard-setting bodies, authorities and private sector participants to address cyber-security and cyber-resilience in the financial sector.
The FSB explains in the Progress Update that the cyber lexicon is not intended as a comprehensive lexicon of all cyber-security and cyber-resilience related terms. Its scope will be limited and focused on the core terms necessary to support the objective of the lexicon, which is to support the work of the above bodies, in particular by creating a cross-sector common understanding of relevant cyber security and cyber resilience terminology and by facilitating assessment and monitoring of financial stability risks in cyber-risk scenarios. It is expected that the lexicon will assist in the work of the FSB and standard-setting bodies to provide guidance related to cyber-security and cyber resilience.
Read more.TOPIC : Cyber Security -
UK and EU Negotiators Agree Brexit Transition Period
03/19/2018
The European Commission and the U.K. government have jointly published the latest draft withdrawal agreement for the U.K.'s departure from the EU which, among other things, reflects the agreement reached on the post-Brexit transition period.
The draft withdrawal agreement includes some sections which are agreed (subject to legal drafting) and others which remain to be finalized. It includes final wording concerning an agreed "transition" or "implementation" period, that will run until December 31, 2020. The draft agreement departs from the previous draft circulated by the European Commission on March 15, 2018, by providing that the U.K. will be free to negotiate, sign and ratify international agreements in its own capacity during the transition. Any agreements negotiated by the U.K. must not enter into force or apply during the transition period, unless authorised by the EU.
The draft agreement also contains the agreed legal text for citizens' rights and concerning the financial settlement, as well as agreed text on a number of other provisions. Financial services and other services remain among issues that are not addressed by any agreed text. The U.K. and EU negotiators aim to finalize the entire withdrawal agreement by October 2018.
View the draft withdrawal agreement.TOPIC : Brexit for Financial Services -
G20 Communiqué Calls for Recommendations for Regulation of Crypto-Assets
03/18/2018
The G20 has published a Communiqué following the meeting of Finance Ministers & Central Bank Governors in Buenos Aires on March 19 – 20, 2018.Among other things, the Communiqué states that the G20 welcomes the finalization of Basel III and remains committed to full, timely and consistent implementation and finalization of the reforms. The G20 looks forward to the outcome of the evaluation of the reforms to identify and address any unintended consequences, which is being led by the Financial Stability Board.
The G20 also commits to continue to address the decline in correspondent banking relationships. It welcomes the FSB's March 2018 progress report on correspondent banking and calls on the FSB to monitor, with the FATF, the International Monetary Fund, the World Bank Group and the Global Partnership for Financial Inclusion, the adoption of the recommendations in the FSB's March 2018 report "Stocktake of Remittance Service Providers' Access to Banking Services."
Read more. -
Financial Action Task Force Report to G20 Finance Ministers and Central Bank Governors
03/16/2018
The Financial Action Task Force has published its report to G20 Finance Ministers and Central Bank Governors, in advance of their meeting in Buenos Aires scheduled for March 19 – 20, 2018. In the report, the FATF reiterates its commitment to tackle all sources, techniques and channels used in terrorist financing and to continue its work to increase financial transparency and improve the environment for remittances.
The report gives an overview of the FATF's recent work by providing stock-takes on the following workstreams:- strengthening the FATF's institutional basis, governance and capacity;
- countering the financing of terrorism and proliferation;
- improving transparency and the availability of beneficial ownership information;
- supporting financial inclusion and access to regulated financial services;
- bank de-risking and the impact on remittances;
- FATF engagement with judges and prosecutors to improve the effectiveness of the criminal justice system; and
- the risks and opportunities of FinTech, RegTech and virtual currencies.
Read more
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Financial Stability Board Action Plan on Access to Banking Services by Remittance Providers
03/16/2018
The Financial Stability Board has published two reports relating to its actions to address the decline in correspondent banking. The first report is a progress report addressed to the G20 Finance Ministers and Central Bank Governors on the FSB's four-point action plan to assess and address the decline in correspondent banking relationships. It sets out the actions taken since the FSB's July 2017 progress report and describes the work that remains to be completed at international level and implemented at national level by regulators and banks. That work includes:- Implementing the recommendations and action plan on access to banking services by remittance providers (set out in the second report, which is described below);
- National implementation of the new Financial Action Task Force and revised Basel Committee guidance on correspondent banking, which the FSB thinks can mostly be achieved by national regulators issuing statements to clarify their expectations so that they are reflected in supervisory practices as well as banks' risk management practices;
- Improving efficiencies in and enhancing standardization of Know Your Customer utilities, including encouraging the use of the Wolfsberg Correspondent Banking Due Diligence Questionnaire; and
- Progressing the enhancement and further development of solutions to capture the trade finance components of correspondent banking.
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Bank of England Publishes Details of Its 2018 Stress Test
03/16/2018
The Bank of England has published a report entitled "Stress testing in the U.K. banking system: key elements of the 2018 stress test," providing details of the Annual Cyclical Scenario, which is the only stress test that the BoE will conduct in 2018. The report is accompanied by detailed guidance for participating banks and building societies.
The ACS will examine the impact on participant banks and building societies of three types of severe stress, which will be assumed to be synchronized. These are: (i) a U.K. and global macroeconomic stress; (ii) a traded risk stress (linked to a financial market scenario consistent with the macroeconomic scenario); and (iii) an independent misconduct costs stress. Seven banks and building societies will participate in the 2018 ACS. The report states that these participants account for around 80% of the outstanding stock of lending to the U.K. real economy by banks regulated by the Prudential Regulation Authority.
Read more. -
European Commission Consults on Implementing the Final Basel III Requirements
03/16/2018
The European Commission has opened an exploratory consultation on implementing the final aspects of Basel III into EU law, which will require changes to the Capital Requirements Directive and the Capital Requirements Regulation. Basel III was finalized on December 7, 2017. The final package revises the standardized and Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards are due to take effect from January 1, 2022 and will be phased in over five years. The European Commission is seeking feedback on the various elements of the Basel III package, including how the revisions will impact the EU banking sector and wider economy, how they compare to the current EU requirements and whether they pose any particular implementation challenges.
The Commission's consultation closes on April 12, 2018.
View the consultation paper and response form.
View the final Basel III package. -
European Central Bank Confirms Its Approach to Supervising Non-Performing Loans Levels
03/15/2018
Following its consultation in late 2017, the European Central Bank has published the final Addendum to its Guidance for Eurozone banks on non-performing loans. The ECB published its final Guidance for banks on NPLs on March 20, 2017. The Addendum sets out the ECB’s supervisory expectations on the minimum levels of prudential provisions expected for new NPLs. It is intended to function as a starting point for dialogue between the ECB and individual institutions. As with the Guidance, the Addendum is not legally binding but would apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. An institution that does not comply with the ECB’s supervisory expectations, as set out in the Addendum, would be able to provide its rationale to the ECB as part of the dialogue. The supervisory expectations in the Addendum will be incorporated into the 2021 Supervisory Review and Evaluation Process. In the meantime, firms are expected to review their credit underwriting policies and begin provisioning for any loan classified as a NPL.
Read more. -
European Central Bank Publishes Second Consultation on a New Euro Unsecured Overnight Rate
03/15/2018
The European Central Bank has published a second consultation paper on a new unsecured overnight interest rate for euro transactions. This second consultation follows the ECB's announcement in September 2017 of its intention to develop the new benchmark and an initial consultation in November 2017 on its high level features. The new ECB rate will represent the euro unsecured money market in the very short tenor (i.e. overnight) and will be based entirely on transactions in euro that are reported by banks in accordance with the ECB's money market statistical reporting. It will complement existing benchmark rates produced by the private sector and serve as a backstop reference rate. The ECB proposes to produce the new rate by 2020.
The second consultation sets out a proposed definition of the underlying interest and scope of the benchmark, based on responses received to the first consultation. On the basis of the proposed definition of the rate's underlying interest, the second consultation considers the defined methodology of the new rate, along with the key operational and technical parameters. The consultation document also proposes contingency calculation rules in case certain representativeness thresholds are not met.
Read more.TOPIC : Securities -
European Banking Authority Publishes FinTech Roadmap
03/15/2018
The European Banking Authority has published a Roadmap setting out its conclusions following responses to its August 2017 discussion paper on its approach to financial technology. The EBA adopts the definition of FinTech that is used by international standard-setting bodies, namely, “technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.
Regulators and supervisors must balance, on the one hand, the needs for consumer protection, a level playing field, the integrity of financial markets and the stability of the financial system against, on the other hand, the need to ensure the opportunities presented by FinTech can be fully realized.
Read more.TOPIC : FinTech -
European Supervisory Authorities Issue Final Report on Financial Institutions' Use of Big Data
03/15/2018
The Joint Committee of the European Supervisory Authorities has published a final report on the use of Big Data by financial institutions. The Final Report has been prepared following feedback to a discussion paper published in December 2016 by the Joint Committee’s sub-Committee on Consumer Protection and Financial Innovation. “Big Data” is the term used to refer to situations where high volumes of different types of data, produced with high velocity from a wide variety of data sets and sources, is processed (often in real time) by IT tools, such as powerful processors, software and algorithms. Big Data tools have been in use for several years in some sectors, but less so in others. Nevertheless most respondents to the ESAs’ discussion paper agreed that Big Data may have an impact on almost all financial institutions and on their products and services. The use of Big Data techniques can help financial institutions to improve their understanding of customers’ preferences and their interactions with customers and clients. This can enable them to tailor products to their target markets and support effective product governance. However, the use of Big Data also entails risk.
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US House of Representatives Passes Financial Institution Examination Reform Bill
03/15/2018
The U.S. House of Representative passed the Financial Institutions Examination Fairness and Reform Act (H.R. 4545) by a vote of 283-133. The bill would amend the Federal Financial Institutions Examination Council Act of 1978 to require federal financial institution regulatory agencies to issue final examination reports within 60 days of the later of a financial institution’s exit report or the provision of additional information by a financial institution regarding its examination. The bill would also permit financial institutions to obtain an independent review of material supervisory determinations contained in a final report of examination, including the right to an Administrative Law hearing. The bill would also establish the Office of Independent Examination Review, which, among other things, would receive and investigate complaints from financial institutions with respect to examinations, examination practices and examination reports, review written examination procedures of federal financial regulatory agencies and conduct supervisory appeals.
View full text of the bill. -
US Federal Reserve Board Adopts Revised Forms, Including Bank Merger Act Application Form
03/15/2018
The U.S. Board of Governors of the Federal Reserve System adopted a proposal to extend for three years, with revisions, certain forms, including the Interagency Notice of Change in Control (FR 2081a), Interagency Notice of Change in Director or Senior Executive Officer (FR 2081b), Interagency Biographical and Financial Report (FR 2081c) and the Interagency Bank Merger Act Application (FR 2070) forms. The revisions to the Interagency Bank Merger Act Application form include additional requested items, such as projected financial statements and capital figures as of the end of each of the first three years of operation following consummation of the merger. In doing so, the Federal Reserve Board noted that the form’s prior requirement of one year of projected financial statements was not viewed as sufficient. The Federal Reserve Board also explained that the additional requested items in the revised Bank Merger Act Application form are typically requested in follow-up questions in connection with the application, and that the changes will increase the efficiency with which Bank Merger Act applications are processed. The revisions to the Bank Merger Act Application form also include clarifications, the deletion of certain requested items, definition updates and minor editing changes. The notice highlights that the Federal Reserve Board worked with the U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation in drafting the revisions to these forms.
View full text of the Federal Reserve Board notice. -
European Banking Authority Advice on Measures to Address the Build-Up of Non-Performing Loans in the EU
03/14/2018
The European Banking Authority has published its advice to the European Commission on the use of statutory prudential backstops to prevent the building up of new non-performing loans. The Commission consulted in November 2017 on proposals for statutory prudential backstops to address insufficient provisioning for newly originated loans that turn into non-performing loans and requested the EBA to provide technical advice on its proposals by November 27, 2017. On March 14, 2018, the Commission published its legislative proposals to amend the Capital Requirements Regulation to require minimum loss coverage for non-performing exposures.
The EBA’s advice provides an overview of the Commission’s November 2017 proposal and discusses certain technical aspects, such as the interaction of the proposals with the introduction of IFRS 9 as well as the existing prudential framework. The EBA’s advice also provides a quantitative assessment of the proposal which, the EBA stresses, is a conservative impact analysis given the data available and time constraints under which the report was produced.
Read more. -
UK Financial Conduct Authority Outlines its Policy for Compelling Banks to Contribute to LIBOR
03/14/2018
The U.K. Financial Conduct Authority has published a policy statement explaining the methodology the FCA would expect to use if it needed to compel banks to contribute to LIBOR (the London Interbank Offered Rate). LIBOR, which is administered by ICE Benchmark Administration, is a long-established and systemically important benchmark that underpins transactions in many different markets globally. The FCA’s powers to compel contributions to LIBOR under the Financial Services and Markets Act 2000 have been superseded by similar powers under the EU Benchmarks Regulation, which came into effect on January 1, 2018. LIBOR has been designated a critical benchmark under the Benchmarks Regulation.
The FCA published a consultation paper in June 2017 on how its compulsion powers would need to be amended to align it with the Benchmarks Regulation. Since that consultation, the FCA has announced that all 20 panel banks that currently submit to LIBOR have agreed to continue to do so until the end of 2021. The FCA envisages that, by that time, sufficient progress will have been made on the evolution of LIBOR and transition to alternative benchmarks (which will be based on actual transactions) that the FCA may never need to use its compulsion powers.
View the policy statement (FCA PS18/5). -
European Commission Launches Package to Address Non-Performing Loans Build-Up in the EU
03/14/2018
The European Commission has launched a package of legislative and non-legislative measures to address remaining and future non-performing loans in the EU. Since the 2007/8 financial crisis, there has been a build-up of NPLs in the EU, which impacts banks’ viability and lending capabilities. NPLs are loans where the borrower has difficulties in making scheduled payments to cover interest and/or capital reimbursements. A loan is classified as an NPL when it is either more than 90 days past due or the loan is assessed as unlikely to be repaid by the borrower.
The package comprises:- A proposed Regulation amending the Capital Requirements Regulation to introduce a statutory prudential backstop, which will require banks to have minimum loan loss coverage for newly originated loans;
- A proposed new Directive on credit services, credit purchasers and the recovery of collateral which seeks to enable banks to deal more efficiently with NPLs by introducing an accelerated extrajudicial collateral enforcement mechanism and facilitating the outsourcing of servicing of loans to specialized credit servicers; and
- A Technical Blueprint for Member States to set up National Asset Management Companies where NPLs have become a significant issue in a particular Member State. It is intended for use in restructuring of banks in compliance with the EU Bank Recovery and Resolution Directive and State Aid rules.
Read more. -
UK Payment Systems Regulator Consults on Reviewing its Directions on Access, Governance and Participants’ Relationships with the PSR
03/14/2018
The U.K. Payment Systems Regulator has published a consultation on a review of the six formal General Directions (Directions GD 1-6) and one Specific Direction (SD1) it adopted in 2015 under the Financial Services (Banking Reform) Act 2013. These Directions were all intended to improve access to and the governance of payment systems in the U.K. GD1 sets out the PSR’s expectations of regulated participants in payment systems to have an open and co-operative relationship with it. GD2, GD3 and SD1 set out requirements on operators relating to access to interbank and card payment systems and GD4-6 set out requirements for the governance of interbank payment systems.
Since the Directions were adopted in 2015, the PSR has gained experience of applying the Directions in practice and there have been a number of market and legislative changes, including the introduction of the Payment Services Regulations 2017. The PSR considers that the Directions should now be reviewed to reflect these market and legislative developments and to ensure that they remain relevant, proportionate and correctly targeted. The consultation paper sets out each of the Directives along with the PSR’s proposals to revoke, revise or retain the Direction in its current form.
The PSR invites comments on the proposals by June 8, 2018.
View the consultation paper.TOPIC : Payment Services -
UK Banking Standards Board Publishes Annual Review for 2017-2018
03/14/2018
The U.K. Banking Standards Board has published its Annual Review for the year 2017-2018. The BSB is a non-statutory organization established in April 2015 to help raise standards of behaviour and competence across the U.K. banking sector. Voluntary membership of the BSB is open to all banks and building societies operating in the U.K. The Annual Review sets out the key findings of the second annual assessment exercise conducted at member firms.
The BSB uses quantitative and qualitative data to assess firms against an Assessment Framework to establish how far each of nine characteristics is demonstrated within each firm. These characteristics are: honesty; competence; reliability; responsiveness; personal/organizational resilience; accountability; openness; respect; and shared purpose. The quantitative aspect of the assessment consists of an employee survey asking 37 core questions that allow comparison across and between firms and over time. The qualitative aspect incorporates views and perspectives from all levels and parts of the firm, obtained by various means, including written submissions, interviews and focus groups.
Read more.TOPIC : Conduct & Culture -
US Senate Passes Financial Regulatory Reform Bill
03/14/2018
The U.S. Senate passed a significant financial services reform bill 67-31 on a bipartisan basis that would eliminate certain requirements of the Dodd-Frank Act, including, most notably, increasing, from $50 billion to $250 billion, the threshold at which a large banking organization automatically becomes a systemically important financial institution that is subject to stricter supervisory standards. The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) would also (i) exempt banks with less than $10 billion total consolidated assets from the Volcker Rule; (ii) exempt certain funds placed on deposit with certain central banks by a custodial bank from the calculation of the supplementary leverage ratio; (iii) reduce certain reporting and supervision requirements applicable to community banks; and (iv) ease certain securities law requirements. A number of the provisions of the bill track legislation that has been passed by the U.S. House of Representatives over the past year, the most significant of which is the Financial Choice Act of 2017, which would amount to an omnibus revision of the Dodd-Frank Act. The House will now have to consider the Senate bill, and the differences between the two bills will likely be negotiated and resolved in a Conference Committee of the House and Senate.
View full text of the bill. -
HM Treasury Consults on Cash and Digital Payments in the New Economy
03/13/2018
HM Treasury has published a call for evidence which aims to inform the government's understanding of cash and digital payments in the new economy. Statistics show that the advance of digital technology has impacted how people manage their finances, with a large increase in the use of digital payments and a decrease in the use of cash. The UK Government is seeking input on how it can support the transition from cash to digital payments. The Government would like to ensure that cash remains available and secure to those who need to use it. In addition, the Government is concerned with how it can do more to prevent cash being used illegitimately, mostly to evade tax and to launder money.
Responses to the consultation should be provided by June 5, 2018.
View the call for evidence.TOPIC : Payment Services -
EU Legislation on Strong Customer Authentication Published
03/13/2018
A Commission Delegated Regulation has been published in the Official Journal of the European Union. The Delegated Regulation supplements the revised Payment Services Directive with Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication.
PSD2 requires that strong customer authentication is used for accessing a payment account online, initiating a payment transaction and carrying out a transaction through a remote channel. “Strong customer authentication” means an authentication based on the use of two or more elements categorized as knowledge (something only the user knows), possession (something only the user possesses) and inherence (something the user is) that are independent, in that the breach of one does not compromise the reliability of the others, and is designed in such a way as to protect the confidentiality of the authentication data.
Read more.TOPIC : Payment Services -
US Financial Stability Oversight Council Amends Procedures for Hearings Conducted Under the Dodd-Frank Act
03/13/2018
The U.S. Financial Stability Oversight Council approved certain amendments to its procedures for hearings under Titles I and VIII of the Dodd-Frank Act. The amendments add Section 117 of the Dodd-Frank Act to the scope of its hearing procedures, and make other conforming technical and streamlining amendments. Section 117 of the Dodd-Frank Act (the so-called Hotel California provision) applies to certain bank holding companies and provides that in the event one of these entities ceases to be a bank holding company, it shall thereupon be treated as a nonbank financial company subject to supervision by the U.S. Board of Governors of the Federal Reserve System. Section 117 also provides that an entity designated as a nonbank financial company pursuant to this section may request a hearing before the FSOC to appeal this treatment. The amendments are effective immediately, but the FSOC will accept written comments received within 30 days of the publication of the amendments in the Federal Register.
View full text of the FSOC resolution. -
European Commission Provides Clarification on the Law Applicable to the Proprietary Effects of Transactions in Securities
03/12/2018
The European Commission has published a Communication on the law applicable to the proprietary effects of transactions in securities. The Commission's objective is to clarify the conflicts of law provisions in the Financial Collateral Directive, the Settlement Finality Directive and the Winding-up Directive. These Directives apply to book-entry securities and instruments, the existence or transfer of which presupposes their recording in a register, an account, or centralized deposit system. All three Directives designate the applicable law based on the place of the relevant register or account. However, there is a degree of uncertainty because the provisions in the Directives use different language and because there is diverse interpretation and application of the provisions across the EU. The Communication confirms the Commission's view that the terms 'maintained' and 'located' used in these Directives mean the same thing and that the different ways across the EU of determining where the account or register is 'maintained' or 'located' are valid. The Commission's views are subject to any potential future decisions of the Court of Justice of the European Union on these issues.
The Commission will monitor developments in this area and assess whether any further action is necessary. National authorities are called upon to take the Commission's clarifications into account when applying the conflicts of law provisions of the FCD, SFD or WUD. The Communication should be read in conjunction with the Commission's proposed Regulation on the law applicable to the third-party effects of assignments of claims.
View the Communication.
View the proposed separate Regulation on assignment of claims. -
European Commission Proposes Legislation to Provide Legal Certainty for Cross-Border Assignment of Claims
03/12/2018
The European Commission has published a proposed Regulation on the law applicable to the third-party effects of assignments of claims. The proposed Regulation was published alongside a Communication on the law applicable to the proprietary effects of transactions in securities.
Existing conflicts of law rules as to the contractual elements of the assignment of claims are governed at EU-level by the Rome 1 Regulation. However, there are no EU-level conflicts of law rules on the proprietary elements (or third-party effects) of the assignment of claims. The proprietary elements relate to who has ownership rights over a claim, which requirements must be met by an assignee to give him legal title over the claim and the resolution of competing claims. Currently, each Member State's conflicts of law rules govern the assignment of claims. These rules are inconsistent across the EU because they use different connecting factors to determine the applicable law - the rules in some Member States are based on the law of the assigned claim, others are based on the law of the assignor's habitual residence and other conflicts of law rules are based on the law of the assignment contract. In addition, some conflicts of law rules are unclear, particularly where they are not stated in legislation. Without legal certainty, market participants may not be aware of or choose to ignore the risk and then encounter unexpected losses; or they may mitigate the risk by seeking legal advice which will result in higher transaction costs; or they may be dissuaded by the legal risk, choose to avoid it and miss business opportunities.
Read more. -
International Standard Setters Report on the Implications of Central Bank Digital Currencies
03/12/2018
The Committee on Payments and Markets Infrastructures and the Markets Committee of the Bank for International Settlements have issued a joint report that considers two types of central bank digital currency: (i) a wholesale CBDC for use in financial markets and limited to select financial institutions; and (ii) a general purpose CBDC that would be available for use by the public. The report analyzes the implications of both types of digital currency in the core central banking areas of payments, monetary policy implementation and financial stability.
As regards wholesale CBDCs, the report finds that, while they might be useful for payments, more work is needed to assess their full potential. The report also finds that a wholesale CBDC would not alter the basic mechanics of monetary policy implementation, but that its transmission could be affected. The report states that a general purpose CBDC could have wide-ranging implications for banks and the financial system and could also have effects on the efficiency of financial intermediation. As a result, the report concludes that any jurisdiction considering the launch of a CBDC should carefully and thoroughly consider the implications before making any decision.
The joint report has been published in advance of the meeting of the G20 central bank governors and finance ministers, scheduled for March 19-20, 2018, which, among other things, proposes to discuss the technology behind cryptocurrencies.
View the joint report.
View the press release.TOPIC : FinTech -
European Commission Publishes Legislative Package for Cross-Border Distribution of Investment Funds
03/12/2018
As part of its work on creating a European Capital Markets Union, the European Commission has published a legislative package of amendments, comprising a proposed Regulation and a proposed Directive.
The proposed Directive amends the Directive on Undertakings for Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive by introducing new or amending existing elements of that legislation. This includes deletion or amendment of provisions of the UCITS Directive or AIFMD that are dealt with in the proposed new Regulation. The proposed Directive also inserts a definition of “pre-marketing” in AIFMD, which is designed to allow AIFMs to target investors by testing their appetite for upcoming investment opportunities or strategies through pre-marketing. Pre-marketing is defined as "a direct or indirect provision of information on investment strategies or investment ideas... in order to test [investor] interest" in an AIF that has not yet been established.
The proposed Regulation aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national competent authorities.
Read more.TOPIC : Funds -
UK Banking Standards Board Publishes Principles for Strengthening Professionalism
03/12/2018
The Banking Standards Board has published the "BSB Statement of Principles for Strengthening Professionalism - The role of the firm", which is a guiding statement of principles intended to assist banks and building societies to strengthen professionalism in the banking sector. The BSB has defined professionalism in UK banking as "attitudes, judgement and high standards of behaviour, knowledge and skill expected of individuals working in banking". The Statement consists of six principles, each of which is supported by action points on how the principle can be achieved.
The Statement does not impose any legal or regulatory obligations on firms or replace any regulation. It is intended to assist firms in structuring their own practices and to build on regulatory initiatives, such as the Senior Managers and Certification Regimes.
View the BSB Statement. -
European Commission Proposes EU Covered Bonds Legislative Package
03/12/2018
The European Commission has published legislative proposals for a new EU covered bonds framework. The legislative package consists of a proposed Directive on the issue of covered bonds and covered bond public supervision and a proposed Regulation to amend the prudential treatment of covered bonds under the Capital Requirements Regulation. The proposals are part of the EU's Capital Markets Union project and follow from the work of the European Banking Authority in this area, in particular, its 2016 recommendations for an EU covered bonds framework.
The proposed Covered Bonds Directive will apply to covered bonds issued by EU credit institutions, which means that only EU credit institutions will be able to issue covered bonds governed by the framework. Issuers using the EU covered bonds label will need to comply with the proposed Directive but can also use the label with national labels. Covered bonds are debt obligations issued by credit institutions and secured against a ring-fenced pool of assets to which bondholders have direct recourse as preferred creditors. The proposed Directive provides requirements for issuing covered bonds and the structural features of covered bonds, including dual recourse and bankruptcy remoteness. There are also provisions to address liquidity risk through the imposition of a liquidity buffer related to the cover pool and transparency provisions requiring information to be disclosed to covered bond investors. In addition, the proposed Directive provides for supervision at national level of covered bonds.
Read more. -
US Federal Reserve Board Provides Updated CCAR and DFAST Questions and Answers
03/09/2018
The U.S. Board of Governors of the Federal Reserve System published updates to its Comprehensive Capital and Analysis Review and Dodd-Frank Act Stress Tests questions and answers guide. The Federal Reserve Board provided additional questions and answers with respect to a number of topics, including general CCAR considerations, range of practice and supervisory expectations, FR Y 14-A report supporting documentation and the remediation of supervisory findings.
Read more. -
European Central Bank Confirms Collective Agreement Between TARGET2 Participants
03/09/2018
The European Central Bank has confirmed that a collective agreement signed between the central banks operating TARGET2 component systems and the central securities depositories operating on the TARGET2-Securities platform can enter into force. The provisions of the Collective Agreement will take effect on March 20, 2018. The Collective Agreement provides a definition of a “common moment of entry” for payments and securities transfer orders that are matched in the systems of the signatories to the agreement. This common moment of entry will either be the moment at which a transfer order has been declared compliant with the technical rules of T2S by either the T2S platform or, if the CSD is operating a separate matching component, by the CSD. Defining the common moment of entry makes it possible to establish the point at which securities transactions become irrevocable and accordingly will provide certainty regarding the treatment of outstanding transactions if a participant becomes insolvent. -
Financial Stability Board Issues Supplementary Guidance to its Principles and Standards on Sound Compensation Practices
03/09/2018
The Financial Stability Board has published the finalized version of its Supplementary Guidance on its Principles and Standards on Sound Compensation Practices, following feedback to a consultation it launched in June 2017. The Supplementary Guidance relates to the use of compensation tools to address misconduct risk. Misconduct, for the purposes of the Supplementary Guidance, should generally be understood as conduct that falls short of expected standards, including legal, professional, internal conduct and ethical standards.The Supplementary Guidance is consistent with the FSB’s existing Principles and Standards on Sound Compensation Practices and provides guidance on better practice for addressing misconduct risk without adding any new or additional principles or standards. It is broken down into sections covering: (i) governance of compensation and misconduct risk; (ii) effective alignment of compensation with misconduct risk; and (iii) supervision of compensation and misconduct risk. FSB members are asked to apply the Supplementary Guidance to significant institutions and in a way consistent with the law and regulation of their jurisdictions.
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UK Financial Conduct Authority Launches Survey for EEA Firms Operating in the UK Under Single Market Passports
03/09/2018
The U.K. Financial Conduct Authority has launched a short online survey seeking information from European Economic Area firms currently operating in the UK under a passport. The information obtained will identify those firms for which a “temporary permission” may be relevant following the U.K.’s withdrawal from the European Union. The possibility of a “temporary permission regime” was raised by HM Treasury in December 2017 as a means by which firms previously operating under a passport would be able to enter into new business and fulfil existing contracts with U.K. customers for a period of time after exit day, while seeking full authorization in the U.K.. HM Treasury has not yet prepared legislation relating to the temporary permissions regime, and EU-U.K. negotiations are in any event ongoing, however the FCA believes that it is likely that firms operating under a passport would need to inform it of their intention to operate under the temporary regime via a straightforward notification process in advance of the U.K.’s withdrawal.
Read more.TOPIC : Brexit for Financial Services -
European Banking Authority Seeks Feedback on Draft Guidelines on Managing Non-Performing Exposures
03/08/2018
The European Banking Authority has commenced a consultation on draft Guidelines on the management of non-performing and forborne exposures. The Capital Requirements Directive requires in-scope banks and investment firms to have robust governance arrangements and effective processes to identify, manage, monitor and report the risks to which the firm is exposed. The EBA is responsible for issuing related guidelines to further harmonize across the EU how firms implement these obligations.
Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks’ viability and lending capabilities. In March 2017, the European Central Bank finalized its Guidance on managing NPLs, which applies to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. The EBA’s draft Guidelines similarly aim to reduce the build-up of non-performing exposures (NPEs) in a bank’s balance sheet.
The EBA’s proposed Guidelines set out sound risk management practices for banks for managing NPEs, forborne exposures (FBE) and foreclosed assets and apply to all exposures that fall within the definition of non-performing and forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The finalized Guidelines will also apply to national regulators responsible for assessing firms’ risk management of NPEs and FBEs, as part of the Supervisory Review and Evaluation Process. National regulators must also ensure that firms comply with the Guidelines on an individual, sub-consolidated and consolidated basis.
Read more. -
UK Joint Money Laundering Steering Group Consults on Revised AML/CTF Guidance for Asset Finance and Syndicated Lending
03/08/2018
The U.K. Joint Money Laundering Steering Group has launched a short consultation on minor changes to Part II of its anti-money laundering and counter-terrorist financing guidance in relation to two sectors, namely asset finance and syndicated lending.
In the press release announcing the draft revised guidance, the JMLSG clarifies that the revisions do not make substantive changes to the existing guidance. Instead, the proposals provide clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.
The JMLSG invites comments on the proposed revisions by March 30, 2018.
View the consultation. -
European Commission Outlines its Action Plan for FinTech
03/08/2018
The European Commission has issued a Communication on FinTech to the European Parliament, the European Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions.
The Communication sets out the Commission's Action Plan for FinTech, building on responses from the Commission's public consultation on its policy approach to FinTech, which ran from March to June 2017, and on the work of the Task Force on Financial Technology which was established in November 2016. The Action Plan is part of the Commission's efforts to build a Capital Markets Union and a true single market for consumer financial services. It is also part of its drive to create a Digital Single Market. The Communication is accompanied by Frequently Asked Questions on FinTech and a factsheet.
At this stage, the Commission considers that there is limited need for regulatory or legislative action or reform. However, the outcome of ongoing monitoring and assessment of innovative technologies may point to the need for regulatory action at EU level in the future. The current Action Plan is concerned with initiatives designed to facilitate the emergence of innovative models throughout the EU (through sandboxes and similar approaches), to enable innovative models to scale up (through consistent licensing, common standards and interoperability). The Commission also aims to improve the uptake of technological innovation in the financial sector, by ensuring the suitability of the regulatory regime, reducing barriers to entry for innovative firms such as cloud service providers and, in particular, harnessing the potential of blockchain and other distributed ledger technologies. The Action Plan further outlines planned initiatives to strengthen cybersecurity as well as the integrity of the financial system.
Read more.TOPIC : FinTech -
European Commission Proposed Legislation to Regulate Cross-Border Crowdfunding Service Providers
03/08/2018
The European Commission has published a proposed Regulation on European Crowdfunding Service Providers for Business. The proposed ECSP Regulation is part of the EU Capital Markets Union initiative and the Commission's FinTech Action Plan. It aims to increase access to finance through crowdfunding for innovative companies, start-ups and SMEs.
The Commission is seeking to introduce an "EU label for crowdfunding service providers" which would be authorized and supervised by the European Securities and Markets Authority and able to passport their services across the EU. Currently, different EU Member States apply different levels of regulatory requirements to CSPs. Some Member States require CSPs to comply with onerous obligations under the Markets in Financial Instruments package, some apply more lenient regimes, while others allow CSPs to benefit from exemptions and remain unregulated. The Commission's view is that this divergence hampers the potential scaling-up of crowdfunding activity, because CSPs need to comply with different legal and regulatory requirements and adjust their business models accordingly if they want to provide services in more than one EU Member State. The Commission is not proposing that current national frameworks be repealed. Instead, those frameworks can continue to exist, which will allow CSPs to choose to either provide or continue providing services on a domestic basis under national laws or to provide services under the proposed ECSP Regulation. However, the Commission is proposing that the MiFID II Directive be amended to exclude CSPs from its obligations.
Read more. -
European Commission Calls for Acceleration of Completion of the Capital Markets Union
03/08/2018
The European Commission has published a Communication on completing the Capital Markets Union by 2019. The Communication confirms the Commissions commitment to completing the CMU by mid-2019 and announces the publication of the FinTech Action Plan, including a proposed Regulation on Crowdfunding, and the Sustainable Finance Action Plan. Legislative proposals on covered bonds, the cross-border distribution of collective investment funds and the law applicable to third-party effects of assignment are expected to be published on March 12, 2018. In May 2018, the Commission intends to publish a proposed Directive on credit servicers, credit purchasers and the recovery of collateral as well as impact assessments on the SME listing regime and the resolution of investment disputes.
The Commission states that completion of the CMU is more urgent due to the impending exit by the UK from the EU because the UK is currently the EUs largest financial centre. The Commission notes that an effective CMU will need to "open-up markets to give better access to finance for EU businesses and more and innovative investment opportunities for savers."
Read more. -
European Securities and Markets Authority Releases Double Volume Cap Data for Dark Pool Trading
03/07/2018
The European Securities and Markets Authority has published on its website trading volumes and calculations for the purposes of the Double Volume Cap under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The published data covers the periods January 1, 2017 to December 31, 2017 and February 1, 2017 to January 31, 2018.
The DVC has been introduced under MiFIR as a measure to limit the amount of dark pool trading, which can harm price formation in equity markets. The DVC places a cap on the volume of equities trading using two of the available waivers from the pre-trade transparency obligations of the MiFIR, namely the negotiated transaction waiver and the reference price waiver. The double cap comprises a per-venue cap of 4% of the total volume of trading in a particular financial instrument on all EU trading venues across over the previous 12 months and an EU-wide cap of 8%. ESMA is required to publish reports on the volume of trades that have relied on the waivers. National regulators must suspend, for six months, trading under the waivers that exceeds either of the caps.
The publication of the data follows a delay announced by ESMA in January 2018 due to issues with the quality and completeness of data that had been submitted.
View the ESMA press release. -
International Standards Body Proposes Recommendations for Trading Venues on Managing Extreme Market Volatility
03/07/2018
The International Organization of Securities Commissions has launched a consultation on proposed recommendations for trading venues and their regulators to consider when implementing, operating and monitoring volatility control mechanisms to preserve orderly trading. The consultation supports IOSCO’s objective of ensuring that markets are fair, efficient and transparent and focuses on automatic volatility interruptions and mechanisms to halt trading or reject orders.
Read more. -
US House of Representatives Passes Regulatory Reform Bills and Senate Continues Debate on Regulatory Reform Bill
03/06/2018
The U.S. House of Representatives passed four bills from the U.S. House Financial Services Committee, all by voice vote, which are primarily designed to reduce the regulatory burden on financial institutions.
Read more. -
US Federal Reserve Board Proposes Amendments to Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire)
03/06/2018
The U.S. Board of Governors of the Federal Reserve System published a proposed rule for that would amend Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire). The proposed amendments are intended to better harmonize Regulation J with the Federal Reserve Board’s recent amendments to Regulation CC (Availability of Funds and Collection of Checks), and to reflect a transition from a paper-based check collection system to one that is essentially entirely electronic. The proposed amendments are designed to clarify and simplify provisions of Subpart A of Regulation J, while removing obsolete provisions, and to better reflect the rights of stakeholders, including with respect to the Federal Reserve Banks. The amendments also include proposed clarifications to Subpart B of Regulation J to reinforce that terms used in financial messaging standards do not confer legal status or responsibilities. Comments to the Federal Reserve Board’s proposal are due 60 days from its publication in the Federal Register.
View full text of the Federal Reserve Board proposal. -
Financial Stability Board Releases Updated Data Report on Correspondent Banking
03/06/2018
The Financial Stability Board has published an update to its correspondent banking data report. The latest data report updates the data report the FSB published in July 2017 alongside a report for the G20 on progress made on the four point action plan the FSB launched in November 2015 to address the decline in correspondent banking relationships. The latest data report updates the July 2017 data report with additional information provided by SWIFT incorporating the period from January to June 2017.This new data reveals the average number of active corridors per country (that is, direct relationships between countries, measured by the flow of SWIFT messages) increased in the first half of 2017 in Oceania, Eastern Europe, and Northern America but declined in the rest of the Americas and of Europe, as well as Africa and Asia. There was continued reduction in the total number of active correspondents (as measured by the number of banks that have sent or received messages corridor by corridor in a given month). This decline in active correspondents has not resulted in a lower number of payment messages (volume) or a lower underlying value of the messages processed through SWIFT, leading the FSB to conclude that the higher volume of messages could in part reflect a lengthening of payment chains, as previously discussed in its July 2017 report. Concentration levels of correspondent banking remain high.
Read more. -
UK Government Launches Independent Review Into the Prudential Supervision of the Co-operative Bank
03/06/2018
HM Treasury has directed the Prudential Regulation Authority to conduct an independent investigation into the prudential regulation of the Co-operative Bank plc during the period 2008 to 2013. HM Treasury is empowered to require the Financial Conduct Authority or PRA to undertake investigations where it considers that such an investigation is in the public interest and the relevant regulator has not launched an investigation on its own initiative. The investigation will consider the actions, policies and approach of the Financial Services Authority and one of the successors to its functions, the PRA, during their respective periods in charge of prudential supervision, including the withdrawal by the Co-operative Bank from the bidding process to purchase bank branches from Lloyds Banking Group (known as Project Verde).
Read more. -
Wolfsberg Group Updates Correspondent Banking Due Diligence Questionnaire
03/06/2018
The Wolfsberg Group has published an updated version of its Correspondent Banking Due Diligence Questionnaire (dated February 22, 2018). The CBDDQ has been enhanced and expanded in line with regulatory expectations on strengthening and building due diligence tools. The Group has also published guidance on completing the CBDDQ, frequently asked questions and a glossary. The CBDDQ is intended to provide a standardized document for use by those needing to conduct due diligence on correspondent banks. Over time, it is hoped that use and availability of the CBDDQ may, among other things, help prevent unnecessary de-risking.
The Wolfsberg Group was established in 2002 and comprises thirteen banks. Its objective is to develop frameworks and guidance for the management of financial crime risks. The CBDDQ is intended to support the work on de-risking in correspondent banking by the Financial Stability Board, the Financial Action Task Force and the Committee on Payments and Market Infrastructures.
View the updated CBDDQ (version 1.2).
View the completion guidance.
View the FAQs.
View the Glossary. -
US Federal Reserve Board Vice Chairman for Supervision Discusses Regulatory Agenda for Foreign Banking Organizations
03/05/2018
Randal Quarles, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, discussed the need to examine post-crisis reforms. Focusing on post-crisis regulations that impact foreign banking organizations operating in the U.S., he noted that regulations should be reviewed to ensure not only efficacy, but also efficiency and transparency.
Read more. -
UK Financial Conduct Authority Fines and Bans Former Trader for LIBOR Manipulation
03/05/2018
A former trader at a major financial institution has received a £180,000 fine and been banned by the U.K. FCA from performing functions relating to regulated financial activity. This follows on from the FCA’s £226.8 million fine against the institution in 2015 for its breach, in relation to LIBOR, of Principle 5 of the FCA Handbook, namely that “A firm must observe proper standards of market conduct.”
The employee, who worked as a short-term interest rate derivatives trader, acted as the primary JPY LIBOR submitter for the institution. Between 25 July 2008 and 11 March 2010, the FCA found that the employee acted improperly and was knowingly concerned in the institution’s breach of Principle 5 through:
1. Making requests to the institution’s CHF LIBOR submitters, in an attempt to influence their LIBOR submissions;
2. Taking into account trading positions when making his own submissions for JPY LIBOR; and
3. Improperly agreeing with an external trader at another financial institution to make certain JPY LIBOR submissions at the request of the external trader.
Read more.TOPIC : Enforcement -
UK Joint Money Laundering Steering Group Obtains Ministerial Approval for Updated Guidance
03/05/2018
Read more.
The U.K.’s Joint Money Laundering Steering Group has confirmed that it has received approval from HM Treasury for the final revised guidance it published in December 2017 on anti-money laundering and counter-terrorist financing for the financial services sector. The revisions to the guidance align it with the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which is the UK implementing legislation for the Fourth EU Money Laundering Directive (4MLD) and the revised Wire Transfer Regulation (WTR) which came into effect on June 26, 2017. 4MLD seeks to give effect to the updated Financial Action Task Force (FATF) global standards which promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. WTR sets out the minimum requirements that are essential to ensure the traceability of transfers of funds. -
Financial Stability Board Publishes Reporting Guidelines for Global Securities Financing Data Collection
03/05/2018
The Financial Stability Board has published final Reporting Guidelines for implementing the November 2015 Global FSB Securities Financing Data Standards, which set out the standards and processes for global securities financing data collection, aggregation and reporting by national regulators for financial stability purposes. The standards, among other things, define the data elements for repurchase agreements, securities lending and margin lending and set out recommendations for national regulators on the collection of data from market participants, so that timely and comprehensive visibility into trends and developments in these markets can be obtained. National regulators must report in USD to the Bank for International Settlements, acting as the global aggregator.
Read more.TOPIC : Shadow Banking -
European Central Bank Consults on Draft Guides to Assessing Adequacy of Internal Capital and Liquidity
03/02/2018
The European Central Bank has published two consultations on draft guides on the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP). The draft Guides, which will be relevant to institutions within the Single Supervisory Mechanism, are designed to assist institutions in strengthening their ICAAPs and ILAAPs and encourage the use of best practices by explaining in greater detail the ECB’s expectations.
Read more. -
UK Prime Minister Speech on the UK’s Future Economic Partnership with the EU
03/02/2018
The U.K. Prime Minister delivered her third major speech on the future partnership between the U.K. and the European Union following Brexit. In it, the Prime Minister restated the key elements and provided greater detail about the U.K.’s aims for a free trade agreement with the EU post-Brexit.The Prime Minister was candid about the fact there are some “hard facts” to be accepted, one of which is that access to each other’s markets may in certain ways be less than it is now. Two key aspects of the speech are of particular interest for financial services businesses and their advisers.
Read moreTOPIC : Brexit for Financial Services -
US Federal Reserve Board Announces Upcoming Conclusion of Secure Payments Task Force
03/01/2018
The U.S. Board of Governors of the Federal Reserve System announced that the Secure Payments Task Force will conclude its efforts this month with a final publication detailing the lifecycles and security profiles of today's primary payment methods. Established in 2015, the Secure Payments Task Force, which has engaged more than 200 financial institutions, payment service providers, and other stakeholders, has made a number of contributions to improve the security and resiliency of payment systems, including identifying key security priorities, developing resources and documentation to educate stakeholders and providing feedback to the Federal Reserve Board. The members of the Secure Payments Task Force will transition into the FedPayments Improvement Community, a network established to provide stakeholders with opportunities to engage in the Federal Reserve Board with respect to its payment improvement initiatives.
View full text of the Federal Reserve Announcement.TOPIC : Payment Services -
UK Competition and Markets Authority Publishes Working Paper on its Investment Consultancy Investigation
03/01/2018
As part of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services, the U.K. Competition and Markets Authority has published the first in a series of working papers on specific aspects of the investigation, as envisaged by the progress report it published in February 2018. The working paper sets out the CMA’s analysis and emerging findings to date in respect of the information available to pension trustees on the fees and quality of investment consultants and fiduciary managers. It should be read together with the issues statement for the investigation, which was published in September 2017. The working paper also provides an update on the CMA’s developing thinking on potential remedies that might be applied in the event that the CMA was to find an adverse effect on competition. Remedies being considered by the CMA include guidance and off-the-shelf materials for running better tenders, standardised information for prospective clients in response to tenders, better fee information, standardised performance metrics and stronger service quality metrics.
Read more.TOPIC : Competition -
UK Jury Returns Guilty Verdict in First Contested Failure to Prevent Bribery case
03/01/2018
The Crown Prosecution Service has confirmed that a refurbishment company, Skansen Interiors Limited, has been found guilty of failure to prevent bribery under section 7 of the Bribery Act 2010.
This is the first contested case under section 7 of the Bribery Act, which criminalizes commercial organizations for failure to prevent bribery by persons associated with them. A defence to this offence is available if a company can show that it has adequate procedures to prevent bribery and Skansen unsuccessfully argued that it had such controls in place.
The CPS alleged that Skansen's managing director at the time bribed a project manager at a real estate company to award refurbishment contracts worth £6m to Skansen.
In its defence, the company argued that it was a small business of around 30 people operating in a single location out of an open-plan office, and therefore did not need sophisticated controls for its procedures to constitute “adequate” ones under the Act. There were checks and balances in place relating to the payment of invoices. It also argued that the company ethos was for everyone to act honestly and ethically, with a number of policies referencing the need for employees to act in an open and honest manner.
Read more.TOPIC : Enforcement -
Federal Reserve Bank of New York Announces Plans to Begin Publication of Treasury Repo Reference Rates on April 3, 2018
02/28/2018
The Federal Reserve Bank of New York has announced it will begin publication of three Treasury repo reference rates on April 3, 2018. The rates will reflect data from the previous day and will be published each day at approximately 8:00 a.m. Eastern Time.
These rates include the Secured Overnight Financing Rate (SOFR), which will be based on triparty repo data from Bank of New York Mellon and cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation; the Triparty General Collateral Rate (TGCR), which will solely include triparty repo data; and the Broad General Collateral Rate (BGCR), which will be based on triparty repo data and GCF Repo data. In December, the Alternative Reference Rates Committee recommended SOFR as an alternative to U.S. dollar LIBOR in certain new U.S. dollar derivatives and other financial contracts.
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UK Payment Systems Regulator To Proceed With Plans To Reimburse Payment Scam Victims
02/28/2018
The U.K. Payment Systems Regulator has published the outcome of the consultation it launched in November 2017 on a contingent reimbursement model for the victims of so-called “authorized push payment” scams. That consultation, which closed on January 12, 2018, outlined high level principles for the CRM and requested input from stakeholders on how the model should be further developed, implemented and administered.Taking into account responses to the consultation, the PSR proposes to proceed with the CRM model and will establish a dedicated steering group to develop it, in the form of an industry code for reimbursement of APP scam victims. The steering group will be comprised of representatives from key stakeholder groups, particularly consumer representatives and PSPs, with oversight and support from the PSR. Other relevant regulatory and governmental bodies will also be involved as observers.
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US House of Representatives Votes to Pass Bill on Operational Risk Capital Requirements for Financial Institutions
02/27/2018
The U.S. House of Representatives voted 245-169 in favor of passing H.R. 4296. The bill prohibits federal financial regulators from establishing operational risk capital requirements for financial institutions unless the requirements are based upon, and appropriately sensitive to, the risks posed by the institution’s current business and operations. The requirements also must be forward-looking, rather than focused on historical losses of the financial institution, and provide for adjustment to capital requirements based upon the operational risk mitigating activities of the financial institution. The bill was originally part of the larger Financial CHOICE Act, which passed the House in June 2017. The bill was read in the U.S. Senate and referred to the U.S. Senate Committee on Banking, Finance, & Urban Affairs.
View full text of the bill. -
European Systemic Risk Board Final Report and Opinion on Use of Structural Macroprudential Instruments in the EU
02/27/2018
Read more.
The European Systemic Risk Board has published a final report setting out proposed amendments to the ESRB Handbook on Operationalising Macroprudential Policy and policy proposals on the legal framework of the systemic risk buffer and the structural buffers for global systemically important institutions (G-SIIs) and O-SIIs. Alongside the final report, the ESRB has also published an Opinion to the European Commission on structural macroprudential buffers. -
Basel Committee Proposes Revisions to Pillar 3 Disclosure Framework
02/27/2018
The Pillar 3 framework was last updated in March 2017, following a Basel Committee review. The Basel Committee now proposes some revisions and additions to the Pillar 3 framework which result from the finalization of the Basel III framework in December 2017.
The Basel Committee on Banking Supervision has published a Consultation on its proposals for the third phase of the Pillar 3 Framework. Pillar 3 comprises a set of quantitative and qualitative disclosure requirements applicable to banks in relation to capital, risk exposures and risk assessment processes, which are designed to allow other market participants to assess each bank’s capital adequacy.
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Final EU Standards on Cooperation among National Regulators under the Market Abuse Regulation
02/27/2018
A Commission Implementing Regulation providing Implementing Technical Standards on the procedures and forms for exchange of information and assistance between national regulators under the Market Abuse Regulation has been published in the Official Journal of the European Union. MAR, which entered into force on July 3, 2016, requires national regulators to cooperate with each other in investigations and on supervision and enforcement matters by exchanging information, taking statements from individuals, conducting on-site inspections or investigations and in the recovery of monetary sanctions. The new ITS describe the procedures to be followed by national regulators when making, acknowledging, processing and replying to requests for assistance and when unsolicited assistance is provided and contain standard forms for national regulators to use when doing so.
The ITS enters into force on February 28, 2018 and apply directly across the EU.
View the Commission Implementing Regulation. -
US Federal Reserve Board Vice Chairman for Supervision Discusses Financial Regulation and Cybersecurity02/26/2018
Randal Quarles, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, provided brief remarks at the Financial Services Roundtable 2018 Spring Conference. Vice Chairman Quarles noted the importance of reviewing the post-crisis regulatory regime to determine which regulations may not be functioning effectively or as intended, and make changes, as necessary. He noted the importance of evaluating the costs and benefits of regulatory initiatives as well as evaluating their effect on both the resiliency of the financial system and on credit availability and growth. He focused in particular on the topic of cybersecurity, which he remarked is a high priority for the Federal Reserve Board. Given the dynamic and highly sophisticated nature of cyber attacks, Vice Chairman Quarles emphasized the need for collaboration in this area, both among private sector stakeholders and between the private sector and federal financial regulators. He noted that the Federal Reserve Board is continuing to work with other financial regulatory agencies to harmonize cyber risk-management standards and supervisory expectations to align them with existing best practices such as the National Institution of Standards and Technology’s Cybersecurity Framework.
View full text of Vice Chairman Quarles's remarks.TOPIC : Cyber Security -
UK Regulator to Consult on Expanded Financial Services Register under the Senior Managers & Certification Regimes
02/26/2018
The Financial Conduct Authority has announced that it will be putting forward proposals for aligning the Financial Services Register with the expanded Senior Managers & Certification Regimes. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime. The FCA recently consulted on expanding the existing SM&CR to all other authorized firms.
Under the SM&CR, the FCA only approves Senior Managers and it is only these individuals that appear in the FS Register. The Certification Regime requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper".
Feedback on the proposals to extend the SM&CR indicated that there would be public value in including details of certification of employees and other important individuals at firms in the FS Register. The FCA intends to consult in the Summer on implementing that feedback. If these proposals are implemented, non-executive directors, financial advisers, traders and portfolio managers would appear in the revised FS Register.
View the FCA's statement.
View the proposals to extend the SM&CR. -
US Office of the Comptroller of the Currency Announces Technical Amendments to Stress Testing Regulation
02/23/2018
The U.S. Office of the Comptroller of the Currency issued a final rule that makes certain technical amendments to its annual stress testing regulation. The stress testing regulation provides that the OCC may require an institution to include trading and counterparty components in its adverse and severely adverse scenarios if the institution has significant trading activities. Under the final rule, the date range of this position data has been expanded from between January 1 and March 1 of the current calendar year to between October 1 of the preceding calendar year and March 1 of the current calendar year. The final rule notes that this will provide the OCC with greater flexibility in establishing an appropriate as-of date and that the U.S. Board of Governors of the Federal Reserve System has made a similar change to its corresponding regulations. The final rule also amends and clarifies the transition period for institutions that meet the $50 billion asset threshold, which subjects the institution to different stress testing requirements. Under the final rule, if an institution crosses the $50 billion threshold in the fourth quarter of a calendar year, it will not be subject to the supervisory stress testing requirement until the third calendar year after it crossed the threshold. Otherwise, institutions become subject to the over $50 billion stress testing requirements two calendar years after crossing the threshold. The final rule also makes definitional and other technical changes. The final rule will become effective 30 days from its publication in the Federal Register.
View full text of final rule. -
UK Prudential Regulation Authority Publishes Final Policy on Pillar 2 Liquidity
02/23/2018
The PRA received a number of consultation responses. The Policy Statement sets out the PRA's feedback and explanation of a number of changes it has made to its original proposals.
The U.K. Prudential Regulation Authority has published a Policy Statement on Pillar 2 liquidity, following two consultations in May 2016 and July 2017. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework complements the Pillar 1 Liquidity Coverage Ratio requirements by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. In its May 2016 and July 2017 consultations, the PRA set out proposals for liquidity assessments, the introduction of a framework for cashflow mismatch risk (CFMR) and survival guidance on the granular liquidity coverage requirement stress within the CFMR framework.
Read more. -
UK Parliament Launches Inquiry into Digital Currencies and Distributed Ledger Technology
02/22/2018
The House of Commons Treasury Committee has launched an inquiry into digital currencies and distributed ledger technology in the U.K. The inquiry will consider the risks and opportunities of digital currencies for consumers, businesses and the Government as well as the impact of DLT on financial institutions, financial market infrastructure and the central bank. The regulatory response of the Bank of England and the Financial Conduct Authority in relation to anti-money laundering legislation will also be assessed against the need to ensure the protection of consumers without repressing innovation.
View the announcement.TOPIC : FinTech -
US Department of the Treasury Releases Report and Recommendations Regarding the Orderly Liquidation Authority
02/21/2018
The U.S. Department of the Treasury released its report and recommendations regarding the Orderly Liquidation Authority established under Title II of the Dodd-Frank Act. The report proposes a “bankruptcy first” approach to the resolution of financial institutions, recommending the establishment of a new chapter of the U.S. Bankruptcy Code. This new Chapter 14, which has been the subject of academic and industry debate for several years, would generally involve placing the top-tier parent of a financial group into bankruptcy proceedings and transferring the subsidiaries to a new bridge company and would also include procedural features tailored to address specific nuances in respect of the resolution of financial institutions.
Read more.TOPIC : Recovery & Resolution -
International Standards Body Seeks to Tackle Conflicts of Interest and Conduct Risks in Equity Capital Raisings
02/21/2018
The International Organization of Securities Commissions has published a consultation report in which it seeks feedback on proposed Guidance to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising.
IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise where analysts employed by firms managing the securities offering may be under pressure to present a positive view of the issuer. During the investor education and price-formation phase these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. There can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.
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UK Competition Authority Updates Stakeholders on the Investment Consultants Market Investigation
02/21/2018
Following a market investigation reference from the Financial Conduct Authority in September 2017, the Competition and Markets Authority has published a progress report on the Investment Consultants Market Investigation that it is carrying out into the supply of investment consultancy services and fiduciary management services to, or the acquisition of such services by, institutional investors and employers. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.
The progress report sets out the steps that the CMA has taken to date, such as the publication of the Issues Statement in October 2017, the hearings it has held and the visits it has made to the three largest investment consultants. The report also provides a list of working papers that the CMA intends to publish in the next few months, which will provide the CMA's emerging thinking on specific areas of the Investigation, such as information on fees and quality of service that investment consultants and fiduciary managers provide to current and prospective clients, the performance of investment consultants' recommended asset managers, conflicts of interest and market concentration. The CMA also confirms, as proposed in the Issues Statement, that the Investigation will focus on pension schemes as clients of investment consultants and fiduciary managers.
The CMA will publish a Provisional Decision report in July 2018, to which interested stakeholders can provide feedback in advance of the publication of the final report in March 2019.
View the progress report.
View the Issues Statement.TOPIC : Competition -
UK Banking Standards Board Publishes Further Guidance on the Certification Regime
02/20/2018
The U.K. Banking Standards Board has published further Supporting Guidance to its Statement of Good Practice on the Certification Regime: Fitness and Propriety Assessment Principles (known as Statement of Good Practice 1). The new Supporting Guidance, "Establishing Pass/Fail Criteria and Evidencing the F&P Assessment" (known as Supporting Guidance 2), aims to assist firms and other persons assessing fitness and propriety in making certification decisions, particularly in borderline cases. The Certification Regime is part of the regulatory reforms introduced in the U.K. to strengthen individual accountability (namely, the Senior Managers Regime, the Certification Regime and the Conduct Rules). It requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper." The U.K. regulators are proposing to extend the Certification Regime to all other regulated firms. The BSB was launched in April 2015 as an industry initiative to help raise standards of behavior and competence in the banking sector.
Read more. -
UK Benchmarks Legislation Amended
02/20/2018
The Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2018 have been published to correct a drafting issue in the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018, which are due to implement parts of the EU Benchmarks Regulation with effect from February 27, 2018.
Under the U.K. Benchmarks Regulations, which were laid before Parliament on February 5, 2018, transitional provisions will apply until revoked on May 1, 2020. The transitional provisions include a provision that applies to existing benchmark administrators only in respect of benchmarks they were administering on or before June 30, 2016. The effect of the transitional provision is that these existing benchmark administrators will not need to obtain regulatory permission under the Financial Services and Markets Act.
The newly published Amendment Regulations amend the U.K. Benchmarks Regulations to ensure that the transitional provision applies to existing benchmark administrators in relation to benchmarks administered before, on and after June 30, 2016. These benchmarks administrators will also be able to rely on the transitional provision in respect of new benchmarks during the transitional period.
The Amendment Regulations take effect on February 26, 2018.
View the Amendment Regulations (S.I. 2018/204).
View the explanatory memorandum.
View details of the U.K. Benchmark Regulations. -
UK Financial Conduct Authority Consults on Machine Executable Regulatory Reporting
02/20/2018
The Financial Conduct Authority is seeking input on using technology to assist firms to meet their regulatory reporting requirements. The FCA would like to improve regulatory reporting by firms so that it is more accurate, efficient and consistent, less reliant on human interpretation and quicker for firms to implement changes to the requirements.
As part of its RegTech strategy, the FCA holds regular TechSprint events which are attended by financial services providers, technology companies and financial regulation experts to develop solutions to regulatory challenges. The Call for Input explains the proof of concept for Model Driven Machine Executable Regulatory Reporting which emerged at the November 2017 TechSprint.
The proposed Model Driven Machine Executable Regulatory Reporting has the potential to make regulatory reporting requirements machine-readable and executable, enabling firms to use automated, straight-through processing of regulatory returns. The proof of concept successfully used rules from the FCA Handbook, the Prudential Regulation Authority's Rulebook and International Financial Reporting Standards, illustrating the possibility for firms to comply with multiple regulatory reporting requirements.
Read more.TOPIC : FinTech -
10 Key Implications and Considerations of FinTech for Banks and Bank Supervisors Published by the Basel Committee on Banking Supervision
02/19/2018
The Basel Committee on Banking Supervision has published a report, "Sound Practices on Implications of FinTech developments for banks and bank supervisors." The report is a result of the analysis by the Basel Committee-mandated taskforce of financial technology innovations and emerging business models in the banking industry, including the consultation that was run last year. The report sets out the final 10 key implications and considerations for banks and banking systems and for bank supervisors and regulatory frameworks. The report also provides an overview of the current state of play in the industry.
The Basel Committee has decided not to determine whether there is a need to stipulate specific requirements at this stage. It will continue to monitor FinTech developments and assess whether any updates to the implications and considerations are warranted.
View the report.TOPIC : FinTech -
UK Regulator Warns Firms to Improve Prudential Reporting
02/19/2018
The U.K. Financial Conduct Authority has published a new "Dear CEO" letter that it has sent to the Chief Executive Officers of certain firms for which it acts as prudential regulator.
The letter is addressed to the CEOs of "IFPRU Firms" (firms solo-regulated by the FCA that fall within the definition of "investment firm" in the Capital Requirements Directive and which are subject to the requirements of CRDIV) and "BIPRU Firms" (firms solo-regulated by the FCA that fall outside the definition of "investment firm" for CRD IV purposes). The FCA has observed that the prudential returns (in particular the Common Reporting (COREP) and Financial Reporting (FINREP) returns) submitted by these firms often contain inaccurate or incomplete data. The FCA stresses that, while errors or omissions can appear minor in isolation, they can materially distort data that are aggregated and used to analyse a sector or a group of firms.
Examples of the issues the FCA has observed include; failure to submit certain returns, such as the FINREP return; failure to complete underlying templates; inaccurate calculations; inconsistent submissions; reporting using incorrect units; and failure to report cumulatively where that is required.
The FCA instructs CEOs of IFPRU and BIPRU firms to review their firm’s regulatory reporting practices to ensure that they are fit for purpose, comply with the relevant reporting provisions and produce materially accurate data. The FCA plans to conduct a review of a sample of firms' returns as of October 1, 2018 and, should the same issues persist at that time, it will consider taking further steps to improve reporting standards.
View the Dear CEO letter. -
US Commodity Futures Trading Commission and UK Financial Conduct Authority Agree to Collaborate on Regulating FinTech Innovation
02/19/2018
The Commodity Futures Trading Commission and the Financial Conduct Authority have signed a Cooperation Arrangement on Financial Technology Innovation, an arrangement that commits both regulators to collaborating and fostering innovation through their respective FinTech initiatives, LabCFTC and FCA Innovate. This is the CFTC's first agreement of its kind with a non-U.S. counterpart and the FCA's first such agreement with a U.S. regulator. The arrangement will focus on information-sharing based on FinTech market trends and developments in each jurisdiction, simplify the referral process for FinTech companies interested in entering the other's market and facilitate sharing insight gained from each regulator's relevant sandbox, proof of concept or innovation competitions.
CFTC Chairman J. Christopher Giancarlo in a statement said he believes this collaboration will allow the CFTC to contribute to the growing role of regulators in new technology markets, and FCA Chairman Andrew Bailey argued that international borders should not inhibit global technological innovation. Chairman Bailey also announced an upcoming joint event between the CFTC and FCA in London to demonstrate how firms can work and engage with both regulators in the FinTech space.
View the joint press release.
View the Cooperation Arrangement.TOPIC : FinTech -
UK Prudential Regulator Consults on Guidance on the Eligibility of Guarantees as Unfunded Credit Protection for Capital Requirement Purposes
02/16/2018
The Prudential Regulation Authority is consulting on its expectations regarding the eligibility of guarantees as unfunded credit protection for the purposes of a firm's Pillar 1 regulatory capital requirements. The PRA is intending to add a new section to the Supervisory Statement 'Credit risk mitigation'.
The EU Capital Requirements Regulation allows firms to recognize certain forms of credit risk mitigation when calculating their regulatory capital requirements. Unfunded credit protection can be attained through a guarantee where a third party becomes obliged to pay out in the event of non-payment or default of the credit obligor. The CRR sets out the eligibility criteria for a guarantee to qualify for CRM.
Read more. -
US Department of Justice and Federal Financial Regulators Allege AML Failures at Large US Financial Institution and Its National Bank Subsidiary
02/15/2018
The U.S. Department of Justice entered into a deferred prosecution agreement with a large U.S. financial institution, which includes a $528 million forfeiture, alleging that the institution’s national bank subsidiary willfully failed to maintain an adequate anti-money laundering program in violation of U.S. laws and regulations. In a related action, the U.S. Board of Governors of the Federal Reserve System issued a cease-and-desist order against the institution, alleging that the institution lacked adequate risk management and compliance policies and procedures to ensure compliance with certain anti-money laundering requirements. The order requires the institution to submit to its respective Federal Reserve Bank a written plan to strengthen the board of directors’ oversight of the institution’s firm-wide anti-money laundering risk management and compliance program within 60 days of the order, to submit revised policies and procedures within 30 days of the order and that a subsidiary of the institution submit a written enhanced customer due diligence program within 60 days of the order. All submissions must be acceptable to the institution’s Federal Reserve Bank. In addition, the order imposes a $15 million civil money penalty. The Federal Reserve Board press release accompanying the order further noted that the U.S. Office of the Comptroller of the Currency and U.S. Financial Crimes Enforcement Network had also announced monetary penalties against the institution’s national bank subsidiary.
Read more.TOPIC : Enforcement -
US Commodity Futures Trading Commission Issues First Customer Advisory on Virtual Currency Pump-and-Dump Schemes
02/15/2018
The Commodity Futures Trading Commission has issued its first customer advisory regarding pump-and-dump schemes in virtual currency markets. The CFTC warned customers to exercise extreme caution when investing in virtual currency listings promoted on social media, reportedly backed by famous high-tech business leaders and investors or accompanied by posts creating false urgency or telling investors to purchase right away.
The CFTC noted particular concern with the anonymous nature of virtual currencies, which makes enforcement actions against pump-and-dump schemes difficult. These schemes may occur in the largely unregulated virtual currency cash markets, over which the CFTC only has anti-fraud and anti-manipulation enforcement authority.
Additionally, the CFTC stated it has received multiple complaints from customers who have suffered losses due to virtual currency pump-and-dump schemes. The CFTC warned that virtual currencies should only be purchased after they have been thoroughly researched and that customers should avoid purchasing virtual currencies based on sudden price spikes.
The CFTC also encouraged market participants to come forward with any information that could lead to an enforcement action against a virtual currency pump-and-dump scheme.
View the CFTC’s customer advisory.
View the CFTC’s press release.
TOPIC : FinTech -
US Federal Deposit Insurance Corporation Issues Final Rule Amending International Banking Regulations
02/14/2018
The FDIC adopted amendments to its international banking regulations that primarily impact the asset pledge requirements applicable to FDIC-insured branch offices of non-U.S. banks (of which there are only 10) as well as certain securities-related powers of foreign branch offices of state nonmember banks, which depend in part on whether the branch is transacting in investment grade securities. The amendments implement Section 939A of the Dodd-Frank Act, which generally requires the removal of reliance on credit ratings in banking (and other) regulations for determining the creditworthiness of a security or money market instrument. Under the amended regulation, an investment grade security is one “whose issuer has adequate capacity to meet all financial commitments under the security for the projected life of the exposure.”
Read more. -
European Systemic Risk Board Issues Recommendation to Mitigate Funds' Liquidity and Leverage Risks
02/14/2018
The European Systemic Risk Board has published a Recommendation addressed to the European Securities and Markets Authority and the European Commission, outlining a set of recommended actions designed to address the systemic risks that could arise from liquidity mismatches and the use of leverage by investment funds.
Read more.
TOPIC : Funds -
UK Financial Conduct Authority Moots Global Sandbox
02/14/2018
The Financial Conduct Authority has issued a questionnaire on whether a global regulatory sandbox for fintech and other innovative businesses would be beneficial and how it would operate. The FCA set up the United Kingdom's Regulatory Sandbox in 2016 to provide a controlled environment for firms looking to develop and launch innovative businesses models. Similar sandboxes have been introduced in other countries as diverse as the United States, Australia, Bahrain, the Abu Dhabi Global Market, the Netherlands, Hong Kong, Malaysia, Thailand, Canada and Singapore. Other countries have officially announced the establishment of a sandbox or are in the process of setting up their sandbox.
The FCA considers that a global sandbox could allow firms to conduct tests in different jurisdictions at the same time. It could also bring regulators together to identify and work on solutions to common cross-border regulatory issues. Recognizing that establishing a global sandbox would be an enormous task, the FCA also suggests, as an interim measure, the establishment of an international college of regulators with innovation or sandbox models, so that firms could access multiple regulators simultaneously. This approach would also allow the regulators to share and learn from each other about new innovative business models.
The FCA requests feedback on the ideas by March 2, 2018. The FCA expects to provide an update on the global sandbox proposition later in March 2018.
View the FCA webpage.
View the questionnaire. -
US Federal Reserve Board Approves Request to Establish Second Intermediate Holding Company
02/14/2018
The U.S. Board of Governors of the Federal Reserve System issued a letter permitting Deutsche Bank AG to establish a second U.S. intermediate holding company to hold its asset management business pursuant to Regulation YY.
View More. -
UK Regulators Highlight Expectations and Consult on Algorithmic Trading Supervision
02/12/2018
The UK Financial Conduct Authority and Prudential Regulation Authority have published co-ordinated papers on their expectations around firms' use of algorithmic trading strategies in wholesale markets. Firms have had to comply, since January 3, 2018, with new requirements introduced by the revised Markets in Financial Instruments Directive and related Regulatory Technical Standards. The FCA's paper sets out the applicable regulatory requirements and provides examples of good and poor practice for firms regulated by the FCA. Firms that are dual-regulated by the FCA and the PRA should also review the PRA paper, which takes the form of a formal consultation on a proposed Supervisory Statement, covering the PRA's expectations regarding firms' governance and risk management. The PRA consultation runs until May 7, 2018.
Read more.TOPIC : MiFID II -
European Banking Authority Reiterates Concerns over Commission’s Proposed Approach to EU Capital Requirements Regulatory Perimeter Issues
02/12/2018
The European Banking Authority has published a letter, dated February 9, 2018, from the EBA Chairperson, Andrea Enria, to Olivier Guersent, Director-General of DG-FISMA at the European Commission, relating to the regulatory perimeter of the Capital Requirements Regulation and the Capital Requirements Directive. The letter is in response to the January 22, 2018 letter to the EBA from the European Commission regarding the EBA's Opinion on regulatory perimeter issues under the EU capital requirements framework and the proposed changes under CRD V.
Read more. -
US Commodity Futures Trading Commission Chief of Staff Provides Project KISS Update
02/12/2018
The Commodity Futures Trading Commission Chief of Staff Michael Gill provided an update on the CFTC's Project KISS initiative at the CFTC KISS Policy Forum in Washington, D.C. He said that after a thorough review of public comments received through the initiative, the Commission has broken the recommendations down into three tiers: (1) simple housekeeping changes with no discretionary policy adjustments; (2) suggestions reducing regulatory burdens with minor policy implications; and (3) initiatives that have more significant policy implications. Through the Project KISS review process, the CFTC is only focused on the first two tiers, although suggestions in the third tier will be addressed at a later date, Gill said.
The proposals cover a wide range of policy issues across the CFTC's divisions. The Division of Clearing and Risk is examining the process through which the CFTC grants exemptions from derivatives clearing organization registration, amendments to various DCO regulations and extensive proposed amendments to current Part 190 regulations.
Read more.TOPIC : Derivatives -
Bank of England Consults on Incident Reporting Rule for CCPs
02/09/2018
The Bank of England has published a consultation paper on a new rule to formalize the supervisory expectation that CCPs will report any incidents relating to their information technology systems to the BoE. The BoE's move from a supervisory expectation to a rule will align its requirements with the UK's approach to implementing the Cyber Security Directive. Under that Directive, CCPs are classed as operators of essential services and must take measures to manage risks to their network and information systems as well as notify their regulator of incidents which have a significant impact on the continuity of the services they provide.
The consultation paper states that the BoE encourages other financial market infrastructures to follow the rule. However, it will not be a binding requirement for them.
The consultation closes on April 3, 2018. The rule is expected to come into effect by May 9, 2018, which is the date by which Member States must implement the Cyber Security Directive.
View the consultation paper.TOPIC : Financial Market Infrastructure -
European Securities and Markets Authority Outlines 2018 Work Programme for Credit Rating Agencies, Trade Repositories and Monitoring of Non-EU CCPs
02/08/2018
The European Securities and Markets Authority has published a document combining its 2017 Annual Report and 2018 Work Programme in relation to Trade Repositories, Credit Rating Agencies and third-country Central Counterparties.ESMA is the single direct supervisor of Credit Rating Agencies and Trade Repositories in the European Union. It also has direct responsibilities regarding the registration, supervision and recognition of TRs based outside the EU. The 2017 Annual Report highlights its direct supervisory activities and key achievements in 2017 in respect of eight registered TRs, 26 registered CRAs and four certified CRAs. ESMA recognised 10 third-country CCPs in 2017 and conducted monitoring of the activities and services provided by those third-country CCPs in the EU.
ESMA has conducted a supervisory risk assessment regarding CRAs and TRs in the EU. The 2018 Work Programme sets out the supervisory priorities for the year ahead that ESMA has identified for CRAs and TRs and also highlights issues affecting both CRAs and TRs where ESMA will be conducting further work. These areas include Brexit, fees charged by CRAs/TRs, internal control frameworks, cloud computing and guidelines for periodic information.
Read more.
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Review of EU AIFMD Launched
02/08/2018
The European Commission has announced that KPMG has been appointed to carry out a survey on the functioning of the Alternative Investment Fund Managers Directive, calling for all stakeholders to provide their feedback. The online survey seeks stakeholder views on the requirements of the AIFMD, their experience in applying those requirements and the AIFMD's impact on the market.
View the Commission's announcement.
View the KPMG survey page.TOPIC : Funds -
Federal Reserve Bank of New York President Dudley Participates in Banking Culture Panel Discussion
02/07/2018
William Dudley, President of the Federal Reserve Bank of New York, participated in a panel discussion entitled “Banking Culture - Still Room for Improvement?” Mr. Dudley commented that there has been significant progress and improvement in bank culture, but noted that there is room for making even further progress. The discussion also highlighted that regulation and compliance are complements, not substitutes, for good institutional culture. Mr. Dudley also noted that while many often think that supervision by regulators and firm profitability are in conflict, in reality these two forces are aligned. The panel discussed that good culture can provide a competitive advantage with respect to recruiting, given changing priorities among the growing millennial workforce, the importance that bank culture plays in the health and maintenance of a financial institution’s reputation, and how a good culture also promotes bottom-line success. The panel did note, however, that changing culture in large and complex financial institutions can be a very difficult task, and stressed that good firm culture needs to be promoted from the top down.
View full transcript of the panel discussion.TOPIC : Conduct & Culture -
European Securities and Markets Authority Outlines 2018 Plans for EU Supervisory Convergence
02/07/2018
In addition to the key priorities, the 2018 programme also sets out ESMA key objectives and main planned outputs in relation to a number of thematic and cross-cutting issues, including: investor protection and intermediaries; secondary markets; investment management; market integrity (including market abuse and benchmarks); post-trading (including CCPs, securities financing and settlement); corporate finance (in particular the new prospectus regime); corporate reporting; market data; financial innovation; IT infrastructure; and peer reviews.
The European Securities and Markets Authority has published its Supervisory Convergence Work Programme for 2018. It highlights a total of five key priorities for its work on supervisory convergence in 2018, comprised of three ongoing priorities (application of the revised Markets in Financial Instruments framework, data quality and investor protection) and two new priorities (Brexit and financial innovation).
Read more.
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European Securities and Markets Authority Issues Final Guidelines on CCP Conflicts Management
02/07/2018
The European Securities and Markets Authority has published a Final Report setting out Guidelines for compliance, by central counterparties authorized under the European Market Infrastructure Regulation, with their obligations to manage conflicts of interest under EMIR and related Regulatory Technical Standards. ESMA was not directly mandated by provisions in EMIR to prepare the Guidelines. Instead, ESMA has prepared the Guidelines pursuant to the wider mandate in its founding regulation to ensure common, uniform and consistent application of the relevant provisions of EMIR and the RTS.The Final Report summarises the feedback ESMA received to its consultation on draft Guidelines, which ran between June 1, 2017 and August 24, 2017, and sets out the final form of the Guidelines. After clarifying the concept of conflicts of interest in the context of a CCP's commercial relationships, the Guidelines summarize the organisational arrangements CCPs should have in place, along with additional measures that apply in a group context. Finally the Guidelines specify a procedure for conflicts of interest management.
The Guidelines apply to all EU national regulators that supervise CCPs, and will take effect on April 7, 2018. This date is also the deadline for national regulators to inform ESMA whether they comply or intend to comply with the Guidelines, with reasons for non-compliance. All CCPs must report to their national regulator on their compliance with the Guidelines.
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European Commission Publishes Position Paper on Brexit Transitional Period
02/07/2018
The European Commission has published a position paper, titled "Transitional Arrangements in the Withdrawal Agreement", which has been prepared by its Task Force for the Preparation and Conduct of the Negotiations with the United Kingdom.
A transitional period was agreed in principle in December 2017. The stated aim of the position paper is to outline in legal terms how arrangements for the transition period following Brexit should be given effect in the eventual Withdrawal Agreement. Draft clauses for the Withdrawal Agreement relate to the duration of the transition period, the application of EU law to the UK during the transition, the extent to which the UK Parliament and the Bank of England can participate in the EU institutions and the extent to which the UK can participate in the EU's international activities or conclude its own international agreements.
The position paper also contains a draft clause giving jurisdiction to the European Court of Justice to rule on disputes during the transition period. A footnote to the draft clause calls for a mechanism to be put in place within the Withdrawal Agreement whereby the EU would be allowed to "suspend certain benefits deriving for the United Kingdom from participating in the internal market" in circumstances where the EU considers that the ECJ would not provide remedies within an appropriate timeframe.
The negotiations between the UK and EU will resume in March 2018.
View the position paper.
TOPIC : Brexit for Financial Services -
EU Authorities Appoint Industry Working Group on Euro Risk-Free Rates
02/07/2018
Following the November 2017 call for expressions of interest, the European Commission, the European Central Bank, the European Securities and Markets Authority and the Belgian Financial Services and Markets Authority announced the composition of a new working group on euro risk-free rates (that is, excluding bank credit risk). The working group will consist of 21 banks, which will be the voting members, and five non-voting industry associations (the European Money Markets Institute, the European Fund and Asset Management Association, the International Capital Market Association, the International Swaps and Derivative Association and the Loan Market Association). The European Investment Bank has also been invited to join the working group. The Commission, ECB, ESMA and FSMA will participate as observers. The working group is charged with identifying and recommending alternatives to the benchmark rates currently used in the EU – the EURIBOR and EONIA. The choice of alternative reference rates for the euro is expected by the end of 2018. The working group must also develop best practices for contract robustness and an adoption plan for the new reference rates, including any transitional plan for legacy contracts referencing the existing benchmarks.
View the working group information.
View the working group terms of reference. -
Bank of England Confirms its Commitment to Wholesale Market Conduct Codes
02/06/2018
Read more.
The Bank of England has published statements of commitment to the FX Global Code, the UK Money Markets Code and the Global Precious Metal Code. By issuing the statements, the BoE is demonstrating that it will abide by the principles of the three market codes, both when acting as a market participant and also when its activities include acting as agent for HM Treasury in managing the UK's official reserves in the Exchange Equalisation Account. HM Treasury has separately confirmed that it is content with the BoE's ability to adhere to the codes. Six other central banks in the European System of Central Banks have also simultaneously issued their own statements of commitment to the Global FX Code and it is expected all ESCB banks will have done so by May 2018. -
EU Delegated Regulation on Materiality Thresholds for Credit Obligations Past Due
02/06/2018
A Commission Delegated Regulation on Regulatory Technical Standards for the materiality threshold for credit obligations past due has been published in the Official Journal of the European Union. The Delegated Regulation supplements the Capital Requirements Regulation with regard to the conditions for use of the internal ratings-based approach. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The European Banking Authority was obliged to prepare draft RTS specifying the conditions for setting that threshold by a national regulator.
The Delegated Regulation sets out those conditions for retail exposures and for exposures other than retail exposures as well as providing for notification of materiality thresholds to the EBA, the updating of the thresholds and the applicable date for thresholds.
The Delegated Regulation applies from May 7, 2018.
View the Delegated Regulation. -
Final Draft EU Standards on Cooperation of National Regulators and the European Securities and Markets Authority with other EU Authorities under Market Abuse Regulation
02/06/2018
The European Securities and Markets Authority has published a final report and final draft Implementing Technical Standards on forms and procedures for cooperation of National Regulators and ESMA with other EU Authorities under the Market Abuse Regulation. MAR, which entered into force on July 3, 2016, requires national regulators and ESMA to cooperate and exchange information with certain EU authorities in investigations and on supervision and enforcement matters by exchanging information, taking statements from individuals and conducting on-site inspections or investigations. The other authorities are the European Commission, the Agency for Cooperation of Energy Regulators, national regulatory authorities responsible for related spot markets and, in relation to emission allowances, the auction monitor and relevant auction national regulators. The final draft ITS describe the procedures to be followed for making, acknowledging, processing and replying to requests for assistance and when unsolicited assistance is provided and contain standard forms to be used when doing so. The European Commission has three months to consider whether to adopt the ITS.
View the final report and draft ITS. -
US Federal Financial Regulators Propose Amendments to Swap Margin Rule
02/05/2018
The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation, the US Farm Credit Administration and the US Federal Housing Finance Agency issued a joint notice of proposed rulemaking seeking comment regarding the minimum margin requirements for covered swap entities (the “Swap Margin Rule”). The proposed rule would amend swap margin requirements to ensure conformity with rules recently adopted by the Federal Reserve Board, the OCC and the FDIC, which impose restrictions on certain swap and other financial contracts that are deemed to be qualified financial contracts. The proposed rule would amend the definition of “Eligible Master Netting Agreement” to align with the revised definition of “Qualifying Master Netting Agreement” in the recent rules adopted by the Federal Reserve Board, the OCC and the FDIC, and would ensure that a netting agreement for a firm subject to the Swap Margin Rule is not excluded from the definition of “Eligible Master Netting Agreement” solely on the basis of the firm’s compliance with the recently promulgated qualified financial contract rules. The proposed rule would also provide that certain legacy agreements would not become subject to the Swap Margin Rule solely on the basis of their amendment to comply with the qualified financial contract rules recently promulgated by the Federal Reserve Board, the OCC and the FDIC. Comments to the proposed rule are due no later than 60 days following publication in the Federal Register.
View interagency notice of proposed rulemaking. -
Jerome Powell Sworn in as Chairman of the US Board of Governors of the Federal Reserve System
02/05/2018
Jerome Powell was sworn in as Chairman of the US Board of Governors of the Federal Reserve System. Mr. Powell also serves as Chairman of the Federal Open Market Committee.
View the Federal Reserve Board press release.TOPIC : People -
European Commission Confirms Reverse Distribution Not Permitted Under Money Market Funds Regulation
02/05/2018
The European Commission has published a letter to the European Securities and Markets Authority in response to a query from ESMA on the interpretation of the Money Market Funds Regulation concerning "reverse distribution". Reverse distribution involves the cancellation of fund units in certain market environments, notably where negative interest rates prevail.ESMA had concluded, in its public consultation on its draft Implementing Technical Standards for the MMFR, that the reverse distribution mechanism (often referred to as "share cancellation" or "share destruction") was not compatible with MMFR. ESMA's final draft ITS therefore did not provide for information on the "destruction" of shares to be included in quarterly reporting to national regulators. ESMA received industry feedback to its consultation to the effect that reverse distribution is a common market practice, accepted by both national regulators and investors. ESMA sought legal advice from the Commission. The Commission's response, dated January 19, 2018, confirms that reverse distribution is not compatible with the MMFR, and invites ESMA to issue guidance to ensure supervisory convergence on this issue.
View the letter. -
UK Legislation Aligned With New EU Venture Capital and Social Entrepreneurship Regulation
02/05/2018
New UK secondary legislation has been laid before Parliament to make the necessary minor technical changes to align UK legislation with recently introduced changes to EU legislation. An EU regulation amending the European Venture Capital Funds Regulation and European Social Entrepreneurship Funds Regulation took effect from November 30, 2017. The amending regulation made various changes to the EuSEF Regulation and EuVECA Regulation to extend the range of eligible managers for EuSEF and EuVECA funds, to extend the range of eligible assets and to prohibit registration fees and simplify the registration process.This has necessitated new legislation in the form of the Alternative Investment Fund Managers (Amendment) Regulations 2018. These UK amending regulations make minor changes to the Alternative Investment Fund Managers Regulations 2013 in relation to the procedures to be followed when applying to register as a manager of a European social entrepreneurship fund or a European venture capital fund and for the refusal or revocation of such registration. The UK amending regulations also update definitions found in other UK secondary legislation. The changes come into force in part on March 1, 2018 and in part on April 2, 2018.
View the Alternative Investment Fund Managers (Amendment) Regulations 2018 (S.I. 2018/134).
View the explanatory memorandum.TOPIC : Funds -
UK Benchmarks Legislation Published
02/05/2018
The Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 have been laid before Parliament and will come into force mainly on February 27, 2018. Certain provisions will come into force on July 1, 2018 and transitional provisions apply until revoked on May 1, 2020.
The UK already has a fairly comprehensive regime for benchmark regulation. The new UK Regulations make the necessary changes to UK primary and secondary legislation to align it with the EU Benchmarks Regulation, which introduces a common framework and consistent approach to benchmark regulation across the EU and which has been directly applicable throughout the EU since January 1, 2018. The UK Regulations appoint the Financial Conduct Authority as "competent authority" for the purposes of the EU Benchmarks Regulation.
Read more. -
UK Financial Conduct Authority Consults on Benchmarks Enforcement Powers
02/05/2018
The UK Financial Conduct Authority has published a consultation setting out proposed changes to its Decision Procedure and Penalties manual and its Enforcement Guide. The amendments to DEPP and EG reflect changes introduced by the EU Benchmarks Regulation, which took effect on January 1, 2018. The Benchmarks Regulation has been implemented in the UK by the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018, which will make the necessary changes to the UK statutory framework when they come into force mainly on February 27, 2018.
Read more.
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Andrew Bailey, Head of the Financial Conduct Authority Discusses Brexit
02/05/2018
The Chief Executive of the Financial Conduct Authority, Andrew Bailey, gave a speech on Brexit at the Future of the City dinner. Mr. Bailey called for a joint commitment by the political authorities to a defined implementation period before the end of March this year and confirmed that the FCA regards Brexit as a top priority. He discussed the operational issues that may arise as a result of Brexit, for example, contractual continuity for derivatives and insurance contracts, UK CCP clearing services and the holding and sharing of data. He also highlighted that mutually agreed and enacted provisions in both the UK and the EU were needed to properly address these matters. The FCA is working with the UK Government to ensure that the UK has a functioning regulatory regime on the date of Brexit and during any transitional period. The UK Government has confirmed that it will introduce draft legislation, if needed, to ensure an interim regulatory permissions regime and to ensure contractual continuity.
In addition, Mr. Bailey discussed the advantages to both the EU and the UK of adopting a mutual recognition regime post-Brexit which continues the existing open financial markets. He noted that during the EU's negotiations with the US on the Transatlantic Trade and Investment Partnership, the EU proposed the inclusion of financial services in the trade agreement, which was based on mutual recognition and close regulatory cooperation, and suggested that the proposal could be used as a starting point for the EU and UK to agree a framework for mutual recognition.
View the text of the speech.TOPIC : Brexit for Financial Services -
US Board of Governors of the Federal Reserve System Issues Cease-and-Desist Order Against Large US Financial Institution
02/02/2018
The US Board of Governors of the Federal Reserve System issued a cease-and-desist order against a large US financial institution. The order requires the institution to utilize its resources to ensure compliance with consent orders issued by other US federal financial regulators. The order also requires the institution to submit written plans to its applicable Federal Reserve Bank that are designed to further enhance board-level oversight and governance of the institution and further improve the institution’s compliance and operational risk management program. These plans must be approved by the relevant Federal Reserve Bank and are subject to third-party review once implemented. In addition, the institution may not grow until the requirements of the cease-and-desist order are satisfied, absent specific Federal Reserve Board approval. Concurrently with the release of the cease-and-desist order, the Federal Reserve Board sent letters addressed to the institution’s board of directors, its former lead independent director, and its former Chair describing governance deficiencies identified by the Federal Reserve Board. The Federal Reserve Board press release accompanying the publication of the order also noted upcoming changes in the composition of the institution’s board of directors.
View the Federal Reserve Board announcement. -
Results of EU-Wide CCP Stress Test 2017 Published
02/02/2018
The European Securities and Markets Authority has published a report setting out the results of its second EU-wide CCP stress test exercise. The European Market Infrastructure Regulation requires ESMA to conduct the exercise at least once per year to assess the resilience and safety of EU CCPs. The second stress test tested the resilience of 16 European CCPs, with approximately 900 clearing members EU-wide.
The 2017 stress test builds on the first stress test conducted in 2016, which only examined counterparty credit risk. The second stress test included liquidity risks and examined whether CCPs would meet their liquidity needs under different stress scenarios. ESMA has published some Q&A to accompany the report.
View the ESMA report.
View the ESMA Q&A.TOPIC : Financial Market Infrastructure -
EONIA Review Shelved
02/02/2018
The administrator of the Euro OverNight Index Average, the European Money Markets Institute, has announced its decision not to pursue a thorough review of the EONIA benchmark.
EONIA represents the weighted average of all overnight unsecured lending transactions in the interbank market undertaken in the European Union and European Free Trade Association countries. EMMI, which also administers Euribor, had been engaged in a review program since December 2015 with the objective of enhancing EONIA's governance and operation to align it with the requirements of the EU Benchmarks Regulation, which took effect on January 1, 2018.
Read more. -
US Federal Banking Regulators Release 2018 Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Test Scenarios and Instructions
02/01/2018
The US Office of the Comptroller of the Currency and the US Board of Governors of the Federal Reserve System released the 2018 scenarios for the Dodd-Frank Act Stress Test (DFAST), and the Federal Reserve Board issued its instructions to the firms participating in the 2018 Comprehensive Capital Analysis and Review (CCAR).
Read more. -
UK Government Publishes Guidance for Financial Institutions on Sharing of Information on Suspected Money Laundering or Terrorist Financing
02/01/2018
The U.K. Home Office has published guidance on sharing of information within the regulated sector under the Criminal Finances Act 2017. The CFA 2017 amends the Proceeds of Crime Act 2002 and the Terrorism Act 2000 to allow banks and other financial institutions to voluntarily share information with each other about a suspicion that a person is engaged in money laundering or a terrorist financing offense. The National Crime Agency is also permitted to request banks and financial institutions to voluntarily share information. The new information sharing provisions cover the entire regulated sector. However, implementation is being phased in, starting with banks and financial institutions.
The guidance confirms that sharing of information is voluntary and does not change the mandatory obligation to file a Suspicious Activity Report if appropriate. It also confirms that in sharing information, firms must ensure that they comply with data protection requirements, including under the incoming General Data Protection Regulation. In addition, the guidance confirms that where information is shared in good faith under the relevant CFA 2017 provisions, the POCA 2002 tipping off offense does not apply.
The guidance sets out the roles and responsibilities of firms involved in information sharing, the processes and procedures for submitting notifications and disclosures to the NCA and the interaction of the new provisions with the existing money laundering provisions.
View the guidance. -
International Standards Body Issues Liquidity Risk Management Recommendations for Funds
02/01/2018
The International Organization of Securities Commissions has published its final report and recommendations on liquidity risk management for open-ended collective investment schemes. It has also published a report on good practices and considerations in open-ended fund liquidity and risk management. These reports follow the consultation run last year and constitute IOSCO's final response to the Financial Stability Board Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities, published in January 2017, which called on IOSCO to review and revise its guidance, where appropriate.
The first report, Recommendations for Liquidity Risk Management for Collective Investment Schemes, sets out recommendations for managing the liquidity of CIS to ensure the protection of investor's interests, including in stressed market conditions. The Recommendations are addressed to those responsible for liquidity risk management of CIS and to national regulators. There are 17 recommendations covering the CIS design process, day-to-day liquidity management and contingency planning. The report replaces IOSCO's 2013 report on liquidity risk management for CIS.
Read more. -
EU Blockchain Observatory and Forum Launched
02/01/2018
The European Commission has announced the launch of the EU Blockchain Observatory and Forum. The Commission intends the new Forum to build on existing initiatives and to ensure the feasibility of Blockchain use cross-border. It is also expected to assist in tackling difficulties arising from the use of Blockchain, such as disintermediation, trust, security and traceability. Furthermore, the Blockchain Observatory and Forum will support cross-border cooperation on practical use cases and be an open forum for discussing and developing new ideas.
The Commission's FinTech Action Plan is expected to be issued in Spring.
View the press release.TOPIC : FinTech -
Nausicaa Delfas Appointed as Executive Directive of International at the Financial Conduct Authority
02/01/2018
The Financial Conduct Authority has appointed Nausicaa Delfas as Executive Directive of International. The appointment creates a new role at the FCA and highlights the importance of developing the FCA's strategy for international engagement, especially in the lead up to the UK's withdrawal from the EU.
View the FCA's press release. -
US Commodity Futures Trading Commission Fines Investment Bank for Attempted Manipulation of Benchmark Swaps Rate
02/01/2018
The US Commodity Futures Trading Commission has issued an order settling charges against the US investment arm of an international bank for attempted manipulation of the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark that indicates the prevailing mid-market rate for the fixed leg of a standard fixed-for-floating interest rate swap.
The order alleges that from at least January 2007 through May 2012, the firm attempted to manipulate the USD ISDAFIX by bidding, offering and executing transactions in targeted interest rate products near the time of the benchmark's daily publication in order to influence the final published rate and improve the firm's positions. The order also alleges that certain employees of the firm who were responsible for making USD ISDAFIX submissions attempted to manipulate the published rate by submitting rates that were false and misleading in order to move the USD ISDAFIX to a more desirable level that would benefit the firm's positions.
The firm agreed to a $70 million fine to settle the charges. In the order, the CFTC recognized the firm’s cooperation with the investigation and remedial actions taken by the firm to strengthen internal controls and policies relating to all benchmarks, including the USD ISDAFIX.
View the CFTC's press release. -
US Commodity Futures Trading Commission Proposes New Measure to Calculate Size of Interest Rate Swap Markets
02/01/2018
The US Commodity Futures Trading Commission is considering a new measure to calculate the size of the interest rate swap (IRS) markets. Under the methodology proposed in a paper by CFTC Chief Economist Bruce Tuckman, the value of the IRS markets would be determined by the calculation of what the paper refers to as "Entity-Netted Notionals" (ENNs) instead of the current gross notional measure used today, which the paper argues overstates risk transfer in the markets.
ENNs would be calculated by: (1) converting the long and short notional amounts of each counterparty to five-year risk equivalents; (2) netting longs against shorts in a given currency within pairs of legal entities; and (3) summing the resulting net longs or shorts across counterparties. Under this calculation, the value of the current IRS markets would be approximately $15 trillion, which represents roughly 8% of the current $179 trillion market valuation under the current notional calculation.
In a speech introducing the paper, CFTC Chairman J. Christopher Giancarlo argued that the new measure would ensure the IRS markets are more easily compared to other markets, and, in particular, that it would bring their value closer to other fixed income markets, such as the markets for US Treasuries, corporate bonds, mortgages and municipal securities. However, he also acknowledged that ENNs are not intended to measure counterparty or operational risk and said his intention is not necessarily to use the calculation to rethink regulatory thresholds, such as the swap dealer de minimis registration threshold.
The CFTC is looking for market reaction to the ENNs proposal.
View the Office of the Chief Economist's paper.
View Chairman Giancarlo's speech.TOPIC : Derivatives -
US House of Representatives Passes Five Bills Affecting Financial Institutions
01/30/2018
The US House of Representatives passed five bills focused on regulatory reform for financial institutions. The bills passed by the House include: the Housing Opportunities Made Easier Act (H.R. 2255), which amends the Truth in Lending Act to allow mortgage appraisal services to be donated to organizations eligible to receive tax-deductible contributions;
Read more. -
Treasury Secretary Mnuchin Testifies Before the US Senate Committee on Banking, Housing, & Urban Affairs
01/30/2018
Treasury Secretary Steven Mnuchin testified before the US Senate Committee on Banking, Housing, & Urban Affairs at the committee’s Financial Stability Oversight Council annual report to Congress hearing. In his prepared statement, Secretary Mnuchin noted that the FSOC annual report recommended that member agencies review existing rules and regulations to reduce overlap and duplication, modernize regulations that have become outdated and tailor regulations to fit the size and complexity of the financial institutions for which the regulations are applicable. Secretary Mnuchin praised Congress for the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act, a legislative proposal that seeks to ease the regulatory burden on smaller community-based financial institutions, and urged both the US Senate and the US House of Representatives to take quick action to reduce regulatory burdens. Secretary Mnuchin also stressed that cybersecurity is a key risk identified in the FSOC annual report. While Secretary Mnuchin stated that progress has been made with regard to cybersecurity, he highlighted the danger that a large-scale cybersecurity incident could significantly disrupt the financial system, especially given the ever-increasing reliance on technology.
View full text of Secretary Mnuchin’s statement. -
US Government Accountability Office Releases Report Regarding US Federal Financial Institution Regulator Compliance with the Regulatory Flexibility Act
01/30/2018
The US Government Accountability Office released a report that details the compliance of six US federal financial institution regulators (the US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, the US Securities and Exchange Commission, the US Commodity Futures Trading Commission and the US Consumer Financial Protection Bureau) with the requirements of the Regulatory Flexibility Act (RFA). Under the RFA, regulators must either consider a proposed rule or regulation’s impact on smaller financial institutions and consider potential alternatives, or certify that the proposed rule or regulation will not have a significant impact on a large percentage of small financial institutions. The GAO report identified a number of weaknesses with the agencies’ compliance with both aspects of the RFA, including a lack of transparency with respect to documentation supporting an agency’s regulatory flexibility analysis, and missing information in certifications. The GAO report makes 10 recommendations—each tailored to respond to perceived weaknesses at specific regulators—with each of the 6 reviewed agencies receiving at least 1 recommendation. The recommendations include enhancing transparency, developing policies and procedures that better document and explain the respective agency’s analysis, and requiring the agencies to review existing evaluation frameworks to ensure harmonization with the requirements of the RFA.
View full text of the GAO report. -
US Board of Governors of the Federal Reserve System and US Federal Deposit Insurance Corporation Announce Resolution Plan Feedback
01/29/2018
The US Board of Governors of the Federal Reserve System and US Federal Deposit Insurance Corporation announced that they have provided feedback to 19 non-US-based financial institutions on their 2015 resolution plans, and the Federal Reserve Board provided links to the feedback letters that were issued to each of these 19 financial institutions. The agencies noted in the announcement that given the limited complexity of these financial institutions’ US operations, the agencies will further tailor their expectations for the upcoming resolution plan submissions by these institutions, which are due no later than December 31, 2018.
View the Federal Reserve Board press release and feedback letters for each of the banks.TOPIC : Recovery & Resolution -
US DOJ, Commodity Futures Trading Commission Charge Three Banks and Multiple Individuals in Spoofing Schemes
01/29/2018
The US Department of Justice and Commodity Futures Trading Commission announced enforcement actions against three banks and multiple individuals involved in alleged commodities fraud and spoofing schemes.
Each of the banks settled civil CFTC charges relating to manipulation of the price of precious metals futures contracts traded on the Commodity Exchange, Inc. through spoofing techniques (including placing an order with the intent to cancel before execution), and by trading in a manner designed to trigger customer stop-loss orders. The three banks were each ordered to pay a civil monetary penalty, which ranged from $1.6 million to $30 million. According to the orders, all three banks cooperated throughout their respective investigations. Additionally, the DOJ and CFTC announced criminal and civil charges against various individuals. These individuals allegedly engaged in various spoofing and manipulative and deceptive schemes in various precious metals and other futures markets. In its continuing litigation, the CFTC is seeking a range of civil monetary penalties, disgorgement, and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations, along with trading and registration bans for several of the individuals.
View the DOJ's press release.
View the CFTC's press release.TOPIC : Enforcement -
US Consumer Financial Protection Bureau Issues Information Request Regarding Civil Investigative Demands
01/26/2018
The US Consumer Financial Protection Bureau published a notice in the Federal Register requesting public comment regarding the agency’s Civil Investigative Demands (CID) processes. Further to statements issued by CFPB Acting Director Mick Mulvaney, the request for information provides an opportunity for the public to provide comments aimed at improving and streamlining the CID processes for consumers and financial institutions. The request for information asks for comment regarding a number of aspects of the CFPB’s CID processes, including suggestions for modifying or updating CID processes, proposed improvements to how information is conveyed to entities that receive CIDs and suggestions regarding the timing and deadlines under the existing CID framework. Comments are due by March 27, 2018.
View CFPB’s Information Request. -
Department of Justice Issues Letter Limiting Use of Agency Guidance in Civil Enforcement Actions
01/25/2018
US Associate Attorney General Rachel Brand issued a letter regarding the use of agency guidance, defined in the memo as “any agency statement of general applicability and future effect. . .that is designed to advise parties outside of the federal Executive Branch about legal rights and obligations,” as a tool for civil enforcement actions. In the letter, Ms. Brand references a November 16, 2017 memo from US Attorney General Jeff Sessions entitled “Prohibition of Improper Guidance Documents.” The letter from Ms. Brand reiterates that guidance documents may not be used to circumvent the notice-and-comment rulemaking process. The letter also highlights that Department of Justice personnel are prohibited from using agency guidance documents as a means to require that regulated entities take or refrain from any action not otherwise mandated by law or regulation, and that non-compliance with agency guidance should not in and of itself result in an enforcement action. The letter notes that while agency guidance may be used for other purposes, such as showing that the financial institution had knowledge regarding its obligations under law or regulation, DOJ personnel should not use non-compliance with agency guidance as presumptive or conclusive evidence that a financial entity violated the underlying law or regulation.
View full text of DOJ letter.TOPIC : Enforcement -
US Consumer Financial Protection Bureau Issues Final Rule Regarding Prepaid Accounts
01/25/2018
The US Consumer Financial Protection Bureau published a final rule that amends the regulations implementing the Electronic Funds Transfer Act (Regulation E), and the Truth in Lending Act (Regulation Z), and corresponding official interpretations. The final rule makes a number of modifications to these regulations, including changes to error resolution requirements and limited liability provisions, which will now apply after a consumer’s identity has been verified, designed to promote prompt registration of prepaid cards by individuals. In addition, the final rule clarifies how the prepaid rule applies to credit cards linked to digital wallets, which promotes consumer use of digital wallets, while providing the same protections that apply to traditional credit card accounts. The final rule also delays the effective date of these provisions until April 1, 2019.
View the CFPB’s final rule. -
US Federal Banking Regulators Announce Favorable Community Reinvestment Act Consideration to Aid Areas Affected by Hurricane Maria
01/25/2018
The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation announced that the agencies will give favorable consideration under the Community Reinvestment Act for bank activities that helped with revitalization and stabilization of the US Virgin Islands and Puerto Rico, which were designated as major disaster areas because of Hurricane Maria. The agencies announced that financial institutions located anywhere in the United States, including outside of the affected areas, will receive favorable CRA consideration for their community development activities concerning affected areas and individuals, provided that the institution has been responsive to the CRA needs of its own assessment area. The agencies clarified that favorable CRA consideration will be given to institutions that aid affected areas and individuals—including those who have been displaced and relocated outside of the affected areas—regardless of census information or the personal income of the individual being assisted. The agencies did, however, note that greater weight will be given to activities that assist areas and individuals that are of low and moderate income.
View the interagency statement regarding the announcement. -
European Commission Hints at Future Changes to the Second Electronic Money Directive
01/25/2018
The European Commission has published a report to the European Parliament and the Council of the European Union on the implementation and impact of the second Electronic Money Directive, known as 2EMD. 2EMD establishes a legal framework for the issuance and redemption of e-money and covers the rights and obligations linked to the redemption of funds by consumers, the licensing of e-money institutions and the prudential requirements applicable to e-money institutions, which updates the regime under the first Electronic Money Directive to align it with requirements on payment institutions under the revised Payment Services Directive. It applies to e-money service providers in the EEA. The regime has been sparsely used in practice, with few firms operating under its auspices.
2EMD requires the Commission to assess its implementation and impact and to propose legislative changes, if appropriate. The report was due on November 1, 2012, however, the Commission delayed its publication because a majority of member states had failed to transpose 2EMD into their national laws by the transposition date of April 2011. The Commission also wanted to take into account the impact of PSD2, which includes numerous cross-references to 2EMD.
Read more. -
UK Financial Conduct Authority Provides Reassurance for Manufacturers of Packaged Retail and Insurance-based Investment Products
01/24/2018
The UK Financial Conduct Authority has issued a public statement on the Packaged Retail and Insurance-based Investment Products Regulation, which took effect on January 1, 2018.
The PRIIPs Regulation requires 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 the retail investors with a KID in good time before the transaction is concluded.
Read more.TOPIC : Consumer Protection -
UK Financial Conduct Authority Proposes Handbook Changes to Implement the European Money Market Funds Regulation
01/24/2018
The UK Financial Conduct Authority has launched a consultation on necessary changes to its Handbook for the functioning of the Money Market Funds Regulation, which came into force on July 21, 2017. Although the MMF Regulation is directly applicable under EU law, some areas of the UK regulatory framework will need to be changed to ensure they align with it. The FCA's consultation sets out proposals to make certain amendments to the Handbook to ensure that it is consistent with the requirements of the MMF Regulation. The FCA also proposes to introduce application fees for the authorization of MMFs and periodic fees to help meet the cost of supervising MMFs’ adherence to the MMF Regulation.
The MMF Regulation is one of a range of EU policy measures to address risk arising from so-called "shadow banking", which is the term often used to refer to credit intermediation by entities and activities outside the banking sector. The financial crisis revealed that some MMFs were vulnerable during periods of high market turbulence, during which it was difficult for these funds to maintain liquidity and stability, particularly in the face of investor runs. Consequently they could pose a serious risk of contagion in the wider financial system. The MMF Regulation strengthens, in particular, the quality and liquidity of the asset portfolios held by MMFs. It also establishes, for some of these funds, capital buffers in order to cover the gaps in valuation associated with fluctuations in their asset value.
Read more.TOPIC : Shadow Banking -
US Commodity Futures Trading Commission Charges My Big Coin Pay, Inc. and Its Founders with Fraud and Misappropriation of Customer Funds in Virtual Currency Scheme
01/24/2018
The Commodity Futures Trading Commission has announced the filing of an enforcement action charging Nevada-based firm My Big Coin Pay, Inc. and its founders with operating a scheme through which they fraudulently offered the sale of a virtual currency, known as “My Big Coin.” This enforcement action follows two CFTC enforcement actions against other fraudulent virtual currency schemes within the preceding week.
The My Big Coin Pay, Inc. complaint alleges that from January, 2014 to January, 2018, the defendants fraudulently solicited more than $6 million from customers throughout the United States by making false and misleading claims that My Big Coin was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also allegedly misrepresented My Big Coin's daily trading price in reports on its website, when no daily trading price existed because My Big Coin was not actively being traded. Additionally, the complaint alleges that any payouts customers did receive were a result of a Ponzi scheme in which My Big Coin Pay, Inc. used funds from other customers to pay off previous investors.
Read more.TOPIC : Enforcement -
Senate Banking Committee Holds Hearing for Three Financial Regulatory Agency Nominees
01/23/2018
The United States Senate Committee on Banking, Housing and Urban Affairs held a hearing for three individuals whose nominations to US federal financial institution regulator positions are pending. The nominees and their respective positions are: Ms. Jelena McWilliams to be Chairperson and a Member of the Board of Directors of the US Federal Deposit Insurance Corporation; Dr. Marvin Goodfriend to be a Member of the US Board of Governors of the Federal Reserve System; and Mr. Thomas E. Workman to be a Member of the US Financial Stability Oversight Council.
View transcript of Ms. McWilliam’s prepared statement.
View transcript of Dr. Goodfriend’s prepared statement.
View transcript of Mr. Workman’s prepared statement.TOPIC : People -
Jerome Powell Confirmed as Next Chair of the US Board of Governors of the Federal Reserve System
01/23/2018
The US Senate voted 84-13 in favor of confirming Jerome Powell as the next Chair of the US Board of Governors of the Federal Reserve System. During the confirmation vote, Chairman of the US Senate Committee on Banking, Housing and Urban Affairs, Mike Crapo, delivered a statement in favor of Mr. Powell’s nomination. Mr. Crapo stressed the importance of the position of Federal Reserve Board Chair, and praised Mr. Powell for his prior experience, regulatory and market knowledge and track record.
View Mr. Crapo’s statement at Mr. Powell’s confirmation vote.TOPIC : People -
European Supervisory Authorities Deliver Opinion on Benefits, Risks and Challenges of Innovative Customer Due Diligence Solutions
01/23/2018
The Joint Committee of European Supervisory Authorities has published an Opinion addressed to EU national regulators to develop a common understanding of the appropriate use, by credit and financial institutions, of innovative methods to meet Customer Due Diligence obligations.
All firms that are subject to the Fourth Money Laundering Directive must put in place effective policies and procedures, including effective CDD procedures, to address the risk that their businesses may be used for money laundering or for terrorist financing purposes. 4MLD is "technology neutral" and does not set out specific steps or procedures that must be followed for CDD. There is scope, therefore, for new ways to verify customers' identity, for example non-face-to-face verification using traditional identity documents (such as passports) through portable devices or verification via centralized databases. Innovative means such as artificial intelligence are also increasingly used for monitoring customer relationships, for risk assessment and in decision-making processes.
The ESAs recognize that innovative solutions can improve the effectiveness and efficiency of AML/CFT controls and firms often use innovative solutions to meet demand for improved customer experience and costs savings. The ESAs believe that firms should not be prevented from using such solutions, provided that proper safeguards have been put in place to mitigate the ML/TF risk associated with the firm's business relationships and risk profile. The ESAs' Opinion highlights additional factors that national regulators can take into account when assessing the adequacy of any proposed use of innovative CDD solutions. These include: oversight and control mechanisms; the quality and adequacy of CDD measures; the reliability of CDD measures; delivery channel risk; and geographical risks.
View the Opinion. -
UK Financial Conduct Authority To Allow 90-Day Unbreakable Deposits For Client Money
01/22/2018
The UK Financial Conduct Authority has published a Policy Statement and final rules to introduce changes to its client money rules to amend the existing 30-Day Rule, under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The client money rules require firms to deposit client money in an account opened with an authorised bank, a central bank or in a qualifying money market fund. An unbreakable deposit is one where the firm placing the deposit has no contractual ability to request the return of the monies prior to the end of the agreed term.
The rule changes have been made following feedback from firms that banks have been increasingly reluctant to provide 30-day unbreakable deposits. This reluctance appears to have been due to the interaction of the client money and prudential regimes. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient for banks.
Read more. -
New York State Department of Financial Services Reminds Institutions of Upcoming Deadline for Cybersecurity Certification
01/22/2018
New York State Department of Financial Services Superintendent Maria Vullo issued a press release reminding regulated entities and licensed persons of the NYDFS’s upcoming February 15, 2018 compliance certification deadline under New York’s cybersecurity regulation that was implemented in March of 2017. New York’s cybersecurity regulation generally requires (i) that regulated entities establish, review and assess cybersecurity policies and procedures designed to protect consumer data, (ii) that regulated entities have a Chief Information Security Officer, and (iii) that the policies and procedures are approved by an entity’s board of directors or a senior officer. Covered entities and individuals will be required to submit the certification, which attests to compliance with New York’s cybersecurity regulation for 2017, through the NYDFS’s cybersecurity portal. The press release also provides a link to a series of frequently asked questions regarding the cybersecurity regulation generally, and the upcoming filing deadline, including which subparts of the regulation are applicable to this year’s certification, and those that will be applicable to the 2019 certification. Superintendent Vullo also announced that the cybersecurity evaluation will be incorporated into all NYDFS examinations of regulated entities.
View full text of the press release.TOPIC : Cyber Security -
Federal Reserve Vice Chairman Quarles Speaks on Improving Effectiveness of Post-Crisis Regulation
01/19/2018
Vice Chairman of the US Board of Governors of the Federal Reserve System, Randal Quarles, delivered remarks at the American Bar Association Banking Law Committee’s annual meeting. In his remarks, Mr. Quarles discussed his approach as Vice Chair of Supervision and outlined a number of items that were areas of focus. Mr. Quarles noted that the post-crisis regulatory framework was largely complete—with the exception of the implementation of the Basel III framework—and noted that this provided an opportunity to reflect on these regulations and assess their utility and move towards efficient and transparent regulation. Mr. Quarles reiterated the need to reduce the regulatory burden for smaller financial institutions and echoed prior comments from Federal Reserve Board Chairman-nominee Jerome Powell that key regulatory areas that need improvement include resolution planning, stress testing and simplification of the Volcker Rule. Specifically, he noted that the relevant agencies have begun work on a proposal to streamline the Volcker Rule and “congeal around a thoughtful Volcker rule 2.0.” Mr. Quarles also discussed a few emerging areas for consideration, including (i) tailoring regulation to match an institution’s size, footprint, risk profile and business model, (ii) a re-evaluation of loss absorbency requirements, (iii) a recalibration of the leverage ratio and (iv) the Federal Reserve Board’s framework for control determinations under the Bank Holding Company Act, which he generally views as too opaque.
View full text of VC Quarles' speech. -
House Financial Services Committee Advances 15 Bills
01/18/2018
The US House Financial Services Committee announced that it had advanced 15 bills, many of which would alter the regulatory framework for financial institutions.
Read more. -
US Federal Reserve Board Finalizes FR Y-7 Reporting and Clarifies Regulation YY Requirements
01/18/2018
The US Federal Reserve Board issued a notice finalizing its revisions to the Form FR Y-7 (Annual Report for Foreign Banking Organizations), regarding how a foreign banking organization should certify its compliance with US risk committee and home country capital stress testing requirements under Regulation YY.
Read more. -
European Commission Reports Steady Downward Trend in EU Banks' Non-performing Loans
01/18/2018
The European Commission has published a Communication to the European Parliament, the Council of the European Union and the European Central Bank, setting out its first progress report on the implementation of the "Action Plan To Tackle Non-Performing Loans in Europe" that was adopted by the Council in July 2017. The Communication discusses addressing NPLs as part of risk reduction in the financial sector and reports that the general improvement in NPL ratios over recent years continued in 2017. The ratio of NPLs is at its lowest level since Q4 2014. The Communication concludes by stressing the importance of maintaining the pace of NPL reduction and the need, not only for continued action by individual banks and by Member States, but also for concerted action at EU level by the Commission and other EU institutions, including the ECB.
A Commission Staff Working Document, published jointly with the Communication, provides further detail on the workstreams identified as necessary to deliver the Action Plan and on developments in selected Member States.
Read more. -
European Securities and Markets Authority Considers Product Intervention for Contracts for Difference and Binary Options
01/18/2018
The European Securities and Markets Authority has issued a call for evidence on the possible use of its product intervention powers under the Markets in Financial Instruments Regulation to impose restrictions and/or prohibitions on the marketing, distribution and sale of contracts for difference and binary options to retail investors.
Read more. -
EU Secondary Legislation under the Benchmark Regulation Published
01/17/2018
Four Commission Delegated Regulations supplementing the Benchmark Regulation have been published in the Official Journal of the European Union. The Benchmark Regulation regulates the provision of benchmarks, contributions of data to a benchmark and the use of benchmarks within the EU. It sets out the authorization and registration requirements for benchmark administrators, including third country entities, and stipulates requirements for governance and control of administrators. The Benchmark Regulation establishes different rules for different categories of benchmarks, depending on the risks involved, and imposes additional requirements on benchmarks considered to be critical. It also sets out the powers of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.
Read more. -
UK Prudential Regulation Authority Delays Implementation of Pillar 2 Reporting Requirements
01/17/2018
The UK Prudential Regulation Authority has announced that it is postponing by six months the introduction of a new liquidity reporting template, PRA110. PRA110 is intended to capture information on cashflow mismatch risk within the Pillar 2 framework.
The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework involves additional capital requirements set through regulatory discretion and complements the Pillar 1 Liquidity Coverage Ratio requirements, by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. The PRA consulted in July 2017 on a draft liquidity reporting template for CFMR, to be numbered PRA110. PRA110 will build on the European Banking Authority's maturity ladder reporting template, which will apply from March 2018, by including additional columns and rows to capture additional information. The PRA originally proposed that the PRA110 template would be implemented on January 1, 2019 and that, on implementation of PRA110, it would terminate the old FSA047 and FSA048 returns.
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Final EU Regulations on the Scope of the Consolidated Tape for Non-Equity Financial Instruments
01/17/2018
A Commission Delegated Regulation amending the Regulatory Technical Standards on authorization, organizational requirements and the publication of transactions for data reporting services providers under the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union.
MiFID II requires consolidated tape providers to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products.
The amending Regulation adds provisions to the existing RTS to set out the scope of the consolidated tape for non-equity products (i.e., bonds, structured finance products, emission allowances and derivatives). In particular, the amending Regulation:
• permits non-equity CTPs to specialize in one or more asset classes to increase the likelihood of a viable business case for non-equity consolidated tape provision;
• specifies the APAs and trading venues that have to be included in the non-equity consolidated tape, based on the required consolidated tape coverage ratio of 80% of all transactions published in an asset class in the EU; and
• requires CTPs to reach minimum coverage ratios by January 1, 2019.
The amending Regulation applied from January 3, 2018. However, the provisions relating to CTPs will apply from September 3, 2019. The amending Regulation does not differ substantively from the final draft RTS submitted to the European Commission on March 31, 2017.
View the amending Regulation.TOPIC : MiFID II -
Final EU Guidelines for Payment Service Providers on Preventing Terrorist Financing and Money Laundering in Electronic Fund Transfers
01/16/2018
The Joint Committee of the European Supervisory Authorities has published final Guidelines on preventing terrorist financing and money laundering in electronic fund transfers under the EU Wire Transfer Regulation. The Wire Transfer Regulation, which applied from June 26, 2017, requires payment service providers, among other things, to have effective procedures to detect transfers of funds that lack the required information on the payer and the payee and to determine whether to execute, reject or suspend a transfer of funds that lacks that information.
The Guidelines set out the factors that payment service providers should consider when establishing and implementing procedures to detect and manage transfers of funds which do not have the required payer and payee information to ensure that their procedures are effective. The Guidelines also specify what a payment service provider should do to manage the risk of money laundering or terrorist financing where that information is missing or incomplete. Further, the Guidelines will assist payment service providers to determine which fund transfers fall within the scope of the Wire Transfer Regulation and how the exemptions might apply. National regulators are required to use the Guidelines when assessing the adequacy of a payment service provider's procedures.
The Guidelines will apply to all payment service providers and intermediary payment service providers as well as their national regulators from July 16, 2018.
View the Guidelines. -
European Banking Authority Publishes Guidelines on Uniform Disclosure of IFRS 9 Transitional Arrangements
01/12/2018
The European Banking Authority has published a final Report and final Guidelines on uniform disclosures under the Capital Requirements Regulation regarding the transitional period for mitigating the impact of the introduction of International Financial Reporting Standard 9 (known as IFRS 9) on own funds.
IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The application of IFRS 9 could lead to a sudden significant increase in expected credit loss provisions and consequently to a sudden decrease in an institution's Common Equity Tier 1 capital. For this reason, institutions that prefer not to recognize the full impact of IFRS 9 (or analogous ECL models) immediately have the option of phasing in implementation of IFRS 9 over a transitional period.
IFRS 9 is being implemented in the EU through a regulation amending the CRR which sets out transitional provisions. The amending Regulation applied directly across the EU from January 1, 2018. A firm that uses the transitional arrangements must publicly disclose its own funds, capital ratios and leverage ratios both with the application of the transitional arrangements and also on a "fully-loaded" basis, i.e., as if the transitional arrangements had not been applied.
Read more. -
Financial Action Task Force Reports on Financing of Recruitment to Terrorist Organizations
01/12/2018
The Financial Action Task Force has published a Report on the financing of recruitment for terrorist purposes, as part of its strategy on combating terrorist financing. The Report has been compiled using input from relevant authorities and country experts from jurisdictions within the FATF Global Network, including the Asia Pacific, Eurasian, Middle-East and North African regions.
The Report examines the typical methods of recruitment to terrorist organizations and the costs associated with those methods. Recruitment methods vary from region to region. Techniques include recruitment via religious groups in some regions and online recruitment via social media in others. The Report also presents case study data on the sources of funds available to terrorist recruiters and the general expenditures involved in the recruitment process.
The Report concludes by recommending improved inter-agency and international co-operation to share information and analyze suspected recruiters and financial supporters of terrorist organizations. The Report recommends that national operational and security agencies engage more with the private sector, non-profit organizations and social media and other internet providers, by providing better contextual information and guidance to enable those providers to identify the financial flows associated with terrorist recruitment.
View the Report. -
European Securities and Markets Authority Has Concerns on Fees Charged by Credit Rating Agencies and Trade Repositories
01/11/2018
The European Securities and Markets Authority has published a Thematic Report, following its supervisory review of the current fee structures in the credit rating and trade repository industries. The CRA Regulation requires CRAs to ensure that fees for the credit rating and ancillary services are not discriminatory and are based on actual costs. Similarly, the European Market Infrastructure Regulation requires TRs to provide non-discriminatory access and charge publicly disclosed and cost-related fees.
ESMA has compiled its Thematic Report using information from publicly available resources, periodical submissions to ESMA and dedicated requests for information from supervised entities. It has also used information gained from users of CRA and TR services. The Thematic Report identifies three areas in which CRAs and TRs need to improve their fee practices and to which ESMA proposes to give supervisory priority. These are: transparency and disclosure, the fee-setting process and interaction with entities related to CRAs and TRs.
The Thematic Report is accompanied by factsheets summarizing ESMA's findings on TRs' and CRAs' fees.
View the Thematic Report.
View Factsheet on Trade Repositories' Fees.
View Factsheet on CRAs' Fees.TOPIC : Financial Market Infrastructure -
Federal Reserve Board Announces 2018 Chair Appointments for Federal Reserve Banks
01/10/2018
The US Board of Governors of the Federal Reserve System announced its 2018 chair and deputy chair appointments for Federal Reserve Banks. Each year, the Federal Reserve Board appoints one member from each Federal Reserve Bank’s nine-member board of directors to serve as chair, and one member to serve as deputy chair.
View the Federal Reserve Board press release announcing the appointments.TOPIC : People -
UK Financial Conduct Authority Highlights Firms' Failings in Providing and Distributing Contracts for Difference
01/10/2018
The Financial Conduct Authority has published a "Dear CEO" letter that was sent to firms that offer contracts for difference products to retail customers on either an advisory or discretionary portfolio management basis (including pursuant to limited power of attorney). The "Dear CEO" letter follows a review conducted by the FCA which assessed internal processes, policies, controls and oversight arrangements at a sample of 19 providers and 15 distributors of CFD products to retail customers. The "Dear CEO" letter identifies a number of areas of concern: target market identification and alignment of the target market to the characteristics of the product; communication, oversight and challenge; the process for taking on new distributors; management of conflicts of interest; the use of management information and key performance indicators; client categorisation; and remuneration arrangements.
The FCA considers that there is a high risk that firms across the sector are not meeting its rules and expectations when providing and distributing CFDs and that consumers are likely to experience poor outcomes unless these poor practices are addressed. The letter highlights the need for firms overall to improve a number of oversight and control arrangements to reach the standard required by FCA rules and guidance. The FCA will conduct further work on CFDs and firms may be asked to take part in a follow-up review to assess how they have responded to the feedback in the Dear CEO letter. The FCA will also be assessing firms' compliance with the new Product Intervention and Product Governance sourcebook, which came into effect on January 3, 2018, implementing as rules the product governance requirements of the revised Markets in Financial Instruments Directive.
View the "Dear CEO" letter. -
Federal Reserve Board Adjusts Maximum Civil Money Penalties
01/10/2018The US Board of Governors of the Federal Reserve System announced a final rule adjusting the maximum amount of its civil money penalties. This adjustment is made to account for inflation, and is required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The announcement contains a table reflecting each adjusted civil money penalty, organized by statute. The adjusted civil money penalties took effect on January 10, 2018.
View text of the final rule.TOPIC : Enforcement -
US Senate Banking Committee Holds Bank Secrecy Act Modernization Hearing
01/09/2018
The US Senate Committee on Banking, Housing and Urban Affairs held a full committee hearing entitled “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement.” Chairman Mike Crapo and ranking member Sherrod Brown each delivered opening statements at the hearing. Mr. Crapo highlighted the vital importance of robust anti-money laundering laws, rules and regulations, and their implementation through financial institution policies and procedures. Mr. Crapo also noted, however, that much has changed since the Bank Secrecy Act was enacted nearly 50 years ago, and stressed the need for its modernization. Mr. Brown also emphasized the importance of a robust AML regime, and noted that many large US and international financial institutions have been penalized for AML deficiencies. Mr. Brown noted that broadening information-sharing may make sense but that important questions about privacy protections must also be addressed.
Read more. -
European Securities and Markets Authority Announces Delay to Publication of Double Volume Cap Data
01/09/2018
The European Securities and Markets Authority has announced that it will delay the publication of data for January 2018 on the double volume cap mechanism introduced by the Markets in Financial Instruments Regulation from January 3, 2018. The DVC mechanism introduced by MiFIR seeks to ensure that dark pool trading using waivers from pre-trade transparency requirements does not unduly harm price formation. It does so by capping the amount of trading for orders placed in systems which are based on a trading methodology using the reference price waiver and certain transactions using the negotiated price waiver.
ESMA expects to work with national regulators and trading venues to address issues it has identified with the quality and completeness of the data it has so far received from trading venues. It hopes to publish the data in March 2018.
View the press release.TOPIC : MiFID II -
EU Trading Venues and CCPs Exempted from the Open Access Requirements for Exchange-Traded Derivatives
01/09/2018
The European Securities and Markets Authority has published a list of trading venues exempt from the open access requirements of the Markets in Financial Instruments Regulation under transitional arrangements for exchange-traded derivatives under the "de minimis" principle. Various national regulators have also delayed the coming into effect of the open access requirements of MiFID II for clearing houses.
MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades concluded on a trading venue of their choice, which will in turn allow the members of a trading venue to select the CCP they wish to use for clearing. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions are controversial since they mean that valuable intellectual property and IT systems developed by exchanges effectively must be made available to competitors or new market entrants. It has been argued that the open access requirements make the EU unattractive as a location for exchange businesses due to commercial disadvantages that result for those exchanges which have successfully invested in innovation.
MiFIR provides for a transitional opt-out from the open access requirements for trading venues and clearing houses in relation to ETDs provided that certain criteria are met. ESMA's list specifies four trading venues from Spain, Poland, Norway and Greece that have had their application for exemption approved and one from Sweden whose approval is pending. The four trading venues - MEFF Sociedad Rectora del Mercado de Productos Derivados S.A.U., Giełda Papierów Wartościowych w Warszawie S.A., Oslo Børs ASA and Athens Exchange S.A. - are exempt from the MiFIR open access requirements until July 3, 2020.
Read more.TOPIC : MiFID II -
Proposed EU Guidelines on CCP Requirement for Anti-Procyclicality Margin Measures
01/08/2018
The European Securities and Markets Authority is consulting on proposed guidelines for national regulators of CCPs on the application of the rules requiring CCPs to adopt anti-procyclicality margin measures.
The European Market Infrastructure Regulation requires CCPs to impose, call and collect margins to limit its credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions taking into account any potentially procyclical effects of those revisions. The Regulatory Technical Standards on requirements for CCPs provides that CCPs must use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected.
During the EMIR Review, ESMA highlighted that the implementation of these requirements differs across CCPs and that the effectiveness and supervision of these measures could be improved. The draft guidelines seek to clarify and ensure consistent application of the requirements across the EU.
Read more. -
UK Conduct Regulator Bans RBS Trader for Manipulation of Japanese Yen LIBOR
01/08/2018
The Financial Conduct Authority published a Final Notice in relation to Neil Danziger, a former RBS interest rate derivatives trader, in connection with his involvement in the manipulation of Japanese Yen LIBOR. The FCA imposed a financial penalty of £250,000 on Mr Danziger and prohibited him from performing any function in relation to any regulated financial activity.
The FCA found that Mr Danziger was knowingly concerned in a breach of Principle 5, which requires firms to "observe proper standards of market conduct." In particular, when acting as a Substitute Submitter for JPY LIBOR from time to time, Mr Danziger improperly took into account the requests of other traders and trading positions for which he and other traders were responsible. At other times, he made requests to Primary Submitters in an attempt to influence RBS's LIBOR submissions. Mr Danziger had also recklessly engaged in wash trades with the purpose of paying brokerage to brokers for no legitimate commercial reason.
This is the latest in a series of FCA actions against individuals involved in the LIBOR scandal. In addition, five people have so far received criminal convictions for their parts in LIBOR manipulation in the UK. Investigations into alleged LIBOR manipulation continue.
View the FCA Final Notice.TOPIC : Enforcement -
UK Prudential Regulation Authority Publishes Expectations on Disclosures of Expected Credit Loss Under IFRS 9
01/08/2018
The UK Prudential Regulation Authority has published a "Dear CFO" letter that was sent to the Chief Finance Officers of larger UK-headquartered credit institutions. The "Dear CFO" letter sets out the PRA's expectations as to the minimum disclosures those firms should be making on transition to the new standard for loan loss provisioning based on "expected credit losses" that forms part of standard 9 of International Financial Reporting Standards. The ECL requirements will replace the old "incurred loss" provisioning model that was contained in standard 39 of the International Accounting Standards. ECL will require banks to provision for expected credit losses from the time a loan is originated, rather than awaiting "trigger events" signalling imminent losses. IFRS 9 has been implemented through Commission Regulation (EU) 2016/2067, which requires credit institutions and investment firms that use IFRS to prepare their financial statements to apply IFRS 9 as of the starting date of their first financial year starting on or after 1 January 2018. The Regulation permits banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital. Firms that use these transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.
Read more. -
UK Prudential Regulation Authority Proposes MREL Reporting Requirements
01/08/2018
The Prudential Regulation Authority has published proposals which would require firms to report on their progress in meeting their minimum requirement for own funds and eligible liabilities (MREL) requirement. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.
The PRA is proposing to amend the Supervisory Statement on Resolution Planning to set out its expectations on the information firms should provide in relation to their MREL requirement. The PRA would share the information received with the Bank of England which is the UK's resolution authority. The PRA intends to use the information received to monitor a firm's progress in complying with its MREL requirement and to assess whether a firm is, or is likely to be, in breach of its MREL requirement.
Read more.TOPIC : Recovery & Resolution -
UK Financial Conduct Authority New Chair - Charles Randell CBE
01/05/2018
HM Treasury has announced that Charles Randell CBE will become chair of the Financial Conduct Authority and the Payment Systems Regulator from April 1, 2018. He will replace the outgoing chair, John Griffith-Jones.
View HM Treasury's announcement.TOPIC : People -
Commodity Futures Trading Commission Discusses Approach to Virtual Currency Futures Markets
01/04/2018
The Commodity Futures Trading Commission has released a backgrounder on the federal oversight of virtual currencies and its approach to regulating the virtual currency derivatives markets. Because virtual currencies have been deemed a commodity, certain derivative and other transactions in virtual currencies may be subject to CFTC oversight under the Commodity Exchange Act.
The CFTC outlined its 5-pronged approach to the regulation of derivatives involving virtual currencies, which will focus on (1) consumer education; (2) asserting legal authority; (3) market intelligence; (4) robust enforcement; and (5) government-wide coordination.
Read more. -
Federal Reserve Board Proposes Guidance Clarifying Risk Management Supervisory Expectations for Large Financial Institutions
01/04/2018
The US Board of Governors of the Federal Reserve System issued proposed guidance for comment that would clarify supervisory expectations related to risk management for large financial institutions. This proposed guidance would complement the Federal Reserve Board's proposed rating system for large financial institutions and proposed guidance regarding supervisory expectations for bank boards of directors that were released in August of 2017. The proposed guidance provides core principles applicable to senior management, management of business lines, and independent risk management and controls. Under the proposed guidance, senior management is tasked with the management of the day-to-day operations of the institution, ensuring its safety and soundness and overseeing compliance with laws, regulations and internal policies and procedures.
Read more.TOPIC : Corporate Governance -
Norman Williams Appointed as Deputy Comptroller for Economic and Policy Analysis
01/02/2018
The US Office of the Comptroller of the Currency announced that Norman Williams has been appointed Deputy Comptroller for Economic and Policy Analysis. Mr. Williams, who joined the OCC in 2006, will succeed Gary Whalen who has retired, and will oversee the Industry and Regional Analysis, International Analysis and Banking Condition and Policy Analysis divisions at the OCC, which conduct research and analysis with respect to financial and economic risks faced by national banks and federal savings institutions. Prior to his time at the OCC, Mr. Williams served as the Chief of the Economic Analysis Section at the US Federal Deposit Insurance Corporation. This appointment took effect on January 7, 2018.
View the announcement of Mr. Williams’s appointment.TOPIC : People -
Federal Reserve Board Requests Comments Regarding Proposed Call Report Revisions
01/02/2018
The US Board of Governors of the Federal Reserve System requested comment regarding revisions to the FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES and FR Y-9CS call reports for holding companies. The notice requests comment with respect to, among other things, the utility of the reports, the accuracy of agency assumptions with regard to the burden imposed by the data collection activities, and means to enhance the quality of information collected or reduce the burden of the information collection activities. The proposed revisions include deletions or combination of certain sections of the reports, reducing the reporting frequency and increasing/adding reporting thresholds for certain data items. Comments to the Federal Reserve Board’s proposed revisions are due March 5, 2018.
View the Federal Reserve Board’s notice and request for comment.
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Final Global Governance Arrangements for Unique Transaction Identifier Published
12/29/2017
The Financial Stability Board has published the Governance Arrangements for the Unique Transaction Identifier and a recommended implementation plan for the arrangements following its consultation in March 2017. The UTI is a critical element for the production and sharing of global aggregated derivatives reporting data. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories, thus minimizing the potential for the same transaction to be counted more than once.
The FSB has designated the International Organization for Standardization as the body responsible for publishing and maintaining the UTI data standard. The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have been designated on an interim basis as responsible for the governance functions relating to the UTI. The FSB would like the UTI to have a common governance framework and governance body with the unique product identifier and will make the final permanent designation once the governance of the UPI is finalized. The FSB intends to consult further on the UPI governance arrangements in 2018.
The FSB recommends that the UTI is implemented by no later than the end of 2020.
View the FSB's governance arrangements for the UTI.TOPIC : Derivatives -
LIBOR Categorized as a Critical Benchmark under EU Legislation
12/28/2017
A Commission Implementing Regulation amending the list of critical benchmarks used in financial markets under the Benchmark Regulation has been published in the Official Journal of the European Union. The amending Regulation adds the London Interbank Offered Rate - LIBOR - to the list of critical benchmarks.
The Benchmark Regulation provides for different categories of benchmarks depending on the risks involved, imposing additional requirements on benchmarks considered to be critical, including the power of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.
For the most part, the Benchmark Regulation applied from January 1, 2018. Certain provisions, giving powers to the European Securities and Markets Authority to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016. The original Implementing Regulation, which entered into force on August 13, 2016, listed the Euro Interbank Offered Rate as the first critical benchmark. The amending Implementing Regulation entered into force on December 29, 2017.
View the amending Implementing Regulation. -
New EU Securitization Framework Published
12/28/2017
Two new EU Regulations introducing the new EU securitization framework for simple, transparent and standardized securitizations have been published in the Official Journal of the European Union - the STS Regulation and a Regulation amending the existing Capital Requirements Regulation. The two Regulations implement the Basel Committee on Banking Supervision's amended Securitization Framework for alternative regulatory capital treatment for simple, transparent and comparable securitizations in 2014 as part of Basel III.
The STS Regulation provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.
Read more. -
New York State Department of Financial Services Proposes Fiduciary Standard for Insurance Brokers
12/27/2017
The New York Department of Financial Services published a proposed amendment which would require insurance brokers to offer products that align with a customer’s “best interest,” instead of products that offer the most economic benefit to the broker. The proposed amendment sets forth what constitutes acting in the best interest of a customer, which includes an evaluation of the suitability information of the customer and a determination that a product is suitable for the particular customer. In an accompanying press release New York Governor Andrew Cuomo drew comparisons between the proposed amendment and the US Department of Labor’s Fiduciary Rule, of which the implementation of certain provisions of the latter has been delayed. As proposed, the NYDFS amendment is more expansive than the DOL’s Fiduciary Rule with respect to the products that it covers. The proposed amendment is open for public comment until February 25, 2018, and is scheduled to take effect March 27, 2018.
View proposed amendment.TOPIC : Consumer Protection -
EU Transitional Arrangements for IFRS and Large Exposures
12/27/2017
An EU Regulation amending the Capital Requirements Regulation as regards transitional measures for mitigating the impact of the introduction of International Financial Reporting Standards (known as IFRS 9) has been published in the Official Journal of the European Union. IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The amending Regulation allows banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital. A firm that uses the transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.
The amending Regulation also provides for transitional arrangements for the exemption from the large exposure limit available for exposures to certain public sector debt of Member States denominated in the currency of that Member State. A transitional period of three years from January 1, 2018, will apply to these exposures incurred on or after December 12, 2017. Exposures incurred before that date will continue to be exempt from the large exposures requirements.
The amending Regulation applies directly across the EU from January 1, 2018.
View the CRR IFRS Regulation. -
EU Finalizes Changes to Ranking of Unsecured Debt Instruments in Insolvency Hierarchy
12/27/2017
An EU Directive amending the Bank Recovery and Resolution Directive has been published in the Official Journal of the European Union. The amending Directive amends the ranking of unsecured debt instruments in the insolvency hierarchy for the purpose of bank resolution and insolvency proceedings by introducing non-preferred senior debt instruments as a separate category of senior debt. These new instruments will rank junior to all other senior liabilities but will be senior to subordinated debt. The debt instruments must have an original contractual maturity of at least one year, must not contain embedded derivatives or be derivatives themselves and the contractual documentation, including the prospectus where applicable, relating to their issuance must explicitly refer to their lower ranking under normal insolvency proceedings.
Member states are required to transpose the amending Directive into national law by December 29, 2018 and must apply the laws from the date of transposition. The new provisions will apply to unsecured claims resulting from debt instruments issued on or after the date of application of the amending Directive. The insolvency ranking of all outstanding unsecured claims resulting from instruments issued before that date will be governed by the relevant national law as adopted at December 31, 2016, unless the national law permitted firms to issue subordinated liabilities in which case the instrument will be ranked as non-preferred senior debt instruments issued under the amending Directive.
View the BRRD Insolvency Hierarchy Directive.TOPIC : Recovery & Resolution -
EU Derivatives Trading Obligation Enters Into Force
12/22/2017
A Commission Delegated Regulation on the derivatives trading obligation under the Markets in Financial Instruments Regulation has been published in the Official Journal of the European Union.
The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading or traded on at least one EU trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. The trading obligation applies to financial counterparties and to non-financial counterparties. Where a class of derivatives is determined to be subject to the MiFIR trading obligation, such derivative may only be traded on a third country trading venues if it has been determined to be equivalent by the European Commission.
Read more. -
OCC and FDIC Announce Examiner Guidance Regarding Mortgage Disclosure Act Data Collection
12/21/2017
The US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation issued statements providing guidance for examiners with respect to data collection by financial institutions pursuant to Regulation C, which implements the Home Mortgage Disclosure Act. In the statements, both agencies noted the regulatory and compliance challenges financial institutions face due to amendments to Regulation C made by the US Consumer Financial Protection Bureau which took effect on January 1, 2018. To address these challenges, the agencies announced that they will not require resubmission of HMDA data collected in 2018 and reported in 2019 unless there are material errors. The OCC and FDIC further noted that they do not intend to assess any penalties with respect to errors in data that is collected in 2018 and reported in 2019.
View the OCC bulletin.
View the statement by the FDIC. -
Changes to Shared National Credit Program Provides Regulatory Relief to 82 Financial Institutions
12/21/2017
The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced an increase in the aggregate loan commitment threshold for an institution to be included in the Shared National Credit program. The agencies noted that the increase from $20 million to $100 million reflects changes in average loan size and adjustments for inflation. In their joint release, the agencies noted that this change will bring regulatory relief to 82 financial institutions, while only nominally reducing the dollar amount of loans evaluated under the Shared National Credit program.
View the joint agency press release. -
US Banking Agencies Update Community Reinvestment Act Thresholds for Small and Intermediate Small Institutions
12/21/2017
The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced technical amendments to the asset thresholds used to define small banks and saving associations and intermediate small banks and savings associations under the Community Reinvestment Act. These adjustments, which occur annually, are required under the CRA and based upon changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Under the adjusted threshold, a “small institution” will be any institution that had assets of less than $1.252 billion as of December 31 of either of the last two years. The definition of “intermediate small institution” will be updated to include institutions with at least $313 million as of December 31 of each of the last two years, and assets of less than $1.252 billion as of December 31 of either of the last two years. The updated definitions will take effect as of January 1, 2018.
View the Interagency final rule. -
Basel Committee on Banking Supervision Proposes Technical Amendment to the Net Stable Funding Ratio
12/21/2017
The Basel Committee on Banking Supervision has published a proposed technical amendment to the Net Stable Funding Ratio. Consultation on the proposed technical amendment will run for a short 45-day consultation period, under a new procedure adopted by the Basel Committee at its meeting in December 2017.
The proposed technical amendment relates to the treatment of extraordinary monetary policy operations in the NSFR. The amendment proposes to allow reduced required stable funding factors for central bank claims with maturity of more than six months.
Read more. -
Draft UK Legislation Confirms Regulatory Position of Borrowers on Peer-to-Peer Lending Platforms
12/21/2017
HM Treasury has published draft legislation to amend the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 (S.I. 2001/1177), to clarify the position of borrowers who raise funds through peer-to-peer lending platforms.
The draft Order will, once it is approved by Parliament, clarify that only firms whose core business involves borrowing through a peer-to-peer platform would need to obtain a banking license and be regulated as a "deposit taker". The draft legislation has been laid before Parliament to address uncertainty for businesses borrowing via peer-to-peer platforms (and for the platforms themselves) as there is a risk that those borrowers might in certain circumstances be carrying on the regulated activity of accepting deposits.
Read more.TOPIC : FinTech -
European Securities and Markets Authority Publishes Final Technical Advice on the Short Selling Regulation
12/21/2017
The European Securities and Markets Authority has published a final report setting out its technical advice to the European Commission on elements of the Short Selling Regulation that relate to market making, short-term bans on short selling and the transparency, reporting and disclosure requirements around net short positions. ESMA consulted on a draft of its technical advice in July 2017.
ESMA believes that the differentiation between the concepts of "market maker" under the revised Markets in Financial Instruments Directive and "market making activities" under the SSR should remain, but recommends revising the definition of "market making activities" under the SSR to ensure that certain activities carried out on a trading venue and OTC can benefit from the SSR exemption for market making activities. ESMA recommends extending the scope of the market making exemption to additional instruments that are currently only traded OTC and hedged through shares and sovereign debt.
Read more.TOPIC : Securities -
UK Joint Money Laundering Steering Group Publishes Final Revised Guidance for Financial Services
12/21/2017
The Joint Money Laundering Steering Group has published final revised guidance on anti-money laundering and counterterrorist financing for the financial services sector. The revised guidance will only replace the existing guidance once it has been approved by HM Treasury, however, the JMLSG notes that firms may use the revised version if they wish to.
View JMLSG's announcement. -
European Securities and Markets Authority Issues Statement on Introduction of the Legal Entity Identifier Requirements Under the Markets in Financial Instruments Regulation
12/20/2017
The European Securities and Markets Authority has published a statement in response to indications that not all investment firms will succeed in obtaining Legal Entity Identifier codes from all their clients that are legal persons ahead January 3, 2018 when the Markets in Financial Instrument Regulation takes effect. There is also concern that trading venues may not obtain LEI codes for non-EU issuers in time.
Under MiFIR, investment firms are required to identify all clients that are legal persons with an LEI code. An investment firm is acquired to obtain the LEI code of a client prior to providing any service that triggers the obligation to submit a transaction report for a transaction entered into on behalf of a client who is eligible for the LEI code. Trading venues must also identify each issuer of a financial instrument traded on their systems with an LEI code when making daily submissions to the Financial Instruments Reference Data System.
Read more.TOPIC : MiFID II -
European Banking Authority Publishes Recommendations on Outsourcing by Financial Institutions to Cloud Service Providers
12/20/2017
The European Banking Authority has published its final report on Recommendations on outsourcing by financial institutions to cloud service providers. The EBA has developed the Recommendations on its own initiative as part of its broader work on FinTech, given the increasing importance and popularity of cloud services as an enabling technology used by financial institutions.
The Recommendations are designed to complement the guidelines on outsourcing issued by the EBA's predecessor, the Committee of European Banking Supervisors on December 14, 2006. The Recommendations further specify the CEBS guidelines in five key areas: the security of data and systems; the location of data and data processing; access and audit rights; chain outsourcing; and contingency plans and exit strategies.
The Recommendations are addressed to credit institutions, investment firms and national regulators and will apply from July 1, 2018.
View the EBA Final Report. -
European Implementing Technical Standards for Passporting Under the Revised Markets in Financial Instruments Directive Published
12/20/2017
Commission Implementing Regulation (EU) 2017/2382 has been published in the Official Journal of the European Union and will take effect on January 3, 2018.
The Implementing Regulation contains Implementing Technical Standards on the standard forms and templates that should be used for notifications and the procedures for the transmission of information when investment firms, market operators operating a multilateral trading facility or organised trading facility, and, where required by the revised Markets in Financial Instruments Directive, credit institutions, want passport investment services or perform activities in another Member State.
View the Implementing Regulation.TOPIC : MiFID II -
UK Financial Conduct Authority Publishes Near-Final Rules for Implementation of the EU Benchmarks Regulation
12/20/2017
The UK Financial Conduct Authority has published a Policy Statement setting out responses to its earlier consultation in June 2017 on proposed Handbook changes to ensure that the Handbook is consistent with the provisions of the EU Benchmarks Regulation, which takes effect on January 1, 2018. The Policy Statement includes further clarifications, in particular on the treatment of commodity benchmarks, on one-off application fees and annual periodic fees and on other Handbook rules and guidance that the FCA will apply in addition to the BMR.
The Policy Statement includes the final form of the legal instrument which contains the Handbook changes. The FCA will make the Handbook changes once it has the necessary regulatory authority under proposed changes to UK secondary legislation.
The Handbook changes will affect benchmark administrators and also firms that are already supervised under EU financial services legislation and that either use or contribute input data to benchmarks.
View the Policy Statement (PS17/28). -
European Banking Authority Publishes Full Impact Assessment of Basel III Reforms on EU Banks
12/20/2017
Following the summary it published on December 7, 2017, the European Banking Authority has issued its full cumulative impact assessment of the impact of the finalized "Basel III" prudential framework on EU banks.
The finalized Basel III framework, announced on December 7, 2017, includes further elements developed with the overall aim of addressing undue variability in the calculation of risk weighted assets and improving the comparability of banks' capital ratios.
Using December 2015 data, the EBA has conducted an analysis of the impact of the December 2017 revisions on the EU banking system. The EBA's impact assessment outlines, at a high level, the effect of the December 2017 revisions on: (i) minimum required capital; (ii) regulatory capital ratios, leverage ratios and capital shortfalls; and (iii) the extent to which banks are constrained by the different metrics of capital requirement in the revised framework, namely the output floor, the leverage ratio and risk weighted assets.
Read more. -
UK Regulators Confirm Approach to Authorization and Supervision of International Banks, Investment Firms, Insurers and CCPs Post-Brexit
12/20/2017
The Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority have published consultations and planning considerations affecting international banks, investment firms, insurers and CCPs conducting cross-border activities into and from the UK. The UK Government has also made an announcement that, if necessary, it will legislate to enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after withdrawal. Alongside the temporary permissions regime, it will also legislate, if necessary, to ensure that contractual obligations, such as insurance contracts, which are not covered by the temporary regime, can continue to be met. It will also bring forward secondary legislation to empower UK authorities to carry out functions currently carried out by EU authorities relating to CCPs, central securities depositaries, credit rating agencies and trade repositories.
Read more.TOPIC : Brexit for Financial Services -
Basel Committee Consults on Revised Principles for Supervisory and Bank Stress Testing
12/20/2017
The Basel Committee on Banking Supervision has published proposals on a revised version of the stress testing principles it first published in 2009. The revisions to the principles are the outcome of a review of its current stress testing principles, carried out during 2017.
The proposed new principles have been stated at a higher level than the previous principles, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. Overlaps between principles have also been removed, along with some of the descriptive wording accompanying each principle. While the application of the previous set of principles was split between banks and supervisors, it is intended that each of these new "streamlined" principles will apply to both supervisors and banks. Additional considerations for banks and supervisory authorities are set out within each principle.
Comments on all aspects of the proposed new principles are invited by March 23, 2018. Comments should be submitted using an online response form.
View the consultation paper.
View the online response form. -
Eurozone Single Resolution Board Outlines its MREL Policy for 2017 and Next Steps
12/20/2017
The Single Resolution Board has published its second policy statement on the minimum requirement for own funds and eligible liabilities (MREL). MREL is the EU equivalent of the minimum amount of loss-absorbing capacity that is also covered by the international standard of total loss absorbing capacity (TLAC) developed by the Financial Stability Board. MREL was introduced in May 2014 by the Bank Recovery and Resolution Directive for all EU banks, including those banks within the SRB's remit. 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 Banking Union).
The SRB's MREL policy for 2017 provides for a multi-year timeframe, with transition periods which will allow individual banks to implement the requirement by progressively building up their MREL capacity. This replaces the preliminary MREL approach used in 2016. The SRB will set bank-specific binding consolidated MREL targets for the majority of the largest and most complex Eurozone banks, including all global systemically important institutions (G-SIIs) and banks with resolution colleges under its remit.
In 2018, the SRB will focus on: (i) enhancing the MREL targets based on the outcome of the SRB’s resolvability assessment; (ii) refining its location policy within groups and developing a framework for individual and internal MREL; and (iii) developing a policy for transfer strategies.
View the SRB Policy for 2017.TOPIC : Recovery & Resolution -
European Commission Declares Stock Exchanges in Switzerland Equivalent for the Purposes of the Shares Trading Obligation Under MiFID II
12/20/2017
The European Commission has adopted an Implementing Decision declaring the two Swiss stock exchanges equivalent for the purpose of the shares trading obligation under the Markets in Financial Instruments Regulation. MiFIR requires EU investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue.
The legal and supervisory framework of SIX Swiss Exchange AG and BX Swiss AG have been assesses as equivalent to the requirements of MiFIR, the revised Markets in Financial Instruments Directive, the Market Abuse Regulation and the Transparency Directive.
Read more.TOPIC : MiFID II -
EU Proposals for an Amended Prudential Regime for Investment Firms
12/20/2017
The European Commission has published legislative proposals to amend the EU framework on the prudential supervision of investment firms. The proposals follow the European Banking Authority's Opinion on revising the regime published in September 2017. The aim of the proposals is to tailor the prudential requirements and supervisory arrangements to the risk profile and business models of investment firms.
The Commission's proposals maintain the EBA's recommendation for three different categories of investment firm.
Read more. -
US Banking Agencies Announce Joint Determinations for Living Wills of Largest US Banks
12/19/2017
The US Board of Governors of the Federal Reserve System and the US Federal Deposit Insurance Corporation announced that none of the most recent resolution plans for the eight largest and most complex domestic banking organizations had deficiencies that were so severe as to require resubmission. The agencies did, however, note that half of the resolution plans that were submitted had “shortcomings” that must be addressed in the institutions’ next submissions due July 1, 2019. The Federal Reserve Board and the FDIC also stated that while this round of resolution plans demonstrates that significant progress that has been made in the area of resolution planning, more work needs to be done, especially in the areas of resolvability, internal loss-absorbing capacity, derivatives and payment, clearing and settlement activities. The agencies also noted that institutions should be cognizant of changes to their risk profiles that will need to be accounted for in future resolution plans. The Federal Reserve Board and the FDIC noted that they continue to explore ways to improve the resolution planning process and are considering extending the cycle for resolution plan submissions from annual to once every two years, to reflect the time needed to prepare and review the plans.
View joint agency press release.TOPIC : Recovery & Resolution -
European Commission Delegated Regulation on Contributions to the Expenditure of the Single Resolution Board Published
12/19/2017
Commission Delegated Regulation (EU) 2017/2361 on the final system of contributions to the administrative expenditures of the Single Resolution Board has been published in the Official Journal of the European Union. 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 Banking Union).
The Delegated Regulation sets out a final system for the determination and raising of the contributions to administrative expenditures of the SRB, which will replace the provisional system introduced in 2014. While the provisional system covered only a limited subset of entities, namely entities which are considered significant by the European Central Bank, the final system will apply for all entities that are subject to the Single Resolution Mechanism.
The Delegated Regulation will take effect from January 8, 2018.
View the Delegated Regulation.TOPIC : Recovery & Resolution -
US House of Representatives Approves Bipartisan Bill to Modify Systemically Important Financial Institution Designation
12/19/2017
The US House of Representatives voted 288-130 in favor of the Systemic Risk Designation Improvement Act of 2017 (H.R. 3312). The bill, introduced on July 19, 2017 and sponsored by Representative Blaine Luetkemeyer, removes the $50 billion asset-threshold under the Dodd-Frank Act. In place of this automatic designation, certain Dodd-Frank provisions will now apply only to institutions designated as global systemically important bank holding companies and other bank holding companies that have been designated by the US Board of Governors of the Federal Reserve System as warranting enhanced supervision and/or enhanced prudential standards.
View the full text of H.R. 3312. -
European Securities and Markets Authority Launches Three Consultations on Technical Standards under the Securitization Regulation
12/19/2017
The European Securities and Markets Authority has issued three consultations on technical standards under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2019, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
The STS Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and SSPEs to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.
Read more. -
UK Financial Conduct Authority Will Follow European Banking Authority Guidelines Under the Revised Payment Services Directive
12/19/2017
The UK Financial Conduct Authority has issued a statement confirming that it will comply with the Guidelines published by the European Banking Authority on December 12, 2017 on security measures for operational and security risks of payments services under the revised Payment Services Directive.
PSD2 takes effect on January 13, 2018. All Payment Services Providers will be expected to comply with the EBA Guidelines. The FCA reminds businesses wishing to apply for authorization or registration under PSD2, and any PSPs that are re-applying, that applications must contain a statement of the applicant’s security policy, taking into account the Guidelines. The statement of the applicant's security policy must also contain a description of the applicant's measures to comply with the provisions of the Payment Services Regulations 2017 that relate to the management of operational and security risks.
Read more.TOPIC : Payment Services -
European Securities and Markets Authority Updates its Procedure and Template for Reporting of Circuit Breakers’ Parameters by National Regulators
12/19/2017
The European Securities and Markets Authority has published a revised procedure and a harmonized template to be used by national regulators in reporting to ESMA the parameters to halt or constrain trading used by the trading venues under their jurisdiction. The revised Markets in Financial Instruments Directive places obligations on national regulators to require a regulated market in their jurisdiction to be able to temporarily halt or constrain trading if there is significant price movement in a financial instrument on that market or a related market during a short period and, in exceptional cases, to be able to cancel, vary or correct any transaction. The regulated market must report the parameters for halting trading and any material changes to those parameters to the national regulator and the national regulator must in turn report them to ESMA.
The ESMA procedure and template is designed to establish a common format for national regulators to use for the reports they make to ESMA. However, national regulators can, if they wish, require trading venues to report to them the parameters using a different and/or more granular format.
Read more.TOPIC : MiFID II -
European Banking Authority Publishes Regulatory Technical Standards on Simplified Obligations and Waivers in Recovery and Resolution Planning
12/19/2017
The European Banking Authority has published a Final Report and final draft Regulatory Technical Standards for the criteria to be used to determine whether institutions should be subject to simplified obligations for recovery and resolution planning under the Bank Recovery & Resolution Directive.
Under the BRRD, national regulators and resolution authorities may apply simplified obligations for institutions if the failure of such institutions would not be likely to have a significant negative effect on financial markets, on other institutions, on funding conditions or on the wider economy. National regulators and resolution authorities must make an assessment of an institution's eligibility for simplified obligations by reference to: the nature of the institution’s business; its shareholding structure; its legal form; its risk profile; its size; its legal status; its interconnectedness to other institutions or to the financial system in general; the scope and the complexity of its activities; its membership of an institutional protection scheme or other cooperative mutual solidarity system; and any exercise of investment services or activities.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Publishes Opinion on Transition to the Revised Payment Services Directive
12/19/2017
The European Banking Authority has published an Opinion on the transition from the current Payment Services Directive to the revised Payment Services Directive, which takes effect from January 13, 2018.
Not all the provisions of PSD2 or technical standards and guidelines the EBA has been mandated to prepare under PSD2 will be applicable on January 13, 2018. This delay has led to a number of transitional issues that both market participants and national regulators have approached the EBA about. The Opinion provides clarification on the issues that have been raised and considers the implications for Payment Service Providers and national regulators of the delayed finalization and/or adoption of some of the technical standards and guidelines the EBA has been preparing under PSD2.
Read more.TOPIC : Payment Services -
UK Government Makes Orders De-recognising CHAPS and Amending Designation of Cheque & Credit
12/19/2017
HM Treasury has made two Orders which take effect from December 20, 2017.
The first Order amends the designation Order in force since April 2015 designating Cheque & Credit as a regulated payment system. The changes relate to the specification of the arrangements constituting Cheque & Credit, allowing for development in the Cheque & Credit Rules relating to the processing of the images of cheques and other paper instruments. The Order also makes references to participants as well as members of Cheque & Credit.
The second Order revokes the recognition order of January 5, 2010 specifying CHAPS as a recognized payment system under the Banking Act 2009.
View the Order amending the designation of Cheque & Credit.
View the Order for de-recognition of CHAPS. -
Federal Reserve Board Repeals Regulation C and Proposes Revisions to Regulation M
12/18/2017
The US Board of Governors of the Federal Reserve System announced publication of a final rule repealing Regulation C. This regulation had been promulgated to implement provisions under the Home Mortgage Disclosure Act. However, pursuant to the Dodd-Frank Act, all rulemaking authority under the HMDA was transferred to the US Consumer Financial Protection Bureau. The CFPB implemented its own Regulation C in 2016, after publishing an interim final rule in 2011. The repeal of the Federal Reserve Board’s Regulation C is effective January 22, 2018. On the same day, the Federal Reserve Board also published a notice of proposed rulemaking and request for public comment regarding revisions to Regulation M, which implements the Consumer Leasing Act. Similar to Regulation C, most, but not all, of the Federal Reserve Board’s rulemaking authority under the CLA was transferred to the CFPB under Dodd-Frank. As such, the Federal Reserve Board’s proposal seeks to tailor Regulation M to reflect only the rulemaking authority under the CLA still vested with the Federal Reserve Board. Comments to the proposal are due March 5, 2018.
View FRB's final rule repealing Regulation C.
View notice of proposed rulemaking regarding Regulation M. -
European Banking Authority Consults on Amended Technical Standards for Benchmarking of Internal Models Under the Capital Requirements Directive
12/18/2017
The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk.
Feedback gathered by the EBA from institutions and national regulators suggest that changes to the ITS on benchmarking of internal models are needed to provide clearer instructions of reporting requirements, better data validation and more relevant portfolios for which benchmark values can be calculated. The changes proposed by the EBA relate to both market risk and credit risk. Minor changes are also proposed to the reporting templates and instructions, to keep the portfolios up to date and ensure the reported data is relevant for the 2019 assessment.
Comments on the proposals are invited by January 31, 2018. The EBA also plans to hold a public hearing to discuss the proposals on January 23, 2018.
Read more. -
European Banking Authority Seeks Views on Implementation Issues Arising From Revisions to the Capital Requirements Regulation
12/18/2017
The European Banking Authority has published a discussion paper seeking early-stage feedback on potential implementation issues arising from proposed revisions to the Capital Requirements Regulation to incorporate new international standards for counterparty credit risk and market risk. These international standards, developed by the Basel Committee on Banking Supervision, comprise: (i) the SA-CCR framework, a new standardized approach for measuring exposure at default for counterparty credit risk, which will replace both current non-internal models approaches, namely the Current Exposure Method and the Standardised Method; and (ii) the Fundamental Review of the Trading Book framework, which makes a number of revisions and enhancements to the framework for market risk following the fundamental review of the trading book undertaken by the Basel Committee.
The CRR 2 proposal published by the European Commission in December 2016 is still being discussed by the Council of the European Union and the European Parliament as part of the normal EU legislative procedure. However, the EBA has considered its draft mandates under those proposals and identified a number of issues that banks implementing the SA-CCR and/or the FRTB frameworks are likely to face, due to the need to introduce changes to infrastructures, IT systems, data management, pricing models or approximating techniques.
Read more. -
European Supervisory Authorities Publish Final Draft Technical Standards Amending Margin Requirements for Non-Centrally Cleared OTC Derivatives
12/18/2017
The Joint Committee of the European Supervisory Authorities has published a final report containing final draft Regulatory Technical Standards amending the requirements for risk-mitigation techniques for uncleared OTC derivative contracts where those contracts relate to physically settled FX forwards. The European Market Infrastructure Regulation requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The RTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. The variation margin requirements have applied to all counterparties since March 1, 2017 although they will only be applicable for physically-settled FX forwards from January 3, 2018.
Market participants have experienced difficulties in exchanging VM, in particular, in transactions with end-users. In addition, the EU's implementation of the international standards on margin exchange is more extensive than that in some other jurisdictions.
Read more.TOPIC : Derivatives -
European Commission Consults on Improving the SME Markets
12/18/2017
The European Commission has published a consultation paper in which it seeks views on the main challenges for SME-dedicated markets and possible changes to EU legislation that might help build the EU high-growth SME markets. The consultation paper follows previous consultations and papers relating to the Capital Markets Union Action Plan.
The consultation focuses on SME Growth Markets, a new type of trading venue introduced under the Markets in Financial Instruments package. The consultation paper is split into two sections, the first of which considers the main drivers behind the downward trend of SME initial public offerings and bond issuances. The second section considers specific regulatory barriers to SME markets, small issuers and the local ecosystems surrounding SME markets. In particular, the Commission is seeking views on the MiFID II provisions which set the scope of SME Growth Markets, the market requirements for SME issuers to be assisted by a key adviser, delisting rules on SME Growth Markets and transfer of listings.
Read more. -
Federal Reserve Board Finalizes Revisions to Components of CCAR and DFAST
12/15/2017
The US Board of Governors of the Federal Reserve System announced the finalization of revisions to certain aspects of its Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) programs.. The Federal Reserve Board had originally requested public comment on modifications to the information collected as part of the FR Y–14A/Q/M reports applicable to bank holding companies with total consolidated assets of $50 billion or more and US intermediate holding companies on June 9, 2017. As finalized, the “global market shock” component of CCAR will now include firms that (i) are not “large and noncomplex firms” under the Federal Reserve Board’s capital plan rule and (ii) that have aggregate trading assets and liabilities of $50 billion or more, or aggregate trading assets and liabilities equal to 10 percent or more of total consolidated assets. Notably, this would include certain US intermediate holding companies of foreign banking organizations. Firms that were not previously subject to the global market shock component will not be subject to the requirement until the 2019 CCAR/DFAST cycle. The revisions also result in an elimination or modification of certain schedules to the FR Y-14A/Q/M reports, including clarifying certain aspects of the reports. Under the initial request for comment, certain of these changes would take effect on September 31, 2017 or December 31, 2017, although the Federal Reserve Board’s final announcement extends the effective date for a number of these revisions to December 31, 2017 or March 31, 2018.
View FRB's notice. -
European Central Bank Consults on Assessment Methodology Guide for Counterparty Credit Risk
12/15/2017
The European Central Bank is consulting on a draft ECB guide on the assessment methodology for the internal model method and the advanced CVA capital charge for counterparty credit risk under the Capital Requirements Regulation. IMM and A-CVA are internal models used by banks to calculate counterparty credit risks for over-the-counter (OTC) derivatives and securities financing transactions.
Read more. -
European Banking Authority Consults on Draft Technical Standards on Homogeneity of Underlying Exposures in Securitization
12/15/2017
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the homogeneity of underlying exposures in securitizations under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
The "simple" criterion provides, among other things, that the securitization must be backed by a pool of underlying exposures that are homogenous in terms of asset type and that the underlying exposures must include obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors. The homogeneity requirement in the STS Regulation is designed to better enable investors to assess risk and conduct robust due diligence.
Read more. -
Federal Reserve, OCC and FDIC Release Examiner Guidance for Institutions Affected by Major Disasters
12/15/2017
The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the US National Credit Union Administration released interagency examiner guidance regarding financial institutions affected by major disasters. In accordance with the guidance, examiners will continue to assign component and composite ratings for these affected financial institutions, taking into account how the disaster has affected certain of the ratings factors, such as capital adequacy and asset quality. The guidance also notes that examiners should evaluate management capability, but should distinguish between problems intrinsic to the management of the institution, and those problems caused by the major disaster. The guidance notes that a major disaster may result in a lower component or composite rating for an affected institution, but that formal or informal action that would typically be considered for lower-ranked institutions may not be required, taking into account the institution’s disaster recovery plan and policies, which should also be evaluated for reasonableness, among other factors. If action is required, the guidance instructs examiners to appropriately tailor the response to the specific circumstances affecting the institution.
View the interagency supervisory guidance. -
European Banking Authority Consults on Draft Technical Standards on Risk Retention for Securitization Transactions
12/15/2017
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on risk retention requirements for originators, sponsors and original lenders under the new EU securitization framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
The STS Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.
Read more. -
UK Financial Conduct Authority Rules Out New Rules for Distributed Ledger Technology
12/15/2017
The Financial Conduct Authority has published a feedback statement on Distributed Ledger Technology, following the discussion paper it issued in April 2017.
Respondents to the discussion paper provided the FCA with details of various use cases for DLT in the context of payments, asset management, securities trading, financial crime and regulatory reporting. The feedback statement summarizes stakeholder feedback and the FCA's response in relation to: the operational risks arising from permissioned and permissionless networks; the risks and legal and regulatory issues associated with digital currencies and initial coin offerings; digital asset trading and smart contracts; the ability of DLT to improve regulatory reporting and the benefits it could bring in tackling financial crime; and whether DLT is compatible with the requirements of the EU General Data Protection Regulation.
Read more.TOPIC : FinTech -
European Securities and Markets Authority Issues Revised Guidance on Post-Trade Transparency and Position Limits When Transacting on Non-EU Trading Venues
12/15/2017
The European Securities and Markets Authority has published two revised Opinions providing further guidance on the post-trade transparency and position limits requirements relating to transactions on non-EU trading venues under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. ESMA first published the Opinions in May 2017.
The first Opinion sets out ESMA's view on determining third-country trading venues for the purpose of transparency under MiFIR. MiFIR requires EU investment firms to make information on transactions in financial instruments traded on a trading venue public. Details of actual transactions must be made public as close to real time as possible – for equities, within one minute of trading, and for non-equities, within 15 minutes (reducing to five minutes in 2020). The Opinion sets out ESMA's view of which transactions between EU and non-EU firms, and which transactions conducted on third-country trading venues should be subject to these post-trade transparency requirements. The Opinion provides objective criteria for identifying those third-country venues that have similar post-trade transparency requirements as EU trading venues. Trades on third-county venues that satisfy the criteria will not need to be made transparent post-trade.
Read more. -
European Securities and Markets Authority Consults on Regulatory Technical Standards for EU Prospectuses
12/15/2017
The European Securities and Markets Authority has launched a consultation on draft Regulatory Technical Standards under the new EU Prospectus Regulation which entered into force on July 20, 2017. ESMA seeks feedback on the draft RTS in relation to: key financial information for the prospectus summary; data for the classification of the prospectus and how to ensure that such data is machine readable; advertisements; supplements; and publication of the prospectus.
ESMA invites responses to the consultation by March 9, 2018. ESMA will then finalize the draft RTS for submission to the European Commission by July 21, 2018.
View the consultation paper (ESMA31-62-802).TOPIC : Securities -
US Financial Stability Oversight Council Releases its 2017 Annual Report
12/14/2017
The US Financial Stability Oversight Council published its 2017 annual report. The report addresses topics such as financial and regulatory developments and potential emerging threats and vulnerabilities, and makes a number of recommendations with respect to these topics. The report notes that market conditions have been relatively stable over the last year, and discusses the FSOC’s rescission of its designation of two nonbank financial institutions for supervision by the US Board of Governors of the Federal Reserve System—American International Group, Inc. and General Electric Capital Corporation, Inc. One key issue in the report is the continuing and growing threat that cybersecurity risks pose to the financial system. The report notes that although progress has been made in this area, more work is required to guard against significant cybersecurity events in the future. The report also discusses FinTech initiatives, both in the context of how innovation is changing financial market structure and financial products. The report notes that while these innovations can provide great benefits, they also create new risks to, and potential vulnerabilities in, the financial system.
View the FSOC report. -
Single Resolution Board and Federal Deposit Insurance Corporation sign Cooperation Arrangement
12/14/2017
The EU Single Resolution Board and the US Federal Deposit Insurance Corporation announced that they had signed a cooperation agreement which would provide for information sharing and cooperation in policymaking and resolution planning for cross-border financial institutions. The preamble of the agreement notes that given the interconnectedness of the global financial system, such cooperation is necessary to promote financial stability in the event of an institution’s failure. While not legally binding, the agreement sets forth the general framework of the relationship and the principals designed to advance the resolution goals of each agency. The agreement also sets forth the policies and procedures that govern the relationship between the SRB and FDIC, including the scope of the agreement, permissible uses of information shared between the agencies and the mechanisms that each agency can use to effectuate consultation, cooperation and information sharing.
View the cooperation agreement between SRB and FDIC.TOPIC : Recovery & Resolution -
Global Standard Bodies Launch Review of OTC Derivatives Reforms
12/14/2017
The Financial Stability Board, the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures and the International Organization for Securities Commissions have jointly launched a review of the regulatory reforms on incentives for central clearing of OTC derivatives. The review forms part of the FSB’s commitment to evaluate the effects of the G20 Financial Regulatory reforms. Qualitative survey forms have been published for participants in the clearing space (CCPs, clients/end-users, clearing members and banks providing clearing services to clients) to complete on a group-wide basis.
The deadline for submitting completed surveys is January 26, 2018. A final report on the impact of the G20 reforms is expected by the end of 2018.
View the surveys and related information.TOPIC : Derivatives -
European Banking Authority Develops Templates for Non-Performing Loans
12/14/2017
The European Banking Authority has published standardized data templates for non-performing loans, following calls from the European Commission and the Council of the European Union to develop templates that would assist in developing the NPL secondary markets. The templates are not a supervisory reporting requirement, but a market standard to be used by banks on a voluntary basis.
View the EBA’s press release.
View the templates. -
EU Clamps Down on Systematic Internalisers Operating Broker-Crossing Networks under MiFID II
12/13/2017
An amending Delegated Regulation has been published in the Official Journal of the European Union which closes a loophole in the Markets in Financial Instruments Directive provisions relating to systematic internalisers. In February this year, the European Securities and Markets Authority highlighted the possibility that investment firms operating broker-crossing networks might try to circumvent the MiFID II requirements by setting up networks of connected SIs which would allow SIs to cross third party buying and selling interests via matched principal trading or other types of back-to-back transactions.
Read more.TOPIC : MiFID II -
European Banking Authority Publishes Technical Standards on Contents and Access to a Central Register for Payment Services Information
12/13/2017
The European Banking Authority has published a final report setting out final draft Regulatory Technical Standards and Implementing Technical Standards under the revised Payment Services Directive.
PSD2 requires that the EBA develop, operate and maintain an electronic central register that contains information as notified by national regulators. The EBA consulted earlier in the year on its proposals for the central register and that consultation closed in September 2017.
Read more.TOPIC : Payment Services -
European Commission Declares Trading Venues in Australia, Hong Kong and USA Equivalent Under the Revised Markets in Financial Instruments Directive
12/13/2017
The European Commission has adopted Implementing Decisions for equivalence of the legal and supervisory framework of Australia, Hong Kong and the USA for national securities exchanges and alternative trading systems in accordance with the revised Markets in Financial Instruments Directive.
MiFID II requires EU investment firms to ensure that the trades they undertake in shares admitted to trading on regulated markets, or traded on trading venues should take place on regulated markets, multilateral trading facilities or systematic internalisers, or third-country trading venues assessed by the European Commission as equivalent. These latest three equivalence decisions by the European Commission will allow investment firms to comply with MiFID II when shares are traded on trading venues in these three countries.
View Implementing Decision for Australia.
TOPIC : MiFID II -
House Financial Services Committee Advances 13 Bills, Including Bills Directed at Financial Institution Regulatory Reform
12/13/2017
The US House Financial Services Committee announced that it had approved 13 bills, several of which were focused on regulatory reform for financial institutions. Representative Jeb Hensarling noted in an accompanying press release that the Financial Services Committee remains committed to, among other things, reducing regulatory red tape that burdens and affects financial institutions.
Read more. -
Final UK Domestic Legislation Published Implementing the Revised Markets in Financial Instruments Directive
12/13/2017
The Financial Services and Markets Act 2000 (Markets in Financial Instruments) (No. 2) Regulations 2017 have been published, and will take effect mainly from January 3, 2018. Some technical provisions will come into force a day earlier, on January 2, 2018, for the purpose of making corrections to other legislation in advance of the implementation date for the revised Markets in Financial Instruments Directive.
Read more.TOPIC : MiFID II -
UK Regulators Consult Further on Extension of Individual Accountability Regime to All Financial Services Firms
12/13/2017
The UK Financial Conduct Authority and Prudential Regulation Authority have issued further consultations on aspects of the extension of the Senior Managers and Certification Regime to all firms authorized under the Financial Services and Markets Act 2000.
The FCA has published three separate consultations, which build on its previous consultation in July 2017 and set out further proportionate proposals to account for the wide differences in the sizes and nature of firms that will be brought within the regime. In the July 2017 consultation, the FCA proposed an extended SM&CR consisting of a standard set of requirements for firms within the "core" regime, and further "enhanced" or simplified "limited scope" requirements for other firms as appropriate. The PRA has published a further consultation supplementing its July 2017 consultation on the PRA's substantive proposals for extension of the SM&CR to insurers.
Read more.TOPIC : Conduct & Culture -
Final EU Standards on Disclosure Requirements for Encumbered and Unencumbered Assets
12/13/2017
A Commission Delegated Regulation setting out Regulatory Technical Standards for the disclosure of encumbered and unencumbered assets has been published in the Official Journal of the European Union. The RTS supplement the Capital Requirements Regulation by setting out the requirements on firms to disclose balance sheet value per exposure class, broken down by asset quality and the total amount of unencumbered assets on the balance sheet. The final RTS set out the data required to be disclosed, the format and the timing of the disclosure. Additional disclosure requirements are set for larger banks.
The final RTS enter into force on January 2, 2018. The additional disclosure requirements for larger banks will apply from January 2, 2019.
View the final RTS. -
UK Prudential Regulation Authority Issues Updates to its Pillar 2A Capital Framework
12/12/2017
The UK Prudential Regulation Authority has published a policy statement setting out final amendments to its supervisory statements on "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and its Statement of Policy "The PRA's methodologies for setting Pillar 2 capital". These changes were proposed in a consultation by the PRA in July 2017, which closed in October 2017. Following feedback to the consultation, the PRA will proceed with the amendments it proposed in July, subject to some minor changes.
Read more. -
European Banking Authority Issues Guidelines for Assessing and Managing Security and Operational Risks in Payment Services
12/12/2017
The European Banking Authority has published finalized guidelines to assist payment services providers to conduct appropriate risk assessment and risk management of operational and security risks. The finalized guidelines contain some changes from the draft guidelines on which the EBA launched a consultation in May 2017.
Read more. -
SEC Chairman Jay Clayton Releases Statement on Cryptocurrencies and Initial Coin Offerings
12/11/2017
Chairman of the US Securities and Exchange Commission Jay Clayton released a public statement regarding cryptocurrencies and initial coin offerings (ICOs). In the statement, Chairman Clayton notes rapid growth in these areas and how expanding areas of innovation in this space may impact retail consumers and market professionals. With regard to retail consumers, Clayton reiterated that these investments carry with them reduced investor protections in comparison to traditional investments, highlighting that no ICOs have been registered with the SEC to date. For market professionals, Chairman Clayton stressed that, ICOs, while an innovation in the field, may still constitute securities transactions subject to SEC regulation, noting that much of the distinction between ICOs and traditional offerings may be more of a matter of form, rather than substance. Clayton also raised this point as it relates to cryptocurrencies, stating that merely calling a product a “currency” does not change the analysis of whether it is a security. Chairman Clayton further discussed the need for adequate disclosure, processes and investor protections with regard to ICOs, and stated that for cryptocurrencies, market professionals should either be able to demonstrate that the product is not a security, or comply with securities regulations.
View full text of Chairman Clayton’s statement.TOPIC : FinTech -
UK Financial Conduct Authority Elaborates on its Mission and Consults on Approaches to Competition and Authorization
12/11/2017
The UK Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to authorization and competition. The two documents, once finalized, will form part of a series of formal approach documents explaining the FCA's approach to regulation in more depth. They should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.
In the consultation on its approach to authorization, the FCA explains the public value and purpose of requiring authorization to conduct regulated financial services activities and the FCA's current approach to authorizing firms and individuals. The FCA seeks feedback on four questions: (i) understanding of the Threshold Conditions that firms and individuals must meet for authorization, and any areas where the FCA might be more specific; (ii) how the FCA might improve its approach to supporting firms and individuals to meet the minimum standards and how the FCA might better promote competition; (iii) whether the FCA has suggested the correct commitments to firms making authorization applications and what other commitments could be made; and (iv) whether the FCA has prioritized the right strategic goals, and, if not, what additional goals could add the most public value to the FCA's work.
Read more. -
Federal Reserve Board Announces Elimination of SOSA Ranking and Proposes Changes to Payment System Risk Policy
12/11/2017
The US Federal Reserve Board announced that it is seeking comments regarding a proposed change to its Payment System Risk Policy. In a related action, the Federal Reserve Board has also announced that it is eliminating the strength of support assessment (SOSA) ranking used for FBOs because the information that informs such rankings (such as information on parent banks, home country accounting practices and financial systems, and international regulatory developments) has become more readily available to U.S. supervisors. The proposed changes to the PSR Policy would affect US branches and agencies of foreign banking organizations, and result in changes to the methods used in determining the net debit cap of an FBO and its ability to request a streamlined procedure with regard to the FBO’s maximum daylight overdraft capacity. The calculation method currently takes into account whether the FBO is a financial holding company, as well as the FBO’s SOSA ranking. The Federal Reserve Board notes that the changes to the PSR Policy may result in a reduction of the net debit cap for some FBOs, but contends that the changes will not constrain the US operations of FBOs generally, while more accurately reflecting the usage of intraday credit by FBOs. Comments to the proposal are due on or before February 12, 2018.
View the FRB's PSR Policy Proposal.
View FRB's SR Letter regarding SOSA.TOPIC : Payment Services -
European Banking Authority Publishes Final Draft Technical Standards on Central Contact Points Under the Revised Payment Services Directive
12/11/2017
The European Banking Authority has published its final draft Regulatory Technical Standards on central contact points under the revised Payment Service Directive. The RTS will apply where a payment institution or electronic money institution with its head office in one member state provides payment services on a cross-border basis, under the right of establishment, through agents in another (host) member state. PSD2 gives the national regulators in the host member state the option of requiring that payment institutions or electronic money institutions operating through agents must establish a central contact point in the host territory, to ensure adequate communication and information reporting and effective supervision.
Read more.TOPIC : Payment Services -
UK Prudential Regulation Authority Confirms its Revised Expectations on Recovery Planning
12/11/2017
Following its consultation earlier this year on its expectations on recovery planning, the Prudential Regulation Authority has published a Policy Statement which sets out the PRA's final revised expectations on the content of recovery plans and the approach to recovery planning for groups which include a ring-fenced body. Alongside the Policy Statement, the PRA has published a new Supervisory Statement on recovery planning and an updated Supervisory Statement on RFBs. The PRA decided to publish the new Supervisory Statement because its experience in assessing firm's plans showed that there was a need to improve the quality of recovery plans and to increase the prospect of plans being credible. The new Supervisory Statement on recovery planning therefore supersedes the previous one, SS-18/13.
Read more. -
UK Publishes New Anti-Corruption Strategy
12/11/2017
The U.K. Government has published a U.K. Anti-Corruption Strategy 2017 to 2022 setting out how the U.K. Government intends to combat corruption over the next five years. The Strategy identifies the following six priorities:
1. Reduce the insider threat in high risk domestic sectors;
2. Strengthen the integrity of the United Kingdom as an international financial centre;
3. Promote integrity across the public and private sectors;
4. Reduce corruption in public procurement and grants;
5. Improve the business environment globally; and
6. Work with other countries to combat corruption.
In strengthening the United Kingdom’s position as an international financial centre, the Government intends to ensure greater transparency over ownership and control of legal entities, stronger enforcement, enhanced anti-money laundering and counter-terrorist financing measures and a better means for sharing information between the public and private sectors.
View the strategy. -
UK Prudential Regulation Authority Confirms Approach to MREL and Capital Buffers
12/11/2017
The Prudential Regulation Authority has published an updated Supervisory Statement, “The minimum requirement for own funds and eligible liabilities (MREL) - buffers and Threshold Conditions”. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.
The updated Supervisory Statement set out the PRA’s expectations on the relationship between the minimum requirement for MREL and both capital and leverage ratio buffers. It follows the PRA’s consultation earlier this year clarifying that it did not intend to create a different buffer requirement from that which is usable in the going-concern regime. The Supervisory Statement also discusses the implications that a breach of MREL would have for the PRA’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions. The PRA has confirmed that it expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the capital buffer requirements.
The Supervisory Statement applies to PRA-regulated banks, building societies and PRA-designated investment firms.
View the updated Supervisory Statement. -
Rosa Gil to Join New York Fed Board of Directors
12/08/2017
The Federal Reserve Bank of New York announced the appointment by the Federal Reserve Board of Dr. Rosa Gil as a Class C director of the FRBNY.
View the Federal Reserve Bank of Richmond press release regarding the appointment.
TOPIC : People -
Federal Reserve System Announces New Payments Security Strategy Leader
12/08/2017
The Federal Reserve Board announced that it was appointing Kenneth Montgomery as its payment security strategy leader. In this role, Mr. Montgomery will chair the Secure Payments Task Force, and lead the Federal Reserve’s efforts to increase security and safety of the U.S. Payments system.
View Federal Reserve press release regarding the appointment.
TOPIC : People -
UK Financial Conduct Authority Publishes Measures to Improve the UK Financial Advice Market
12/08/2017
The Financial Conduct Authority has published a Policy Statement setting out new Handbook rules and guidance to implement some of the recommendations arising from the Financial Advice Market Review launched by the FCA jointly with HM Treasury in August 2015.
Read more. -
Federal Reserve Board announces Three New Reference Rates for Overnight Repo Transactions
12/08/2017
The Board of Governors of the Federal Reserve System announced final plans for the production of three new reference rates regarding overnight repurchase transactions of Treasury Securities. The rates will be produced by the Federal Reserve Bank of New York, in consultation with the US Office of Financial Research. The three rates—Tri-Party General Collateral Rate, Broad General Collateral Rate, and Secured Overnight Financing Rate (SOFR)—are based on transaction-level data from segments of the repurchase market, and were the subject of an August 30, 2017 Federal Reserve Board request for public comment. The three interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets and each rate will be calculated as a volume-weighted median of transacted rates. The FRBNY intends to begin publishing these rates in the second quarter of 2018. The Federal Reserve Board also noted that although the Alternative Reference Rates Committee selected (in June 2017) SOFR as its recommended alternative to U.S. Dollar LIBOR, the details of the transition from U.S. Dollar LIBOR are outside the scope of the request for comment and this announcement.
View Federal Reserve Board press release and corresponding notice. -
Federal Reserve Board requests comment on package of proposals that would increase the transparency of its stress testing program
12/07/2017
The Federal Reserve Board announced a suite of proposals intended to increase the transparency of its stress testing program. One key aspect of the proposals is intended to increase transparency in the modeling used by the Federal Reserve Board to estimate hypothetical losses in its stress testing, including in the Comprehensive Capital Analysis and Review (CCAR). Specifically, the Federal Reserve Board will make available certain information available to the public that has previously not been released: (i) a range of loss rates, estimated using the Federal Reserve Board's models, for loans held by CCAR firms; (ii) portfolios of hypothetical loans with loss rates estimated by the Federal Reserve Board's models; and (iii) more detailed descriptions of the Federal Reserve Board's models, such as certain equations and key variables that influence the results of those models. The Federal Reserve Board is also seeking comments on a proposed “Stress Testing Policy Statement” that would increase transparency around the development, implementation, and validation of models used by the Federal Reserve Board in its CCAR and Dodd-Frank Act Stress Test (DFAST) processes. Finally, the Federal Reserve Board proposed modifications to its framework regarding annual hypothetical economic scenarios. Specifically, the proposal will clarify when the Federal Reserve Board may make changes to certain factors used in the framework, including changes to the unemployment rate and house price index.
Read More. -
EU Extends Transitional Measures for Exposures to CCPs Again
12/07/2017
A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to CCPs set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation has been published in the Official Journal of the European Union. Thirty-two third country CCPs have been recognized by the European Securities and Markets Authority to date. However, there are still third country CCPs that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized. The Implementing Regulation extends the transitional period to June 15, 2018.
The proposals to amend the CRR include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third country CCP.
View the Implementing Regulation. -
Basel Committee on Banking Supervision Discusses Regulatory Treatment of Sovereign Exposures
12/07/2017
The Basel Committee on Banking Supervision has published a discussion paper on the regulatory treatment of sovereign exposures. The discussion paper sets out the issues raised by the Task Force on Sovereign Exposures, which the Basel Committee set up in 2015, and presents potential ideas for addressing those issues. The Basel Committee's view is that all sovereign exposures entail risk but they also play an important role in the banking system, financial markets and broader economy. The suggestions presented in the discussion paper seek to balance the prudential risks with the Basel Committee's mandate to enhance financial stability.
Read more. -
European Banking Authority Proposes Revised Technical Standards on the Mapping of External Credit Ratings
12/07/2017
The Joint Committee of the European Supervisory Authorities has published a final report setting out revised draft Implementing Technical Standards for the assessment of credit quality under the Capital Requirements Regulation. Under the CRR, firms that use the Standardised Approach to credit risk (rather than the internal ratings based approaches or internal models) can use external credit assessments to determine the credit quality of exposures. Credit quality can be determined by reference to the credit assessments of External Credit Assessment Institutions. The corresponding risk weight to which an exposure's credit quality should be mapped to establish the credit risk of that exposure is set out in an Implementing Regulation published in October 2016. ECAIs are defined as credit rating agencies registered or certified in accordance with the Credit Rating Agency Regulation or any central banks issuing ratings that are exempt from the application of the CRA Regulation.
Read more. -
US Federal Reserve Bank of New York Executive Vice President Discusses the Role of Bank Supervisors in the Culture Reform Dialogue
12/07/2017
US FRB of NY Executive VP Kevin Stiroh spoke at a culture roundtable session regarding misconduct, risk, culture, and supervision. The remarks were based on a white paper that was published the same day. Mr. Stiroh’s remarks focused primarily on employee misconduct risk in the financial services industry, noting that since 2008 financial institutions have paid over $320 billion in related fines. Mr. Stiroh also highlighted the damaging effect that employee misconduct has not only on the employer and financial institutions, but also on the financial system as a whole. Mr. Stiroh contended that misconduct is the result of low cultural capital—a confluence of processes and procedures, stated values, and senior management and employees who are empowered to reinforce and conduct their day-to-day activities that promotes a culture of compliance. Mr. Stiroh also suggested that lack of cultural capital may be the result of market failures brought about by factors such as externalities, principal-agent problems and adverse selection, arguing that one possible means to remedy these issues is through internal supervision; with supervisors willing to support a culture of compliance, close gaps in rules, and advance value of safe and sound practices. To this end, Mr. Stiroh highlighted to attendees the important role that supervisors play in maintaining high levels of cultural capital at financial institutions.
View Mr. Stiroh's speech.TOPIC : Conduct & Culture -
European Banking Authority Assesses Impact of the New Basel III Framework on EU Banks
12/07/2017
The European Banking Authority has published a cumulative impact assessment setting out its analysis of the impact of the finalized "Basel III" prudential framework on EU banks.
Read more. -
Basel III Finally Finalized
12/07/2017
The Basel Committee on Banking Supervision has published the last part of the Basel III reforms. The revisions are to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards will take effect from January 1, 2022 and will be phased in over five years.
The revisions to the standardized approach to credit risk include, among other things, recalibrating the risk weights for rated exposures to banks, a specific risk weight for exposures to small and medium-sized enterprises, a standalone treatment of exposures to project finance, object finance and commodities finance, more risk-sensitive approaches for exposures for residential and commercial real estate, subordinated debt, equity exposures and unrated exposures to banks. There is also a new standalone treatment for covered bonds.
The IRB approach for credit risk has been amended by: (i) removing the option to use the advanced IRB approach for certain asset classes, including for exposures to large and mid-sized corporates, banks and other financial institutions and for exposures to equities; (ii) adopting "input" floors; and (iii) providing more specification of parameter estimation practices to reduce risk-weighted asset variability.
Read more. -
US Banking Agencies Support Conclusion of Reforms to International Capital Standards
12/07/2017
The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation announced their joint support for the finalization by the Basel Committee of the “Basel III” agreement on bank capital standards, which were formulated initially in response to the financial crisis. The revised international standards will take effect in January 2022 and will be phased in over five years. The agencies announced that they will be considering how to best implement these standards in the United States, and that all proposed changes will be effected through the procedures of standard notice-and-comment rulemaking.
View FRB press release on joint-agency announcement.
View FDIC press release on joint-agency announcement.
View OCC press release on joint-agency announcement. -
UK Prudential Regulation Authority Consults on Principles for Assessing Stress Test Model Risk Management Practices
12/06/2017
The Prudential Regulation Authority has launched a consultation on model risk management principles for stress testing. The PRA is proposing a set of four principles which are intended to assist firms in developing and implementing policies and procedures to identify, manage and control the risks inherent in the use of stress test models. The principles will be set out in a new Supervisory Statement entitled "Model risk management principles for stress testing", a draft of which is provided in the annex to the consultation paper. The Supervisory Statement would present the PRA's expectations on the model risk management practices firms should adopt when using stress test models.
The four proposed principles are that:
1. Banks have an established definition of a model and maintain a model inventory.
2. Banks have implemented an effective governance framework, policies, procedures and controls to manage their model risk.
3. Banks have implemented a robust model development and implementation process, and ensure appropriate use of models.
4. Banks undertake appropriate model validation and independent review activities to ensure sound model performance and greater understanding of model uncertainties.
Read more. -
EU Final Draft Technical Standards on Mitigating Money Laundering and Terrorist Financing in Third Countries
12/06/2017
The Joint Committee of the European Supervisory Authorities has published a final Report and final draft joint Regulatory Technical Standards on the measures that financial institutions should take to mitigate the risks of money laundering and terrorist financing where a third country's laws do not permit the application of group-wide policies and procedures. The Fourth Money Laundering Directive, which entered into force on June 26, 2015, requires a financial institution to put policies and procedures in place to mitigate and manage the money laundering and terrorist financing risks to which it is exposed. Where a financial institution is part of a group, the policies and procedures must be implemented at group level. Additional policies and procedures must be implemented where a financial institution has a branch or majority-owned subsidiary in a third country whose laws do not allow the implementation of group-wide policies.
Read more. -
UK Government's Strategy for the UK's Asset Management Industry
12/06/2017
HM Treasury has published the second UK Investment Management Strategy which sets out the UK Government's long-term strategy for ensuring that the UK remains a globally competitive location for asset management. The Government believes that action should be taken now to respond to the challenges and the opportunities for the asset management industry arising out of Brexit, and that this is the best time to renew the 2013 Strategy, which focused mostly on fund domicile issues.
Read more. -
UK Regulator Proposes Update to Pillar 2 Reporting Requirements
12/06/2017
The Prudential Regulation Authority has published a consultation paper proposing updates to the Pillar 2 reporting requirements. The PRA is proposing a new data item to capture stress testing data currently included in firms' Internal Capital Adequacy Assessment Process documents. The purpose is to enhance transparency and comparability in stress test data provided alongside ICAAP documents and to decrease the operational risks associated with capturing stress test data manually. The PRA is also proposing to reduce the frequency of reporting of the data items in the Reporting Pillar 2 part of the PRA Rulebook for some firms to take a more proportionate approach. In addition, the PRA proposes to consolidate the definition of several reporting parts of the PRA Rulebook into the Glossary.
The proposals are relevant to banks, building societies and PRA-designated investment firms. The proposed changes would impact the PRA rules, the Supervisory Statement on Pillar 2 Reporting (SS32/15) and the Statement of Policy on the PRA's methodologies for setting Pillar 2 capital.
The consultation closes on March 6, 2018. The PRA intends its final policy to take effect from October 1, 2018.
View the consultation paper. -
EU Roadmap for Completing the Economic and Monetary Union: Key Points for Financial Institutions
12/06/2017
The European Commission has published a Communication on further steps towards completing Europe's Economic and Monetary Union. The Commission is proposing several initiatives. First, the Commission is proposing a regulation to establish a European Monetary Fund. The EMF would replace the existing European Stability Mechanism and would act as a backstop to the Single Resolution Fund. Any support that the EMF provided to the SRF would need to be fully repaid by the Single Resolution Board from its own resources, including contributions from the industry. There are also proposals on new budgetary instruments for a stable euro area within the EU framework, changes to the Common Provisions Regulation, proposals to strengthen the Structural Reform Support Programme and a proposal to establish a European Minister of Economy and Finance. The Communication is supplemented by a proposed roadmap for implementing these steps over the next 18 months. The proposed roadmap indicates the dates by which certain of the Commission's proposed financial services legislation would be finalized. The risk-reduction package (amendments to the Capital Requirements framework and the Bank Recovery and Resolution Directive) would be finalized by mid-2018 and the Capital Markets Union legislative initiatives, including the review of the European Supervisory Authorities and the European Market Infrastructure Regulation, would be finalized by mid-2019.
View the Commission's Communication. -
Revisions to Supervisory Reporting Templates and Instructions Under the EU Capital Requirements Regulation Published
12/06/2017
A Commission Implementing Regulation has been published in the Official Journal of the European Union, which amends the Implementing Technical Standards, published in 2014, for the reporting by institutions on own funds and the provision of financial information.
Read more. -
Banking Committee Advances “Economic Growth, Regulatory Relief and Consumer Protection Act”
12/05/2017
The US Senate Committee on Banking, Housing & Urban Affairs announced the advancement of S. 2155, the “Economic Growth, Regulatory Relief and Consumer Protection Act.” This legislation was supported by 16 of the Banking Committee’s 23 members, and is intended to ease regulation on credit unions and smaller banks. On the same day, Vice Chairman of the FDIC Thomas Hoenig released a statement in support of the legislation, noting its goal is supporting economic growth, while easing the regulatory burden on smaller, less risky, financial institutions.
Read more. -
UK Regulations on Packaged Retail and Insurance-based Investment Products Published
12/05/2017
The Packaged Retail and Insurance-based Investment Products Regulations 2017 have been published and will enter into force on January 1, 2018.
The Regulations implement in part the EU Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs Regulation). From January 1, 2018, the PRIIPs Regulation will introduce requirements on manufacturers of PRIIPs to produce a standardized Key Information Document in an official language of all EU countries into which offerings are made. It also requires those advising on or selling PRIIPs to provide retail investors with KIDs in good time before the investor enters into the investment.
This legislation has major implications for many parts of the financial sector, since PRIIPs as defined are likely to include most financial instruments (other than shares). For example, for bonds and exchange traded derivatives, new selling restrictions or disclosures are needed for many financial products.
The Regulations designate the Financial Conduct Authority as the competent authority for the purposes of the PRIIPs Regulation and confer enforcement powers on the FCA. The FCA will be empowered to make orders prohibiting persons from marketing PRIIPs or requiring them to suspend marketing. The FCA will also have the power to issue statements on contraventions of the PRIIPs Regulation and/or to impose penalties.
View the Regulations (S.I. 2017 No 1127).
View Correction Slip published on December 11, 2017.
View the Explanatory Memorandum.TOPIC : Consumer Protection -
Office of Financial Research Releases 2017 Annual Report to Congress and 2017 Financial Stability Report
12/05/2017
The US OFR released its 2017 annual report to Congress and 2017 financial stability report. In connection with its release of these reports, the OFR notes that it has developed and implemented new vulnerability monitoring and stress index tools, which were used in preparing the OFR’s findings. The OFR reports outline 3 key threats to financial stability. First, the danger that cybersecurity threats pose not only to the financial industry, but also to the broader economy in general. The financial stability report notes that regulators are continuing to develop more robust cybersecurity standards, but that gaps still remain. The second threat discussed in the reports is the orderly resolution of a systemically important financial institution in the event of failure. The reports note that while the current framework makes orderly resolution more feasible, there are shortcomings in the framework with regard to nonbank financial institutions. The reports also highlight the important role that Orderly Liquidation Authority plays in resolution framework. Finally, the third key threat is the evolving structure of financial markets. Specifically the reports highlight the risks posed by lack of substitutes for essential services, such as settlement of US Treasury securities; market fragmentation, and replacing LIBOR with a new reference rate.
View OFR's 2017 Annual Report to Congress.
View OFR's 2017 FS Report. -
US Federal Banking Regulators May Re-evaluate Leveraged Lending Guidance
12/05/2017
The US Board of Governors of the Federal Reserve System, and the US Federal Deposit Insurance Corporation sent letters to Representative Blaine Luetkemeyer stating that they are considering seeking public input regarding improvements to the agencies’ Interagency Guidance on Leveraged Lending. Then Acting Comptroller of the US Office of the Comptroller of the Currency sent a similar letter to Representative Luetkemeyer in November. Representative Blaine Luetkemeyer had requested via letter that the agencies discontinue their enforcement of leveraged lending restrictions. The request by Rep. Luetkemeyer was predicated upon an October determination by the U.S. Government Accountability Office that the leverage lending guidance issued by the agencies fell under the Congressional Review Act. Because of this, the guidance may have no effect until it has been submitted to, and reviewed by, Congress. -
EU Equivalence Decision on US Derivatives Trading Venues Published
12/05/2017
The European Commission has adopted a Commission Implementing Decision on the equivalence of the legal and supervisory framework applicable to designated contract markets and swap execution facilities in the United States for the purposes of the trading obligation for derivatives under the Markets in Financial Instruments Regulation. From January 3, 2018 MiFIR will require that derivatives declared subject to the trading obligation must be traded on EU trading venues or third-country trading venues recognized by the European Commission as equivalent. Derivatives that will be subject to the trading obligation are euro, dollar and pound interest rate swaps in the most common benchmark tenors, as well as index-based credit default swaps.
Read more. -
Senate Banking Committee Approves Nomination of Jerome Powell as Chair of the Federal Reserve Board
12/05/2017
Senate Banking Committee overwhelmingly approved the nomination of Jerome Powell as Fed Chairman by a vote of 22-1, with only Sen. Elizabeth Warren in opposition. The nomination now goes to the full Senate.TOPIC : People -
Thomas Barkin to Become Next President and CEO of the Federal Reserve Bank of Richmond
12/04/2017
The Federal Reserve Bank of Richmond named Thomas Barkin as its President and Chief Executive Officer. Mr. Barkin’s appointment will take effect on January 1, 2018. Mr. Barkin was appointed by the eligible directors of the Richmond Fed, and approved by the Federal Reserve Board. Mr. Barkin had previously served as a member of the board of directors for the Federal Reserve Bank of Atlanta from 2009 to 2014.
View the Federal Reserve Bank of New York press release regarding the appointment.TOPIC : People -
Federal Reserve Board Proposes to Amend Regulation A
12/04/2017
The Federal Reserve Board issued a notice of proposed rulemaking regarding amendments to Regulation A. The proposed amendments would revise the provisions with regard to the establishment of the primary credit rate at the discount window in a financial emergency. Under the proposal, the primary credit rate in a financial emergency will be the target federal funds rate, or, the top of the target range, if the Federal Open Market Committee has established a target range for the federal funds rate. The Federal Reserve Board also proposes to delete provisions that relate to the use of credit ratings for collateral for extensions of credit under the Term Asset-Backed Securities Loan Facility to reflect the expiration of this program. Comments on the proposal are due on January 8.
View notice of proposed rulemaking. -
UK Competition & Markets Authority Consults on Upcoming Focus Areas
12/04/2017
The UK Competition & Markets Authority has launched a consultation on its proposed focus areas for 2018/2019. The consultation paper sets out the CMA's draft plans and priorities and a number of key commitments and initiatives across the areas of: markets and mergers, CMA development and resources, enforcement and preparing for the UK's exit from the EU. The CMA proposes, among other things, to deal with a higher volume of enforcement cases, advance consumer protection, support business compliance, consider specific markets or practices, enhance its processes around assessing mergers, improve the effects of remedies by conducting evaluations of previous projects, enhance its operational effectiveness by establishing a new digital team and to continue its preparation for Brexit. The CMA has secured additional funding for the 2017/2018 financial year to enable it to prepare for the anticipated increase in cases that will fall within the CMA's remit post-Brexit. The CMA notes that the additional £2.8 million funding per year from 2018/19, allocated in the Autumn budget, will enable it to initiate more enforcement cases against companies allegedly acting unfairly.
The consultation closes on January 14, 2018. The CMA intends to publish its final Annual Plan in March 2018.
View the consultation paper.TOPIC : Competition -
US Federal Reserve Board Announces Affirmation of Current Countercyclical Capital Buffer
12/01/2017
The US Board of Governors of the Federal Reserve System announced that it voted to maintain the countercyclical capital buffer at its current level of 0%. In coming to this decision, the Federal Reserve Board consulted with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and followed the framework established in the Federal Reserve Board’s corresponding policy statement. The countercyclical capital buffer is a tool that can increase financial system resiliency by providing financial institutions with a means to absorb higher losses in times of declining or fluctuating credit conditions.
View press release discussing the Federal Reserve Board’s determination. -
European Commission Consults on Improving Supervisory Reporting
12/01/2017
Following its 2015 Call for Evidence on the EU regulatory framework for financial services, the Commission has issued a report on progress on the targeted follow-up measures to the Call for Evidence, which was set out in a November 2016 Communication. Alongside the progress report, the European Commission has launched a consultation on supervisory reporting requirements. Some of the respondents to the Call for Evidence had highlighted overlaps and inconsistencies between reporting requirements in certain pieces of financial legislation, a reportedly excessive number of requirements, as well as, at times, insufficient clarity as to what needs to be reported and an insufficient use of international standards. Other respondents also highlighted the costs (including IT costs) of implementing reporting requirements and a number of respondents had mentioned that many EU Member States gold-plate the requirements.
The consultation seeks feedback in a number of areas, with the aim of gaining evidence on the cost of compliance with existing EU level supervisory reporting requirements, as well as on the consistency, coherence, effectiveness, efficiency, and added value of those requirements. The feedback from the consultation will provide important guidance to the Commission when preparing, if considered appropriate, a formal Commission proposal.
Comments on the consultation are invited by February 28, 2018.
View the Consultation Paper.
View Progress Report on the Call for Evidence.
View the November 2016 Communication.
View Press Release.TOPIC : Financial Services -
US Federal Reserve Board Vice Chairman for Supervision Randal Quarles Delivers Remarks on Prudent Innovation in the Payment System
11/30/2017
Vice Chairman for Supervision of the US Federal Reserve Board Randal Quarles provided remarks at the 2017 Financial Stability and Fintech Conference regarding innovation in the payments system. Vice Chairman Quarles noted that technological innovation has greatly changed our day-to-day lives, including in the financial services industry, but cautioned that utility and innovation need to be weighed against the potential ramifications that innovation has on the safety and soundness of the financial system. He noted that this tension is not intrinsically negative, but that care should be taken to maintain stability and safety. Vice Chairman Quarles provided commentary on digital currencies, stating that it may be important to separate underlying technology, such as distributed ledger technology, from the overall concept of digital currency itself. He expressed concerns regarding the wide-spread use of digital currency in its current form, and further cautioned that central-bank-issued digital currency may not be a viable alternative, noting that the latter would require extensive review and consultation about legal and risk issues. However, he noted that research into digital currency issues, including for use as a settlement asset for wholesale payment systems should continue. In closing, Vice Chairman Quarles noted that prudent innovation may be the best course of action to balance the need for innovation with the need for stability.
View transcript of Vice Chairman Quarles’s remarks.TOPIC : Payment Services -
UK Legislation Published on Payment Services and Electronic Money
11/30/2017
The Payment Systems and Services and Electronic Money (Miscellaneous Amendments) Regulations 2017 have been published and will enter into force in part on December 22, 2017 and in part on January 13, 2018.
Read more.TOPIC : Payment Services -
Financial Stability Board Proposes Guidance to Support G-SIB Resolution Planning
11/30/2017
The Financial Stability Board has launched a consultation on proposed guidance on two aspects of recovery and resolution of global systemically important banks. The first consultation proposes guidance on the principles of bail-in execution, and the second on the funding strategy elements of an implementable resolution plan. Both of these proposals relate to the implementation of the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions, published in 2011.
The first consultation on bail-in execution proposes a set of principles to assist resolution authorities developing bail-in resolution strategies and making resolution plans for G-SIBs operational. The FSB's Key Attributes provide for the bail-in powers that resolution authorities should have to carry out bail-in within a resolution and the Total Loss-absorbing Capacity standard sets the minimum requirements for the instruments and liabilities that should be available for bail-in. The FSB is proposing the new guidance because these omit operational aspects of executing bail-in and they consider that guidance is needed to address the challenges that have emerged in operationalizing bail-in.
Read more.TOPIC : Recovery & Resolution -
Marvin Goodfriend Nominated to Serve as Member of the Board of Governors of the Federal Reserve System
11/29/2017
The Trump Administration announced that Marvin Goodfriend has been nominated as a Member of the Board of Governors of the Federal Reserve System. Dr. Goodfriend is nominated to fill the vacancy from the resignation of Sarah Bloom Raskin, and if confirmed, Dr. Goodfriend would serve a 14 year term.
View the White House press release regarding Dr. Goodfriend’s nomination.TOPIC : People -
US Office of the Comptroller of the Currency Publishes Final Rule Regarding Mandatory Contractual Stay Requirements for Qualified Financial Contracts
11/29/2017
The OCC published a final rule requiring all covered qualified financial contracts of covered banks to contain a contractual stay-and-transfer provision. This provision is similar to the stay-and-transfer provision that is statutorily required under Title II of the Dodd-Frank Act and the Federal Deposit Insurance Act. The OCC final rule also limits the exercise of default rights in the event of the insolvency of a covered bank’s affiliate. In connection with these provisions, the final rule makes conforming changes to the OCC’s capital adequacy standards and liquidity risk measurement standards. The Federal Register notice notes that the final rule is substantively identical to the provision adopted by the Federal Reserve Board and by the FDIC. The OCC final rule will take effect January 1, 2018.
View the final rule.TOPIC : Recovery & Resolution -
UK Legislation Published on Oversight of Systemically Important Payment Systems
11/29/2017
The Banking Act 2009 (Service Providers to Payment Systems) Order 2017 has been published and will enter into force in part on November 30, 2017 and in part on January 13, 2018.
Read more.TOPIC : Payment Services -
EU Proposed Regulation Moving the European Banking Authority to Paris Due to Brexit
11/29/2017
The European Commission has published a proposed Regulation to formalize the decision to move the European Banking Authority from London to Paris as a result of the decision by the UK to leave the EU. The proposed Regulation will apply from the date on which the European Union Treaties cease to apply to the UK or from March 30, 2019, whichever is earlier. The proposed Regulation only confirms the move and does not address any of the operational aspects.
Feedback on the proposed Regulation is possible until January 29, 2018.
View the proposed Regulation.TOPIC : Brexit for Financial Services -
UK Financial Conduct Authority Alleges Breach of Competition Law By Four Asset Management Firms
11/29/2017
The Financial Conduct Authority has published a Statement of Objections issued to four asset management firms under the Competition Act 1998. Using its competition enforcement powers for the first time, the FCA alleges that Artemis Investment Management LLP, Hargreave Hale Ltd, Newton Investment Management Limited and River & Mercantile Asset Management LLP shared information by exchanging information concerning the price they intended to pay in relation to initial public offerings and a placing, shortly before the prices were set. The FCA's provisional view is that they have infringed competition law. The firms have the opportunity to respond to the allegations. Individuals that could materially assist in the FCA's assessment of the case may request a non-confidential version of the statement of objections from FCA by no later than January 12, 2018.
View the FCA's Statement of Objections.TOPIC : Competition -
US Department of Labor Extends Transition Period for Fiduciary Rule Exemption
11/29/2017
The US Department of Labor issued a notice extending the transition period for the Best Interest Contract exemption, and other exemptions, from the prohibited transaction provisions of the Fiduciary Rule for an additional 18 months, from January 1, 2018 to July 1, 2019, in order to give the Department additional time to review the public comments received on the exemptions and to consider the impact of the exemptions on the market. In the interim, financial institutions and advisers subject to the Fiduciary Rule must continue to follow the Impartial Conduct Standards set forth in the BIC to the extent they receive forms of compensation that are otherwise prohibited by ERISA and the Code.
View text of the notice.TOPIC : Compensation -
US Senate Committee on Banking, Housing & Urban Affairs Holds Nomination Hearing of Jerome Powell
11/28/2017
The US Senate Committee on Banking, Housing & Urban Affairs held the nomination hearing of Jerome Powell to serve as Chair of the Federal Reserve Board. Governor Powell’s written testimony briefly discussed his background and the Federal Reserve Board’s policy goals of maximum employment and price stability. Governor Powell acknowledged the Federal Reserve Board’s efforts to tailor regulation to a bank’s size and risk profile but stressed, however, that balance must be maintained between easing of regulatory burdens and preserving core regulatory reforms. Senator Sherrod Brown and Mike Crapo each expressed some degree of support for Governor Powell. Senator Crapo spoke briefly about the regulatory burden on the financial industry, especially with regard to smaller community institutions, and referenced bipartisan legislation that has been introduced to alleviate some of these burdens. Senator Brown, on the other hand, cautioned against deregulation, and expressed concerns about the direction of financial regulation under the current Administration.
View Governor Powell’s written testimony.
View Senator Brown’s opening statement.
View Senator Crapo’s opening statement. -
Federal Reserve Bank of New York President William Dudley Discusses the Evolving Structure of the US Treasury Market
11/28/2017
Federal Reserve Bank of New York President and CEO William Dudley delivered remarks to attendees of the Evolving Structure of the US Treasury Market: Third Annual Conference. President Dudley’s remarks focused on the four priorities that were outlined in the Joint Staff Report on the Treasury flash event that occurred on October 15, 2014. These priorities include an increased need for collaboration between the public and private sectors with regard to Treasury market structure which will allow for a better understanding of the evolution of the Treasury market. The second priority discussed by President Dudley was increased data transparency regarding activities in the cash market which he argued will promote a robust and safe Treasury market, and allow for more timely response to issues that arise. A third, and related, priority raised by President Dudley is the market practices and risks associated with the Treasury market, noting that the opacity of the clearance and settlement practices can lead to information asymmetry and mispricing of risks. Finally, President Dudley discussed the importance of interagency monitoring of the Treasury market.
View transcript of President Dudley’s remarks. -
First Deputy Comptroller of the Currency Keith Noreika Discusses “Whether Bank Holding Companies Are Obsolete”
11/28/2017
Keith Noreika, First Deputy Comptroller of the Currency discussed whether bank holding companies are obsolete, a topic he described as both timely and complex. Mr. Noreika, newly relieved of his post as Acting Comptroller, contended that the correct question to be asking is whether bank holding companies are a universally sound practice for all banks, noting that they may inherently be more valuable for large, complex, institutions, as compared to smaller, more traditional banks. He suggested that many of the reasons why bank holding companies were established initially are no longer as large of a concern given the evolution of state and federal laws and regulation. Moreover, he contended that while operating a bank holding company results in very high compliance and regulatory costs, in many instances, the powers granted to banks have expanded, while those granted to bank holding companies have narrowed. Mr. Noreika also noted that while bank holding companies may be a tool for reducing systemic risk, they are not the only tool that can accomplish this end and presented alternatives to the bank holding company construct such as merging the holding company into the bank.
View transcript of Mr. Noreika’s remarks. -
European Central Bank Consults on a New Unsecured Overnight Interest Rate
11/28/2017
The European Central Bank has launched a consultation on the high level features of a new unsecured overnight interest rate for euro transactions, following its announcement of its intention to develop a new interest rate benchmark on September 21, 2017. This new ECB rate will represent the euro unsecured money market in the very short tenor (i.e. overnight) and will be based entirely on transactions in euro that are reported by banks in accordance with the ECB's money market statistical reporting. It will complement existing benchmark rates produced by the private sector and serve as a backstop reference rate.
This consultation is the first consultation in a process which, over the next two years, will see the ECB defining precisely what the new rate intends to measure, developing the calculation methodology and testing the robustness of the rate. The ECB is seeking feedback on a number of aspects in the design of the rate, including on the proposed definition of the rate's underlying interest and the scope of the rate. The ECB also welcomes feedback on any other high-level features or issues which should be taken into account.
Comments are invited by January 12, 2018. The ECB intends to produce the new rate by 2020.
View ECB consultation paper.TOPIC : Securities -
UK Financial Stability Report Published
11/28/2017
The Financial Policy Committee of the Bank of England has published the latest UK Financial Stability Report. The FPC notes that the UK banking system is resilient and that UK banks are stronger than they were 10 years ago. The results of the stress test show that no bank needs to improve its capital position. However, as a result of the stress test, the FPC has decided to raise the UK countercyclical buffer rate from 0.5% to 1% from November 28, 2018. In addition, the Prudential Regulation Committee will set capital buffers for individual banks. The FPC will reconsider the countercyclical buffer rate during the first half of 2018.
The FPC continues to assess the risks posed by Brexit and concludes that Brexit presents a material risk to the provision of financial services to customers in both the UK and the EU. Three main risks are discussed: risks associated with bringing EU legislation into UK law through the Great Repeal Bill, risks to the continuity of outstanding cross-border contracts and risks presented by barriers to cross-border financial services provision.
The FPC considers that the extent and nature of the changes to be brought in through the Great Repeal Bill will depend on the terms of the UK's withdrawal agreement and there is a tight timeframe in which it all needs to be achieved. In addition to the Great Repeal Bill, secondary legislation is needed, and the regulators will need to change their rulebooks. Firms will also need to make changes to comply with the amended legal framework.
Read more. -
Secondary EU Legislation Published on Criteria for Identifying a Liquid Market for Package Orders
11/28/2017
A Commission Delegated Regulation has been published in the Official Journal of the European Union, on the criteria for identifying a liquid market for package orders under the Markets in Financial Instrument Regulation.
The Delegated Regulation sets out criteria for identifying package orders for which there is a liquid market as a whole and provides further asset-class specific criteria to be met where a package order consists exclusively of interest rate derivatives, equity derivatives, credit derivatives or commodity derivatives.
View the Commission Delegated Regulation.TOPIC : MiFID II -
Joseph M. Otting Takes Office as the 31st Comptroller of the Currency
11/27/2017
Joseph Otting was sworn in by Secretary of the US Department of the Treasury Steve Mnuchin as the 31st Comptroller of the Currency. Comptroller Otting was previously confirmed by the US Senate on November 16, 2017. Comptroller Otting replaces Keith Noreika, who had been serving as Acting Comptroller of the Currency since May 2017.
View the OCC press release regarding Comptroller Otting.TOPIC : People -
European Commission Adopts Draft Regulatory Technical Standards on Security Measures and Communication Tools for Payment Services
11/27/2017
The European Commission has adopted a draft Delegated Regulation setting out Regulatory Technical Standards on the security measures for strong customer authentication along with common and secure open standards for the communication between account servicing payment service providers, payment initiation service providers, account information service providers, payers, payees and other payment service providers in relation to the provision and use of payment services.
Read more.TOPIC : Payment Services -
European Banking Authority Repeals Guidelines on Retail Deposits Subject to Different Outflows for the Purpose of Liquidity Reporting
11/27/2017
The European Banking Authority has repealed these Guidelines, published in 2013, because they have been replaced by Implementing Technical Standards on supervisory reporting of institutions, as amended in the 2016 ITS on supervisory reporting by firms of the liquidity coverage requirement, which became effective in September 2016.
View the EBA's announcement. -
EU Makes Derogation for Own Funds Requirements for Certain Covered Bonds Permanent
11/25/2017
A Commission Delegated Regulation amending the Capital Requirements Regulation has been published in the Official Journal of the European Union. Under CRR, for banks investing in covered bonds that meet certain criteria, a preferential risk weight is applied. The amending Regulation makes permanent the derogation previously available to national regulators to waive the own funds requirement for certain covered bonds. The CRR sets a transitional date of December 31, 2017 for the waiver to be available.
The amending Regulation follows the European Banking Authority's recommendations on the EU covered bond framework published in 2014 and the European Commission's subsequent report on capital requirements for covered bonds published in 2015.
Read more. -
LIBOR Benchmark Confirmed until 2021
11/24/2017
The Financial Conduct Authority has confirmed that the 20 panel banks for the LIBOR benchmark have agreed to support LIBOR until at least 2021. The announcement follows the statement by the FCA's Chief Executive, Andrew Bailey, earlier this year that the future of LIBOR could not be guaranteed because the underlying markets (the markets for unsecured wholesale term lending to banks) are no longer sufficiently active. Work around moving from LIBOR to alternative reference rates is underway. For example, the Bank of England announced in October this year that the implementation date for the reformed Sterling Overnight Index Average Interest Rate Benchmark, known as SONIA, would be April 18, 2018. The BoE took over as administrator of SONIA in April 2016. The transition to the reformed SONIA is set for April 2018.
View the FCA's statement.
View Andrew Bailey's speech. -
EU Moves to Remove Physically-Settled FX Forwards from Variation Margin Requirements
11/24/2017
The Joint Committee of the European Supervisory Authorities has announced a review of the Regulatory Technical Standards under the European Market Infrastructure Regulation which include the requirement to exchange variation margin for physically-settled FX forwards.
EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The RTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. The variation margin requirements have applied to all counterparties since March 1, 2017 although they will only be applicable for physically-settled FX forwards from January 3, 2018.
Market participants have experienced difficulties in exchanging VM, in particular, in transactions with end-users. In addition, the EU's implementation of the international standards on margin exchange is more extensive than that in some other jurisdictions.
Read more.TOPIC : Derivatives -
UK Financial Conduct Authority Publishes Note on the Compliance Function within Wholesale Banks
11/23/2017
The Financial Conduct Authority has published a note on the compliance function in wholesale banks. The note sets out the key themes and issues arising from responses to an FCA questionnaire which was sent to 22 firms as well as the FCA's own observations. The questionnaire was sent to large global banks operating across several business lines, medium-sized firms focusing on specific areas or geographies and smaller UK firms, in order that the FCA could gain insight into how the function has changed over the past few years. The key themes are that compliance functions need to evolve in response to changes impacting the industry and that more strategic thinking is needed. The FCA has not asked individual firms to take any steps in response to the note. However, the FCA indicates that all firms and heads of compliance should use the note to develop their compliance function.
View the FCA's note.TOPIC : Conduct & Culture -
International Organization of Securities Commissions Publishes Good Practices for the Voluntary Termination of Investment Funds
11/23/2017
The International Organization of Securities Commissions has published a final report on good practices for the voluntary termination of investment funds which takes into account investors' interests during the termination process. The good practices do not override any legal or regulatory requirements or insolvency regimes. The report covers open-ended and closed-ended investment funds and retail investment funds as well as funds for professional investors. Additional good practices are included for funds established as commodity funds, real estate funds or hedge funds because illiquid or hard-to-value securities can impact the voluntary termination of a fund. These good practices should be read in conjunction with the IOSCO Objectives and Principles of Securities Regulation.
View the Report.
View the Objectives and Principles of Securities Regulation.TOPIC : Funds -
European Commission Concludes that the SEPA Regulation Does Not Require Amending
11/23/2017
The European Commission has published a Report to the European Parliament and the Council of the European Union on the application of the SEPA Regulation. The SEPA Regulation establishes technical and business requirements for credit transfers and direct debits in euro to allow electronic payments in euro without distinguishing between national and cross-border payments. The Commission is charged, under the SEPA Regulation, with reporting on the application of the Regulation and proposing legislative changes, if appropriate. The Commission has concluded that the SEPA Regulation is applied correctly across the EU and that a legislative proposal is unnecessary. The Report notes that identified issues, such as IBAN discrimination, have been addressed by Member States and their resolution will need to be closely monitored.
View the Report.
View the Annex to the Report.TOPIC : Payment Services -
Federal Reserve, OCC, and FDIC Announce Final Rule Extending the 2017 Regulatory Capital Treatment for Certain Items Under the Regulatory Capital Rules
11/22/2017
The Federal Reserve Board, OCC, and the FDIC adopted a final rule, applicable to banking organizations that are not subject to the “advanced approaches” under the US regulatory capital rules. The final rule will extend the 2017 regulatory capital treatment for certain items, including mortgage servicing assets, certain deferred tax assets, certain significant and non-significant investments in the capital of unconsolidated financial institutions, and certain minority interests. Under the final rule, banking organizations that are not subject to the “advanced approaches” capital rules will continue to evaluate these items in accordance with the risk weight and deduction treatment that was applicable in 2017. This extension does not apply to banking organizations that are subject to the “advanced approaches” capital rules, which will continue to be subject to the transition provisions for these items currently established under the regulatory capital rules. The agencies explicitly noted that the final rule was being issued to prevent different rules from taking effect while the agencies consider a broader simplification of the capital rules which the agencies announced that they intended to do as part of the recent review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. The final rule takes effect on January 1, 2018.
View the final rule. -
EU Technical Standards Aligning Indirect Clearing Requirements for MiFID II and EMIR Published
11/21/2017
The final Regulatory Technical Standards under the Markets in Financial Instruments Regulation on indirect clearing arrangements for exchange-traded derivatives and amending RTS under the European Market Infrastructure Regulation on indirect clearing arrangements for OTC derivatives have been published in the Official Journal of the European Union. The versions published are equal to those which were adopted by the European Commission on September 22, 2017. Indirect clearing refers to a situation where two or more entities are intermediaries standing between a client and a CCP in a contractual chain. EMIR established RTS on indirect clearing arrangements applicable to OTC products and MiFID extends these rules and principles to exchange-traded products. The EMIR RTS is now being revised to align with the new MiFIR RTS. Both pieces of legislation allow for indirect clearing arrangements to be established, and establish structures intended to result in equivalent protections for indirect clearing to those available for direct clearing (where only one intermediary exists). Various requirements in relation to segregation and portability at client, clearing member and CCP level are established and new required procedures to manage client defaults apply at clearing member level. Two new kinds of accounts must be established at client, clearing member and CCP level which enable such persons to distinguish indirect client positions and collateral from own account client positions and collateral.
The RTS and the amending RTS will enter into force on December 11, 2017 and will apply from January 3, 2018.
View the RTS on indirect clearing under MiFIR.
View the amending RTS on indirect clearing under EMIR.
View the existing RTS on indirect clearing under EMIR. -
2017 Global Systemically Important Banks List Published
11/21/2017
The Financial Stability Board has published the 2017 list of Global Systemically Important Banks. The list was compiled using end-2016 data and the 2013 assessment methodology designed by the Basel Committee on Banking Supervision. The Basel Committee has proposed a revised assessment framework for G-SIBs but has not yet published the finalized version. The 2013 framework identifies G-SIBs by assessing their contribution to systemic risk and imposes higher capital requirements on G-SIBs to reduce the likelihood of their failure. Identified G-SIBs are placed into buckets based on their score of systemic importance. G-SIBs are also subject to Total Loss Absorbing Capacity requirements, higher resolvability requirements and higher supervisory expectations on risk management, risk data aggregation capabilities, risk governance and internal controls.
The G-SIB list comprises 30 banks. The 2017 list is largely the same as the 2016 list except that the Royal Bank of Canada has been added and Groupe BPCE has been removed.
View the list of G-SIBs.
View the Basel Committee 2013 assessment methodology. -
Chair of the Federal Reserve Board Janet Yellen to Step Down
11/20/2017
Janet Yellen, Chair of the Federal Reserve Board submitted her resignation as Chair and as a Member of the Federal Reserve Board. Chair Yellen’s resignation will become effective upon the swearing in of the new Chair.
View the Federal Reserve press release regarding Chair Yellen’s announcement.TOPIC : People -
Federal Reserve, OCC, and FDIC Announce Amendments to Community Reinvestment Act Regulations
11/20/2017
The US Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced changes to their respective regulations under the Community Reinvestment Act. The amendments consist of modifications to the definitions of “home mortgage loan,” and “consumer loan,” to conform to the related amendments made by the Consumer Financial Protection Bureau’s as part of its implementation of the Home Mortgage Disclosure Act in its Regulation C. The amendments make other conforming changes, including removal of reference to the Neighborhood Stabilization Program, and changes to the public file content requirements of these agencies. These amendments were the subject of a joint notice of proposed rulemaking, published on September 20, 2017, and the Agencies finalized them as proposed. The changes take effect on January 1, 2018.
View the interagency final rule. -
European Banking Authority Finalizes Guidelines on the Application of the IRB Approach
11/20/2017
The European Banking Authority has published final Guidelines on the application of the Internal Ratings-Based approach, in particular, the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. The Guidelines should be applied in conjunction with the requirements under the Capital Requirements Regulation and the final draft Regulatory Technical Standards on the assessment methodology for national regulators regarding compliance by firms with the requirements to use the IRB Approach.
The Guidelines aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms which the EBA raised in its Opinion and Report on the implementation of the regulatory review of the IRB approach to calculating risk-weighted exposure amounts for credit risk, published in February 2016.
Read more. -
Commodity Futures Trading Commission Issues No-Action Relief to Swap Execution Facilities from Timing Requirements for Certain Reporting
11/20/2017
The Commodity Futures Trading Commission Division of Market Oversight has issued no-action relief to Swap Execution Facilities and their chief compliance officers from certain timing requirements regarding annual compliance reports and fourth quarter financial reports. SEF CCOs are required to file the compliance report with the CFTC no later than 60 calendar days after the end of the SEF’s fiscal year, and a SEF must concurrently file its fourth quarter financial report with the CFTC within that same time frame. Multiple SEFs have cited difficulty complying with CFTC time constraints. The relief provides SEFs and their CCOs an additional 30 calendar days to concurrently file the compliance report and fourth quarter financial report with the CFTC, such that the reports will now be due no later than 90 calendar days after the end of the SEF’s fiscal year.
The relief, issued under CFTC staff letter 17-61, is set to expire November 30, 2020.
View the Press Release.
View CFTC Staff Letter 17-61.TOPIC : Derivatives -
European Commission Receives Recommendations on Improving the European Corporate Bond Markets
11/20/2017
The European Commission has published a Report of the Commission Expert Group on Corporate Bonds on improving the European corporate bond markets. The review of the EU corporate bond market is part of the European Commission's Capital Markets Union.
The Expert Group makes 22 recommendations which relate to six objectives for improving the functioning of the corporate bond markets in the EU. The recommendations include, among others, amending the Market Abuse Regulation to ease the market sounding requirements although no specific recommendations on how to achieve that are made. The requirements have been viewed as imposing disproportionate burdens on companies, underwriters and other persons. The Expert Group considers that the requirements are aimed at large and liquid markets and not the more local, less liquid markets, such as the corporate bond markets and that the effect of the burdensome requirements may deter intermediaries from conducting market soundings and also deter the less frequent issuers from carrying out new issuances.
Read more.TOPIC : Securities -
Federal Reserve Board Extends Comment Periods for Two Supervisory Proposals
11/17/2017
The US Board of Governors of the Federal Reserve System announced an extension of the comment period for two significant proposals that are currently out for comment. One proposal concerns guidance on supervisory expectations for boards of directors, and the other concerns a new large financial institution supervisory rating system. The comment period for both proposals had been previously extended through November 30, 2017, but will now remain open through February 15, 2018.
View Proposed Guidance on Supervisory Expectations for Boards of Directors.
View Proposed Large Financial Institution Rating System. -
EU Proposed Guidelines on Position Calculation by a Trade Repository
11/17/2017
The European Securities and Markets Authority has published proposed Guidelines on position calculation by trade repositories under the European Market Infrastructure Regulation. EMIR requires that derivatives contracts are reported to a trade repository by the parties to the contract or the CCP. Reporting parties do not have to report their trades to the same trade repositories. Instead, trade repositories must take steps to reconcile records among one another. Repositories are required to calculate the positions by class of derivatives and the reporting entity, based on the reports received. Trade repositories are also required to publish aggregate positions by class of derivatives. ESMA is proposing new Guidelines for trade repositories on calculating the positions because trade repositories have adopted different and inconsistent approaches to position calculation which thwarts the aggregation of data across trade repositories for the purpose of monitoring systemic risks to financial stability. The proposed Guidelines seek to ensure consistency between trade repository position calculations so that overall entity-level positions can be determined by the supervising authorities. The proposed Guidelines include high-level principles and specific procedures for trade repositories to follow and require trade repositories to make available position data in four separate reports – a Position Set, Currency Position Set, Collateral Set and Collateral Currency Position Set.
ESMA is requesting feedback on the proposed Guidelines by January 15, 2018. ESMA expects to publish a final report and final Guidelines in the first half of 2018.
View the proposed Guidelines.TOPIC : Derivatives -
EU Authority Acts on New Third-Country Endorsement and Equivalence Regime for Credit Ratings
11/17/2017
The European Securities and Markets Authority has published updated Guidelines on the application of the endorsement regime and Technical Advice on the equivalence of certain third-country legal and supervisory frameworks under the Credit Rating Agencies Regulation. The CRA provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for regulatory purposes issued by CRAs established in the EU and registered with ESMA. Credit ratings issued in a third country may be used for regulatory purposes in the EU under the endorsement regime or the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA and endorsed by an EU CRA to be used for regulatory purposes in the EU. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes - it does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU.
Read more.TOPIC : Credit Ratings -
EU Authority Publishes Advice, Technical Standards and Guidelines under EU Money Market Funds Regulation
11/17/2017
The European Securities and Markets Authority has published technical standards, technical advice and Guidelines under the Money Market Funds Regulation. These are: final draft Implementing Technical Standards providing a reporting template for managers of MMFs to use in fulfilling their quarterly reporting obligation to the relevant national regulator, which will include information on the characteristics, portfolio indicators, assets, and liabilities of the MMF; Technical Advice to the European Commission on liquidity and credit quality requirements applicable to assets received as part of a reverse repurchase agreement and on credit quality assessments and procedures for those assessments; and Guidelines on common reference parameters of the stress test scenarios to be included in the stress tests that managers of MMFs are required to conduct.
The MMF Regulation will apply from July 21, 2018, with the exception of certain requirements which applied from July 20, 2017, including the obligation on MMF managers to report information about each MMF they manages to the fund's national regulator. The final draft ITS on the reporting template have been submitted to the Commission for endorsement.
View ESMA's final Report.TOPIC : Funds -
Court of Justice of the European Union Ruling on Scope of a Regulated Market Under MiFID
11/16/2017
The Court of Justice of the European Union has given a preliminary ruling on the meaning and scope of "regulated market" under the Markets in Financial Instruments Directive following a referral by the Dutch Administrative Court of Appeal for Trade and Industry. A regulated market is defined in MiFID I as "a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments - in the system and in accordance with its non-discretionary rules - in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title IIII". The definition is unchanged in MiFID II which will replace MiFID I from January 3, 2018.
Read more. -
US Senate Approves Joseph Otting as Comptroller of the Currency
11/16/2017
The US Senate voted to confirm (54-43) the nomination of Joseph Otting as Comptroller of the Currency. Once officially sworn in, Otting will replace Acting Comptroller Keith Noreika.TOPIC : People -
Federal Reserve Board Governor Lael Brainard Discusses the Impact of Fintech on Consumers
11/16/2017
US Federal Reserve Board Governor Lael Brainard discussed the evolution of FinTech including the impact in the consumer space and the important role that banks, data aggregators, consumers, and other stakeholders play in the evolution of this fast-changing market. Brainard noted that consumers often are unaware of how their data is collected, who it is collected by, and how it is used, which can present issues, particularly in the fast-moving and constantly evolving FinTech space. Governor Brainard highlighted the important role that the consumer plays in the FinTech market, and cautioned consumers against allowing their financial choices to be completely on autopilot without some consideration of the underlying processes.
View Governor Brainard’s speech.TOPIC : FinTech -
Bipartisan Support for Financial Regulatory Relief Bill
11/16/2017
Mike Crapo, chairman of the US Senate Committee on Banking, Housing, and Urban Affairs, introduced the Economic Growth, Regulatory Relief and Consumer Protection Act which would introduce significant financial regulatory reform. Among other things, the bill, which received bipartisan support, would reduce the threshold at which a bank holding company is considered to be a “systemically important financial institution” from $50 billion to $250 billion. The bill also provides other relief for community banks, including setting a leverage ratio of tangible equity to average consolidated assets of between 8% and 10% for banks with less than $10 billion in assets. These same institutions would be exempt from the Volcker Rule. US Senator Sherrod Brown (ranking member of the US Senate Banking Committee) released a statement opposing the bill, cautioning generally against rolling back the protections of Dodd-Frank with little or no perceived benefit to working families. The full Senate Banking Committee is expected to mark up the bill after Thanksgiving.
View full text of the bill. -
European Central Bank Regulations and Decisions on Systemically Important Payment Systems Published
11/16/2017
Two regulations and two decisions of the European Central Bank on systemically important payment systems have been published in the Official Journal of the European Union and will enter into force on December 6, 2017. These regulations and decisions have been made by the ECB in its capacity as supervisor under the Single Supervisory Mechanism for Eurozone banks, following the first comprehensive assessment of SIPS.
The two regulations amend: (i) the ECB Regulation on oversight requirements for SIPS, to make clarifications and amendments deemed necessary for the application of the highest oversight standards; and (ii) the ECB Regulation on the powers of the ECB to impose sanctions, to ensure that sanctions can be effectively imposed for oversight infringements.
The two decisions cover procedural aspects for the ECB to impose corrective measures for non-compliance with the ECB Regulation on oversight requirements and the methodology for calculating sanctions when the oversight requirements are infringed.
View Regulation Amending the Regulation on Oversight Requirements.
View Regulation Amending the Regulation on ECB Sanctions Powers.
View Decision on Procedural Aspects.
View Decision on Sanctions Calculation Methodology. -
Two Charged By UK SFO As Unaoil Bribery Investigation Deepens
11/16/2017
The UK Serious Fraud Office has charged two individuals in relation to the SFO's ongoing bribery investigation into Unaoil.
Ziad Akle (Unaoil's former territory manager for Iraq) and Basil al-Jarah (Unaoil's former business partner in Iraq) have both been charged with conspiracy to make corrupt payments, contrary to the Criminal Law Act 1977 and the Prevention of Corruption Act 1906. It is alleged that the payments were made between June 2005 and August 2011 in order for Unaoil's client, SBM Offshore, to secure various contracts in Iraq.
A third individual, Saman Ahsani, is currently subject to an extradition request to Monaco on related charges.
The SFO launched its investigation into Unaoil in March 2016 following a series of reports (which were published in the Australian media) alleging corrupt behavior by a number of international corporations seeking to secure business in the Middle East. The SFO is investigating Unaoil, its officers, employees and agents in respect of various alleged offenses of bribery, corruption and money laundering.
Mr. Akle and Mr. al-Jarah will appear before Westminster Magistrate's Court on December 7, 2017.
View the SFO press release.TOPIC : Enforcement -
House Financial Services Committee Advances 23 Bills, Including Many Directed at Regulatory Reform
11/15/2017
The US House Financial Services Committee announced that it had approved 23 bills, many of which are focused on financial regulatory reform. In a press release, US House Financial Services Committee Chairman Jeb Hensarling noted that the bills are intended to provide greater capital market access to small business, and relief for community banks and credit units. The 23 bills include a proposed repeal of Title VIII of Dodd-Frank, which gives the Financial Stability Oversight Council the ability to designate payment and clearing organizations as financial market utilities and allows them to have access to the Federal Reserve discount window. Other bills included in the package would improve the living will submission process and stress testing process, including that a bank holding company would only be subject to the Federal Reserve Board’s Comprehensive Capital Analysis and Review process every two years.
View full text of the bills. -
US Banking Regulators Discuss Lessons Learned Since the Financial Crisis
11/15/2017
Michael Held, Vice President and General Counsel of the Federal Reserve Bank of New York discussed the many lessons learned from the financial crisis and cautioned against the dangers of forgetting these lessons. Mr. Held conceded that although post-crisis reforms and regulations should be reviewed, they should not be repealed at the cost of safety and soundness. Mr. Held discussed the improved resilience of the financial system, including praising the Orderly Liquidation Authority and other post-crisis improvements to the bankruptcy process, as improving cross-border resolution. Mr. Held stressed that financial institutions and regulators need to evolve as systems and risks evolve, in order to be adequately prepared for the next economic downturn.
Read more. -
US Consumer Financial Protection Bureau Director to Step Down
11/15/2017
US Consumer Financial Protection Bureau Director Richard Cordray sent a memo to his staff announcing that he plans to leave his position by the end of the month. An interim or permanent successor has not yet been named although it has been widely reported that President Trump is considering naming OMB Director Mick Mulvaney as interim CFPB Director.TOPIC : People -
European Banking Authority Reports Good Compliance with its Guidelines for Identification of Other Systemically Important Institutions
11/15/2017
The European Banking Authority has published a report setting out the outcomes of its ongoing peer review exercise into whether its 2014 Guidelines specifying the criteria for the identification of Other Systemically Important Institutions (O-SIIs) have been applied effectively. National regulators from the EU Member States and the supervisory authorities of the three countries of the European Economic Area participated in the peer review exercise. The EBA report concludes that the majority of national regulators are compliant, but notes deviations from the Guidelines in some jurisdictions.
Read more. -
European Banking Authority Issues Final Guidance on Identifying Connected Clients
11/14/2017
The European Banking Authority has published final Guidelines on connected clients under the Capital Requirements Regulation, following two earlier consultations. The Guidelines are intended to replace the "Guidelines on the implementation of the revised large exposures regime" issued in 2009 by the EBA's predecessor, the Committee of European Banking Supervisors.
Read more. -
UK Regulator Warns of Risks of Investing in Cryptocurrency CFDs and Binary Options
11/14/2017
The UK Financial Conduct Authority has issued two consumer warnings on the risks of investing in contracts for differences relating to cryptocurrencies (that is, digital assets such as Bitcoin or Ethereum) and the risks of trading binary options.
Read more. -
European Securities and Markets Authority Issues Alerts to Firms and Investors on Initial Coin Offerings
11/13/2017
The European Securities and Markets Authority has published a statement alerting investors about the high risks of investment in Initial Coin Offerings, including the risk of total loss of their investment. The statement is accompanied by an alert to EU firms involved in ICOs reminding them of their regulatory obligations.
Read more. -
EU Sets Out Rules for National Regulators on Passporting under the Revised Payment Services Directive
11/11/2017
A Delegated Regulation has been published in the Official Journal of the European Union setting out Regulatory Technical Standards for the cooperation and exchange of information between EU national regulators that are the home and host states for payment institutions using the "passport" provided by the revised Payment Services Directive. Under PSD2, payment institutions can make use of the passport either to establish a branch in another Member State, or to provide services cross-border into another Member State. PSD2 will extend the definition of a "payment institution" to include new categories of third-party payment providers.
The RTS set out detailed rules on how national regulators are to assess passport applications and how they should deal with disagreements. The RTS also set out the information that must be obtained and/or transmitted or communicated on a branch, services or agent passport application.
The RTS come into effect on December 1, 2017. The PSD2 passport will be available from January 13, 2018, which is the transposition deadline for PSD2.
View the RTS ((EU) 2017/2055).TOPIC : Payment Services -
European Commission Consults on Measures to Address Non-Performing Loan Build-Up in the EU
11/10/2017
The European Commission has launched a consultation on proposals for statutory prudential backstops to address insufficient provisioning for newly originated loans that turn into non-performing loans. Since the 2007/08 financial crisis, there has been a build-up of NPLs in the EU, which impacts banks' viability and lending capabilities. The Commission is proposing to amend the Capital Requirements Regulation to introduce a requirement for all banks established in the EU to cover incurred and expected losses on newly originated loans that become non-performing. The requirements would be in the form of compulsory and time-bound prudential deductions of NPLs from own funds, and where that minimum coverage requirement is not met, a deduction of the difference between the level of the actual coverage and the minimum coverage from Common Equity Tier 1.
The European Commission has also asked the European Banking Authority to provide technical advice in relation to the Commission's consultation proposals. The advice must provide country-by-country estimates on additional/accelerated capital needs triggered for EU banks by the prudential backstops, taking into account, to the extent possible, expected increases in provisions as a result of the application of International Financial Reporting Standard 9 from January 2018. The advice must also assess the impact of certain design aspects too, including those that are relevant to the functioning, scope design and calibration of statutory prudential backstops. The Commission has requested the EBA to provide its report by November 27, 2017.
The Commission's consultation closes on November 30, 2017.
View the Consultation Paper.
View the consultation page.
View the Commission's request for advice. -
Bank of England Consults on Procedures for Decision Making in Contested Enforcement Cases
11/10/2017
Following positive feedback to its consultation in 2016 on the establishment of an Enforcement Decision Making Committee, the Bank of England has published a consultation on the detailed statement of procedure and the necessary revisions to existing policies and procedures that will be required to implement the proposals. The EDMC is being established as a direct response to a recommendation from HM Treasury arising from its review of enforcement decision-making at the UK regulators. HM Treasury had recommended the establishment of a functionally-independent decision-making committee composed of independent members with expertise suited to the Prudential Regulation Authority's regulatory focus. Once established, the EDMC will be the BoE's decision-making body in contested enforcement cases that relate to prudential regulation, financial market infrastructure and resolution. It will ensure the necessary functional separation between the BoE's investigation teams and decision-makers. The consultation paper sets out detailed proposals on the EDMC's remit and operation and the selection, appointment, remuneration and governance of EDMC members.
Comments on the consultation are requested by February 2, 2018.
View the BoE Consultation Paper.TOPIC : Enforcement -
EU Extends the Scope of the Framework for Collective Investment in Unlisted SMEs
11/10/2017
A Regulation amending the European Venture Capital Funds Regulation and European Social Entrepreneurship Fund Regulation has been published in the Official Journal of the European Union. This Amending Regulation makes amendments to the EuVECA Regulation and EuSEF Regulation in order to stimulate further venture capital and social investment. EuVECA and EuSEF funds have, since July 2013, provided a means for cross-border private investment in small and medium sized entities. Funds complying with these regulations receive a marketing passport which allows them to collect capital from investors across the EU, who are able to commit at least €100,000. EuVECA and EuSEF managers do not need to be authorized under the Alternative Investment Fund Managers Directive.
Read more.TOPIC : Funds -
US Office of Foreign Assets Control Amends Cuba Sanctions Program, Implementing Trump Directive
11/09/2017
The Office of Foreign Assets Control has amended the Cuban Assets Control Regulations to implement changes to the Cuba sanctions program announced by President Trump in June of this year, which aimed to reinforce certain policies that had been relaxed by the Obama Administration. Most significantly, President Trump directed OFAC to impose new travel restrictions and curtail transactions with businesses controlled by the Cuban military, intelligence, and security sectors - a prohibition many companies feared would heavily impact the tourism industry.
According to OFAC, the changes are "intended to channel economic activities away from the Cuban military, intelligence, and security services, while maintaining opportunities for Americans to engage in authorized travel to Cuba and support the private, small business sector in Cuba." The new regulations impose new travel restrictions on Americans and prohibit direct financial dealings with more than 80 hotels and dozens of other companies considered to be tied to Cuba's military, intelligence, or security services.
Read more. -
European Securities and Markets Authority Consults on Amending Systematic Internalisers' Quote Rules
11/09/2017
The European Securities and Markets Authority has published a consultation proposing amendments to the Regulatory Technical Standards on the equity transparency obligations of trading venues and investment firms (Commission Delegated Regulation (EU) 2017/587, known as 'RTS 1') under the Markets for Financial Instruments Regulation. MiFIR requires Systematic Internalisers to make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of 'prices reflecting prevailing market conditions' as being 'close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity'. ESMA is of the view that this specification needs to be amended because the quotes of an SI can only adequately reflect prevailing market conditions when the quotes reflect the minimum price increments ('tick sizes') quoted for a financial instrument on a trading venue.
Read more.TOPIC : MiFID II -
European Banking Authority Consults on Prudential Consolidation Methods
11/09/2017
The European Banking Authority has launched a consultation on the draft Regulatory Technical Standards on the methods of prudential consolidation under the Capital Requirements Regulation. The CRR provides that banks, investment firms, financial institutions and, when certain criteria apply, ancillary services undertakings, fall within the scope of the prudential consolidation framework. Banks and investment firms are required to fully consolidate all subsidiaries that are banks, investment firms and financial institutions. Different methods of consolidation, such as proportional consolidation, the equity method or the aggregation method, are allowed as an alternative to full consolidation.
Read more. -
European Banking Authority Publishes Opinion on Regulatory Perimeter Issues under the EU Capital Requirements Framework
11/09/2017
The European Banking Authority has published an Opinion and a Report on financial intermediaries and regulatory perimeter issues under the Capital Requirements Regulation and the Capital Requirements Directive. The Opinion and Report are a result of the EBA's up-to-date analysis of issues relating to non-bank financial intermediaries (referred to by the EBA as other financial intermediaries or OFIs) and the scope of EU-level and national prudential regulation. The Opinion and the Report provides the EBA's assessment of the use of the exemptions for certain entities from the CRDIV requirements, national approaches to prudential supervision of OFIs, the ambiguities around the definitions of "ancillary services undertaking" and "financial institution" in CRR and the need to update the list of activities that are part of the EU passporting regime.
The Opinion sets out the EBA's view on issues arising under the EU capital requirements framework that the European Commission, European Parliament and Council of the European Union should consider further in their current deliberations over the proposed amendments to the CRR and CRD.
Read more. -
US Financial Crimes Enforcement Network Names Kenneth Blanco Director
11/08/2017
The US Department of the Treasury announced Kenneth A. Blanco as Director of FinCEN, a bureau in Treasury’s Office of Terrorism and Financial Intelligence. Blanco has 28 years of prosecutorial service, most recently serving as acting assistant attorney general of the US Department of Justice Criminal Division. FinCEN has been led by an acting director since Jennifer Shasky Calvery stepped down in May 2016. Blanco is expected to transition to his new role within the next month.
TOPIC : People -
US Securities and Exchange Chairman Jay Clayton Raises Concerns About Virtual Currency Offerings
11/08/2017
US Securities and Exchange Chairman Jay Clayton raised concerns about virtual currency offerings or so-called initial coin offerings. He noted that ICOs are similar to securities offerings by firms required to register with the SEC. However, he was concern that there is a significant lack of information about online platforms that list and trade the virtual coins and tokens that are offered in such ICOs. Clayton highlighted the potential for misconduct, including price manipulation and trading practices. An SEC investigation into two ICOs, announced in September, is ongoing. Earlier this year, the SEC's Office of Investor Education and Advocacy issued an investor alert warning about the risks associated with ICOs.
View Chairman Clayton's speech.TOPIC : FinTech -
European Central Bank Highlights Challenges for Smaller Eurozone Firms
11/08/2017
The European Central Bank has published a Report on the supervision of less significant institutions under the Single Supervisory Mechanism. The SSM is made up of the ECB and national regulators of Eurozone member states, and is responsible for the prudential supervision of all banks in the euro area. The ECB directly supervises the larger firms, classified as significant institutions, and national regulators directly supervise the less significant institutions, subject to the oversight of the ECB. The ECB is also responsible for certain common procedures, such as the granting and withdrawal of authorization and the acquisition of qualifying holdings in SSM firms. The ECB can issue guidelines, regulations or general instructions to the SSM national regulators or even take over the direct supervision of a less significant institution (at its own initiative or at the request of the national regulator).
The ECB's Report discusses the main concerns for less significant institutions, which include competition, and suggests that less significant firms may choose to consolidate businesses to improve profitability. The Report also sets out the steps that the SSM supervisory functions have taken towards harmonizing supervisory approaches to level the playing field, and highlights that the key challenge that needs to be addressed is the use of different accounting systems because that hinders comparability of data between the firms. Finally, the ECB indicates that it is developing specific policy positions and operational guidance on issues relevant to Brexit and the likely relocation of some activities of UK firms moving into the Eurozone.
View the report. -
Acting US Comptroller of the Currency Discusses Removing the Separation Between Banking and Commerce
11/08/2017
Acting Comptroller of the US Office of the Comptroller of the Currency Keith Noreika questioned the US regulatory requirement for banks to maintain a separation between banking and commerce. Noreika noted that the Glass-Steagall Act was enacted at a time when there were very few banks, distinguishing today’s economy where there are many more banks that are subject to a “robust regulatory regime.” He suggested that preventing commercial firms from engaging in banking activities has concentrated US banking operations in a few large banks. He reiterated a commonly expressed view that the financial crisis demonstrated that the separation of banking and commerce does not make the financial system inherently safer. Noreika also rebuked calls to reinstate the Glass-Steagall Act, challenging the notion that the separation of commercial banking from investment banking in any way serves the best interest of the financial system and economy.
View Acting Comptroller Noreika’s speech. -
Final EU Guidelines on Information Required for Authorization Applications by Payment Institutions
11/08/2017
The European Banking Authority has published final Guidelines on the information to be provided for the authorization of payment institutions and electronic money institutions, and for the registration of account information service providers. The revised Payment Service Directive - PSD2 - sets out the information that must be submitted to national regulators with applications for authorization or registration. The Guidelines are divided into four sets, one for payment institutions, one for e-money institutions, one for account information service providers and one for national regulators. The Guidelines cover, among other things, information requirements on an applicant's program of operations, business plans, evidence of initial capital, governance and internal control mechanisms and data protection.
The Guidelines apply from January 13, 2018.
View the Guidelines.TOPIC : Payment Services -
UK Central Securities Depositaries Regulations 2017 Published
11/07/2017
HM Treasury has published the Central Securities Depositories Regulations 2017, together with an explanatory memorandum. The Regulations implement, in part, certain Articles of the EU Central Securities Depositaries Regulation. The CSDR provides a harmonized regulatory and prudential regime for Central Securities Depositaries, harmonizes and increases the robustness and resilience of securities settlement arrangements and creates a single market for CSD services across the EU. The CSDR has come into full effect in stages since September 17, 2014, subject to a number of transitional provisions that have necessitated staggered implementation within UK legislation. These latest Regulations disapply certain overlapping provisions of the domestic regime and extend the enforcement regime under the Financial Services and Markets Act 2000 to grant additional enforcement powers to the Bank of England and the Financial Conduct Authority. The Regulations create a new category of recognized body, known as a Recognized Central Securities Depository, and establish the procedures to be followed by persons acquiring control over RCSDs. Recognized investment exchanges, clearing houses and CSDs will be required to have appropriate procedures in place for the reporting of infringements. The Regulations also empower the BoE to make rules codifying the requirement that central counterparties notify the BoE of a cyber-incident. The Regulations take effect from November 28, 2017.
View the Central Securities Depositaries Regulations 2017.
View the Explanatory Memorandum.TOPIC : Financial Market Infrastructure -
New Federal Reserve Governor Randal Quarles Calls for Fresh Look at Various Dodd-Frank Regulatory Requirements
11/07/2017
Randal Quarles made his first public address after being formally sworn in as the new Vice Chairman for Supervision of the US Board of Governors of the Federal Reserve System at The Clearing House’s Annual Conference in New York. Although Quarles’s remarks have not yet been posted publicly, he notably called for taking a "fresh look" at various Dodd-Frank regulatory requirements, including stress testing, living wills and the leverage ratio. Although he generally did not discuss any specifics, he indicated his support for improving transparency, including seeking input for how to improve the Federal Reserve’s stress testing process. He also expressed support for tailoring regulation to reflect the risks associated with a bank’s activities and not just its size. Specifically, he noted that making adjustments to the $50 billion threshold for enhanced prudential supervision under Section 165 of the Dodd-Frank Act are not dependent on Congressional action. -
UK Payment Systems Regulator Consults on Reimbursement of Victims of Payment Scams
11/07/2017
The UK Payment Systems Regulator has published a report on the initiatives it has engaged in with banks, the payment systems industry and the Financial Conduct Authority to prevent or mitigate harm to consumers from scams which involve tricking people into sending money to fraudsters. This type of scam is known as an authorized push payment, or APP, scam and is the second biggest type of payment fraud reported in the UK behind card fraud. The PSR has previously investigated APP scams following a Which? super-complaint in 2016 and concluded in its response to the super-complaint that more needed to be done to address them.
Read more. -
Federal Reserve Bank of New York President Announces Retirement
11/06/2017
The US Federal Reserve Bank of New York announced that President and Chief Executive Officer William C. Dudley plans to retire in mid-2018, to ensure that a successor is appointed before his term ends in January 2019. Dudley joined the FRBNY in 2007 as executive vice president and head of the Markets Group, and was named the 10th president and CEO of the FRBNY on January 27, 2009. He was appointed for his first full term as president and CEO in 2011 and reappointed in 2016. The President of the FRBNY is limited to a ten-year term, and contemporaneously serves as Vice Chairman of the Federal Reserve’s top policy-making body, the Federal Open Market Committee.TOPIC : People -
Head of US Office of Financial Research Richard Berner to Step Down
11/06/2017
US Treasury Secretary Steven Mnuchin announced that Richard Berner, director of the Office of Financial Research, will step down effective December 31, 2017, one year ahead of the expiration of his term. Berner was the first director of the agency, which was created by the Dodd-Frank Act with the mission of collecting and analyzing data across financial agency jurisdictions. Berner was confirmed by the Senate on January 1, 2013, for a six-year term. Berner’s successor has not yet been named.TOPIC : People -
Randal K. Quarles sworn in as member of the Board of Governors of the Federal Reserve System and as Vice Chair for Supervision
11/06/2017
Randal K. Quarles was ceremonially sworn in as a member of the Board of Governors of the Federal Reserve System and as Vice Chair for Supervision. Following confirmation by the Senate, Vice Chair Quarles took office on October 13, 2017, to fill an unexpired term ending on January 31, 2018. His term as Vice Chair for Supervision ends on October 13, 2021.TOPIC : People -
US Regulator Warns EU about Proposed Extraterritorial Overreach
11/06/2017
The Commodity Futures Trading Commission Chairman J. Christopher Giancarlo has authored an opinion piece in the Wall Street Journal warning of potential consequences if the European Union mishandles Britain's impending exit from the EU. The European Commission's proposed amendments to the European Market Infrastructure Regulation and the regulation establishing the European Securities and Markets Authority would provide ESMA and the European Central Bank with greater supervisory powers over third-country CCPs. Specifically, Chairman Giancarlo argued that the European Commission’s proposed rulemaking that would authorize regulation of financial entities outside the EU by the European Central Bank and ESMA would result in overlapping and uncoordinated regulation in US financial markets. Chairman Giancarlo believes this lack of harmonization and clear jurisdictional limitations could prove expensive and damaging to US economic growth and ultimately impact job growth. Additionally, Chairman Giancarlo suggests that submitting to European rules could set a dangerous precedent going forward which could result in further imposition of European costs and regulatory burdens on the US economy.
View the article. -
UK Financial Conduct Authority Consults on Measures to Reduce Misconduct in Unregulated Markets and Activities
11/03/2017
The Financial Conduct Authority has published a consultation paper on proposals to clarify its expectations on authorized firms and their staff when operating in markets or undertaking activities that are not covered by regulatory rules and principles. The FCA cites, as a particular example of the need to clarify its expectations, the spate of enforcement action in response to serious misconduct such as benchmark manipulation by employees of regulated firms in the fixed-income, currency and commodities (FICC) markets, which fall outside the FCA's regulatory perimeter.
A number of solutions to help reduce this type of misconduct in the FICC markets were suggested following the recommendations of the Fair and Effective Markets Review (FEMR) that was conducted in 2014-15. In these unregulated wholesale markets, activities undertaken by authorized firms were often only governed by industry-written codes of conduct, such as the UK's Non-Investment Products (NIPs) Code, rather than FCA rules. One recommendation of the FICC market standards board, which was established as a result of the FEMR, was that proper market conduct should be managed in FICC markets through regulators and firms monitoring compliance with all standards - formal and voluntary - under the Senior Managers and Certification Regimes.
Read more.TOPIC : Conduct & Culture -
Financial Action Task Force Supplements its Guidance to Promote Financial Inclusion
11/03/2017
The Financial Action Task Force has published a 2017 Supplement to the 2013 Guidance on AML/CFT Measures and Financial Inclusion. The 2013 Guidance sets out how anti-money laundering and counter terrorist financing measures could be designed to achieve financial inclusion without compromising financial crime fighting. The 2017 Supplement is intended to encourage financial inclusion by providing examples of how countries have adapted their customer due diligence measures for this purpose through simplified CDD or alternative forms of identity verification.
View the FATF Supplement.
View the 2013 Guidance. -
Financial Action Task Force Guidance on Private Sector Information Sharing
11/03/2017
The Financial Action Task Force has published new Guidance on private sector information sharing in the context of anti-money laundering and counterterrorist financing. The Guidance is intended to improve information sharing, which is a key part of the FATF Recommendations and Immediate Outcomes, by assisting national regulators and financial institutions to implement the FATF Recommendations. This non-binding Guidance discusses the obstacles to information sharing at a group-wide level and between different financial institutions. Those include different legal frameworks for data protection and privacy, financial secrecy laws, operational issues, such as IT capability and lack of policies and procedures, and, for national regulators, implementing consolidated supervision. The Guidance also includes examples of how some countries have addressed these challenges.
View the FATF Guidance. -
UK Banking Standards Board Consults on What Good Banking Outcomes Look Like for Consumers
11/02/2017
The UK Banking Standards Board, which was established in 2015 to help raise standards of behaviour and competence across UK banks and building societies, has launched a consultation seeking views, in particular from consumer and civil society organisations, about what the outcomes of a good banking culture look like to consumers. The BSB uses the term "consumers" to refer to retail banking customers (personal customers and micro businesses) and building society members, both potential and actual.
The views of consultation respondents will assist the BSB in developing a "Consumer Framework", that consumer and civil society organisations can readily relate to and that can potentially align, if wished, with some of their own work. An outline of the Consumer Framework is provided for consultation. The starting point for the Consumer Framework is a set of consumer principles (access, choice, clarity and transparency, safety and security, redress and being listened to, value for money, fairness). The BSB seeks feedback on the adequacy of these principles. It also seeks views on its proposals to adopt outcomes-focused approach and on high level questions such as how consumer outcomes could be measured, on the helpfulness of "real life" examples of what the outcomes might mean to consumers and on whether the Consumer Framework would be helpful in setting a benchmark for good practice standards.
Comments on the proposals are invited by January 26, 2018, following which the BSB will publish a further and fuller version of the Consumer Framework.
View BSB News release.
View Consultation Paper: What do good banking outcomes look like for consumers.TOPIC : Conduct & Culture -
European Banking Authority Publishes Recommendation on the Coverage of Entities in a Group Recovery Plan
11/01/2017
The European Banking Authority has published an own-initiative Recommendation on the coverage of entities in banking group recovery plans, with the aim of defining common criteria to identify entities that need to be covered in group recovery plans, as well as the extent of such coverage.
The EBA recommends that entities are covered in a group recovery plan in proportion to their relevance. It recommends that entities be categorized for recovery purposes as; (i) relevant for the group; (ii) relevant for the economy or financial system of a relevant member state; or (iii) not relevant for either of the two. For each category, different levels of information are identified. The Recommendation also provides for an adjustment phase to ensure the smooth migration of recovery planning information currently available at the local level to the group level.
View EBA Final Report.
View EBA Press Release.TOPIC : Recovery & Resolution -
European Banking Authority Finalizes Guidelines on Designating EU Branches as Significant-Plus Branches
11/01/2017
The European Banking Authority has published a final Report and final Guidelines on the supervision of significant branches. The Capital Requirements Directive and the Bank Recovery and Resolution Directive provide the EU legal framework for the prudential supervision of branches. The Guidelines set out how the consolidating supervisor, the home supervisor and the host supervisor should cooperate to supervise prudentially and assess recovery planning and coordinate monitoring of significant branches requiring intensified supervision. The Guidelines apply to 'significant-plus' branches of EU firms established in another EU member state, not to branches of third-country firms.
Read more. -
Financial Stability Board Considers Financial Stability Implications of Artificial Intelligence and Machine Learning in Financial Services
11/01/2017
The Financial Stability Board has published a report prepared by experts from its Financial Innovation Network, which examines the potential financial stability implications of the growing use of artificial intelligence and machine learning by financial institutions. Data on the extent of adoption of this technology is still relatively limited, but the FSB considers that, overall, AI and machine learning applications show great promise for the financial services industry, provided that their specific risks are managed properly. Potential risks for financial stability should be monitored over the coming years as this technology is adopted and more usage data becomes available. These potential risks include the possibility of third-party dependencies, which may introduce new systemically important players outside the regulated sector. There is also a risk of new and unexpected forms of interconnectedness developing between financial markets and institutions. The FSB is also concerned that it is not possible to interpret all aspects of AI and machine learning methods and stresses the importance of ensuring adequate testing and training of AI and machine learning applications with unbiased data and feedback mechanisms, to ensure applications behave as intended.
The Report sets out a number of selected use cases and considers the possible effects of AI and machine learning on financial markets, financial institutions, consumers and investors along with a macro-financial analysis of issues such as possible market concentration and interconnectedness. The Report also considers the legal and ethical issues around AI and machine learning and sets out some preliminary thoughts on governance and the development and auditability of models.
View FSB Report.
View Press Release.TOPIC : FinTech -
European Banking Authority Launches Consultation on Package of Pillar 2 Measures
10/31/2017
The European Banking Authority has launched a consultation on reviewing three Guidelines with the aim of strengthening the Pillar 2 framework. The consultation covers updates to the following:
1. Guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines).
2. Guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines).
3. Guidelines on institutions' stress testing.
The consultation on the three Guidelines is being run in parallel, with feedback on the proposals requested by January 31, 2018.
Read more. -
European Commission Furthers its Initiative on Crowdfunding and Peer-to-Peer Lending Platforms
10/30/2017
The European Commission has published an Inception Impact Assessment on the possible introduction of legislation for crowdfunding and peer-to-peer lending. The Inception Impact Assessment discusses the need for the EU to develop alternative financing sources as part of the Capital Markets Union and how this might be achieved through strengthening the EU crowdfunding market. The Commission has identified two issues that would need to be addressed - firstly, the relatively small scale of crowdfunding platforms and lack of cross-border activity and secondly, the market's perception of the lack of reliability of crowdfunding and peer-to-peer platforms. The Inception Impact Assessment discusses the policy options that will be included in the impact assessment, if the Commission decides to proceed with the proposal, which are: (i) no EU framework; (ii) a self-regulatory approach with minimum EU standards; (iii) a comprehensive approach that treats crowdfunding platforms like regulated trading venues or payment institutions; and (iv) a standalone opt-in EU framework for platforms wishing to undertake cross-border activity (leaving national regimes for purely domestic platforms). The Inception Impact Assessment is intended to inform stakeholders and market participants of the Commission's intentions and to seek feedback on the intended initiative and any related future consultations. Feedback is requested by November 27, 2017.
View the consultation website.TOPIC : FinTech -
European Banking Authority Consults on Home-Host Regulator Co-operation Under the Revised Payment Services Directive
10/27/2017
The European Banking Authority has launched a consultation on draft Regulatory Technical Standards under the revised Payment Services Directive concerning the level of co-operation between national regulators in home and host states of a payment institution that operates cross-border in the European Union. PSD2 takes effect from January 13, 2018. The draft RTS specify the framework for the co-operation between the supervisors of payment institutions operating on a cross-border basis, including the method for co-operation and details of information that should be provided between regulators. The draft RTS also specify the means, details and frequency of any reporting that a host national regulator may request from payment institutions of the payment business activities carried out in its territory through agents or branches.
The EBA invites comments on the draft RTS by January 5, 2018.
View the consultation paper.TOPIC : Payment Services -
UK Financial Conduct Authority Publishes Reforms to Improve Effectiveness of Primary Markets
10/26/2017
The U.K. Financial Conduct Authority has published two Policy Statements designed to improve effectiveness of the U.K.'s primary capital markets, and the regulatory framework governing them to ensure they continue effectively to serve issuers and investors. The FCA consulted on proposed changes between February and May 2017.
The first Policy Statement sets out enhancements to the UK Listing Regime, including a change to the FCA's approach to the suspension of listing for reverse takeovers. The enhancements to the Listing Regime update how premium listed issuers may classify transactions and will enable property companies to better take into account asset values when seeking a premium listing. These proposals received overwhelming support from market participants.
The second Policy Statement sets out rule changes to improve the range, quality and timeliness of information available to investors during the equity IPO process.
Read more.TOPIC : Securities -
EU Technical Standards on Investment Firm Authorization Published
10/26/2017
A Commission Delegated Regulation with Regulatory Technical Standards on information and requirements for the authorization of investment firms under the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union. MiFID II provides the requirements and conditions for authorization of an investment firm. The RTS set out the information that a firm applying for authorization as an investment firm must submit to the relevant national regulator. The information includes general corporate information, information on the applicant's sources of capital and financial situation, information on the applicant's shareholders, management body and persons who direct the business and information on the organization of the firm.
Read more.TOPIC : MiFID II -
EU Technical Standards on Acquisitions of Qualifying Holdings in Investment Firms Published
10/26/2017
A Commission Delegated Regulation with Regulatory Technical Standards on the information requirements for notification by a proposed acquirer of its proposed acquisition of a qualifying holding of an investment firm under the Markets in Financial Instruments Directive and the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union. Both MiFID and MiFID II require that acquisitions of an investment firm or a qualifying holding in an investment firm are subject to prior approval by the relevant regulator. A qualifying holding is a direct or indirect holding in an investment firm of 10% or more of the capital or voting rights. The RTS set out the information that an acquirer must submit to a national regulator so that it can assess the proposed acquisition. The information includes that of the proposed acquirer, the persons who will direct the business of the target entity, the new proposed group structure and its impact on supervision and financing of the acquisition. The RTS also provide for the information requirements to be reduced where the proposed acquirer is an EU authorized entity and where the target entity does not hold client assets, is not authorized to undertake proprietary trading or underwriting of financial instruments and, if the target is authorized as a portfolio manager, the assets under management by the target are less than EUR 500 million.
Read more.TOPIC : MiFID II -
UK Government Publishes 2017 National Risk Assessment of Money Laundering and Terrorist Financing
10/26/2017
HM Treasury has published a National Risk Assessment of money laundering and terrorist financing for 2017. The 2017 NRA identifies risks that have changed since the first NRA was published in 2015, assesses the UK's current understanding of these risks and discusses the high-risk areas in more detail. The key findings of the 2017 NRA for the financial services sector include:
1. The steps to address the risks of money laundering and terrorist financing to the financial services sector are starting to take effect but the risk profile has not moved significantly yet. However, there is now an increased understanding of the varying risk profiles across different parts of the sector.
2. The risks of money laundering and terrorist financing to the retail banking sector are both high, mostly due to the criminal intent to exploit retail banking products and the increasing speed and volume of transactions.
Read more. -
Basel Committee Issues Final Guidelines for Identifying and Managing Step-in Risk
10/25/2017
The Basel Committee on Banking Supervision has published final guidelines for the identification and management of step-in risk, following consultations in December 2015 and March 2017.
The Basel Committee refers to step-in risk as the risk that a bank may provide financial support to an entity that is under financial stress beyond or without any contractual obligations to do so, to protect itself from any adverse reputational risk that may result from its connection to the entity. The aim of the guidelines is to mitigate potential spillover effects from the shadow banking system to banks. The Basel Committee's work on developing the guidelines is part of the G20 initiative to strengthen the oversight and regulation of the shadow banking system to mitigate systemic risks, in particular risks arising due to banks' interactions with shadow banking entities.
Read more. -
UK Regulator Outlines Scope of Retail Banking Business Model Review
10/25/2017
The U.K. Financial Conduct Authority has published a paper outlining the purpose and scope of its strategic review of retail banking business models. The FCA launched the strategic review in April 2017 in order to deepen its understanding of retail banking business models generally. The FCA also wants to gain an understanding of how changes such as increased use of digital services and reduced use of branches have impacted on banks’ business models and whether this might have implications for the FCA's consumer protection and competition objectives. The strategic review will also help the FCA to understand how free-if-in-credit banking is paid for and whether this gives rise to concerns about the distribution of profits from different types of consumers or different products.
The paper outlines how the FCA uses business model analysis in conduct and competition regulation before discussing how the face of retail banking is changing. A new environment has emerged due to the rise of challenger banks in response to macroeconomic, technological and regulatory changes, the profound effect of technology on costs and customer behaviour, the effect of recent regulatory changes on competition and the expected significant increase in competition that will be brought about by the Competition and Markets Authority's Open Banking initiative and the implementation revised Payment Services Directive.
Read more. -
European Commission Recommendations on Further Mitigating Risks related to Securities Financing Transactions
10/19/2017
The European Commission has published a Report on the progress made internationally to mitigate risks associated with Securities Financing Transactions and recommendations, if any, for the EU to develop its regulatory framework under the SFT Regulation. The majority of the SFTR came into effect on January 12, 2016, except for the SFT reporting obligation which is in the process of being phased-in according to counterparty type. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy-backs. The SFTR requires, among other things, all SFTs to be reported to EU-recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.
The European Commission's Report assesses the EU's SFTR framework and the recommendations of the Financial Stability Board aimed at enhancing transparency of SFT markets and on haircuts for non-centrally cleared SFTs. The European Commission considers that the SFTR and other EU legislation and guidelines have addressed the FSB's recommendations and that no further regulatory action is needed at this time. An assessment of whether to introduce numerical haircut floors should be undertaken once detailed data on the SFT markets is available, in addition to considering the steps taken in other jurisdictions because the introduction of any numerical haircut floors should be globally coordinated.
View the Commission's Report.TOPIC : Shadow Banking -
UK Financial Conduct Authority Launches Authorization Hub for Asset Managers
10/16/2017
The UK Financial Conduct Authority has launched phase one of its new Asset Management Authorization Hub, which is a new FCA resource designed to assist new firms entering the market and help them better understand the FCA as an organization.
The hub is based on four broad objectives: (i) clarifying the expectations of new entrants by providing updated guidance on regulations and processes; (ii) fostering better engagement between the FCA and new entrants; (iii) making information more accessible by introducing, as part of the FCA's website, a dedicated portal for investment managers; and (iv) providing "end-to-end" support for start-up firms, by supporting the transition from pre-authorization discussions to authorization and ongoing supervision.
The FCA plans to roll out further phases of the hub throughout 2018.
View the FCA press release.
View the Authorization Hub webpage.TOPIC : Funds -
UK SONIA Interest Rate Benchmark Implementation Date Set: April 23, 2018
10/16/2017
The Bank of England has announced the implementation date for the reformed Sterling Overnight Index Average Interest Rate Benchmark, known as SONIA. The BoE took over as administrator of SONIA on April 25, 2016. SONIA is currently based on a market for brokered deposits which has limited transaction volumes. From April 23, 2018, the methodology will change to a volume-weighted trimmed mean. The BoE will also take on the remaining aspects of administration, including the calculation and publication of SONIA. The reformed benchmark will cover overnight unsecured transactions negotiated bilaterally as well as those arranged via brokers, using the Bank's Sterling Money Market Data Collection as the data source. The BoE also published the Key features and policies for SONIA which is a summary of how SONIA will be calculated and administered, including the governance arrangements. The BoE intends to assess the benchmark's compliance with the Principles for Financial Benchmarks in due course.
View the SONIA Key Features and Policies document.
View the BoE's announcement. -
European Securities and Markets Authority Launches Next Stage of EU Reporting System
10/16/2017
The European Securities and Markets Authority has announced the launch of the second phase of its Financial Instrument Reference Database (FIRDS). FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism. With the launch, ESMA is providing access to the database holding the currently available reference data that market participants will use to identify instruments subject to the reference data reporting requirements. The aim of the launch is to assist market participants in preparing their systems in advance of the obligation coming into effect on January 3, 2018.
View ESMA's announcement. -
Wolfsberg Group Adopts New Standards on Correspondent Banking and Payment Transparency
10/15/2017
The Wolfsberg Group has published two new standards, the Correspondent Banking Due Diligence Questionnaire (CBDDQ) and the revised Payment Transparency Standards. The Wolfsberg Group was established in 2002 and comprises thirteen banks. Its objective is to develop frameworks and guidance for the management of financial crime risks. Both of the new standards are intended to support the work on de-risking in correspondent banking by the Financial Stability Board, the Financial Action Task Force and the Committee on Payments and Market Infrastructure.
View the CBDDQ.
View the revised Payment Transparency Standards. -
EU Equivalence Decision for US on Uncleared Derivatives
10/14/2017
A Commission Implementing Decision declaring equivalence of the US 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 Implementing Decision applies to swaps regulated by the Commodity Futures Trading Commission that are not cleared by a CCP where at least one of the counterparties to the swap is established in the US and is registered with the CFTC as a swap dealer or a major swap participant, and for collateral exchange, where the US counterparty is subject to CFTC margin requirements. This Decision means that where an EU counterparty that is subject to the requirements of EMIR enters into an uncleared derivatives contract with a US swap dealer or major swap participant, the EU counterparty will be deemed to have complied with its obligations under EMIR by complying with the US requirements.
This is the first equivalence decision under EMIR relating to the risk mitigation techniques for uncleared derivatives. Equivalence decisions relating to the supervision and regulation of CCPs are already in place. The Implementing Decision enters into force on November 3, 2017.
View the Implementing Decision.TOPIC : Derivatives -
US and EU Announce Common Approach to Derivatives Trading Venues
10/13/2017
The European Commission and the US Commodity Futures Trading Commission have published a joint statement announcing a common approach for recognizing certain derivatives trading venues authorized in the EU and the US for the purposes of the trading obligation. The Markets in Financial Instruments Regulation imposes a trading obligation on EU financial counterparties and non-financial counterparties for transactions in derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation; (ii) are admitted to trading or traded on at least one EU trading venue (a regulated market, multilateral trading facility or organized trading facility) or a third-country equivalent trading venue; and (iii) are sufficiently liquid. The European Commission may adopt an equivalence decision declaring that certain third-country trading venues are subject to an equivalent legal, supervisory and enforcement regime to the EU requirements under MiFID II and the Market Abuse Regulation. The common approach signifies that it is intended that the European Commission will adopt an equivalence decision for swap execution facilities and designated contract markets regulated by the CFTC. Similarly, the CFTC will exempt MTFs and OTFs from the requirement to register as SEFs.
Read more. -
Brexit: European Banking Authority Warns Against Letter-Box Entities
10/12/2017
The European Banking Authority has published an Opinion on issues relating to Brexit where a UK firm seeks to establish an entity within the EU27. The Opinion is addressed to the European Commission, national regulators of member states, the European Central Bank in its role as bank prudential supervisor for entities established in the eurozone and to national regulators in Norway, Lichtenstein and Iceland (as per the EEA Agreement). The Opinion is intended to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage issues that may arise as firms consider establishing entities within the EU27 before the date of the UK's exit from the EU. The Opinion covers areas such as the authorization process, equivalence access for investment services, internal model approvals, resolution and deposit scheme issues and internal governance and risk management. In particular, the Opinion addresses outsourcing and risk transfers using back-to-back or intragroup transactions. The EBA states that 'letter-box' or 'empty shell' entities do not meet the existing regulatory requirements and that national regulators should assess whether outsourcing is being used solely as a means of obtaining an EU passport. The EBA also considers that a group with a new EU27 entity that uses back-to-back or intragroup transactions to transfer risk must have enough capital, risk management and operational capabilities to absorb any material unhedged or unsecured portfolio in the event of the default of the group entity to which the risks have been transferred.
View the EBA's Opinion. -
European Banking Authority Publishes Final Guidelines on Procedures for Complaints of Alleged Infringements of PSD2
10/12/2017
The European Banking Authority has published final Guidelines on complaints procedures for alleged infringements by payment service providers of the Payments Services Directive 2. PSD2 provides for payment service users and other interested parties, including consumer associations, to submit complaints to national regulators regarding alleged infringements of the PSD2 requirements by payment service providers. National regulators will be required to make available two different means by which a complaint can be submitted and to publicly disclose information on their procedures for complaints of alleged infringements. National regulators will also be required to provide complainants with certain information in response to their complaint. Furthermore, national regulators will need to have procedures in place to collate and analyze aggregated complaints information so that they can assess, for example, the nature of the most common types of complaints and the identity of the payment service providers subject to the most complaints. The final Guidelines will apply from January 13, 2018 and will be updated on a regular basis thereafter.
View the Final Report and Guidelines.TOPIC : Payment Services -
European Commission Reports on Single Supervisory Mechanism
10/11/2017
The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the Single Supervisory Mechanism. The Banking Union is made up of the SSM, the Single Resolution Mechanism and the deposit guarantee scheme. The SSM is the first pillar of the Banking Union, which the European Authorities are aiming to complete by the end of 2019. The SSM is made up of the European Central Bank and national regulators of Eurozone Member States, and implements the prudential policy and requirements of all banks in the euro area. The ECB directly supervises the larger firms, classified as significant institutions, and national regulators directly supervise the less significant institutions, subject to the oversight of the ECB.
Read more. -
European Commission Advocates Completion of the Banking Union by 2019
10/11/2017
The European Commission has published a Communication in which it calls for completion of the Banking Union by 2019 and provides a path on how that could be achieved. The Banking Union is made up of the Single Supervisory Mechanism, the Single Resolution Mechanism and the deposit guarantee scheme. The Communication is addressed to the European Parliament, the Council of the European Union, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. The Communication sets out the Commission's view on the steps needed to complete the Banking Union.
Read more. -
European Banking Authority Proposes Changes to Reporting for Resolution Plans
10/11/2017
The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards on the forms and templates to be used by institutions when providing information to resolution authorities for the purpose of drawing up and implementing resolution plans. The EBA proposes to amend the ITS to account for evolution in the policy and practices applied by authorities in the development of plans for financial institutions since the issue of the ITS in 2015. The amendments include content changes to many of the templates and deletion of some others. A new template has been added, which will collect information on deposit guarantee scheme arrangements. The consultation also sets out proposals to clarify the scope of the reporting framework in line with the EU Bank Recovery and Resolution Directive and to specify minimum procedural and technical reporting requirements. There are also proposals for the application of simplified reporting obligations for small institutions.
Comments on the proposals are invited by December 11, 2017 and must be made using an online submission form.
View EBA consultation paper.
View the annexes, response form and other related information.TOPIC : Recovery & Resolution -
UK Court of Appeal Grants ENRC Permission to Appeal Widely Criticised Privilege Ruling - and Law Society Seeks to Intervene
10/11/2017
On October 11, 2017, Eurasian Natural Resources Corporation was granted permission by the Court of Appeal to appeal the High Court's ruling articulating a significant restriction on the scope of legal professional privilege (in particular, litigation privilege). The Law Society of England & Wales - which has expressed concern about the High Court's ruling and its implication for when and how companies and their employees are protected by privilege - has since announced that it has applied to the Court for permission to intervene in the appeal.
Although the ENRC case was brought by the UK Serious Fraud Office, the High Court's ruling - and the future decision by the Court of Appeal - will impact upon the way investigations are conducted in the context of (prospective) criminal prosecutions by the UK Financial Conduct Authority as well.
Read more.TOPIC : Financial Services -
International Organization of Securities Commissions Reports on Other Products and Services Offered by Credit Rating Agencies
10/11/2017
The International Organization of Securities Commission has published a final report on the non-traditional products and services offered by credit rating agencies. The report follows IOSCO's consultations and other panel discussions with CRAs, users of other CRA products and other market participants.
Read more.TOPIC : Credit Ratings -
Financial Stability Board Seeks More Action on Reforming Benchmarks
10/10/2017
The Financial Stability Board has published a progress report on reforms to existing interest rate benchmarks and on the construction and implementation of alternative near risk-free interest rates (RFRs). This follows the FSB's recommendations for reforms in this area, published in July 2014. The report examines the progress made towards achieving those recommendations. The FSB's recommendations in the July 2014 report called for a strengthening of existing interest rate benchmarks, such as LIBOR, EURIBOR and TIBOR, collectively coined "IBORs," and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transaction data. In addition, the FSB proposed steps to develop alternative near risk-free interest rate benchmarks.
On the progress to fortify the IBORs the FSB notes that challenges remain. In particular, the FSB is concerned that the underlying reference transactions are limited for some maturities and that as a result some submissions remain based on various factors, including transactions and judgement of the submitters.
The FSB’s view is that good progress has been made with the second strand of the recommendations relating to the identification of RFRs. Alternative RFRs have been identified or selected in Australia, Brazil, Canada, Hong Kong, Japan, Switzerland, the United Kingdom and the United States and headway has been made in reforming EONIA in the Euro area. The FSB encourages other member jurisdictions, such as Mexico and South Africa, to accelerate their intended measures. Furthermore, the FSB notes that limited advancement has been made towards transitioning the existing benchmarks to the RFRs and that impetus should be maintained to achieve the FSB recommendations.
The FSB will publish a further progress report in 2018.
View the progress report. -
European Securities and Markets Authority Urges Compliance with Legal Entity Identifier for MiFID II Purposes
10/09/2017
The European Securities and Markets Authority has published a briefing on the Legal Entity Identifier for compliance with the revised Markets in Financial Instruments package. MiFID II has applied across the EU since January 3, 2018. The LEI provides a clear and unique identification of legal entities participating in financial instruments. Firms need an LEI to ensure compliance with their reporting obligations under a number of existing EU regulations and directives, including the European Market Infrastructure Regulation, the Market Abuse Regulation and the Securities Financing Transactions Regulation. The purpose of ESMA's briefing is to flag to investment firms, investment firm clients, trading venues, issuers and Approved Reporting Mechanism firms that they will need an LEI to fulfil their obligations under MiFID II. In addition, the use of the LEI is required, or is in the process of being implemented, in other jurisdictions, including the United States, Canada and Asia-Pacific.
View the briefing.TOPIC : MiFID II -
EU Technical Standards Assisting Regulators Gain Access to Derivatives Trade Data Published
10/07/2017
A Commission Delegated Regulation amending the Regulatory Technical Standards on data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data was published in the Official Journal of the European Union. The amending Delegated Regulation revises the original RTS by further specifying the operational standards that trade repositories must have in place to aggregate data so that data can be compared across trade repositories and regulators can have direct and immediate access to the data.
The amending Delegated Regulation enters into force on October 27, 2017, and will apply from November 1, 2017.
View the Amending Delegated Regulation.TOPIC : Derivatives -
Non-Equity Transactions with Certain Non-EU Central Banks Exempt from Trade Transparency Requirements under MiFID II
10/07/2017
A Commission Delegated Regulation exempting compliance with the pre- and post-transparency requirements for non-equity transactions with the Bank for International Settlements and the central banks of 12 third countries has been published in the Official Journal of the European Union. The Market in Financial Instruments Regulation, which applies from January 3, 2018, exempts transactions from the trade transparency rules where a member of the European System of Central Banks is a counterparty to the transaction, provided that the transaction is entered into in the performance of monetary, foreign exchange or financial stability policy and the central bank notifies its counterparty that the exemption applies. The exemption does not apply to transactions entered into by a member of the ESCB in the performance of their investment operations. MiFIR allows the European Commission to extend the exemption to other central banks. The Delegated Regulation provides for the exemption to be extended to the BIS and to central banks in Australia, Brazil, Canada, Hong Kong, India, Japan, Mexico, the Republic of Korea, Singapore, Switzerland, Turkey and the US. The list may be amended in the future to add or remove a central bank. The Delegated Regulation enters into force on October 27, 2017, and will apply from January 3, 2018.
View the Delegated Regulation.TOPIC : MiFID II -
Financial Stability Board Meeting to Discuss Ongoing 2017-2018 Workplan
10/06/2017
The Financial Stability Board has published a press release summarizing the outcome of its plenary meeting in Berlin on October 6, 2017, at which it considered potential vulnerabilities in the financial system and discussed a number of areas from its workplan.
Read more. -
Basel Committee on Banking Supervision Allows Flexibility on NSFR Treatment of Derivative Liabilities
10/06/2017
The Basel Committee on Banking Supervision has announced that it has agreed to allow jurisdictions discretion to lower the Net Stable Funding Ratio's treatment for derivatives liabilities. The discretion will allow jurisdictions to lower the required 20% stable funding factor for derivatives liabilities to a floor of 5%. The NSFR measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. Implementation of the NSFR is expected to begin on January 1, 2018 and this agreement is intended to facilitate implementation. The Committee is considering whether any further revisions to the treatment of derivative liabilities are warranted and will carry out a public consultation on any further proposed changes.
View the announcement. -
UK Prudential Regulation Authority Consults on Changes to its Large Exposures Framework
10/04/2017
The Prudential Regulation Authority has published a consultation on proposed changes and clarifications to requirements relating to intragroup transactions in the Large Exposures (LE) Part of the PRA Rulebook. The PRA is making the proposals following its review of its framework for the prudential treatment of financial groups.
The LE framework complements the capital framework by aiming to protect firms from large losses resulting from the sudden default of a single counterparty or a group of connected counterparties. The consultation proposals aim to simplify the overall intragroup LE framework, improve the consistency of the process of granting intragroup permissions and facilitate the orderly resolution of banking groups.
Under the LE framework, firms can apply to the PRA for intragroup permissions, under which exposures to certain group members (entities within a firm's core UK group (CUG)) are exempt from the LE limit and are also excluded from a firm's leverage ratio. The LE framework also permits a firm to apply to the PRA to increase its total exposures to certain cross-border group entities (known as non-core LE group (NCLEG) entities) from 25% to 100% of its own eligible capital.
Read more. -
UK Prudential Regulation Authority Consults on its Prudential Treatment of Banking Group Risks
10/04/2017
The Prudential Regulation Authority has published a consultation on proposals to amend the Groups policy framework it has in place for the application of prudential standards to firms on an individual and consolidated basis within banking groups. The consultation proposals are being put forward following a review by the PRA of its Groups policy framework to ensure that it remains coherent and fit for purpose in light of post-crisis financial reforms such as ring-fencing and the Basel III reforms.
The PRA proposes to amend relevant Statements of Policy and Supervisory Statements and the Internal Capital Adequacy Assessment part of the PRA rulebook to implement changes that will enable: (i) assessment and mitigation of the risks to group resilience due to the use of "double leverage" (which occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally); (ii) assessment and mitigation of the risks highlighted by prudential requirements applied by local national regulators on overseas subsidiaries of UK consolidation groups; and (iii) improved monitoring of the distribution of financial resources across different group entities. The consultation paper also sets out some further policy proposals to refine the Groups policy framework.
Comments on the proposals are invited by January 4, 2018. The resulting policy will be implemented fully from January 1, 2019. The PRA also requests that, where practical and applicable, firms should aim to incorporate the consultation proposals in their 2018 ICAAP/Individual Liquidity Adequacy Assessment Process (ILAAP) submissions ahead of full implementation.
View the PRA consultation paper on groups policy and double leverage (CP19/17). -
European Central Bank Proposes Prudential Backstops for Non-Performing Loans
10/04/2017
The European Central Bank has published for consultation an Addendum to its Guidance for banks on non-performing loans. The ECB published its final Guidance for banks on NPLs on March 20, 2017. The proposed Addendum sets out the ECB's proposal to supplement its Guidance with quantitative supervisory expectations concerning the minimum levels of prudential provisions expected for new NPLs. The ECB notes that the proposed measures should be regarded as prudential backstops which are intended to prevent the excessive future build-up of non-covered aged NPLs on banks' balance sheets. The ECB is proposing that banks would be expected to provide full coverage for the unsecured portion of new NPLs after two years at the latest and for the secured portion after seven years at the latest.
As with the Guidance, the proposed Addendum would be non-binding but would apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. If a bank did not comply with the Addendum, then it would need to explain its non-compliance. Any non-compliance could lead to supervisory action being taken. The ECB intends the Addendum to become applicable as soon as it is finalized and for the backstops to apply to new NPLs classified as non-performing from January 2018.
The consultation closes on December 8, 2017.
View the ECB's proposed Addendum.
View the ECB's Guidance on NPLs. -
UK Prudential Regulator Publishes Refinements to Pillar 2A Capital Framework
10/03/2017
The UK Prudential Regulation Authority has published a Policy Statement setting out refinements to the Pillar 2A Capital Framework, under which the PRA sets capital requirements for risks that are either not captured or not fully captured under the Capital Requirements Regulation. The PRA consulted on the Pillar 2A refinements in a February 2017 consultation which closed on May 31, 2017. The PRA's proposals will be implemented largely as consulted on, save for minor amendments.
The PRA has made the following changes to the Reporting Pillar 2 Part of the PRA Rulebook:
· adjustments to the PRA’s Pillar 2A approach for firms using the standardised approach (SA) for credit risk;
· revisions to the PRA’s internal ratings-based (IRB) benchmark used for assessing credit risk; and
· additional considerations the PRA will make, as part of the SREP, for SA firms using International Financial Reporting Standard (IFRS) as their accounting framework.
The PRA has also made consequential changes to update:
· its Supervisory Statements "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and "Pillar 2 reporting, including instructions for completing data items FSA071 to FSA082"; and
· its Statement of Policy "The PRA’s methodologies for setting Pillar 2 capital".
The revised Pillar 2A framework, which will affect banks, building societies and PRA-designated investment firms, takes effect from January 1, 2018.
View the Policy Statement (PRA PS22/17). -
Financial Stability Board Consults on Governance Arrangements for the Unique Product Identifier
10/03/2017
The Financial Stability Board has launched a consultation on governance arrangements for the unique product identifier. The development of a UPI was identified in September 2014 by the FSB as a critical element for a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique transaction identifier and the harmonization of other key data elements. The receipt of aggregated derivatives reporting data will enable national regulators to better assess systemic risk and perform other market oversight functions. In the UPI system envisaged, a unique UPI Code would be assigned to each distinct OTC derivative product and map to a set of reference data elements having specific values that together describe the product. The collection of reference data elements and their values for each product would reside in a corresponding UPI Reference Data Library that would be administered by either one UPI Service Provider or one of a number of UPI Service Providers.
The consultation paper outlines the potential governance functions that the FSB anticipates should be performed (such as ongoing UPI generation and oversight of the UPI System) and key criteria the FSB has preliminarily identified to assess UPI governance arrangements. The consultation also sets out considerations for using one or many UPI Service Providers.
Comments on the consultation are invited by November 17, 2017.
Read more.TOPIC : Derivatives -
UK Prudential Regulation Authority and Financial Policy Committee Proceed with Changes to UK Leverage Ratio for Treatment of Claims on Central Banks
10/03/2017
Following positive feedback to a combined consultation issued in June 2017, the Bank of England's Financial Policy Committee and the Prudential Regulation Authority are proceeding with proposed changes to the UK leverage ratio framework. The aim of the proposals (summarized below) was to ensure that the leverage ratio framework does not act as a barrier to the effective implementation of any monetary policy action that leads to an increase in central bank reserves.
In the June 2017 consultation, the FPC consulted on a draft Recommendation to the PRA that the PRA amend its rules on the leverage ratio to: (i) allow firms to exclude from the calculation of the total exposure measure (which serves as the denominator for the leverage ratio) those assets constituting claims on central banks, where they are matched by deposits accepted by the firm that are denominated in the same currency and of identical or longer maturity; and (ii) require a minimum leverage ratio of 3.25%. Central bank claims include reserves held by a firm at a central bank, banknotes and coins constituting legal currency in the jurisdiction of the central bank, and assets representing debt claims on the central bank with a maturity of no longer than three months.
Read more. -
Bank of England Launches Consultation on Setting Internal MREL in Groups
10/02/2017
The Bank of England has published a consultation paper setting out proposed changes to the Statement of Policy it issued in November 2016 on its approach to setting a minimum requirement for own funds and eligible liabilities (MREL). MREL is the requirement for firms to maintain a minimum amount of loss-absorbing resources to ensure that, should the firm fail, the resolution authority can use the firm's own financial resources to absorb losses and recapitalize the business so it can continue to provide critical functions without the need to rely upon public funds. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.
The BoE's 2016 Statement of Policy focused on "external" MREL, i.e. the calibration of the MREL of UK resolution entities. This consultation sets out the BoE's proposals on "internal" MREL, i.e. instruments that are issued to the resolution entity from other legal entities in a group. The consultation paper sets out the scope of internal MREL, how it should be calibrated, which instruments are eligible and the proposed transitional period for the application of the requirements. Internal MREL is intended to cover UK-headquartered banking groups as well as UK subsidiaries of overseas banking groups.
Read more. -
Bank of England to Publish Summary Resolution Plans from 2019
10/02/2017
The Bank of England has published an update to its 2014 approach to resolution. The BoE is the resolution authority responsible for the resolution of financial institutions in the UK. The document describes the key features of the UK resolution regime, how the BoE would be likely to implement a resolution and the BoE's overall responsibilities as the UK's resolution authority. The annexes to the document set out how the BoE is addressing certain barriers to resolvability, such as Loss-absorbing capacity (TLAC and MREL), valuation and the bail-in process and ensuring the continuity of contracts through resolution. The BoE intends to improve transparency on the steps being taken by firms to remove barriers to resolvability by publishing, from 2019, summaries of firms’ resolution plans and its summary assessments of their effectiveness. This approach mirrors the approach taken by the US regulators.
View the BoE's approach to resolution.TOPIC : Recovery & Resolution -
European Central Bank Report on Impact of Distributed Ledger Technologies on the Securities Post-Trade Environment
09/29/2017
The European Central Bank's Advisory Group on Market Infrastructures for Securities and Collateral has published a report on the potential impact of Distributed Ledger Technologies on securities post-trading harmonisation and on the wider EU financial market integration.The wide-ranging Report is divided into three parts. Part I of the Report considers the impact of DLT on accounts and account structures, the issuance of securities and Delivery Versus Payment. Part II of the Report considers the impact of DLT on settlement, collateral management, asset servicing and regulatory and business reporting. The final part of the Report considers cyber-resilience, digital identity in DLT networks, data protection and professional secrecy, interoperability in a DLT environment and the impact of DLT adoption on TARGET2-Securities harmonization activities and on the wider EU financial integration agenda.
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European Securities and Markets Authority Consults on Guidelines for Non-Significant Benchmarks
09/29/2017
The European Securities and Markets Authority has launched a consultation on proposed Guidelines on the obligations applying to the provision of and contribution to non-significant benchmarks under the Benchmarks Regulation. The Benchmarks Regulation requires administrators of all benchmarks to establish a permanent and effective oversight function for the provision of their benchmarks. The proposed Guidelines detail the composition, characteristics, positioning and governance arrangements of the oversight function. The draft Guidelines also detail the governance and control requirements for supervised contributors. The proposed Guidelines would apply to administrators of benchmarks, supervised contributors of benchmarks and to the relevant benchmark national regulators.
The Benchmarks Regulation will apply in full from January 1, 2018. The consultation closes on November 30, 2017. ESMA intends to publish its final Guidelines after the European Commission has published its Delegated Regulations that also relate to these topics.
View the consultation paper. -
First Steps on Proposed Revisions to the EU Prudential Framework for Investment Firms
09/29/2017
The European Banking Authority has published an Opinion on the design of a new EU prudential framework for non-bank, non-systemically important investment firms. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate and for which a separate prudential regime should be established. The Commission issued a second CfA in June 2016 asking for: (i) advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them; and (ii) advice on the new prudential regime for investment firms that should not be subject to CRD IV. The EBA published an Opinion on point (i) on October 19, 2016 concluding that investment firms that have been identified, according to the current EU regulatory framework contained in the relevant technical standards and EBA Guidelines, as global systemically important institutions (G-SIIs) or other systemically important institutions (O-SIIs) should be subject to the full requirements of CRD IV although these criteria might need to be revised through technical standards to take into account the specificities of investment firms. This latest Opinion is in response to the second part of the Cfa and follows the EBA's November 2016 Discussion Paper on its proposals.
Read more. -
European Securities and Markets Authority Finalizes Guidelines for Management of Exchanges and Data Reporting Service Providers
09/28/2017
The European Securities and Markets Authority has published final Guidelines on the requirements for the management body of market operators and Data Reporting Services Providers. The revised Markets in Financial Instruments Directive requires all members of the management body of any market operator to be of sufficiently good repute, possess sufficient knowledge, skills and experience to perform their duties, to commit sufficient time to perform their functions and to act with honesty, integrity and independence of mind. Market operators must also promote diversity and allocate adequate human and financial resources to the induction and training of the management body. Similar requirements are placed on the management body of DRSPs, but DRSPs are not required to promote diversity and allocate adequate human and financial resources to the induction and training of the management body.
Read more.TOPIC : MiFID II -
Global Standard Setter Consults on Strategy to Address Wholesale Payments Fraud
09/28/2017
The Committee on Payments and Market Infrastructures is consulting on a possible strategy to improve the security of wholesale payments involving banks, financial market infrastructures and other financial institutions. The CPMI is a global standard setter, mandated to promote the safety and efficiency of payment, clearing, settlement and related arrangements. It formed a task force in 2016, to look into the evolving threat and increasing sophistication of wholesale payments fraud. The CPMI taskforce undertook a stocktake of current practices. The resulting discussion note highlights for consultation seven elements relating to preventing, detecting, responding to and communicating about wholesale payments fraud.
Stakeholders are invited to provide input on the proposed strategy by November 28, 2017. Consultation responses will contribute to guidance on the seven elements, which the CPMI aims to develop by early 2018.
View the CPMI Discussion Note. -
EU Final Draft Technical Standards on the Trading Obligation for Derivatives Published
09/28/2017
The European Securities and Markets Authority has published a final Report and final draft Regulatory Technical Standards on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading or traded on at least one EU trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. The trading obligation will apply to financial counterparties and to non-financial counterparties. Where ESMA determines that a class of derivatives should be subject to the MiFIR trading obligation, third country trading venues would only be permissible for trading by EU entities when determined to be equivalent by the European Commission.
The final draft RTS on the trading obligation provide for the trading obligation to apply to fixed-to-float interest rate swaps denominated in euros, US dollars and pound sterling and to index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover). The trading obligation for both IRS and CDS will apply from January 3, 2018, unless the clearing obligation for a particular class of derivatives has not yet entered into force.
Read more. -
EU Plan for Waiver and Position Limits to be in Place by January 3, 2018
09/28/2017
The European Securities and Markets Authority has made a public statement on the joint work plan of ESMA and national regulators for opinions on pre-trade transparency waivers and position limits under the revised Markets in Financial Instruments package. MiFID II will apply from January 3, 2018.
MiFID II introduces a new position limit regime for commodity derivatives. National regulators will be required to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits will apply to the size of a position that a person can hold. Position limits set by a national regulator must be confirmed in an opinion issued by ESMA.
The pre-trade transparency obligations require market operators and investment firms operating a trading venue to make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for equity and non-equity financial instruments.
Read more.TOPIC : MiFID II -
UK Prudential Regulation Authority Final Supervisory Statement on Waiving Disclosure Requirements
09/27/2017
Following its consultation earlier this year, the Prudential Regulation Authority has published a final Supervisory Statement on compliance with the European Banking Authority's Guidelines on disclosure.
The EBA published final Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation on December 14, 2016. The EBA's Guidelines aim to ensure harmonized implementation of the Basel III Pillar 3 requirements that were released in January 2015. The Guidelines introduce specific guidance and formats for Pillar 3 disclosures, including tables and templates. The Guidelines apply to Globally and Other Systemically Important Institutions. However, national regulators are able to require other firms to apply the Guidelines when complying with their Pillar 3 disclosure obligations under CRR.
Read more. -
EU to Establish Industry Working Group on Euro Risk-Free Rates
09/21/2017
The European Commission, the European Central Bank, the European Securities and Markets Authority and the Belgian Financial Services and Markets Authority have announced that a new working group will be established which will be tasked with identifying and recommending alternatives to the benchmark rates currently used in the EU – the EURIBOR and EONIA. The working group, in consultation with market participants, will recommend an alternative risk-free reference rate and develop plans to transition from the existing benchmarks to the new RFR.
The European Central Bank also announced that it will start providing an overnight unsecured index before 2020 to provide further options for the choice of alternative rates for the euro area.
View the joint press release.
View the ECB’s press release. -
UK Competition and Markets Authority Highlights Potential Issues in Investment Consultancy and Fiduciary Management
09/21/2017
Following a market investigation reference from the Financial Conduct Authority, the Competition and Markets Authority has published the issues statement for the market investigation it is carrying out into the supply of investment consultancy services and fiduciary management services to, or the acquisition of such services by, institutional investors and employers.
The CMA's issues statement sets out its general approach to the market investigation and outlines potential issues and possible remedies that might be put in place if competition issues are found. In particular, the CMA focuses on: (i) whether difficulties in customers' ability to assess, compare and switch investment consultants means that investment consultants have little incentive to compete for customers; (ii) whether conflicts of interest on the part of investment consultants reduce the quality and/or value for money of services provided to customers; and (iii) whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive , which could lead to worse outcomes for customers.
The CMA is requesting feedback on the issues statement by October 12, 2017.
View the Statement of Issues.
View the CMA Case Page.
View the CMA Press Release.TOPIC : Competition -
European Commission Legislative Proposals for Enhanced Powers for European Supervisory Authorities and the European Systemic Risk Board09/20/2017
The European Commission has published legislative proposals designed to strengthen and further integrate the supervisory framework of the European Union. The proposals build on contributions to the Commission's public consultation in autumn 2016 on the European Systemic Risk Board and its public consultation in spring 2017 on the European Supervisory Authorities – the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.
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UK Regulators Remind Firms of New Change in Control Guidelines
09/20/2017
The Financial Conduct Authority has published a statement reminding firms that the Guidelines of the Joint Committee of the European Supervisory Authorities on the prudential assessment of acquisitions and increases of qualifying holdings will apply with effect from October 1, 2017. The Prudential Regulation Authority has provided a similar statement by way of notification on its website.
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European Banking Authority Consults on Significant Risk Transfer in Securitization
09/19/2017
The European Banking Authority has published a Discussion Paper on significant risk transfer in securitization, seeking views on proposals to strengthen the regulatory and supervisory framework of significant risk transfer. The EBA's proposals are based on the newly agreed European securitization framework, comprising the Securitization Regulation and amendments to the Capital Requirements Regulation, which is due to come into effect in 2018. The Securitization Regulation includes new requirements on risk retention, due diligence, transparency and a new regime for simple, transparent and standardized securitizations (known as STS securitizations). STS securitizations will provide preferential regulatory capital treatment for investors, in particular, for bank investors through the related CRR amendments.
The EBA is proposing to strengthen the supervisory treatment of structural features used in securitizations that may impede the ability of originators to meet the SRT requirements on a continuous basis. The structural features are those that are not covered in the EBA's 2014 Guidelines on SRT for securitization - amortization structure, call options, excess spread and synthetic securitization. The EBA proposes a set of safeguards for each structural feature and a requirement that originators submit a risk transfer self-assessment to the national regulator when submitting their SRT notification.
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Financial Conduct Authority Outlines Methods for Firms to Comply With MiFID II Transaction Reporting Obligations
09/18/2017
The Financial Conduct Authority has devoted the September 2017 issue of its Market Watch newsletter to a discussion of aspects of FCA reporting functionality and the means by which firms can meet their reporting obligations under MiFID II from January 3, 2018. Market Watch issue 53 provides details of: (i) the requirement for firms subject to MiFID II transaction reporting obligations (and their eligible clients) to have a Legal Entity Identifier and what firms need to do to obtain one; (ii) how firms can apply to become a submitting entity to make submissions of market data via the FCA's Market Data Processor; (iii) the requirements external users will need to meet to be able to request extracts of transaction reports from the FCA via the MDP entity portal, which goes live on January 3, 2018; (iv) the ways in which operators of trading venues and investment firms can fulfill their market data reporting obligations by using outsourcing arrangements with third parties; and (v) clarification that Systematic Internalisers must submit instrument reference data to the FCA for financial instruments where the underlying instrument is a financial instrument traded on a trading venue, or an index or a basket composed of financial instruments traded on a trading venue.
TOPIC : MiFID II -
UK Financial Conduct Authority Issues Urgent Reminder on Applications for Authorization or Variation of Permission in Readiness for MiFID II
09/18/2017
The Financial Conduct Authority has issued a press release informing firms that applications to the regulator for authorization or variation of permission in time for MiFID II implementation are now urgent. The FCA has previously issued statements warning that firms requiring either new authorization or a variation to existing permissions needed to submit applications to the FCA by July 3, 2017, and that any submissions made after that date ran the risk that the FCA would not be able to determine the application in time for January 3, 2018.
The FCA considers that it has made good progress. However, any firms that have not yet submitted applications, or that have been contacted by the FCA for more information on a submitted application, must act without delay. Firms that have not yet submitted complete applications for new permissions must now also include contingency plans to allow for the possibility that permissions may not be in place by January 3, 2018.
The press release also highlights that some proprietary traders which are not currently authorized may need authorization under MiFID II, for example, proprietary traders that access trading venues by means of direct electronic access (DEA) provided by a regulated firm or which engage in algorithmic trading. Firms that provide DEA have a duty under MiFID II to carry out due diligence on their prospective DEA clients and the FCA suggests that these firms work closely with their clients to ensure they are aware of the potential need to be authorized.
View the Press Release.
View Client Briefing: Deadline Looms for Regulated Firms to Vary Their Permissions to Comply With MiFID II.
TOPIC : MiFID II -
International Swaps and Derivatives Association Publishes Recommendations for a CCP Recovery and Resolution Framework
09/18/2017
The International Swaps and Derivatives Association has published a paper outlining recommendations for a CCP Recovery and Resolution Framework.
The ISDA's paper focuses on CCPs that clear derivatives, although many of its recommendations will be relevant to clearing houses that clear other instruments. It is intended to build on the guidance from CPMI-IOSCO and the FSB. The paper sets out certain key points for CCPs, their supervisors, resolution authorities and other policy makers to consider when implementing CCP recovery and resolution mechanisms.
In brief, the ISDA's recommendations cover: (i) the level of transparency that should be afforded to clearing participants about the expected recovery and resolution strategies for a CCP, so that participants can manage and control their potential exposure; (ii) the timing of the resolution regime and the necessary flexibility that should be incorporated into the regime to allow for further recovery measures; (iii) the allocation of losses after a clearing member default, including by making cash calls and the application of variation margin gains haircutting (initial margin haircutting is not supported by the paper however); (iv) tools to rebalance a CCP's book, including the use of partial tear-ups as a last resort, but excluding forced allocation of positions to non-defaulting clearing members; (v) claims for clearing participants that suffer losses beyond a certain point in CCP recovery or resolution; (vi) the allocation of non-default losses; and (vii) ensuring adequate liquidity from central banks on standard market terms.
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UK Financial Conduct Authority Makes Market Investigation Reference for Investment Consultancy and Fiduciary Management Services
09/14/2017
The Financial Conduct Authority has made a market investigation reference to the Competition and Markets Authority in relation to investment consultancy and fiduciary management services. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.
Read more.TOPIC : Competition -
European Banking Authority Publishes Guidelines on Assessment of ICT Risk Under the Supervisory Review and Evaluation Process (SREP)
09/11/2017
The European Banking Authority has published Guidelines for national regulators aimed at ensuring the convergence of supervisory practices in the assessment of the information and communication technology (ICT) risk under the supervisory review and evaluation process (SREP).
Read more.
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European Commission Considers it Unnecessary to Exclude Exchange-Traded Derivatives From the Open Access Provisions of MiFIR
09/11/2017
The European Commission has published a Report to the European Parliament and the Council recommending that Exchange-Traded Derivatives (ETDs) do not need to be excluded from the scope of the provisions of the Markets in Financial Instruments Regulation that provide for open and non-discriminatory access to CCPs and to trading venues.
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European Banking Authority Finalizes Technical Standards on MREL Reporting by Resolution Authorities
09/05/2017
The European Banking Authority has published final draft Implementing Technical Standards setting out the common templates to be used and the procedures to be followed by resolution authorities when reporting to the EBA the minimum requirement for own funds and eligible liabilities (MREL) that has been set for each financial institution in their jurisdiction. The MREL requirement is the EU equivalent, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board. The TLAC standard is the minimum amount of loss-absorbing capital an institution needs to hold so that bail-in tools can be deployed successfully on a resolution.
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Basel Committee on Banking Supervision Consults on Implications of Fintech Developments for Banks and Bank Supervisors
08/31/2017
The Basel Committee on Banking Supervision has issued a consultative document on the implications of fintech for the financial sector. The consultation document assesses how technology-driven innovation in financial services, or "fintech", may affect the banking industry, banks' business models and the activities of supervisors in the near to medium term.
The Basel Committee has identified 10 observations and recommendations on supervisory issues for consideration by banks and their supervisors, which focus on risk management and the approaches that could be adopted to address the risks. The consultation considers various future potential scenarios - in addition to the banking industry scenarios, three case studies focus on technology developments (big data, distributed ledger technology and cloud computing) and three on fintech business models (innovative payment services, lending platforms and neo-banks). Responses to the consultation are requested by October 31, 2017.
View the consultation paper.TOPIC : FinTech -
European Securities and Markets Authority Issues Final Guidelines for the Transfer of Data Between Trade Repositories
08/24/2017
The European Securities and Markets Authority has published final Guidelines governing the transfer of data between trade repositories (TRs) registered or recognised by ESMA.
The Guidelines cover: (i) the reporting without duplication of derivative contract data by counterparties and CCPs; (ii) transfer of derivatives data between trade repositories at the request of the counterparties to a derivative, or the entity reporting on their behalf; (iii) transfer of data from a TR whose registration has been withdrawn; and (iv) the requirements on TRs to promptly record information received and maintain information for at least ten years following termination of the relevant contracts.
Read more.TOPIC : Derivatives -
European Commission Launches Consultation on Further Reducing Barriers to Post-Trade Services
08/23/2017
The European Commission has launched a consultation seeking views about the current state of post-trade markets, the main trends and challenges faced by post-trade services providers and their users, the existence and scale of remaining or new barriers to post-trade services used in financial transactions, the risks associated with such barriers and the best ways to address them.
Alongside the consultation, the Commission has published the report of the European Post-Trade Forum (EPTF), an expert group established by the Commission in early 2016 to assess the evolution of the EU post-trade landscape and the progress made in removing the "Giovannini barriers" to post-trade services. The EPTF report identifies those Giovannini barriers that have been successfully addressed since 2001 but cites further barriers that have arisen due to technological and market developments in the intervening fifteen years, in particular developments in derivatives markets, securities finance activities, collateral management and post-trade reporting.
The Commission consultation seeks stakeholders' views on a wide ranging set of questions, including: the relative importance of trends in post-trade in the EU; technological advances (such as distributed ledger technology and other FinTech developments); financial stability concerns arising from the susceptibility of post-trade areas to systemic risk; the means by which EU post-trade markets could become more attractive internationally; the near and longer term strategy for EU post-trade services and the challenges the markets are likely to face.
Read more.TOPIC : Financial Services -
Bank of England Consults on Policy Proposals for the Valuation Capabilities of Firms to Support Resolvability
08/17/2017
The Bank of England has published a consultation setting out policy proposals on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. In the BoE's view, limitations to a firm's valuation capabilities may constitute an impediment to resolvability where those limitations would not reliably enable valuations that support the firm's intended resolution strategy.
The consultation paper sets out the BoE's thinking around how minimum requirements for valuation capabilities would be applied and outlines the rationale behind its "timeliness" and "robustness" policy objectives. The consultation paper provides detail on proposed principles that firms would be expected to meet and summarises the rationale underlying each principle. The principles cover: (i) data and information; (ii) valuation models; (iii) valuation methodologies; (iv) valuation assumptions; (v) governance; (vi) transparency; and (vii) assurance.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Discussion Paper on its Approach to Financial Technology
08/04/2017
The European Banking Authority has published a discussion paper seeking views on its assessment of areas in which it could conduct further work in the innovative field of financial technology. The discussion paper considers the work on FinTech already carried out in the EU and internationally. In the EU, this includes work by the European Supervisory Authorities and the European Commission and Parliament and at SSM level the work of the European Central Bank in developing policy on the assessment of licensing applications for FinTech credit institutions. Internationally, work has been carried out by both the FSB and the Basel Committee on Banking Supervision in order to assess the developments, risks, opportunities and challenges of FinTech.
The discussion paper outlines the work carried out by the EBA in relation to FinTech, including the preliminary findings of a mapping exercise it carried out in May 2017 to gain a better insight into the financial services offered, and innovations applied, by FinTech firms in the EU, and their regulatory treatment.Based on the results of the mapping exercise, the EBA identifies a number of areas that merit further analysis.
Read more.TOPIC : FinTech -
UK Government Publishes its Response to Public Consultation on the UK's Future Sanctions Framework
08/02/2017
The UK Government has published its response to its April 2017 public consultation which sought views on the legal measures that would be needed in order to continue to be able to impose and implement sanctions following the UK's withdrawal from the European Union. Due to the fact that many of the current sanctions regimes are established via powers in the European Communities Act 1972, the UK will need new legal powers to replace these once that Act is repealed and the April 2017 consultation set out proposals for a new sanctions framework to address this need. The Government intends to introduce a Sanctions Bill during the current Parliamentary session which will ensure that the UK has the necessary legal powers to implement sanctions after the UK's exit from the EU. The Bill will also give the UK greater flexibility in choosing when and how to introduce new measures. The Government proposes that the Bill will create new powers to impose, implement and enforce sanctions regimes, drawing on the current EU model. Additionally, new asset-freezing provisions will make it easier to stop suspected terrorists from accessing their money. Flexibility will be provided by introducing an annual review of regimes to ensure that they remain appropriate and by provisions that will enable the government to issue exemptions when needed, for example in delivering humanitarian aid in regions affected by sanctions. The Bill will also provide a framework for individuals and organisations to challenge any sanctions imposed on them.
View Government's Press Release.
View Government Response to Consultation. -
UK Financial Conduct Authority Consults on Allowing 31-90 Day Unbreakable Deposits for Holding Client Money
08/01/2017
The Financial Conduct Authority has launched a consultation on changes to its client money rules (CASS 7) to amend the existing 30-Day Rule under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The FCA introduced the 30-Day Rule in July 2014 to restrict the practice of some firms of depositing client money in unbreakable deposits for periods of up to years. The placing of client money in lengthy unbreakable terms attracts the risk of diminution if a firm is unable to withdraw that money in response to market events and the risk that client money may not be available for distribution in the case of a firm insolvency. Therefore, the FCA was (and remains) of the view that placing client money in unbreakable deposits for long periods is incompatible with the purpose of the client money regime. However, it is now proposing to allow the use of 31-90 day unbreakable deposits following feedback from firms about an increasing reluctance of banks to provide 30-day unbreakable deposits.
The reduced appetite from banks appears to have arisen due to the interaction between the 30-Day rule and the liquidity requirements of the prudential regime. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient.
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European Banking Authority Finalizes Guidelines on Major Incident Reporting by Payment Service Providers
07/27/2017
The European Banking Authority has published a final report and final Guidelines on major incident reporting under the revised Payment Services Directive. PSD2 requires payment services providers to establish and maintain effective incident management procedures for, among other things, detecting and classifying major operational or security incidents. PSPs are required to notify their home state regulator if a major incident occurs.
The Guidelines apply to EU PSPs and to national EU regulators of EU PSPs and cover internal and external events that are malicious or accidental. The Guidelines also cover incidents that originate outside of the EU, but that affect the payment services provided by an EU PSP directly or indirectly. The Guidelines will apply across the EU from January 13, 2018.
The Guidelines set out the criteria that PSPs should use to classify an operational or security incident as "major" and the format for a PSP to notify its regulator of any major incident. The Guidelines also set out how national regulators should assess the relevance of the incident and the details that should be shared with other domestic authorities.
View the final report and Guidelines on major incident reporting under PSD2.TOPIC : Payment Services -
Financial Conduct Authority Finalizes Amendments to Client Money Distribution Rules Following a Firm Failure
07/27/2017
The Financial Conduct Authority has published a Policy Statement and final rules following its January 2017 consultation on proposed changes to the client money distribution rules (CASS 7A) affecting the return of client assets following a firm's failure or other pooling events. The rule changes, which come into effect on July 26, 2017, are designed to speed up the distribution of client assets, improve consumer outcomes and reduce the market impact of an investment firm failure. Following consultation feedback, the FCA is introducing the majority of the proposed changes in the form consulted on. However, minor changes have been made to the proposals on post-transfer client notifications (a 14-day deadline will be introduced rather than the 7-day deadline originally proposed) and on the proposed guidance on reconciliations that follow a primary pooling event. The FCA also provided new guidance concerning the need for firms to designate as client transaction accounts those accounts which the CCP makes available as customer accounts for such purposes. The FCA will not be proceeding with its original proposal to require firms to provide annotated samples of their client statements.
View the FCA Policy Statement (PS 17/18). -
Financial Conduct Authority Consults on Extending Senior Managers & Certification Regime to All FCA Regulated Firms and Both UK Regulators Consult on its Extension to Insurers
07/27/2017
The Financial Conduct Authority has published a consultation paper on its proposed rule changes to implement the extension of the Senior Managers& Certification Regime (SM&CR) to all firms that are authorized under the Financial Services and Markets Act 2000 and solo-regulated by the FCA. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime, which will be replaced when the extended application of SM&CR takes effect.
Given that the extension of SM&CR will capture a very wide range of firms, the FCA has tailored the principles and tools used for the banking regime to fit the different risks, impact and complexity of the firms that will be affected by the extended SM&CR. The rules proposed by the FCA comprise (i) a "core regime" consisting of a standard set of requirements that will apply to all FCA solo-regulated firms; (ii) an "enhanced regime" which will apply extra requirements to the very small number of solo-regulated firms whose size, complexity and potential impact on consumers warrant more attention; and (iii) a reduced set of requirements which will apply to firms the FCA has categorized as "limited scope" firms.
Read more. -
Prudential Regulation Authority Consults on Relationship Between MREL and Buffer Requirements
07/27/2017
The Prudential Regulation Authority has launched a consultation on an update to its November 2016 Supervisory Statement, "The minimum requirement for own funds and eligible liabilities (MREL) - buffers and Threshold Conditions". The Supervisory Statement (SS 16/16) set out the PRA';s expectations on the relationship between the minimum requirement for own funds and eligible liabilities (MREL) and both capital and leverage ratio buffers, as well as the implications that a breach of MREL would have for the PRA's consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions. The Supervisory Statement states that the PRA expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the buffer requirements.
Since its publication of the Supervisory Statement in November 2016, the PRA has been asked about the approach to be taken in the situation where MREL is calibrated on the basis of one capital regime (e.g. leverage, in circumstances where the leverage requirement is larger than the risk-weighted requirement), but the largest requirement for buffers derives from the other regime (e.g. risk-weighted capital). The PRA is consulting on revisions to SS 16/16 to clarify that the expectations set in SS16/16 are not intended to create a different buffer requirement from that which is usable in the going-concern regime.
The PRA invites responses to the consultation by September 29, 2017. The PRA aims to publish a revised supervisory statement by the end of 2017.
View the PRA's consultation paper. -
US Commodity Futures Trading Commission Staff Extends Time-Limited No-Action Relief on the Applicability of Transaction-Level Requirements in Certain Cross-Border Situations
07/25/2017
The U.S. Commodity Futures Trading Commission’s (CFTC) Divisions of Swap Dealer and Intermediary Oversight (DSIO), Clearing and Risk, and Market Oversight issued a time-limited no-action letter providing relief to certain CFTC-registered swap dealers (SDs) that operate outside of the United States (Non-U.S. SDs) from specific transaction-level requirements pursuant to the Commodity Exchange Act.
The letter sets forth certain limitations and the relief is subject to the effective date of CFTC action determining which transaction-level requirements are applicable to certain swaps between non-U.S. SDs and their U.S. counterparts. This relief comes as a result of compliance issues raised by a DSIO-issued advisory on November 14, 2013 regarding applicability of the CFTC’s transaction-level requirements in certain circumstances.
View CFTC Staff Letter 17-36.TOPIC : Derivatives -
UK Regulator Secures £350,000 Confiscation Order Against Convicted Insider Dealer
07/24/2017
The Financial Conduct Authority has secured a £350,000 confiscation order against Damian Clarke, a former Schroders employee who was convicted of nine counts of insider dealing in June 2016. Over a nine year period between October 2003 and November 2012, Mr Clarke had received inside information relating to significant corporate events such as M&A announcements while employed as an assistant fund manager and later as an equities trader. Mr Clarke used this inside information to place trades using accounts in his own name and in the names of family members.
View FCA Press Release.TOPIC : Enforcement -
Financial Conduct Authority Sets Out Terms of Reference for Investment Platform Market Study
07/17/2017
Following on from the final report of its Asset Management Market Study in June 2017, which highlighted potential competition issues in the investment platforms sector, the Financial Conduct Authority has published the terms of reference for its investment platform market study. The market study will involve a number of different areas in order that the FCA can ascertain whether competition between platforms is working in the interests of consumers. The FCA intends to look into competition in the sector by exploring the following areas: barriers to entry and expansion; business models; platform profitability; the impact of financial advisers; and consumer preferences and behaviour. Noting the increasing vertical integration in the sector, the FCA will also consider commercial relationships between platforms, asset managers, discretionary investment managers and financial advisers given the potential of these relationships to distort competition. The market study will include all firms offering retail investment products through online portals. It will also include product and wrapper providers that use platforms to distribute their products, fund rating and data providers and the technology providers to whom platforms outsource services.
Comments on the terms of reference are invited by September 8, 2017. The FCA expects to publish an interim report in Summer 2018.
View the Terms of Reference.TOPIC : Competition -
European Securities and Markets Authority Publishes Procedure for Reporting of Circuit Breakers and Trading Halts by National Regulators
07/17/2017
The European Securities and Markets Authority has published a document formalizing a common standard and procedure for national regulators to follow when reporting to ESMA the details of the circuit breakers and trading halts used by the trading venues in their jurisdiction. This will assist national regulators with their MiFID II obligations to report to ESMA the details provided to them by trading venues operating in their territory. The common standard and procedure is designed to ensure consistency and comparability of reported parameters.
View the Procedure and Template.TOPIC : MiFID II -
European Banking Authority Issues Final Draft Regulatory and Implementing Technical Standards on Applications for Authorization of Credit Institutions
07/14/2017
The European Banking Authority has published its final draft Regulatory Technical Standards setting out a comprehensive list of the information that must be provided to national regulators by firms applying for authorization as a credit institution under the Capital Requirements Directive. The final draft RTS are accompanied by final draft Implementing Technical Standards which set out the various procedures and requirements for making applications, along with a template to be used and guidance on how national regulators should deal with incomplete applications. The next step is for the European Commission to consider the draft RTS and ITS with a view to making a decision whether to endorse them via delegated legislation. In an accompanying press release, the EBA urges the Commission to consider adopting the RTS and ITS at the earliest opportunity to enable processing of applications from entities seeking to relocate to continental Europe in the context of the UK's withdrawal from the European Union.
View the EBA Final Report.
View the Press Release. -
UK Prudential Regulation Authority Publishes Second Consultation on Pillar 2 Liquidity
07/13/2017
The UK Prudential Regulation Authority has published a consultation setting out its proposals on a cashflow mismatch risk (CFMR) framework and other methodologies it will use to assess firms' liquidity risk under the Pillar 2 liquidity framework. CFMR is the risk that a firm has insufficient liquidity from liquid assets and other liquidity inflows to cover liquidity outflows on a daily basis.
The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework complements the Pillar 1 Liquidity Coverage Ratio requirements by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. The PRA has previously set out, in a consultation in May 2016, a non-exhaustive list of Pillar 2 risks. This consultation builds on the proposals in, and feedback received on, the May 2016 consultation and proposes updates to the Supervisory Statements "The PRA's approach to supervising liquidity and funding risks" and "Guidelines for completing regulatory returns".
Read more. -
Great Repeal Bill Introduced to UK Parliament
07/13/2017
The draft legislation for the exit of the UK from the European Union has been introduced to the House of Commons. The European Union (Withdrawal) Bill 2017-2019, which has previously been referred to as the Great Repeal Bill and also as the Repeal Bill, is a legislative measure which performs four main functions. It will: (i) end the supremacy of EU law in UK law by repealing the European Communities Act 1972; (ii) convert EU law as it stands at the moment of exit into domestic law before the UK leaves the EU; (iii) create powers to make secondary legislation, including temporary powers to enable corrections to be made to the laws that would otherwise no longer operate appropriately once the UK has left the EU and to implement the withdrawal agreement under Article 50 of the Treaty on European Union; and (iv) maintain the current scope of devolved decision making powers in areas currently governed by EU law. The Bill must pass through both Houses of Parliament before it can receive Royal Assent.
View the European Union (Withdrawal) Bill 2017-2019.
View the Explanatory Notes to the Bill.
View webpage for the Bill.
View the Shearman & Sterling Client Briefing.TOPIC : Brexit for Financial Services -
European Securities and Markets Authority Issues Sector-specific Principles on Relocations from the UK to EU27 in the Context of the UK's Exit from the EU
07/13/2017
The European Securities and Markets Authority has published three Opinions setting out sector-specific principles for Brexit-related relocations in the sectors of investment management, investment firms and for secondary markets. These sector-specific Opinions build on a cross-sector Opinion published in May 2017. The principles do not set out any new legal requirements, but they are intended to serve as practical tools to support supervisory convergence among national regulators in EU27 countries when approached by UK market participants seeking to relocate in the content of the UK's exit from the EU. The Opinions have been published in the wake of reports that some member state regulators have been marketing their jurisdictions as locations for business and it has been thought that some regulators may have been offering a lighter-touch form of regulatory and especially "presence" standards than others.
The Opinions, which assume (without prejudice to ongoing negotiations) that the UK will become a third country on exit from the EU, highlight particular issues national regulators in EU27 should consider when considering applications from relocating market participants. Factors for close consideration include governance structure and internal control, the impact and influence of group membership, the nature and extent of proposed outsourcing arrangements and the need to mitigate the risk of letter-box entities. ESMA also recommends that national regulators consider co-operation arrangements with third country regulators where appropriate.
View Opinion on Investment Firms.
View Opinion on Investment Management.
View Opinion on Secondary Markets. -
European Securities and Markets Authority Consults on Guidelines on Certain Aspects of MiFID II Suitability Requirements
07/13/2017
The European Securities and Markets Authority has published for consultation draft Guidelines to enhance clarity and foster convergence in the implementation of certain aspects of the MiFID II suitability requirements. Whilst the requirements for firms offering financial advice or portfolio management to assess the suitability of products for their clients are not new, MiFID II's provisions enhance and strengthen the MiFID I requirements. ESMA has therefore built on the suitability Guidelines it issued in 2012, with clarifications, refinements and updates where necessary to reflect the MiFID II provisions. Annex IV to the consultation paper contains a correlation table between the proposed draft Guidelines and the corresponding 2012 Guidelines. The proposed draft Guidelines also take into account the results of supervisory activities conducted by national regulators on the application of suitability requirements as well as the technological evolution of the advisory markets (for example automated advice) and recent studies on behavioural finance.
ESMA invites comments on the draft Guidelines by October 13, 2017. It expects to publish a final report and final Guidelines in Q1/Q2 2018.
View the consultation paper.TOPIC : MiFID II -
UK Prudential Regulation Authority Proposes Adjustments to Pillar 2A Capital Framework
07/12/2017
The Prudential Regulation Authority is consulting on proposals to change its Supervisory Statement "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and its Statement of Policy "The PRA's methodologies for setting Pillar 2 capital". The PRA's proposals are intended to bring greater clarity, consistency and transparency to the PRA's capital-setting approach and to promote a greater level of transparency and disclosure.
Read more. -
US Commodity Futures Trading Commission Division of Market Oversight Announces Review of Swaps Reporting Regulations
07/10/2017
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (Division) announced the launch of an in-depth review of the swap data reporting regulations found in Parts 43, 45, and 49 of the CFTC’s regulations. In addition, the Division has opened a 40-day comment period to receive input on this effort from all entities involved in reporting swaps, which must be received by August 21, 2017.
Read more.TOPIC : Derivatives -
US Commodity Futures Trading Commission Acting Chairman J. Christopher Giancarlo Appoints Daniel Gorfine as LabCFTC Director and Chief Innovation Officer
07/10/2017
U.S. Commodity Futures Trading Commission Acting Chairman J. Christopher Giancarlo appointed Daniel Gorfine to serve as Director of LabCFTC and Chief Innovation Officer, effective immediately. Gorfine will be responsible for coordinating with international regulatory bodies, other US regulators, and Congress to determine best practices in implementing digital and agile regulatory frameworks for the CFTC.
Read more.TOPIC : Derivatives -
Final Standards on Aggregation and Publication of Derivatives Data by Trade Repositories
07/10/2017
The European Securities and Markets Authority has published proposed amendments to its Regulatory Technical Standards under the European Markets Infrastructure Regulation, following a public consultation between December 2016 and February 2017. ESMA provided final draft RTS to the European Commission in 2012 specifying the frequency and the details of the information to be made available by Trade Repositories to the relevant authorities and the information to be published by TRs. The RTS also specified the operational standards required to aggregate and compare data across TRs and for the relevant authorities to have access to information as necessary.
Read more. -
European Securities and Markets Authority Consults on Guidelines on Internalised Settlement Reporting Under the Central Securities Depositaries Regulation
07/10/2017
The European Securities Markets Authority has published a consultation on proposed guidelines to ensure common, uniform and consistent application of the provisions of the Central Securities Depositaries Regulation that apply to internalized settlement reporting and to the exchange of information between ESMA and national regulators.
Read more. -
G20 Leaders Outline Action Plan Following Hamburg Summit
07/08/2017
The G20 Leaders met in Hamburg, Germany on July 7-8, 2017 and have published a Leaders' Declaration and an Action Plan setting out the G20's strategy for achieving strong, sustainable, balanced and inclusive growth. The Action Plan includes ongoing and planned work on financial sector regulation and development.
Read more. -
European Securities and Markets Authority Consults on Technical Advice on the Short Selling Regulation
07/07/2017
The European Securities and Markets Authority has published a consultation paper seeking views on aspects of its January 2017 mandate from the European Commission. The Commission mandate requests ESMA's technical advice on elements of the Short Selling Regulation that relate to market making, short-term bans on short selling and the transparency, reporting and disclosure requirements around net short positions.
Read more.TOPIC : Securities -
US Commodity Futures Trading Commission Grants SEF and DCO Registration to LedgerX LLC
07/06/2017The U.S. Commodity Futures Trading Commission issued an Order of Registration to LedgerX LLC (LedgerX) granting their request to register as a Swap Execution Facility (SEF). As a result, LedgerX becomes the 25th SEF registered with the CFTC. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized the creation of SEFs, which are under the CFTC’s jurisdiction and function as platforms for the trading of swaps.
Read more.TOPIC : Derivatives -
European Securities and Markets Authority Consults on Draft Technical Advice under the Prospectus Regulation
07/06/2017
The European Securities and Markets Authority has launched three consultations, setting out its draft technical advice to supplement the provisions of the Prospectus Regulation with delegated legislation to facilitate and reduce the costs of capital raising and to make prospectuses more accessible for investors. The Prospectus Regulation enters into force on July 20, 2017 and will take effect directly across the EU partly on July 20, 2017, partly on July 21, 2018 and the remainder of its provisions take effect on July 21, 2019. The Prospectus Regulation will repeal and replace the existing Prospectus Directive and its supplemental Regulation on the form and content of a prospectus. ESMA is consulting under its mandate from the European Commission, which requested technical advice on possible delegated acts on the format and content of the prospectus, the content, format and sequence of the EU Growth Prospectus and scrutiny and approval of the prospectus.
Read more.TOPIC : Securities -
Final EU Standards on Cooperation between National Regulators and the European Securities and Markets Authority on Market Abuse Matters
06/30/2017
Implementing Technical Standards on the procedures and forms for national regulators exchanging information with the European Securities and Markets Authority under the Market Abuse Regulation have been published in the Official Journal of the European Union. MAR, which entered into force on July 3, 2016, requires EU national regulators to submit information annually to ESMA on sanctions, investigations and other measures imposed by them. The ITS require national regulators to designate single points of contact for providing the information, provide the dates by which reports are due to ESMA and contain the forms for regulators to provide the information. The ITS will enter into force on July 20, 2017.
View the ITS. -
UK Financial Conduct Authority Publishes Final Asset Management Market Study Report
06/28/2017
The Financial Conduct Authority has published the final report of the Asset Management Market Study it launched in November 2015. The object of the AMMS was to investigate three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. Furthermore, the FCA wanted to look at whether there are any barriers to innovation that prevent investors from obtaining better results. The FCA published an interim AMMS report in November 2016 which set out the FCA's provisional assessment of the way competition works for asset management services, the consequences for investors and the FCA's proposed remedies to tackle the issues.
The final AMMS report confirms the FCA's interim findings and proposes a package of remedies. The FCA has divided the remedies into three buckets: (i) remedies on which it has published a consultation alongside the final report; (ii) final remedies; and (iii) remedies on which it intends to consult later.
Read more. -
UK Prudential Regulation Authority Consults on Waiving Disclosure Requirements
06/21/2017
The Prudential Regulation Authority has launched a consultation on compliance with the European Banking Authority's guidelines on disclosure of the composition of collateral for exposures to counterparty credit risk.
The EBA published final Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation on December 14, 2016. The EBA's Guidelines aim to ensure harmonized implementation of the Basel III Pillar 3 requirements that were released in January 2015. The Guidelines introduce specific guidance and formats for Pillar 3 disclosures, including tables and templates. The Guidelines apply to Globally and Other Systemically Important Institutions. However, national regulators are able to require other firms to apply the Guidelines when complying with their Pillar 3 disclosure obligations under CRR.
Read more. -
European Commission Proposals for a "Location Policy" and Enhanced Supervision of Third Country CCPs
06/13/2017
The European Commission has published legislative proposals to amend the European Market Infrastructure Regulation and the Regulation establishing the European Securities and Markets Authority. The proposals are on the supervision of CCPs, both EU CCPs and third country CCPs, and include the controversial new proposals for a formal EU "location policy" for CCPs.
Read more. -
Update: European Market Infrastructure Regulation Exemptions for Central Banks in Six Countries
06/10/2017
A Commission Delegated Regulation exempting central banks in six countries - Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland - from complying with the European Market Infrastructure Regulation was published in the Official Journal of the European Union. EMIR imposes clearing, reporting and risk mitigation obligations for derivatives. EU central banks and EU public bodies managing public debt are exempt from EMIR. The European Commission may exempt central banks and public bodies managing public debt from other countries following analysis of the international treatment of the relevant entities in a particular country. Central banks and public bodies responsible for the management of debt in the United States and Japan were the first to be added to the list of exempted bodies through a Commission Delegated Regulation. These new exemptions will come into effect on June 30, 2017.
View the Delegated Regulation.TOPIC : Derivatives -
EU Extends Transitional Measures for Exposures to CCPs
06/07/2017
A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation was published in the Official Journal of the European Union.
Read more. -
Final Draft EU Standards on Cooperation among National Regulators under the Market Abuse Regulation
06/01/2017
The European Securities and Markets Authority has published a final Report and final draft Implementing Technical Standards on the procedures and forms for national regulators to use when exchanging information with each other under the Market Abuse Regulation. MAR, which entered into force on July 3, 2016, requires national regulators to cooperate with each other in investigations and on supervision and enforcement matters by exchanging information, taking statements from individuals, conducting on-site inspections or investigations and the recovery of monetary sanctions. The final draft ITS describe the procedures to be followed by national regulators when making, acknowledging, processing and replying to requests for assistance and when unsolicited assistance is provided and contain standard forms for national regulators to use when doing so. The European Commission has three months to consider whether to adopt the ITS.
View ESMA's Report. -
US Commodity Futures Trading Commission Extends No-Action Relief to Swap Execution Facilities and Designated Contract Markets from Certain CFTC Regulations for Correction of Errors
05/30/2017
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) issued a no-action letter extending the relief provided in CFTC Staff Letter No. 16-58, which was set to expire on June 15, 2017. CFTC Staff Letter No. 16-58 extended relief form several CFTC regulations to allow swap execution facilities (SEFs) and designated contract markets (DCMs) to fix clerical or operational errors that resulted in a swaps failing to clear, and thus becoming void, and smilar errors discovered after a swap has been cleared.
Read more.TOPIC : Derivatives -
EU Systems for Market Abuse Notifications Ready
05/30/2017
The European Securities and Markets Authority has announced that its IT system for the collection of financial instrument reference data under the Market Abuse Regulation will become operational from July 17, 2017. The IT system is known as Financial Instrument Reference Data System - FIRDS. MAR requires market operators of exchanges and investment firms and market operators operating multilateral trading facilities and organised trading facilities to notify their national regulator of any financial instrument for which a request for admission to trading is made, which is admitted to trading or is traded for the first time. This notification will be made to national regulators or via FIRDS for those jurisdictions where the national regulator has delegated the task to ESMA. All notifications must be made in accordance with the relevant secondary EU legislation setting out the timing, format and templates. Notifications are required for admissions and trades from July 3, 2016 which is when MAR became applicable across the EU. ESMA is required to publish the information on its website.
View ESMA's announcement. -
US Commodity Futures Trading Commission Strengthens Anti-Retaliation Protections for Whistleblowers and Enhances the Award Claims Review Process
05/22/2017The U.S. Commodity Futures Trading Commission (CFTC) unanimously approved a series of amendments to the CFTC’s Whistleblower Rules with the goal of strengthening anti-retaliation protections for whistleblowers and improving the review process for whistleblower claims.
Read more.TOPIC : Derivatives -
Financial Conduct Authority Publishes Statement on the Suitability Review
05/18/2017
The Financial Conduct Authority has published the results of a review into the suitability of advice and quality of disclosure in the financial services sector.
Read more.TOPIC : MiFID II -
European Securities and Markets Authority Publishes Follow-up Report on MiFID Conduct of Business Rules Relating to Fair, Clear and Not Misleading Information
05/18/2017
The European Securities and Markets Authority has published a follow-up report analyzing the actions taken by ten national regulators to address their inadequate application of ESMA's good practices on applying the rules on the provision of fair, clear and not misleading information by regulated firms to clients under the Markets in Financial Instruments Directive. ESMA's assessment forms part of its preparation for the implementation of the MiFID II rules which come into effect on January 3, 2018.
The assessment used the same criteria as the original peer review: (a) organisation; (b) supervisory approach; (c) monitoring; (d) thematic work; and (e) complaints. Of the ten regulators, those in Lithuania, Lativia, Malta, Poland, Portugal and Romania had addressed all the deficiencies previously identified. For the remaining four, Denmark, Estonia, Greece and Cyprus, deficiencies remain, although ESMA has welcomed the efforts made to address them.
View the Report.TOPIC : MiFID II -
The European Banking Authority Consults on the Use of Cloud Service Providers by Financial Institutions
05/18/2017
The European Banking Authority has published for consultation draft Recommendations on outsourcings by financial institutions to cloud service providers.
The EBA has identified the need for specific guidance for outsourcing to cloud service providers to address uncertainty regarding supervisory expectations in this area. The draft Recommendations build on the existing outsourcing guidelines by the Committee of European Banking Supervisors, published in 2006, which the EBA intends to update in due course.
The draft Recommendations address five key areas: the security of data and systems, location of data and data processing, access and audit rights, chain outsourcing, and contingency plans and exit strategies. The draft Recommendations would apply to banks and investment firms subject to the Capital Requirements Directive as well as and national regulators. The EBA will consider whether to extend the applicability of the draft Recommendations to other regulated firms.
The consultation closes on August 18, 2017.
View the Recommendations.
View the CEBS Guidelines. -
European Central Bank Finalizes Guide on Fitness and Propriety Assessments
05/15/2017
The European Central Bank has published a final Guide on fitness and propriety assessments for the suitability of members of the management body and key function holders in significant banks. The final Guide differs from the consultation version published in January, with several clarifications being made, including a requirement that fit and proper assessments are confidential. The ECB Guide is based on six Principles, namely: the primary responsibility of banks in carrying out due diligence and assessments, the role of the ECB as a "gatekeeper", the harmonization of assessments across the euro area, proportionality and case-by-case assessment, due process and fairness, and interaction with ongoing supervision. The Guide sets out the five assessment criteria against which the fitness and propriety of members of the management body is assessed: experience, reputation, conflicts of interest and independence of mind, time commitment and collective suitability. The Guide provides information on the purpose, scope and type of interviews conducted by the ECB of appointees. The Guide highlights how a decision is taken by the ECB after every fit and proper assessment and the various types of decisions that may be taken. The Guide also notes that under the Single Supervisory Mechanism Regulation, the ECB has the power to remove, at any time, members from the management body of a significant supervised entity who do not fulfill the fit and proper requirements.
View the ECB Guidance. -
Prudential Regulation Authority Publishes Policy Statement on Strengthening Individual Accountability in Banking
05/12/2017
The Prudential Regulation Authority has published a Policy Statement on strengthening individual accountability in banking. The Policy Statement provides the PRA's final policy on a number of issues. Among other things, the PRA has made modifications to the final rules, such as simplifying the draft definition of the new Chief Operations Senior Management Function and narrowing the new Prescribed Responsibility accompanying the Chief Operations SMF to focus on responsibility for the firm's performance of its obligations relating to outsourcing.
Read more. -
President Trump Re-Nominates Brian Quintenz to CFTC
05/12/2017
On May 12, 2017, President Trump re-nominated Brian Quintenz to serve as CFTC Commissioner for the remainder of a five-year term expiring April 13, 2020. Mr. Quintenz was previously nominated by President Obama but his nomination was not confirmed by the Senate.
View press release.
TOPIC : People -
European Banking Authority Publishes Final Guidelines for Implementation of an Expected Credit Loss Accounting Model by Banks
05/12/2017
The European Banking Authority has published final Guidelines on banks' credit risk management practices and accounting for expected credit losses. These final Guidelines are a result of a consultation that ended on October 26, 2016, and build on the related Guidance by the Basel Committee on Banking Supervision, published in December 2015. The Guidelines will apply at the start of the first accounting period beginning on or after January 1, 2018.
Many banks in the EU apply the International Financial Reporting Standards. IFRS 9, which will apply for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The use of an ECL accounting model involves some discretion in its application. The Guidelines set out supervisory expectations for credit institutions related to sound credit risk practices associated with implementing and applying an ECL accounting model.
These Guidelines should be read in conjunction with the provisions of the Capital Requirements Regulation and the Capital Requirements Directive IV as well as the relevant technical standards.
View the final Guidelines.
View the Consultation Paper.
View the Basel Committee Guidance. -
President Trump Issues Cybersecurity Executive Order
05/11/2017
President Trump signed a Cybersecurity Executive Order, focused on (i) improving the government’s cybersecurity, including through measures such as requiring government agencies to follow the NIST Cybersecurity Framework; (ii) engaging the federal government to help better protect critical US infrastructure owners, including the financial services industry; and (iii) working with other countries to enhance cybersecurity defenses, and requiring US agencies (such as the State Department, Treasury Department, Department of Defense and Department of Homeland Security) to develop strategic policy options to deter adversaries.
View text of the executive order.TOPIC : Cyber Security -
European Banking Authority Publishes Final Guidelines to Assess Information and Communication Technology Risk
05/11/2017
The European Banking Authority has published final Guidelines on the assessment of the Information and Communication Technology (ICT) risk in the context of the Supervisory Review and Evaluation Process (SREP). These final Guidelines are a result of a consultation that ended on January 6, 2017. The Guidelines will apply to national EU regulators and aim to promote common procedures and methodologies for their assessment of ICT risk. The Guidelines will apply from January 1, 2018.
Read more. -
President Trump Makes Several Appointments and Nominations to Administration Posts
05/10/2017
President Trump nominated David Kautter to serve as Assistant Secretary of the Treasury for Tax Policy. Mr. Kautter currently serves as Partner-in-Charge of the Washington National Tax practice for RSM, an audit, tax and consulting services firm.
View press release.TOPIC : People -
US Commodity Futures Trading Commission Chairman Calls for Reform of Bank Capital Requirements in US and Abroad
05/10/2017
Acting Chairman of the US Commodity Futures Trading Commission, Christopher Giancarlo, gave a speech at the International Swaps and Derivatives Association 32nd Annual Meeting in Lisbon calling for regulators in both the U.S. and abroad to “recalibrate bank capital requirements to better balance systemic risk concerns with healthy economic growth." In the speech, Acting Chairman Giancarlo stated that global swap market reforms have failed to adequately address whether the amount of bank capital that has been taken out of trading markets because of bank capital requirements has been calibrated to the amount of capital needed in the global markets to "support overall market health and durability”. In addition, Acting Chairman Giancarlo spoke in support of moving the CFTC to a more flexible, outcomes-based approach for cross-border equivalence and substituted compliance.
View text of the speech.TOPIC : Derivatives -
US Securities and Exchange Commission Names Director of Division of Corporate Finance
05/09/2017
The US Securities and Exchange Commission announced the appointment of William H. Hinman as director of the Division of Corporation Finance.
View press release.
TOPIC : People -
Joint Money Laundering Steering Group Consults on Proposed Revisions to Part II and III of the UK Financial Services Guidance
05/09/2017
The Joint Money Laundering Steering Group has published and opened up for consultation its proposed revisions to Parts II and III of its Guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry. This follows on from the recent consultation on Part I, which closed on April 28, 2017. The proposed revisions will align the JMLSG Guidance with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, on which the Government recently consulted. The draft Regulations are intended to implement into UK laws the EU Fourth Money Laundering Directive and are due to take effect by June 26, 2017 at the same time as 4MLD.
Read more. -
US Financial Stability Oversight Council Holds Meeting on Efficacy of Volcker Rule
05/08/2017
On May 8, 2017, the US Financial Stability Oversight Council issued a readout of its meeting in which FSOC discussed efforts to assess the efficacy of the Volcker Rule. Reportedly, at the closed-door meeting, Treasury Secretary Mnuchin directed the various agencies with oversight over the Volcker Rule to re-examine the scope of permissible activities under the rule.
View text of the FSOC readout. -
Proposed Technical Standards on Criteria for Application of Simplified Obligations under the BRRD
05/08/2017
The European Banking Authority has launched a public consultation on draft Regulatory Technical Standards, further specifying the eligibility criteria to determine whether firms should be subject to simplified obligations when drafting their recovery and resolution plans. The Bank Recovery and Resolution Directive permits national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Simplified obligations may be applied by authorities based on their assessment of a firm based on the size of the firm, interconnectedness, scope and complexity of its activities, risk profile, legal status, nature of business and shareholding structure.
The draft RTS set out the quantitative and qualitative factors to be considered depending on the type of firm (credit institution, investment firm, firms that are part of a group, promotional banks and credit institutions subject to an orderly winding up process). According to the draft RTS, the authorities should approach the criteria in two stages: (i) they should select firms which could potentially benefit from simplified obligations based on quantitative criteria; and (ii) if the first stage is satisfied, they should verify whether firms meet the qualitative criteria. The consultation will close on August 8, 2017.
View the Consultation Paper.TOPIC : Recovery & Resolution -
European Banking Authority Consults on Guidelines on Security Measures for Operational and Security Risks under the Revised Payment Services Directive
05/05/2017
The European Banking Authority has launched a consultation on draft Guidelines on security measures for operational and security risks under the revised Payment Services Directive (known as PSD2). PSD2, which will apply from January 13, 2018, requires Payment Service Providers (PSPs) to establish a framework with appropriate mitigation measures and control mechanisms to manage operational and security risks, relating to the payment services they provide. The framework must include effective incident management procedures, including for the detection and classification of major operational and security incidents. A PSP is required to report to its national regulator annually, providing an updated and comprehensive assessment of the operational and security risks relating to the payment services they provide and on the adequacy of the mitigation measures implemented in response to those risks. The draft Guidelines aim to define those requirements and will apply to PSPs and national regulators responsible for monitoring the implementation of the requirements by PSPs.
Read more.TOPIC : Payment Services -
European Commission Proposes Technical Changes to the European Market Infrastructure Regulation
05/04/2017
The European Commission has published a legislative proposal to amend the European Market Infrastructure Regulation. This proposal is the result of an extensive assessment of EMIR between 2015 and 2016. The proposal covers a wide-range of areas within EMIR, including reporting requirements, non-financial counterparties, exemptions and trade repositories.
Read more.TOPIC : Derivatives -
UK Delivery Plan for Consolidation of Payment Systems Operators
05/04/2017
The Payment System Operator Delivery Group, an independently chaired body set up by the Payment Systems Regulator and the Bank of England, has published a recommended Delivery Plan for the consolidation of the operators of three payment system operators: Bacs Payment Schemes Ltd, Cheque and Credit Clearing Company and the Faster Payments Scheme Ltd. The proposed consolidation was one of the recommendations made in the Payments Strategy Forum's November 2016 report, which sets out a wide-ranging strategy for reforming the UK retail payments industry. The Delivery Plan includes a Strategic Framework (including company purpose and strategic objectives) for the new PSO, the proposed design of the PSO (including setting the company up as a company limited by guarantee), a funding model for setting up the consolidated PSO and for its ongoing operation and a target implementation timeline which also sets out a transitional scheme to ensure continuity of services.
The Delivery Plan now needs to be reviewed and agreed by the boards of the three operators as well as their members. If agreed, the aim is for the consolidation to be mostly completed by the end of 2017.
View the delivery plan.TOPIC : Payment Services -
Financial Conduct Authority Publishes Policy Statement on Whistleblowing in UK Branches of Foreign Banks
05/03/2017
The Financial Conduct Authority has published a Policy Statement introducing final rules on whistleblowing requirements for UK branches of overseas (EEA and third country) banks. The Policy Statement follows a consultation in September 2016 on a proposed approach for extending aspects of the Prudential Regulation Authority and FCA regime to require banks and insurers to introduce whistleblowing procedures internally. The proposals are broadly being implemented as consulted upon, with one minor change being the introduction of guidance reminding branches they may continue to have concurrent reporting obligations to their home state regulators. The rules will come into force on September 7, 2017.
View the Policy Statement. -
Financial Conduct Authority Publishes Policy Statement on Application of its Conduct Rules to Non-Executive Directors
05/03/2017
The Financial Conduct Authority has published a Policy Statement on applying conduct rules in the Code of Conduct sourcebook to non-executive directors in the banking and insurance sectors. In-scope NEDs are those who do not hold Senior Management Functions and therefore are not subject to regulatory pre-approval under the Senior Managers & Certification Regime, the Prudential Regulation Authority's Senior Insurance Managers Regime, or the FCA's revised Approved Persons Regime.
The Policy Statement follows a Consultation in September 2016, which proposed that NEDs would be subject to the five FCA Individual Conduct rules on acting with integrity, acting with due skill, care and diligence, cooperating with the FCA and other regulators, having regard for customer interests and observing proper standards of market conduct. In addition, NEDs would be subject to the Senior Conduct rule requiring individuals to disclose any information of which the FCA or PRA would reasonably expect notice. The remaining Senior Conduct rules will not apply to a NED unless they are also a senior conduct rules staff member. The new rules will come into force on July 3, 2017.
View the Policy Statement. -
Financial Conduct Authority Publishes Policy Statement on Remuneration in Capital Requirements Directive IV Firms
05/03/2017
The Financial Conduct Authority has published a Policy Statement containing final Handbook text and guidance on the requirements for remuneration policies that apply to firms subject to the Capital Requirements Directive IV. Such firms are required to comply with the FCA's Remuneration Code. The FCA consulted on these from September to November 2016. The final rules are broadly as consulted upon, with minor changes to clarify the status of "retention awards" as being different from "guaranteed variable remuneration".
The FCA has aligned its Handbook provisions to comply with the European Banking Authority Guidelines on Sound Remuneration Policies, which came into force on January 1, 2017. The FCA has also published new non-Handbook guidance to address frequently asked questions on remuneration. The Prudential Regulation Authority further published a Policy Statement and final consolidated Supervisory Statement on its expectations on remuneration on April 12, 2017, which aims to bring its approach in line with the EBA Guidelines.
View the Policy Statement.
View the FCA Guidance.
View the EBA Guidance. -
Financial Conduct Authority Publishes Policy Statement and Final Guidance on the Duty of Responsibility
05/03/2017
The Financial Conduct Authority has published a Policy Statement and final Guidance on how it will enforce the "duty of responsibility". The "duty of responsibility" came into force to replace the much-criticised so-called "presumption of guilt" for UK senior managers on May 10, 2016. The new duty applies to persons performing senior management functions at UK banks, building societies, credit unions, investment firms designated by the Prudential Regulation Authority and incoming branches of overseas firms. Under this duty, the FCA and the PRA can take enforcement action against Senior Managers if they are responsible for the management of any activities in their firm in relation to which their firm contravenes a regulatory requirement and they do not take such steps as a person in their position could reasonably be expected to take to avoid the contravention occurring or continuing. The burden of proof lies with the regulators to prove a contravention. The Guidance applied from May 3, 2017.
View the Policy Statement. -
European Commission Recommends Draft Brexit Negotiation Directives
05/03/2017
The European Commission has adopted a Recommendation for a Council Decision authorizing the Commission to open Article 50 negotiations with the United Kingdom. This Recommendation includes a draft negotiation directive in the Annex, which covers the first phase of the negotiations and prioritizes matters which have been identified as important to ensure an orderly withdrawal.
View the Recommendation.
View the draft negotiation directive.TOPIC : Brexit for Financial Services -
EU Publishes Guidelines for Brexit Negotiations
04/29/2017
The European Council has published Guidelines outlining the proposed framework and stances for its negotiations with the UK under Article 50 of the Treaty on the European Union and setting out the overall positions and principles that the EU will seek. The UK gave notification of its intention to leave the EU on March 29, 2017.
View the Guidelines.
View the related European Commission press release.TOPIC : Brexit for Financial Services -
Final EU Legislation on Contributions to the Single Resolution Fund Published
04/29/2017
A Commission Delegated Regulation on the contributions to the Single Resolution Fund has been published in the Official Journal of the European Union. The Single Resolution Mechanism and the SRF provide for the resolution of credit institutions and certain investment firms established in Member States within the Eurozone or in Member States that participate in the Banking Union. The SRF will support resolution measures for those banks and investment firms and will be financed by bank levies raised at national level. Ex ante contributions by those firms must be made to ensure that the SRF reaches a level of one percent of the protected deposits of all banks within the Banking Union within eight years. The Delegated Regulation sets out the criteria for the calculation of ex ante contributions and the circumstances and conditions under which the payment of extraordinary ex post contributions may be partially or entirely deferred. The Delegated Regulation enters into force on May 19, 2017.
View the Delegated Regulation.TOPIC : Recovery & Resolution -
Delay to EU Clearing Obligation for "Category 3" and "Category 4" Counterparties
04/29/2017
An amending Commission Delegated Regulation extending the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives has been published in the Official Journal of the European Union.
Read more.TOPIC : Derivatives -
Prudential Regulation Authority Publishes Second Policy Statement on Implementing MiFID II
04/28/2017
The Prudential Regulation Authority has published a second Policy Statement and final rules implementing certain aspects of the Markets in Financial Instruments legislative package.
Read more.TOPIC : MiFID II -
US House Financial Services Committee Chairman Releases Changes in Choice Act
04/26/2017
US House of Representatives Financial Services Committee Chairman Jeb Hensarling (R-TX) introduced a modified version of the financial regulatory reform legislation that he introduced in the last Congress. Among other things, the new CHOICE 2.0 includes certain stress test reforms
Read more.TOPIC : Financial Services -
EU Opinion on Accepted Market Practices for Liquidity Contracts
04/25/2017
The European Securities and Markets Authority has published an opinion addressed to national regulators on points of convergence for Market Abuse Regulation-accepted market practices for liquidity contracts.
Read more. -
UK Government Consults on the UK's Legal Framework for Financial Sanctions upon Brexit
04/21/2017
The UK Government has published a consultation on the UK's future legal framework for imposing and implementing financial sanctions upon Brexit. The UK currently adopts sanctions through EU legislation, which is effective via the European Communities Act 1972.
Read more.TOPIC : Brexit for Financial Services -
President Trump Issues Financial Regulatory Directives
04/21/2017
President Trump issued two new directives to Treasury Secretary Mnuchin, aimed at revising federal regulations. The directives ordered Secretary Mnuchin to conduct reviews of and report back within 180 days regarding the FDIC’s Orderly Liquidation Authority, which was granted to the US Federal Deposit Insurance Corporation under Dodd-Frank, and the ability of the US Financial Stability Oversight Council to designate nonbank financial firms as systematically important financial institutions and subject to Federal Reserve oversight. Contemporaneously, the President also issued an Executive Order directing Secretary Mnuchin to examine whether any significant tax rules issued on or after January 1, 2016 would impose an undue financial burden on US taxpayers, add undue complexity to the Federal tax laws, or cause the Internal Revenue Service to exceed its statutory authority.
TOPIC : Financial Services -
Federal Reserve Governor Gives Speech Assessing Post-Crisis Regulatory Framework
04/20/2017
US Federal Reserve Board Governor Jerome Powell gave a speech at the Global Finance Forum assessing the “core reforms” of the post-crisis financial regulatory framework. Although Governor Powell generally defended such reforms, he acknowledged that some aspects of the framework could be better tailored and less burdensome, in particular with respect to regulations that have been applied to small and medium-sized institutions. In addition, Governor Powell acknowledged that the post-crisis framework was, in many cases, excessively complex, and called for, among other things, a reassessment of the Federal Reserve’s supervisory expectations of the boards of directors of banking firms.
View text of the speech. -
US Government Accountability Office Releases FinTech Reports
04/19/2017
The US Government Accountability Office released the first in a series of planned reports on fintech. In the report, the GAO describes the general regulatory framework for oversight over four subsectors of fintech, including marketplace lending, mobile payments, digital wealth management and distributed ledger technology. The report also found that the regulation of each subsector depends on the extent to which the firms provide a regulated service and the format in which such services are provided.
View the GAO report.TOPIC : FinTech -
President Trump Nominates Ex-Im Bank President and Member of Board of Directors
04/14/2017
President Trump nominated former New Jersey Congressman Scott Garrett to be President of the Export-Import Bank for a term of four years expiring January 20, 2021. The President also nominated former Congressman Spencer Bachus of Alabama to be a Member of the Ex-Im Bank’s Board of Directors for a term of four years expiring January 20, 2019.
View the White House press release.TOPIC : People -
US Office of the Comptroller of the Currency Announces One-on-One Industry Meetings as Part of Office of Innovation Office Hours
04/13/2017
The US OCC announced that its Office of Innovation will host two days of office hours for national banks, federal savings associations (FSAs) and fintech companies to discuss the OCC’s perspective on responsible innovation. This initial round of meetings will be held in the OCC’s San Francisco Field Office on May 16 and 17, 2017. The OCC anticipates holding office hours in other designated cities at a later date.
The OCC’s Acting Chief Innovation Officer Beth Knickerbocker noted that the office hours are an opportunity for attendees to have candid discussions with OCC staff regarding financial technology, new products or services, partnering with a bank or fintech company or other matters related to financial innovation. OCC staff will provide feedback and respond to questions during the one-hour meetings. The OCC expects to meet with up to fifteen companies over the two-day period.
View more information regarding the meetings. -
FDIC Vice Chairman Delivers Remarks Regarding the Global Capital Index
04/13/2017
US FDIC Vice Chairman Thomas M. Hoenig delivered remarks regarding the semi-annual report of the Global Capital Index released that day.
Read more. -
UK Payment Systems Regulator Consults on Monitoring and Enforcing the Revised Payment Services Directive
04/13/2017
The Payment Systems Regulator has opened a consultation on its proposed approach to monitoring and enforcing the revised Payment Services Directive. The UK Government has separately consulted on draft Payment Services Regulations 2017 which will implement the revised Payment Services Directive into national laws and replace the existing Payment Services Regulations 2009 and new FCA rules are also subject to consultation. PSD2 will repeal the current Payment Services Directive with effect from January 13, 2018. Member States must adopt, publish and apply implementing laws from that date, subject to certain exceptions and transitional measures.
Read more.TOPIC : Payment Services -
European Central Bank Harmonizes Regulatory Discretions for "Less Significant" Institutions
04/13/2017
The European Central Bank has published a Guideline and Recommendation to harmonize the way in which Euro member state national regulators of "less significant" banks exercise discretions available to them under the Capital Requirements Regulation and Capital Requirements Directive. This follows a public consultation on the draft Guideline and Recommendation, which was launched on November 3, 2016 and ended on January 5, 2017. The ECB has already harmonized the application of options and discretions for the banks that it directly prudentially supervises under the Single Supervisory Mechanism.
Read more. -
UK Financial Conduct Authority Consults on Implementing Draft Payment Services Regulations 2017
04/13/2017
The Financial Conduct Authority has launched a consultation on changes to its rules resulting from implementation of the draft Payment Services Regulations 2017. The UK Government has separately consulted on draft Payment Services Regulations 2017 which will implement the revised Payment Services Directive into national laws and replace the existing Payment Services Regulations 2009.
Read more.TOPIC : Payment Services -
CFTC Announces Director of the Office of Legislative Affairs
04/12/2017
The US CFTC announced that N. Charles Thornton III has been named the CFTC’s Director of the Office of Legislative Affairs. Mr. Thornton will assume his duties on April 17, 2017.
View the CFTC press release.TOPIC : People -
UK Prudential Regulation Authority Publishes Final Consolidated Guidance on Remuneration
04/12/2017
The Prudential Regulation Authority has published a Policy Statement and final consolidated Supervisory Statement on its expectations on remuneration. In the latter part of 2016, the PRA consulted on its proposed changes to its guidance to bring this into line with the European Banking Authority's Guidelines on Sound Remuneration Policies which applied from January 1, 2017. The remuneration rules and guidance apply to banks, building societies and investment firms, including UK branches of non-EEA headquartered firms. The PRA has introduced a consolidated Supervisory Statement on remuneration by amalgamating the existing statements on proportionality, the application of malus to variable remuneration and other existing measures. The new Supervisory Statement covers the PRA's expectations on proportionality, material risk takers, the application of malus and clawback to variable remuneration, governing body/remuneration committees, risk management and control functions, remuneration and capital, risk adjustment (including long-term incentive plans), personal investment strategies, remuneration structures (including guaranteed variable remuneration, buy-outs and retention awards), deferral and breaches of the remuneration rules.
View the PRA's Policy Statement.
View the consolidated Supervisory Statement.
View the PRA's original consultation paper.TOPIC : Compensation -
Financial Conduct Authority Publishes Discussion Paper on Distributed Ledger Technology
04/10/2017
The Financial Conduct Authority has published a discussion paper on distributed ledger technology (DLT). The FCA is seeking to start a dialogue on the potential for future development of DLT in the markets it regulates. The FCA describes DLT systems (such as Blockchain and Ethereum) as rapidly developing technology which offer exciting potential to support the needs of consumers and the market. However, it notes that DLT may also present new challenges and potential risks, such as how regulated firms allocate responsibilities for systems shared among them.
In the discussion paper, the FCA discusses the risks and opportunities of DLT in relation to a number of specific areas, as follows:- governance and technology resilience;
- DLT and distributed data;
- recordkeeping and auditability;
- smart contracts; and
- the use of digital currencies to deliver financial services.
View the Discussion Paper and related webpage.
View the online response form.TOPIC : FinTech -
EU Clarification on CCP Portfolio Margining Requirements
04/10/2017
The European Securities and Markets Authority has published an Opinion addressed to EU national regulators on the portfolio margining requirements for CCPs under the European Market Infrastructure Regulation. The Regulatory Technical Standards on portfolio margining that supplement the European Market Infrastructure Regulation provide that a CCP can offset or reduce the required margin across instruments, which it clears if the price risk of one instrument is significantly and reliably correlated to the price risk of other financial instruments. In those cases, a CCP may apply portfolio margining. European legislation provides certainty over the requirements only to a limited degree because there is no indication as to which instrument or product can be considered the same or which elements are needed for an instrument or product to be considered the same. ESMA's Opinion aims to provide clarification as to when two contracts can or cannot be considered the same instrument for the purpose of portfolio-margining, referencing all asset classes. In addition, ESMA confirms that CCPs have to limit the reduction in margin requirement when conducting portfolio-margining across different instruments.
View ESMA's Opinion. -
Final Draft Revisions to EU Supervisory Reporting Requirements for Sovereign Exposures and Operational Risk Published
04/07/2017
The European Banking Authority has published a final report and final draft Implementing Technical Standards amending the existing ITS on supervisory reporting. The ITS on supervisory reporting collate the prudential reporting requirements of banks under the Capital Requirements Regulation, related technical standards and other financial information required by national regulators. The ITS on supervisory reporting are updated when prudential or supervisory requirements change. The EBA consulted on the amending ITS at the end of 2016.
Read more. -
European Commission Consults on Conflicts of Law Rules for Securities Ownership
04/07/2017
The European Commission has published a consultation paper on conflicts of law rules for securities ownership, addressing so-called third party effects of transactions in securities and claims. The consultation relates to the Commission's Capital Markets Union and the objective of creating a single market for capital by facilitating cross-border investment.
Read more. -
UK Regulator Requests Brexit Contingency Planning Assurance
04/07/2017
The Prudential Regulation Authority has published a letter to CEOs and branch managers of all banks, insurers and designated investment firms undertaking cross-border activities between the UK and the remainder of the EU, including branches of EU firms operating in the UK, concerning the need for contingency planning for the UK's withdrawal from the EU. The PRA has requested that each firm provides, by July 14, 2017, written confirmation that it has considered its contingency plans, a short summary of the plans, assurance that the plans address an appropriately wide range of scenarios and whether any new authorization or regulatory engagement is required. EU branches operating in the UK which have significant retail or SME transactional deposits should consider, among other things, whether they need to convert their operation into a UK subsidiary. The Financial Policy Committee will be overseeing the plans to mitigate any risks to financial stability.
View the letter.TOPIC : Brexit for Financial Services -
UK Financial Conduct Authority Takes Action Against Two Individuals for Market Abuse
04/07/2017
The Financial Conduct Authority has banned and fined two individuals for market abuse. Mr. Niall O'Kelly and Mr. Lukhvir Thind were Chief Executive Officer and Financial Controller, respectively, at Worldspreads Limited during the relevant time. The FCA found that both individuals had deliberately and repeatedly disseminated false and misleading information relating to Worldspreads Limited, a publicly listed company, in contravention of the Financial Services and Markets Act 2000.
Read more.TOPIC : Enforcement -
European Securities and Markets Authority Promotes Rules Supporting the Use of Smaller Credit Rating Agencies
04/06/2017
The European Securities and Markets Authority has issued a Supervisory Briefing, providing guidance to sectoral national regulators on the application of certain requirements to use smaller credit rating agencies under the Credit Rating Agencies Regulation. The CRA Regulation aims to create more competition in the EU credit ratings industry and includes requirements for issuers and related third parties regarding the appointment of multiple credit rating agencies to an issuance or entity. In particular, there is a double credit rating requirement for structured finance instruments, and, where this double credit rating requirement applies, issuers or related third parties must consider appointing at least one smaller CRA with no more than a 10% market share. Where it is decided that a smaller CRA will not be appointed, that decision must be documented.
The purpose of the guidance is to promote a common supervisory approach and enforcement of these requirements. The guidance clarifies which issuers and related third parties are within the scope of the requirements and provides a standard form to be used for documenting a decision not to appoint a smaller CRA. The Supervisory Briefing is not binding on regulators or market participants.
View the Supervisory Briefing.TOPIC : Credit Ratings -
European Securities and Markets Authority Publishes Final Guidelines on Circuit Breakers Under MiFID II
04/06/2017
The European Securities and Markets Authority has published Guidelines on the calibration of circuit breakers and the publication of trading halts under the revised Markets in Financial Instruments Directive. MiFID II requires regulated markets temporarily to halt or constrain trading if there is a significant price movement in a financial instrument (equity, equity-like and debt instruments) on that market or a related market in a short period. Regulated markets must also, in exceptional cases, cancel, vary or correct any transaction. ESMA is required to develop guidelines on the calibration of those trading halts, taking into account the liquidity of the different asset classes and sub-classes, the nature of the market model and types of users. The Final Guidelines outline further details on the parameters that trading venues should consider when calibrating their circuit breakers. ESMA emphasizes that consideration should be given not only to trading halts, but also order price collars. Trading venues should also immediately make public details of the activation of a trading halt, the type of trading halt, the trading phase in which it was triggered, the eventual extension and the end of the halt. National regulators have until two months from date of publication in all EU official languages to advise ESMA of whether or not they intend to comply with the final Guidelines.
View the Guidelines.TOPIC : MiFID II -
Departing Federal Reserve Governor Tarullo Gives Speech Supporting Strong Capital Requirements and Criticizing the Volcker Rule
04/05/2017
Daniel Tarullo’s resignation from the US Federal Reserve Board became effective, and he was succeeded by Governor Powell as the Chairman of the Board of Governors’ Committee on Supervision and Regulation. In a speech given on April 4, 2017, Mr. Tarullo reviewed the Federal Reserve’s development of the capital regulation and stress testing regime in the period since the financial crisis, and expressed support for strong capital requirements and strict supervisory stress testing, as well as for raising the $50 billion asset threshold as the trigger for application of enhanced prudential standards under Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, stating that “the time may be coming when the qualitative objection in CCAR should be phased out." In contrast, Mr. Tarullo criticized the Volcker Rule, citing it as an area where “the case for change has become fairly strong."
View full text of the speech. -
Draft EU Guidelines for Payment Service Providers on Preventing Terrorist Financing and Money Laundering in Electronic Fund Transfers
04/05/2017
The Joint Committee of the European Supervisory Authorities has published a consultation on proposed guidelines on preventing terrorist financing and money laundering in electronic fund transfers under the EU Wire Transfer Regulation. The Wire Transfer Regulation, which is applicable from June 26, 2017, requires payment service providers, among other things, to have effective procedures to detect transfers of funds that lack the required information on the payer and the payee and to determine whether to execute, reject or suspend a transfer of funds that lacks that information. The proposed guidelines aim to assist payment service providers in complying with these obligations under the Wire Transfer Regulation. The guidelines will set out the factors that payment service providers should consider when establishing and implementing procedures to detect and manage transfers of funds which do not have the required payer and payee information. They will also specify what a payment service provider should do to manage the risk of money laundering or terrorist financing where that information is missing or incomplete. The proposed guidelines are also intended to assist national regulators to assess the adequacy of a payment service provider's procedures.
View the consultation paper. -
Final EU Guidelines on the Interrelationship between the Sequence of Write Down under BRRD and CRD IV Published
04/05/2017
The European Banking Authority has published final Guidelines on the interrelationship between the provisions of the Bank Recovery and Resolution Directive setting out the sequence of write down and conversion and the provisions of the Capital Requirements Regulation and the Capital Requirements Directive. The BRRD establishes the sequence for a resolution authority to apply bail-in to an entity under resolution. That sequence is: Common Equity Tier 1, Additional Tier 1 instruments, Tier 2 instruments, other subordinated debt in accordance with the normal insolvency hierarchy and other eligible liabilities in accordance with the normal insolvency hierarchy.
Read more.TOPIC : Recovery & Resolution -
Final EU Guidelines on the Treatment of Shareholders in Bail-in Published
04/05/2017
The European Banking Authority has published final Guidelines on the treatment of shareholders in bail-in under the Bank Recovery and Resolution Directive. The Guidelines are addressed to national resolution authorities and aim to clarify how valuation information should inform the determination of the terms of bail-in.
The Guidelines set out the circumstances in which it would be appropriate for a resolution authority, when implementing a bail-in or write down of capital instruments, to either: (i) cancel existing shares or other instruments of ownership or transfer of them to bailed-in creditors, and/or (ii) dilute existing shareholders and holders of other instruments of ownership as a result of the conversion of relevant capital instruments or eligible liabilities to equity.
Read more.TOPIC : Recovery & Resolution -
Final EU Guidelines on Converting Debt to Equity in Bail-in Published
04/05/2017
The European Banking Authority has published final Guidelines on the setting of rates of conversion of debt to equity in bail-in under the Bank Recovery and Resolution Directive. The Guidelines are addressed to national resolution authorities with the objective of clarifying how valuation information should inform the determination of the terms of bail-in.
The BRRD provides that resolution authorities, when applying the bail-in tool, may apply a different rate of conversion to different classes of capital instruments and liabilities.
Read more.TOPIC : Recovery & Resolution -
European Securities and Markets Authority Issues Opinion on the Proposed EU Regulation on CCP Recovery and Resolution
04/05/2017
The European Securities and Markets Authority has issued an Opinion on the European Commission's proposed EU Regulation on CCP Recovery and Resolution. The proposal gives CCPs' national regulators under the European Market Infrastructure regulation powers of supervision and early intervention with regards to CCP recovery. It further asks Member States to designate National Resolution Authorities to develop CCP resolution plans and ensure the resolvability of CCPs established in their Member State and for the establishment of a resolution college. ESMA is tasked with taking on a mediator role. In its Opinion, ESMA states that it broadly supports the regulatory approach taken by the Commission. However, ESMA considers that the EU legislators should consider the budgetary implications of the role assigned to ESMA and include a provision in the final CCP Recovery and Resolution Regulation for ESMA to draft a report on the issue, as was the case for EMIR. While it supports the introduction of binding mediation, ESMA raises some concerns over the proposed mediation mechanism. ESMA also states that further detailed requirements on the content of recovery plans, such as what recovery tools could be used to allocate default losses or to cover non-default losses, would be useful.
View the ESMA Opinion. -
European Securities and Markets Authority Consults on Updating the Guidelines on the Credit Rating Agency Endorsement Regime
04/04/2017
The European Securities and Markets Authority has published a consultation paper on updating the Guidelines on the application of the endorsement regime under the Credit Rating Agencies Regulation. Endorsement is a regime that allows credit ratings issued by a third-country CRA and endorsed by an EU CRA to be used for regulatory purposes in the EU. The consultation paper proposes two main changes to the existing Guidelines. First, where a third-country legal and supervisory framework has been positively assessed by ESMA, ESMA will no longer assume that compliance of the third-country CRA with this framework equates to compliance with requirements as stringent as those under the CRA Regulation. The endorsing CRA is expected to verify and be able to demonstrate that the third-country CRA has established internal requirements which are at least as stringent as the corresponding requirements in the relevant provisions of the CRA Regulation. Secondly, the consultation paper clarifies that ESMA has the power to request information directly from the endorsing CRA about the conduct of the third-country CRA. The consultation closes on July 3, 2017.
View the consultation paper. -
US Commodity Futures Trading Commission Appoints First Chief Market Intelligence Officer
04/03/2017
The US Commodity Futures Trading Commission announced that Andrew B. Busch had been named the CFTC’s first Chief Market Intelligence Officer. In a speech announcing the appointment, Acting CFTC Chairman J. Christopher Giancarlo stated that the new CMIO’s role will be to activate the CFTC’s capability for market intelligence, in order to understand, analyze and communicate dynamics in the derivatives market.
View press release announcing the appointment.TOPIC : People -
UK Government Finalizes Amending Limited Partnership Legislation
04/03/2017
HM Treasury has published the final Legislative Reform (Private Fund Limited Partnerships) Order 2017. The purpose of the Order is to introduce a new Private Fund Limited Partnership structure, available to private investment funds which are structured as limited partnerships, such as private equity and venture capital funds. The Order was made on March 29, 2017 and is in substantially the same form as the revised draft published in January 2017. The Order came into force on April 6, 2017.
View the Order.TOPIC : Funds -
UK Regulator Consults on Persistent Debt and Earlier Intervention Remedies as Part of Credit Card Market Study
04/03/2017
The Financial Conduct Authority has published a consultation paper on persistent credit card debt and earlier intervention remedies. The remedies and interventions outlined in the consultation paper form part of the overall package of remedies announced by the FCA in July 2016 in its credit card market study final findings report. The FCA then concluded that competition was working fairly well for the 30 million consumers who hold a credit card. However, the FCA expressed significant concerns regarding the scale, extent and the nature of persistent credit card debt and the limited incentives provided by firms to reduce this.
Read more. -
UK Office of Financial Sanctions Implementation Able to Impose Penalties for Serious Financial Sanctions Breaches
04/03/2017
The UK HM Treasury's Office of Financial Sanctions Implementation can impose penalties for serious financial sanctions breaches under the Policing and Crime Act 2017. Penalties can be up to £1 million or 50% of the breach, whichever is higher. The monetary penalties regime created under the 2017 Act is an alternative to criminal prosecution for breaches of financial sanctions, which are punishable upon conviction by up to seven years in prison. The UK Government ran a consultation from December 1, 2016 to January 26, 2017 on the process for imposing monetary penalties for breaches of financial sanctions. The Treasury has since published guidance which gives an explanation of its powers to impose penalties, a summary of its compliance and enforcement approach, an overview of how the OFSI will assess whether to apply a monetary penalty and what factors the OFSI will take into account in doing so, an overview of the process that will decide the level of penalty and an explanation of how the OFSI will impose a penalty, including timescales at each stage and rights of review and appeal.
View HM Treasury's Guidance. -
The European Securities and Markets Authority Publishes Draft Technical Standards Specifying the Scope of the Consolidated Tape for Non-Equity Financial Instruments
03/31/2017
The European Securities and Markets Authority has published its Final Report and final draft Regulatory Technical Standards under the revised Markets in Financial Instruments Directive specifying the scope of the consolidated tape for non-equity products (i.e., bonds, structured finance products, emission allowances and derivatives).
Under MiFID II, consolidated tape providers will collect post-trade information published by trading venues and approved publication arrangements (APAs) and consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products. Given the additional complexity involved in providing a non-equity consolidated tape, the relevant MiFID II provisions for the non-equity tape will not enter into effect until September 3, 2019.
The draft RTS will amend the existing Delegated Regulation 2017/571 (previously RTS 13) on authorization, organizational requirements and the publication of transactions for data reporting services providers, which sets out the scope of the equity tape, by adding provisions:- permitting non-equity consolidated tape providers to specialize in one or more asset classes to increase the likelihood of a viable business case for non-equity consolidated tape provision; and
- specifying the APAs and trading venues that have to be included in the non-equity consolidated tape based on the required consolidated tape coverage ratio of 80% of all transactions published in an asset class in the EU.
View ESMA's press release.TOPIC : MiFID II -
Further Extension of Exemption from EU Clearing Obligation for Pension Funds
03/31/2017
A Commission Delegated Regulation has been published in the Official Journal of the European Union that extends the transitional exemption period under the European Market Infrastructure Regulation for pension funds to comply with the EU clearing obligation for a further year. The original date was extended from August 16, 2015 to August 16, 2017 by the European Commission in 2015 over concerns that if pension funds were subjected to the clearing obligation, they would need to source cash for the margin requirements of CCPs. The Commission, and other EU regulators, have asked CCPs to develop a solution that would allow pension funds to clear derivatives without the obligation being too burdensome for pension funds but which would also allow CCPs to liquidate positions rapidly in the event of a default. The Commission is of the opinion that no sufficiently appropriate technical solutions have been found by CCPs yet. The Delegated Regulation extending the transitional exemption period to August 16, 2018 entered into force on April 1, 2017.
View the Delegated Regulation.TOPIC : Derivatives -
Financial Conduct Authority Publishes Markets in Financial Instruments Directive II Implementation - Policy Statement I
03/31/2017
The Financial Conduct Authority has published its first Policy Statement on Markets in Financial Instruments Directive II Implementation. The Policy Statement sets out near final rules in the areas consulted on in previous consultation papers, covering, requirements for Regulated Markets, Multilateral Trading Facilities, Organised Trading Facilities, Systematic Internalisers, transparency, market data, algorithmic and high frequency trading requirements, passporting and branches of non-European Economic Area (EEA) firms, Principles for businesses, rules relating to commodity derivatives, supervision, prudential rules, systems and controls, including remuneration and whistleblowing and fees.
It also covers a small number of issues relating to the use of approved reporting mechanisms and the new authorisation category of data reporting service providers and an update on the FCA's proposals for recording of telephone conversations.
In June, the FCA plans to finalize the MiFID II rules in a further policy statement. This will cover remaining issues which include conduct of business, perimeter guidance and client asset protections.
The FCA stated that it does not intend to substantively amend the rules published in the Policy Statement prior to their entry into force. Firms impacted by the changes to the activities and instruments covered by MiFID II should now apply for authorization or for variations of permission, in order to continue being able to operate in the UK after January 3, 2018, when MiFID II takes effect.
View the Policy Statement and related webpage.TOPIC : MiFID II -
Financial Conduct Authority Publishes Markets in Financial Instruments Directive II Implementation - Consultation Paper V
03/31/2017
The Financial Conduct Authority has published its fifth Consultation Paper on the Markets in Financial Instruments Directive II Implementation. The consultation deals with changes to the FCA's decision procedure and penalties manual (DEPP) and the enforcement guide (EG), consequential and miscellaneous changes to the FCA Handbook and new guidance on the use of third parties where firms are required to provide financial instrument reference data or commodity derivative position reports to the FCA. It also sets out the FCA's proposals for new conduct rules dealing with the non-MiFID business of occupational pension scheme firms.
The proposals will affect a wide range of authorized firms, recognized bodies and unregulated entities trading commodity derivatives. In particular, it will be of interest to banks, investment firms, recognized investment exchanges, Multilateral Trading Facilities, prospective Data Reporting Service Providers and occupational pension scheme firms.
Comments on the proposals relating to DEPP, EG and consequential changes to the Handbook are due by May 12, 2017. The FCA intends to publish the final rules for these areas in its June policy statement. Comments on the proposed conduct rules for occupational pension scheme firms are due by June 23, 2017. The final rules for these areas will be published in a later policy statement.
View the Consultation Paper and related webpage.
View the online response form.TOPIC : MiFID II -
MiFID II Final Level II Legislation Published
03/31/2017
Level II legislation under the revised Markets in Financial Instruments Directive was published in the Official Journal of the European Union. The legislation published includes 26 Regulatory Technical Standards, two Commission Delegated Regulations and one Commission Delegated Directive. The legislation will enter into force on April 20, 2017.
The Official Journal publication is available here.TOPIC : MiFID II -
European Securities and Markets Authority Publishes Final Secondary Measures for Reporting of Securities Financing Transactions
03/31/2017
The European Securities and Markets Authority has published a report and final draft Implementing and Regulatory Technical Standards for the Securities Financing Transactions Regulation. The majority of the SFTR came into effect on January 12, 2016. One exception is a new reporting obligation for SFTs, which is in the process of being phased in according to counterparty type. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The SFTR requires, amongst other things, all securities financing transactions to be reported to EU recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.
Read more. -
US Commodity Futures Trading Commission Appoints Head of Enforcement and New Chief Market Intelligence Officer
03/30/2017
US Commodity Futures Trading Commission Acting Chairman J. Christopher Giancarlo announced the appointment of federal prosecutor James McDonald as the agency’s new Director of Enforcement. Mr. McDonald, who was most recently a prosecutor in the U.S. Attorney's Office for the Southern District of New York, will assume his duties at the agency on April 10, 2017. On April 3, 2017, Acting Chairman Giancarlo announced that Andrew Busch has been named the CFTC’s first Chief Market Intelligence Officer, responsible for harnessing the CFTC’s market intelligence capabilities and, combined with industry and policy maker outreach, identifying and communicating emerging trends in the commodity futures markets and reporting directly to the CFTC Chairman.
TOPIC : People -
European Securities and Markets Authority Publishes Final Draft Technical Standards Under the Benchmarks Regulation
03/30/2017
The European Securities and Markets Authority has published its final Report containing draft regulatory and implementing technical standards under the Benchmarks Regulation. The Benchmark Regulation 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.
Read more. -
Revised Assessment Framework for G-SIBs Proposed
03/30/2017
The Basel Committee on Banking Supervision has launched a consultation proposing a revised assessment framework for global systemically important banks. The framework, first published in July 2013, identifies G-SIBs by assessing their contribution to systemic risk and imposes higher capital requirements on G-SIBs to reduce the likelihood of their failure. Identified G-SIBs are placed into buckets based on their score of systemic importance. G-SIBs are also subject to Total Loss Absorbing Capacity requirements and higher supervisory expectations on risk management, risk data aggregation capabilities, risk governance and internal controls. The Basel Committee is proposing to amend the framework by, among other things, removing the cap on the substitutability category, expanding the scope of consolidation to include insurance subsidiaries for three categories, amending the definition of cross-jurisdictional activity, revising disclosure requirements and including further guidance on bucket migration. In addition, the Basel Committee is also asking for feedback on the introduction of a new indicator for short-term wholesale funding.
Responses to the proposals are requested by June 30, 2017. The Basel Committee is proposing a transitional schedule for implementing any revised assessment framework so that any changes announced in November 2017 would take effect in 2019 and the resulting higher loss absorbency requirement would apply from January 2021.
View the consultation paper.
View the existing G-SIB assessment framework.
View the current list of G-SIBs. -
US Comptroller of the Currency Discusses Fintech
03/29/2017
US Comptroller of the Currency Thomas Curry provided remarks describing actions the OCC has taken to meet the needs of all types of consumers, businesses and communities in the US. Specifically, he described a new department at the OCC, Compliance and Community Affairs Department, which brings together policy, supervision and community outreach in respect of consumer compliance, fair lending, AML/BSA and the Community Reinvestment Act. Curry also discussed OCC’s focus on encouraging innovation and establishing a framework for responsible innovation in the federal banking industry. He noted that the OCC started conducting research and discussing opportunities for innovation and financial technology (fintech) with banks and other companies as well as community and consumer groups, academics and other regulators in 2015, before releasing its framework in October 2016. He also discussed the agency’s draft supplement to its licensing manual that provides additional detail on how the OCC would evaluate applications for national bank charters from fintech companies and how the agency would supervise these banks and ensure fair access and treatment of customers. Specifically, Curry emphasized that the supplement does not establish any new authority, charter or policy and rather builds upon existing rules, guidance and processes. He further noted that, although changes to the OCC’s manuals are not typically released for public comment, the OCC is accepting comment on the supplement until April 14, 2017 in order to appropriately incorporate industry feedback.
View full text of speech.TOPIC : FinTech -
US House of Representatives Judiciary Committee Passes Bankruptcy Reform Bill That Would Amend Title II
03/29/2017
The Judiciary Committee of the US House of Representatives marked up and passed HR 1667, the Financial Institution Bankruptcy Act of 2017. The bill would amend Title II of the Dodd-Frank Act and would create a new subchapter V to chapter 11 of the Bankruptcy Code, to establish a new bankruptcy process for certain financial institutions with assets of $50 billion or more. The legislation now goes to the US Senate for full consideration.
Read HR 1667. -
Basel Committee on Banking Supervision Publishes Interim Approach to Regulatory Treatment of Accounting Provisions
03/29/2017
The Basel Committee on Banking Supervision has published details of interim regulatory treatment of accounting provisions and standards for transitional arrangements under Basel III capital framework.
Read more. -
UK Regulator Fines Former Investment Banker for Communicating Confidential Information Via WhatsApp
03/29/2017
The Financial Conduct Authority fined former investment banker Christopher Niehaus £37,198 for sharing client confidential information over WhatsApp. Mr. Niehaus was previously a managing director in the Investment Banking division at Jefferies International Limited. In this position, and on a number of occasions between January 24 and May 16, 2016, Mr. Niehaus shared confidential information with a personal acquaintance, who was also a client of the firm. The information related to a competitor. Mr. Niehaus shared the information via the instant messaging platform, WhatsApp. The information shared included the identity of the client, details relating to the client mandate and the fee Jefferies would charge for their involvement in the transaction. In exchanging such information the FCA found that Mr. Niehaus had failed to act with due skill, care and diligence and was therefore in breach of the Statements of Principles and Code of Practice for Approved Persons. The FCA reduced the financial penalty imposed by 15% following Mr. Niehaus' full admission in an early interview. Mr. Niehaus qualified for an additional 30% discount by agreeing to settle at an early stage of the investigation.
View the press release.
View the FCA's final notice.TOPIC : Enforcement -
Basel Committee on Banking Supervision Finalizes Phase 2 of Revisions to the Pillar 3 Disclosure Framework
03/29/2017
The Basel Committee on Banking Supervision has published a consolidated and enhanced Pillar 3 disclosure framework standard. The Basel Committee announced in June 2014 that it was undertaking a review of Pillar 3. In January 2015, it issued its revised Pillar 3 disclosure requirements, completing the first phase of the review. This latest publication represents the second phase of the review. The new standard includes enhancements to the revised Pillar 3 framework, such as key regulatory metrics to provide an overview of a bank's prudential position, and a new disclosure requirement for prudent valuation adjustments. It also includes revisions arising from recent developments, such as the new disclosure requirements arising from the total loss-absorbing capacity regime for global systemically important banks and the revised standard on market risk issued on January 14, 2016. The new standard consolidates all Basel Committee disclosure requirements into the Pillar 3 framework, covering the composition of capital, the leverage ratio, the liquidity ratios, the indicators for determining globally systemically important banks, the countercyclical capital buffer, interest rate risk in the banking book and remuneration.
Read more. -
Prime Minster Theresa May Triggers Article 50 Brexit Negotiations
03/29/2017
UK Prime Minster Theresa May formally notified the European Council of the UK's intention to withdraw from the European Union in accordance with requirements set out in Article 50 of the Treaty on the European Union. Prime Minister May sent a letter to the President of the Council, Donald Tusk, which sets out the approach the UK Government seeks to take in discussing its exit from the European Union over the next two years.
View the letter.
You might like to view our Brexit resource page, which is available here. -
US Board of Governors of the Federal Reserve System Governor Powell Defends the Structure of the US Federal Reserve System
03/28/2017
US Federal Reserve Board Governor Jerome Powell provided remarks regarding the history and structure of the Federal Reserve System. Against calls for reform of the Federal Reserve System, Governor Powell defended its current structure, which he noted is essentially unchanged since it was modified by the Banking Act of 1935. He emphasized the importance of avoiding a concentration of power over US monetary policy and financial system, and the need to address national and regional interests. Pointing to reforms in the Dodd-Frank Act, Powell noted that while the governance structure of the Federal Reserve continues to evolve, the independence of a central bank is paramount. On April, 2015 the US House Financial Services Committee’s monetary policy subcommittee held a hearing on the Federal Reserve's mandate and governance structure.
Read Governor Powell’s speech. -
Bank of England Publishes Consultation on Internal Ratings Based Approach
03/28/2017
The Prudential Regulation Authority has published a consultation paper outlining the Prudential Regulation Authority's proposed changes to the Internal Ratings Based approach. The proposed changes are to clarify the PRA's expectations for UK banks, building societies and PRA designated investment firms applying for IRB approval as outlined in its Supervisory Statement. First, with regard to how a firm can demonstrate that they meet the requirements of the Capital Requirements Regulation on the "prior experience" of using IRB approaches. Second, clarifying the use of external data to supplement internal data for estimating Probability of Default and Loss Given Default for residential mortgages. The PRA has also proposed two reference points for estimating Probability of Possession Given Default for residential mortgages for firms that lack significant possession data. Responses to the consultation are due by June 28, 2017. The PRA aims to publish an updated Supervisory Statement in October 2017.
View the consultation paper. -
European Securities and Markets Authority Publishes Research Report on EU Securities Financing Transactions and Haircuts
03/27/2017
The European Securities and Markets Authority has published a research Report on securities financing transactions in the European Union and the use of collateral haircuts by firms. The purpose of ESMA's research is to outline the current level and calculation methodologies of haircuts used in the EU by SFT market participants with the overall aim of informing future discussions in the context of global regulatory policy.
Read more. -
Bank of England Publishes Key Elements of 2017 Stress Test
03/27/2017
The Bank of England has published the key elements of its 2017 stress test. The 2017 test will comprise two scenarios, the annual cyclical scenario and, for the first time, a biennial exploratory scenario. The stressed outcome for UK activity and unemployment is the same as in the 2016 annual cyclical scenario. However for the global economy, the stressed outcome is worse than 2016, largely reflecting the continued and rapid growth of credit in China. The current cyclical scenario will incorporate a sudden increase in the rate of return investors demand for holding pounds sterling with an associated fall in the value sterling. This is particularly relevant due to the vulnerability created by the UK's large current account deficit. The 2017 scenario also differs from the 2016 exercise as it incorporates a rise in the bank rate (in 2016 the bank rate was cut to zero). The purpose of the exploratory scenario is to consider how the UK banking system might evolve if the recent headwinds to bank profitability persist or intensify. The Bank of England will publish the results of the stress test sometime between October and the end of December 2017.
View the stress test scenarios and elements. -
UK HM Treasury Publishes Updated Special Resolution Regime Code of Practice
03/27/2017
HM Treasury has published a revised"Banking Act 2009 Special Resolution Regime Code of Practice". The Code aims to encourage financial stability by resolving institutions such as banks, building societies and certain investment firms that are failing, and protecting depositors, taxpayers and the wider economy from the consequences of such failure. The Code was first published in November 2010 and was last updated in March 2015. The Code has been amended to take into account the Bank Recovery and Resolution Order 2016 which came into force on December 16, 2016. The Order amends the Banking Act 2009, the Financial Services and Markets Act 2000 and certain related secondary legislation in order, among other things, to ensure that the Bank of England (as the UK's resolution authority) and the Prudential Regulation Authority and Financial Conduct Authority (as the regulators) have powers to manage the failure of a bank or investment firm and their group companies and to ensure that critical functions continue to be performed. The Order also provides specific powers to the PRA and FCA to replace directors and senior managers and appoint temporary managers, amends provisions relating to triggers of contractual termination rights and adds new provisions relating to the resolution of UK branches of third-country firms. The Code has been updated to reflect the relevant changes, in particular those relating to contractual termination rights and the resolution of UK branches of third-country firms.
View the revised SRR Code of Practice.TOPIC : Recovery & Resolution -
US Agencies Complete Resolution Plan Evaluation of 16 Domestic Firms and Provide Resolution Plan Guidance to Four Foreign Banks
03/24/2017
The US FDIC and the Federal Reserve Board completed their evaluation of the 2015 resolution plans of 16 domestic banks and separately issued guidance to four foreign banks.
Read more.TOPIC : Recovery & Resolution -
US Federal Reserve System Publishes Annual Financial Statements
03/24/2017
The US Federal Reserve System released the 2016 combined annual audited financial statements for the Federal Reserve Banks, as well as statements for the 12 individual Federal Reserve Banks and the Board of Governors. An independent auditing firm engaged by the Federal Reserve Board has issued unqualified opinions on the financial statements and on the Federal Reserve Board’s and the Federal Reserve Banks’ internal controls over financial reporting.
The audited financial statements provide a significant amount of information about the assets, liabilities and earnings of the Federal Reserve Banks and the Federal Reserve Board as of December 31, 2016, including information about the composition, fair value and earnings related to the $4.4 trillion of US Treasury securities, government-sponsored enterprise (GSE) debt securities and federal agency and GSE mortgage-backed securities acquired through open market operations.
View The Federal Reserve System financial statements.TOPIC : Financial Services -
US Commodity Futures Trading Commission Provides Relief Associated with Swap Trade Confirmations
03/24/2017
The CFTC’s Division of Market Oversight (DMO) issued a no-action letter extending relief associated with swap trade confirmation requirements that previously was provided in CFTC Staff Letter 16-25, which expires March 31, 2017.
The letter extends the relief until the effective date of any revised CFTC regulations regarding trade confirmation requirements. The relief is subject to terms and conditions in the letter.
Read more.TOPIC : Derivatives -
UK Payment Systems Regulator Publishes Final Report on Proposed Financial Penalty Scheme
03/24/2017
The UK Payment Systems Regulator has published a Report outlining how it will use the money retained from any financial penalties it imposes. The PSR has decided to adopt the approach as outlined in its consultation paper published on November 11, 2017. The Report notes that a majority of respondents supported the proposals and summarizes the ten responses to the consultation. The PSR will use amounts retained to reduce regulatory fees levied in a particular year from payment service providers. As a result, some of the PSR's enforcement costs would be funded through penalties imposed, rather than through fees. The PSR's enforcement powers under the Financial Services (Banking Reform) Act 2013 allow the PSR to impose penalties for compliance failures on firms subject to regulation.
View the Report.TOPIC : Payment Services -
US Securities and Exchange Commission Adopts T+2 Settlement Cycle for Securities Transactions
03/22/2017
The US Securities and Exchange Commission adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. Currently, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2.
The amended rule is designed to enhance efficiency, reduce risk and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle.
Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017.
View the final rule.
View the SEC fact sheet.TOPIC : Securities -
UK Regulator Appoints New Non-Executive Director
03/21/2017
The Financial Conduct Authority has issued a press release announcing that Nick Stace had been appointed as a Non-Executive Director Board Member. Mr. Stace commenced his initial three-year term on April 1, 2017. Mr. Stace is also Chief Executive of the Royal College of Veterinary Surgeons.
View the press release.TOPIC : People -
US Financial Industry Regulatory Authority Seeks Comments Regarding its Programs
03/21/2017
FINRA issued a notice seeking comment from interested parties regarding its current engagement programs. The notice provides an overview of the engagement programs, with particular focus on FINRA’s committees, rulemaking process and member relations and related programs.
The notice is part of a new FINRA initiative to evaluate various aspects of its operations and programs to identify opportunities to more effectively further its mission. FINRA’s status as a self-regulatory organization (SRO) requires that FINRA engage effectively with its member firms, as well as investors and other stakeholders, many of whom devote time to these programs.
The comment period expires on May 5, 2017.
View the notice.TOPIC : Securities -
US Banking Agencies Issue Joint Report to Congress under the Economic Growth and Regulatory Paperwork Reduction Act
03/21/2017
Member agencies of the Federal Financial Institutions Examination Council (FFIEC), including the Federal Reserve Board, FDIC, OCC and the National Credit Union Administration issued a joint report to Congress detailing their review of rules affecting financial institutions. The review was conducted as part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) as part of the agencies’ continued efforts to reduce regulatory burdens while ensuring the safety and soundness of US financial institutions. EGRPRA requires the federal banking agencies, along with the FFIEC, to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations.
The report describes several joint actions planned or taken by the federal financial institutions regulators, including: (i) simplifying regulatory capital rules for community banks and savings associations; (ii) streamlining reports of condition and income (call reports); (iii) increasing the appraisal threshold for commercial real estate loans; and (iv) expanding the number of institutions eligible for less frequent examination cycles. The report also describes the individual actions taken by each agency to update its own rules, eliminate unnecessary requirements, and streamline supervisory procedures.
View the report. -
Joint Money Laundering Steering Group Consults on Proposed Revisions to Part I of the UK Financial Services Guidance
03/21/2017
The Joint Money Laundering Steering Group has published and opened up for consultation its proposed revisions to Part I of its Guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry. The proposed revisions will align the JMLSG Guidance with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, on which the Government recently consulted. The draft Regulations are intended to implement into UK laws the EU Fourth Money Laundering Directive and are due to take effect by June 26, 2017 at the same time as 4MLD.
Read more. -
European Central Bank Finalizes Guidance to Banks on Non-Performing Loans
03/20/2017
The European Central Bank has published final Guidance to banks on non-performing loans. The Guidance applies immediately to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. The Guidance is not legally binding but a bank will need to explain, upon request, why it does not comply. Any non-compliance could lead to supervisory action being taken. Eurozone banks are expected to apply the Guidance proportionately with those banks that have a high level of NPLs taking greater actions. The ECB emphasizes that an NPL strategy should outline the bank's approach and objectives regarding the effective management and ultimate reduction of NPL stocks in a clear, credible and feasible manner for each relevant portfolio.
View the final Guidance. -
G20 Leaders Publish Communique
03/18/2017
The G20 Leaders have published a Communique from the Summit held in Germany. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda and to conducting a post-implementation evaluation of the reforms. The G20 Leaders have endorsed the Financial Stability Board's recommendations to address structural vulnerabilities arising from asset management activities and have asked the International Organization of Securities Commissions to prepare measures for timely implementation of those recommendations. Monitoring of those risks is to continue and, for the July 2017 Summit, the FSB is to assess the adequacy of monitoring and policy tools to address risks from shadow banking and to consider whether any further policy is needed. The G20 Leaders have called on their members to complete their implementation of the OTC derivatives reforms. The FSB is due to review the implementation and effects of these reforms.
Read more.TOPIC : Financial Services -
US Consumer Financial Protection Bureau Seeks Public Comment on Consumer Remittance Rule
03/17/2017
The US Consumer Financial Protection Bureau announced that it is seeking feedback from the public regarding the effectiveness of the remittance rule. The remittance rule, which took effect on October 28, 2013, requires, among other things, that companies give accurate disclosures to consumers prior to a remittance transfer. In addition, the rule also requires remittance transfer providers to investigate disputes and remedy certain areas. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act which authorized the CFPB to issue rules governing remittance transfers, the CFPB is also required to conduct an assessment of the rule within 5 years from the date of effectiveness of the rule. Under this requirement, the CFPB will be required to issue a report of the assessment in the fall of 2018.
View the CFPB press release requesting comment.TOPIC : Consumer Protection -
Final UK Legislation to Amend the Special Administration Regime for Investment Firms Published
03/17/2017
The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017 have been published. The Amending Regulations aim to improve the return of client money when an investment firm fails. The changes are in line with the Bloxham Report's recommendations on minimizing the market impact of a failed firm's entry into special administration. The Amending Regulations amend the scope of the SAR regime to include firms that manage an alternative investment fund or Undertakings for the Collective Investment of Transferable Securities or who act as a trustee or depositary for such an AIF or UCITS. The Amending Regulations will make easier the transfer of client assets from a failing firm, as it removes restrictions on transfers, limitations on what may be assigned and requirements to obtain client consent. The Amending Regulations also strengthen the bar date mechanism (which requires a reasonable time to pass before the calculation/submission of claims to the administrator) and provide continuity of safe custody services. The Amending Regulations come into force on April 6, 2017.
View the Amending Regulations.
View the Bloxham Report.TOPIC : Recovery & Resolution -
EU Technical Standards on the Exchange of Information between Regulators Regarding Qualify Holdings Published
03/17/2017
Final EU Implementing Technical Standards on common procedures, forms and templates for the consultation process between national regulators when carrying out prudential assessments relating to proposed acquisitions of qualifying holdings in credit institutions have been published. The Capital Requirements Directive requires regulators to consult each other when assessing a proposed acquirer of qualifying holdings. The ITS supplements the CRD by setting out requirements on the designation of contact points by regulators, and the timeframe and process for submitting the consultation notice and responding. The ITS also prescribes the templates for the response from the regulator from whom information has been requested. It also outlines language requirements, methods of communication and the mutual feedback process. The ITS enter into force on April 6, 2017.
View the ITS. -
US Board of Governors of the Federal Reserve System Raises Asset Threshold for Bank Mergers
03/16/2017
The US Board of Governors of the Federal Reserve System announced that it was raising the asset threshold for bank mergers that it considers unlikely to pose systemic. In an order approving the merger of People’s United Financial Inc. and Suffolk Bancorp, the Federal Reserve stated that in its experience, proposals involving an acquisition of less than $10 billion in assets, or that result in a firm with less than $100 billion in total assets, were generally unlikely to create institutions that pose systemic risks. The previous thresholds were $2 billion and $25 billion, respectively. Proposals below the threshold generally receive a more streamlined regulatory review.
View text of Federal Reserve order approving the merger. -
UK Government Publishes Red Tape Review of UK Anti-Money Laundering and Counter Financing of Terrorism Regime
03/16/2017
The UK Government has published a review of the UK's Anti-Money Laundering and Counter Financing of Terrorism regime. The document summarizes the views and evidence submitted by businesses to the UK Government's Cutting Red Tape review on the impact of the current Regime. Businesses such as banks, financial institutions and businesses who are asked to comply with banks' and financial institutions' requirements under the Regime. The UK Government launched the CRT Review in 2015 seeking evidence of any needless and ineffective burdens associated with the UK AML/CTF Regime.
Read more. -
UK Regulator Publishes Draft Guidance on Treatment of Politically Exposed Persons
03/16/2017
The Financial Conduct Authority has published draft Guidance on the treatment of politically exposed persons under the UK draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The draft Regulations were published by HM Treasury on March 15, 2017. Politically exposed persons or "PEPs" are people who hold high public office. The Money Laundering Regulations 2007 impose an obligation on firms to undertake enhanced due diligence measures when dealing with PEPs who are located outside of the UK, as well as family members and close associates of PEPs. PEPs, as well as their families and persons known to be close associates, have been recognized by the Financial Action Task Force as requiring enhanced scrutiny by firms as PEPs may be in position to abuse their public office for private gain.
Read more. -
US Office of the Comptroller of the Currency Releases Draft FinTech Charter Supplement
03/15/2017
The US Office of the Comptroller of the Currency released its proposed FinTech charter supplement to the Comptroller’s Licensing Manual. Among other things, the OCC supplement defends the decision to consider issuing special purpose national bank charters for FinTech companies and provides further guidance on (i) initial steps for applying for an SPNB charter; (ii) standards that would apply to such a charter; (iii) applicable business plan requirements (i.e., inclusion of alternative business strategies, contingency plans and recovery and exit strategies); and (iv) the approval process. Comments on the OCC draft supplement are due by April 14, 2017.
View the OCC supplement.TOPIC : FinTech -
UK Government Consults on Draft Money Laundering Regulations
03/15/2017
The UK Government has published draft Money Laundering Regulations 2017 alongside a consultative document. Publication of the draft Regulations follows a consultation launched by HM Treasury on September 15, 2016, entitled "Transposition of the Fourth Money Laundering Directive," where it outlined how the UK Government intended to transpose the 4MLD and the Fund Transfer Regulation. The 4MLD builds on the Third Money Laundering Directive and Money Laundering Regulations, imposing new requirements on businesses and amends some of the existing obligations. The FTR updates the rules contained in the 2006 regulation relating to the information on payers and payees that accompanies transfers of any currency, with a view to preventing, detecting and investigating money laundering and terrorist financing. The FTR applies to the transfer of funds where at least one of the payment service providers involved in the transfer is established in the EU. This consultation outlines the responses submitted to the 2016 consultation and the UK Government's policy decisions following that consultation and requests feedback on further policy questions and the draft Regulations.
Read more. -
Basel Committee on Banking Supervision Consults on Guidelines for the Identification and Management of Step-in Risk
03/15/2017
The Basel Committee on Banking Supervision has published draft Guidelines on the identification and management of step-in risk. The draft Guidelines follow a previous Basel Committee consultation that was launched in December 2015. Step-in risk relates to the risk that a bank might support unconsolidated entities, beyond the bank's contractual obligations, in order to protect itself from any reputational damage that may result from connections to such entities. The materialization of such risk, if not appropriately anticipated, could result in the erosion of bank's capital and liquidity position. The Committee has expanded its identification criteria by building on the comments received during the first consultation to take into account the risk characteristics of entities involved in addition to the banks' relationships with them. The Basel Committee has adopted a tailored approach in formulating its prudential response and is seeking comments by May 15, 2017.
View the consultation page.
View the draft Guidelines. -
President Trump Makes Key Treasury Nominations
03/14/2017
President Trump made several nominations for key posts in the US Department of Treasury. Specifically, President Trump nominated James Donovan as Deputy Secretary of the Treasury and David Malpass to serve as Under Secretary for International Affairs. Sigal Mandelker was nominated as Under Secretary for Terrorism and Financial Intelligence. Brent James McIntosh was nominated to serve as General Counsel to the Treasury, and Adam Lerrick was nominated as Deputy Under Secretary for International Finance.
View the White House press release on the nominations.TOPIC : People -
President Trump Nominates J. Christopher Giancarlo as Chairman of the US Commodity Futures Trading Commission
03/14/2017
President Donald J. Trump nominated J. Christopher Giancarlo to serve as Chairman of the US Commodity Futures Trading Commission. The nomination of Mr. Giancarlo, who has been a Commissioner of the CFTC since 2014 and has been serving as acting CFTC Chairman since January 20, 2017, was widely expected. In speeches at various industry conferences, Acting Chairman Giancarlo has detailed his agenda for the CFTC, calling for reinterpretation of the CFTC’s regulatory mission to pursue the core goals of (i) fostering economic growth, (ii) enhancing U.S. financial markets and (iii) “right-sizing” its regulatory footprint. In pursuit of these goals, the agenda calls for an agency-wide review of CFTC rules, regulations and practices in order to make them simpler and less burdensome. In addition, the agenda advocates revising the swaps trading rules in order to allow market participants to have greater flexibility in choosing the manner of trade execution. In his remarks, Acting Chairman Giancarlo also called for greater engagement by the CFTC with its overseas regulatory counterparts on the basis of “cross-border comity, not uniformity.”
View the text of the speech.TOPIC : People -
New York's Department of Financial Services Issues Updated Cybersecurity FAQs
03/13/2017
New York’s Department of Financial Services issued FAQs on its new cybersecurity requirements. Among other things, the updated guidance confirms that a financial services firms that are regulated by the DFS, referred to as a “covered entity”, may adopt an affiliate’s cybersecurity program, in whole or in part, so long as the covered entity’s overall cybersecurity program meets the requirements under DFS regulations. In addition, to the extent that an entity relies on an affiliate’s cybersecurity procedures in whole or in part, those policies and procedures must be made available for examination by the DFS.
View the FAQs.TOPIC : Cyber Security -
US Commodity Futures Trading Commission Extends Comment Period on Proposed Capital Requirements for Swap Dealers and Major Swap Participants
03/13/2017
The CFTC announced that it was extending the comment period for the proposed rule on capital requirements applicable to swap dealers and major swap participants. In addition to proposing minimum capital and financial reporting requirements for swap dealers and major swap participants, the proposed rule would also establish specific capital requirements for futures commission merchants that engage in swaps or security-based swaps that are not cleared by a clearing organization. The original comment period was due to expire on March 16, 2017. The new comment period will expire on May 15, 2017.
View text of federal register notice extending the comment period.TOPIC : Derivatives -
Comptroller of the Currency Discusses Value of International Collaboration and Professional Bank Supervision
03/13/2017
Comptroller of the Currency Thomas J. Curry gave a speech at the Institute of International Bankers’ Annual Washington Conference, discussing the value of international collaboration and bank supervision. In his comments, Comptroller Curry noted that “the fundamentals of [sound] banking remain the same—strong capital, ample liquidity, controlled leverage, and limited concentrations.”
View the text of speech.
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Financial Stability Board Consults on Unique Transaction Identifier Governance Arrangements
03/13/2017
The Financial Stability Board began a consultation on draft governance arrangements for the Unique Transaction Identifier. The UTI is a critical element for the production and sharing of global aggregated derivatives reporting data. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories, thus minimizing the potential for the same transaction to be counted more than once. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date, 26 trade repositories have been established in 16 countries.
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published Technical Guidance on the harmonization of the Unique Transaction Identifier on February 28, 2017. That Guidance has implications for the governance of the UTI because it envisages that the UTI will be generated by a wide range of entities in a decentralized way and that there is not likely to be a requirement for a central registry for those entities.
Read more.TOPIC : Derivatives -
Bank of England Deputy Governor for Markets & Banking and Chief Operating Officer Resigns
03/13/2017
Charlotte Hogg has formally offered her resignation to the Bank of England, which was publicly accepted on March 14, 2017. Ms. Hogg held the positions of both Deputy Governor Markets & Banking and Chief Operating Officer. She joined the Bank in 2013 and assumed the additional position of Deputy Governor on March 1, 2017. Ms. Hogg's resignation follows information being made public through hearings of the House of Commons Treasury Select Committee noting that Ms. Hogg failed to correctly disclose a conflict of interest relating to her brother holding a senior executive position at Barclays. As a consequence, during Ms. Hogg's tenure she was not compliant with the Bank's Code of Conduct which Ms. Hogg had assisted in drafting. The Treasury Select Committee has also announced that the Bank is reconfiguring reporting lines and internal structures with a view to safeguarding the governance of the Bank's Code of Conduct, Compliance and disciplinary processes.
View the letter of resignation.
View the Bank of England's response.
View the Treasury Committee second report on the appointment of Ms. Hogg.
TOPIC : People -
Final EU Standards on the Prudential Requirements for Central Securities Depositories Published
03/10/2017
Regulatory Technical Standards supplementing the Central Securities Depositories Regulation setting out the prudential regime for central securities depositories was published in the Official Journal of the European Union. A distinction is made in CSDR between CSDs that offer banking-type ancillary services and are also authorized as credit institutions (i.e. banks) and CSDs that are not permitted to offer ancillary banking services. The RTS cover: (i) the capital requirements applicable to all CSDs; (ii) the additional risk-based capital surcharge which takes into account the risks, including intra-day credit and liquidity risks that arise from the ancillary banking services of CSDs; and (iii) the framework and tools for monitoring, measuring, managing, reporting and disclosing the intra-day credit and liquidity risks. CSDs that carry out ancillary banking services will also need to comply with the Capital Requirements Regulation and the RTS impose stricter requirements than those in CRR in some respects.
Read more.
TOPIC : Financial Market Infrastructure -
EU Secondary Legislation on Internalised Settlements Published
03/10/2017
A Commission Delegated Regulation on the content of the reports on internalised settlements was published in the Official Journal of the European Union. The Delegated Regulation will supplement the Central Securities Depositories Regulation. The CSDR requires settlement internalisers to report on settlements that they internalise. The Delegated Regulation specifies the content of such reporting, stating that reports should provide for detailed information on the aggregated volume and value of settlement instructions settled by settlement internalisers outside of securities settlement systems. The reports must specify, among other things, the asset class, type of securities transactions, type of clients and issuer CSD.
In addition, Implementing Technical Standards on templates and procedures for the reporting and transmission of information on internalised settlements was published in the Official Journal of the European Union on March 10, 2017. The ITS provide the templates and forms that CSDs must use when reporting the required information to their national regulator.
Read more.
TOPIC : Financial Market Infrastructure -
Final EU Standards on Authorization, Supervision and Operational Requirements for Central Securities Depositories Published
03/10/2017
Regulatory Technical Standards supplementing the Central Securities Depositories Regulation on the authorization, supervisory and operational requirements for CSDs was published in the Official Journal of the European Union. The RTS cover, among other things: (i) the authorization and identification requirements for applicant CSDs; (ii) recognition of a third-country CSD; (iii) risk monitoring tools and governance arrangements that a CSD must establish; (iv) record keeping systems, policies and procedures that a CSD must establish; and (v) rules for CSDs to participate in other entities.
In addition, Implementing Technical Standards on the standard forms, templates and procedures for authorization were published in the Official Journal of the European Union on the same day. The ITS cover the forms, templates and procedures for authorization, review and evaluation of CSDs, for the cooperation between home and host national regulators, for the consultation of authorities involved in the authorization to provide banking-type ancillary services, for access involving CSDs, and the format of the records to be maintained by CSDs.
Read more.
TOPIC : Financial Market Infrastructure -
EU Regulation on Penalties for Settlement Fails Published
03/10/2017
A Commission Delegated Regulation on the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States was published in the Official Journal of the European Union. The Delegated Regulation will supplement the Central Securities Depositories Regulation. The CSDR requires CSDs to impose cash penalties on participants to their securities settlement systems that cause settlement fails. The Delegated Regulation sets out the methodology, penalty rates and reference prices that CSDs should use to calculate those penalties.
Read more.TOPIC : Financial Market Infrastructure -
US Consumer Financial Protection Bureau Delays Prepaid Account Rule
03/09/2017
The CFPB proposed to delay the effective date of the “prepaid account rule” by six months, from October 1, 2017 to April 1, 2018. The rule generally extends Regulation E (Electronic Funds Transfers) and Regulation Z (Truth in Lending) to “prepaid accounts,” such as prepaid cards and mobile wallets that can store and transfer funds. The proposed delay was open for public comment until April 5, 2017. While the proposed delay would not make any changes to the prepaid account rule, the CFPB noted the delay would allow the CFPB to consider possible further amendments to the rule to address other concerns raised by industry participants.
View the CFPB’s proposal.TOPIC : Consumer Protection -
President Trump Meets with Community Bankers
03/09/2017
President Trump met with community bankers at a National Economic Council "listening session" at the White House. President Trump discussed the February 3, 2017 Executive Order, “Core Principles for Regulating the United States Financial System,” and how excessive regulation is threatening US community banking. According to a White House readout, President Trump promised to work to tailor the nation’s regulatory framework so that it accounts for the unique challenges faced by community banks.
Following the meeting, US House Financial Services Committee Chairman Jeb Hensarling released a statement noting that it is “encouraging to have a president who is listening to the concerns of community bankers who have been buried under an avalanche of burdensome regulations as a result of Dodd-Frank. Republicans on the Financial Services Committee are eager to work with the President and his administration this year to fulfill the pledge to dismantle Dodd-Frank and unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”
Read the White House readout.
Read the Statement from Representative Hensarling.TOPIC : Financial Services -
US Federal Reserve Bank of New York General Counsel Discusses Lawyers’ Role in Financial Services Culture Reform
03/08/2017
US Federal Reserve Bank of New York General Counsel and Executive Vice President Michael Held provided remarks on the role that lawyers should play in reforming culture and conduct in the financial services industry. Held noted that reform of culture has long been a priority issue for the FRBNY. His primary recommendation was that lawyers can play an important role in advising, not just on whether an action is legal or illegal, but on matters dealing with culture as well. He argued that lawyers can identify and help combat troublesome silos of behavior and should support clients with healthy skepticism, providing “effective challenge” of assumptions that are conveyed by the institution in the course of representation. Held also supported the creation of a database of bankers with records of misconduct, thus preventing them from moving from firm to firm and spreading bad practices. He suggested that the database, originally proposed by FRBNY President Bill Dudley, would be complemented by a law requiring two duties: a duty to report misconduct and a duty to check the database before an employee begins work.
View the full text of the speech.TOPIC : Conduct & Culture -
European Commission Confirms that the Imposition of Stricter Conditions for Banks Not Necessary Due to Market Developments
03/08/2017
The European Commission published a report on market developments over the past year that would potentially have created the need for stricter requirements for the level of banks' own funds, large exposures and public disclosure. The Capital Requirements Regulation allows the Commission to impose stricter conditions if measures are necessary to address changes in micro-prudential and macro-prudential risks arising from market developments, in or outside the EU, affecting all Member States, and if the tools provided for in the CRR and the Capital Requirements Directive are not sufficient to address these risks. Such stricter requirements could be based on the recommendation or the opinion of the European Stability Risk Board or the European Banking Authority. The Commission's report concludes that no such circumstances have transpired. The EU financial stability risks identified in the report include: (i) the possible risk re-pricing of risk premia in global financial markets, amplified by low liquidity; (ii) risks of further weakening of banks’ and insurers’ balance sheets; (ii) risks of deterioration of debt sustainability in sovereign, corporate and household sectors; and (iv) risks posed by contagion and exposures to shadow banking entities.
View the report.
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Final EU Guidelines on Liquidity Coverage Ratio Disclosure Published
03/08/2017
The European Banking Authority published final Guidelines on liquidity coverage ratio disclosure to complement the disclosure requirements of liquidity risk management under the Capital Requirements Regulation. The CRR provides a general disclosure framework for firms for each category of risk where liquidity risk should be considered. The disclosure of key ratios and figures to regulators required under the CRR specifies the liquidity coverage ratio. The LCR is the only regulatory ratio to cover liquidity and is crucial for disclosure, as it provides essential information for the assessment of liquidity risk management and for the decision-making processes of market participants.
The Guidelines set out the general disclosure framework of risk management in relation to liquidity risk, providing a harmonized structure for the disclosure of information and detailing the information on the LCR that is required to be disclosed within the key ratios and figures. The Guidelines include: (i) a qualitative and quantitative harmonized table for the disclosure of key information; and (ii) quantitative and qualitative harmonized templates for the disclosure of the LCR composition and levels.
Read more. -
European Banking Authority Proposals for Powers to Adopt Implementing Decisions
03/07/2017
The European Banking Authority published an Opinion on improving the decision-making framework for supervisory reporting requirements under the Capital Requirements Regulation. The CRR imposes an obligation on the EBA to prepare Implementing Technical Standards on supervisory reporting requirements. Once the final draft ITS is sent to the European Commission, there are timeframes (usually three months, extendable by one month) built into the relevant EU legislation for the Commission to endorse the ITS. However, there has often been a gap between the EBA providing the final draft ITS and the Commission’s final endorsement. The ITS on supervisory reporting requirements needs to be updated regularly and corrections and clarifications are needed too. The delayed finalisation of changes made to the ITS have caused problems for financial institutions, national regulators and the EBA.
Read more. -
US Commodity Futures Trading Commission Announces Daniel J. Davis as General Counsel
03/06/2017
The CFTC announced that Daniel J. Davis has been named the agency’s General Counsel, effective immediately.
View the CFTC press release.TOPIC : People -
US Commodity Futures Trading Commission Announces Daniel J. Davis as General Counsel
03/06/2017
The CFTC announced that Daniel J. Davis has been named the agency’s General Counsel, effective immediately.
View the CFTC press release.TOPIC : People -
European Commission Launches Portal for Better Regulation
03/06/2017
The European Commission launched a new portal through which feedback can be provided on proposed EU legislation and initiatives. The portal is part of the Commission’s Better Regulation agenda. The portal is intended to provide individuals and stakeholders with the opportunity to provide input on new EU legislation from the preparation phase through to proposals for new laws and evaluations of how existing laws are performing.
View the European Commission’s portal.
TOPIC : Financial Services -
Use of Dealing Commission Remains a Top Priority for UK Financial Conduct Authority
03/03/2017
The Financial Conduct Authority published a statement on the use of dealing commission by investment management firms, including asset managers and wealth managers. The FCA conducted a review of firms' practices from 2012 and 2015 and found that the majority of firms are falling short of the FCA's rules and expectations on their use of dealing commission. Some firms have made improvements and the result has been a reduction in dealing commission spent on research and better investment performance for their consumers. The FCA intends to continue focusing on the use of dealing commission, in particular during the implementation of MiFID II which applies from January 3, 2018. Where the FCA identifies a breach of the requirements, it will take appropriate action, including referring firms, individuals or practices for further investigation.
View the FCA's statement.TOPIC : MiFID II -
Best Execution Concerns Reiterated by the UK Financial Conduct Authority
03/03/2017
The Financial Conduct Authority published a statement on best execution compliance by investment firms. The statement sets out the FCA's findings from supervisory work on how investment managers deliver best execution for their clients. Best execution refers to the requirement on firms to obtain the best possible result for their clients when executing client orders. The FCA has found that many firms have not conducted a robust gap analysis since 2014 and have not addressed the issues highlighted in the FCA's thematic review on best execution and payment order flows (published in 2014). The FCA stated that it expects firms to take into account the findings in its thematic review as well as the asset management market study. The FCA intends to reconsider best execution in 2017 and will assess the steps that firms have taken to address gaps in achieving compliance with best execution requirements and how firms are intending to show that funds and client portfolios are not paying too much for execution. The FCA will consider taking further action against firms and/or individuals where best execution obligations are not being fulfilled.
In January 2017, the European Securities and Markets Authority stressed the importance of continued efforts to reach a high level of supervision with regards to best execution requirements, and urged national regulators to make every effort to ensure that firms would be compliant with the revised best execution requirements under MiFID II. MiFID II applies from January 3, 2018.
View the FCA's announcement.
View the FCA's thematic review on best execution and payment order flows.
View the FCA's asset management market study.
View ESMA's follow-up report.TOPIC : MiFID II -
Final Draft EU Standards on Disclosure Requirements for Encumbered and Unencumbered Assets
03/03/2017
The European Banking Authority has published a report and final draft Regulatory Technical Standards on the disclosure of encumbered and unencumbered assets. The final draft RTS will supplement the Capital Requirements Regulation. The CRR requires the EBA to develop draft RTS on the requirements on firms to disclose balance sheet value per exposure class, broken down by asset quality and the total amount of unencumbered assets on the balance sheet. The final draft RTS set out the data required to be disclosed, the format, and timing of the disclosure. In developing the final draft RTS, the EBA has taken into account the European Systematic Risk Board's recommendations, which included that the EBA and regulators should monitor the level, evolution and types of asset encumbrance. The final draft RTS prescribes a harmonized definition of encumbrance. This will enable market participants to compare firms in a clear and consistent manner. The final draft RTS provides four disclosure templates and a box for narrative information to be completed by firms on the importance of the encumbrance in their funding model. The final draft RTS have been submitted to the European Commission for endorsement.
View the report and final draft RTS. -
EMIR Exemptions for Central Banks in Six Countries
03/03/2017
The European Commission published a report on the international treatment of Central Banks and public entities managing public debt with regard to OTC derivatives transactions. The European Market Infrastructure Regulation imposes clearing, reporting and risk mitigation obligations for derivatives. EU central banks and EU public bodies managing public debt are exempt from EMIR. The European Commission may exempt central banks and public bodies managing public debt from other countries following analysis of the international treatment of the relevant entities in a particular country. In the first of these reviews conducted in 2013, the Commission added central banks and public bodies responsible for the management of debt in the United States and Japan to the list of exempted bodies through a Commission Delegated Regulation.
The Commission has concluded in its second report that central banks and public bodies managing debt in Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland should also be exempt from certain parts of EMIR. These new exemptions will come into effect once the new Commission Delegated Regulation is published in the Official Journal of the European Union. The Commission will continue to monitor the progress of other countries in implementing similar requirements for OTC derivatives.
View the Commission's report.TOPIC : Derivatives -
US Federal Reserve Board Will Not Object to Resubmitted Capital Plan from Morgan Stanley
03/02/2017
The US Federal Reserve Board announced that it will not object to a resubmitted capital plan from Morgan Stanley given the progress made by the firm in addressing deficiencies identified by the Federal Reserve Board in last year's Comprehensive Capital Analysis and Review (CCAR).
Following its review of Morgan Stanley's plan last June, the Federal Reserve Board required the firm to resubmit its capital plan to address certain qualitative deficiencies in its capital planning processes, such as weaknesses in the way the firm identifies and incorporates its material risks into its capital planning scenarios, key modeling practices and governance and controls related to both of those areas. The Federal Reserve Board will continue to evaluate the firm's progress in addressing those deficiencies in its assessment of this year's CCAR submission.
View Morgan Stanley’s resubmission.TOPIC : Recovery & Resolution -
European Banking Authority Seeks to Provide Guidance on Coverage of Subsidiaries in Group Recovery Plans
03/02/2017
The European Banking Authority has launched a consultation on proposed recommendations on the coverage of legal entities in a group recovery plan. The Bank Recovery and Resolution Directive requires a Union parent undertaking to prepare a recovery plan that covers the parent as a whole and identifies measures that are needed at the level of the parent and each individual subsidiary. The EBA has identified that several group recovery plans are predominantly drafted from the parent undertaking's perspective and have little information relating to the other entities in the group. Such plans, in its view, do not comply with applicable legal requirements and are of limited credibility and effectiveness. In addition, the EBA has found that because some national regulators have historically asked for plans from entities established in their jurisdiction, there are information asymmetries between the overall group plan and the plan for a given subsidiary. These asymmetries are impeding the making of joint decisions for group recovery plans by home and host regulators. The EBA is therefore consulting on proposed recommendations which specify how legal entities and branches should be covered in a group recovery plan, including a transitional regime so that recovery planning information available at local level can be migrated to the group level by 2019. Responses to the consultation are due by June 2, 2017. The EBA is proposing that the recommendations would apply from July 1, 2017.
View the consultation paper.TOPIC : Recovery & Resolution -
European Commission Requests Technical Advice for Prospectus Regulation Implementation
03/02/2017
The European Commission has published a request to the European Securities and Markets Authority for technical advice on possible delegated acts under the Prospectus Regulation. The Prospectus Regulation has been agreed but is yet to be published in the Official Journal of the European Union. It will enter into force 20 days after publication and apply two years after publication - currently expected to be June 2019. The Prospectus Regulation will replace the existing Prospectus Directive and sets out the requirements for a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The Prospectus Regulation aims to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions.
Read more. -
Ann Misback Appointed New Secretary of the US Federal Reserve Board
03/01/2017
The US Federal Reserve Board announced the appointment of Ann Misback as its Secretary, effective April 2, 2017. The Office of the Secretary supports the Federal Reserve Board by providing essential corporate secretary services, including the planning and execution of Federal Reserve Board meetings, as well as related support services.
Ms. Misback succeeds Robert deV. Frierson, who has served as Secretary since July 2012.
View the Federal Reserve Board press release.TOPIC : People -
US Securities and Exchange Commission Proposes Rule Amendments to Improve Municipal Securities Disclosures
03/01/2017
The SEC proposed rule amendments to improve investor protection and enhance transparency in the municipal securities market. These proposed amendments are intended to provide timely access to information regarding certain financial obligations incurred by issuers and obligated persons that could impact such entities’ liquidity and overall creditworthiness.
Read more.TOPIC : Securities -
US Department of Labor Proposes Extension to Fiduciary Rule Applicability Date
03/01/2017
The US Department of Labor proposed to extend the applicability dates of the fiduciary rule and related exemptions, including the Best Interest Contract Exemption, from April 10, 2017 to June 9, 2017.
Read more.
TOPIC : Financial Services -
US Securities and Exchange Commission Approves Rules to Ease Investor Access to Exhibits in Company Filings
03/01/2017
The SEC adopted rule and form amendments to make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports that were originally provided in previous filings. The final rules will take effect on September 1, 2017.
The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index. Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing.
View the final rule.TOPIC : Financial Services -
US Securities and Exchange Commission Seeks Public Comment on Possible Change to Industry Guide 3 – Statistical Disclosure by Bank Holding Companies
03/01/2017
The SEC published a request for public comment on disclosures called for by Industry Guide 3 - Statistical Disclosure by Bank Holding Companies. Stating that the financial services industry has changed drastically since Guide 3 was originally published, the SEC is soliciting public input on whether Guide 3 continues to elicit the information that investors need for informed investment and voting decisions. The SEC also seeks comment on whether there are new types of disclosures about the activities of bank holding companies that investors would find important.
The request for comment is published on the SEC website and in the Federal Register. The comment period will remain open until May 8, 2017.
View the request for comment.TOPIC : Financial Services -
US Federal Banking Agencies Seek Comment on FFIEC 101
03/01/2017
The US Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC issued a proposal to remove two items from Schedule B of form FFIEC 101, the report entitled Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework. The two items proposed for removal collect exposure at default (EAD) information related to credit valuation adjustments (CVAs) that already is captured in a separate item on FFIEC 101 Schedule B. No other changes are proposed to the FFIEC 101. Comments are due by May 1, 2017.
View the Proposal. -
European Commission Publishes White Paper on the Future of Europe
03/01/2017
The European Commission published a White Paper on the future of Europe. The White Paper outlines possible drivers of change and scenarios in which the current 27 member states could evolve by 2025. The White Paper reviews possible changes that could occur over the next decade, such as the impacts of new technologies on societies and jobs, doubts about globalization, security concerns and the rise of populism. The White Paper outlines a non-exhaustive list of five possible scenarios by which the EU could evolve, entitled: (i) Carrying On; (ii) Nothing But the Single Market; (iii) Those Who Want More Do More: (iv) Doing Less More Efficiently; and (v) Doing Much More Together. The White Paper forms part of the Commission’s contribution to the Rome Summit. Following the Summit, the Commission, the European Parliament and interested Member States will host a series of “Future of Europe Debates” across Europe.
View the press release.
View the Annex summarizing the scenarios.
View the White Paper.
TOPIC : Financial Services -
European Banking Authority Consults on Draft Technical Standards on the Nature, Severity and Duration of an Economic Downturn
03/01/2017
The European Banking Authority published a consultation paper on the specification of the nature, severity and duration of an economic downturn under the Capital Requirements Regulation. The CRR requires firms to use loss given default (LGD) and conversion factor (CF) estimates appropriate for an economic downturn if those are more conservative than the respective long-run average. The EBA consultation paper includes proposed draft Regulatory Technical Standards and amended Guidelines on probability of default (PD) and LGD estimation. The proposed draft RTS set out the downturn conditions that firms must use to estimate the downturn LGDs and conversion factors. In addition, the EBA is proposing to amend the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets to include a method for firms to use to reflect the downturn conditions into downturn LGD and CF factors. The consultation closes on May 29, 2017.
View the consultation paper.
View the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets. -
EU Comparative Report on Recovery Planning and Recovery Options Published
03/01/2017
The European Banking Authority published a comparative report on recovery planning by EU banks, focusing on recovery options. The Bank Recovery and Resolution Directive requires a bank to prepare recovery plans which set out the measures it could take to restore its financial position if it came under stress. The BRRD and secondary measures provide for the relevant information and detail that recovery plans should cover. The EBA compared the recovery plans of 23 European cross-border banking groups with parent institutions located across 12 different EU countries. The EBA's comparative analysis is intended to assist national regulators and banks in effectively preparing recovery plans. The EBA found that all the recovery plans in the sample provided a good overview of recovery options, and that where plans had previously been submitted, there had been improvements on financial impact analysis, possible interaction with the scenarios and assessment of credibility. However, the analysis also revealed areas where more work is needed. These included linking recovery options to governance by setting out detailed governance, decision-making and implementation for each option; and better coverage and integration of material legal entities. The report also recommends improvements as regards the information backing impact assessments, particularly the detail on which the calculations are based, operational impact and continuity, and whether operational continuity is warranted under each recovery option. The report also recommends including detailed information on the estimated timelines for implementation of each option so that an assessment could be made of whether the timelines are realistic.
View the report.TOPIC : Recovery & Resolution -
Financial Conduct Authority Proposes Changes to UK Equity IPO Process
03/01/2017
The Financial Conduct Authority launched a consultation on proposed changes to the availability of information in the UK equity IPO process. The consultation follows the discussion paper published by the FCA in April 2016. The FCA's view is that diverse and independent information is not available early enough in the IPO process. To address this issue, the FCA is proposing to amend the order in which the approved prospectus and connected research is made available to investors and to ensure that analysts from firms not supporting the IPO are provided with access to the issuer's management. In particular, the FCA is proposing that an approved prospectus or registration be published and unconnected analysts have access to the issuer's management before any connected research is released. In addition, the FCA is proposing to clarify, through supplemental guidance, that it would regard any interaction between analysts and issuers or their representatives to be participation in investment banking pitching efforts until the firm has accepted a mandate to carry out underwriting or placing services for the issuer and the firm's position in the syndicate has been determined.
The consultation closes on June 1, 2017. The FCA expects to publish a policy statement setting out the final changes, if any, before the end of 2017.
View the consultation paper.
View the discussion paper. -
Final Draft EU Technical Standards on Pre-trade Transparency Requirements for Package Orders Published
02/28/2017
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. The legislation delaying the implementation of the MiFID II package also revised MiFIR to specifically require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is no liquid market (unless there is a liquid market for the package order as a whole).
Read more.TOPIC : MiFID II -
UK Banking Standards Board Publishes Fitness and Propriety Assessment Principles
02/28/2017
The Banking Standards Board has published the Statement of Good Practice 1 on the Certification Regime: fitness and propriety assessment principles and Supporting Guidance for the Statement of Good Practice. The BSB was launched in April 2015 to help raise standards of behavior and competence in the banking sector. The Certification Regime, part of the regulatory reforms introduced in the UK to strengthen individual accountability, requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper". The first certification process was due to be completed by March 7, 2017 and thereafter firms must conduct assessments on an ongoing basis.
Read more. -
UK Regulator Concerned that Loan-Based Crowdfunding Platforms may be Facilitating Loans to Lending Business that are not Properly Authorized
02/28/2017
The Financial Conduct Authority has published a letter addressed to the CEOs of firms operating a loan-based crowdfunding platform about concerns that the platforms may be facilitating loans to lending businesses that do not have the requisite regulatory permissions. According to the FCA, a lending business that borrows through a platform and then lends that money to others may be carrying on the regulatory activity of "accepting deposits". If the lending business does not have the regulatory permission to accept deposits, it would be in breach of UK legislation and may be committing a criminal offense. The FCA's view is that a loan-based crowdfunding platform that facilitates this type of behaviour is "acting in a manner inconsistent with [the FCA's] expectations for regulated firms" and may be in breach of regulatory requirements, in particular, breaching the FCA's Principles on treating customers fairly, the threshold conditions and business model requirements. Firms operating loan-based crowdfunding platforms have been asked to assess whether they are facilitating the relevant behaviour, and if so, to desist and consider the appropriate steps that should be taken to avoid facilitating such actions in the future. The FCA also requests the CEOs provide, by March 6, 2017, the details of the firms that they have concluded are accepting deposits without the requisite permission.
View the FCA's letter.TOPIC : Financial Services -
White House Withdraws Pair of Obama Administration Nominees for the Commodity Futures Trading Commission
02/28/2017
The White House withdrew the nominations of Brian Quintenz and Christopher Brummer to be commissioners of the US CFTC. The CFTC is currently operating with two commissioners. The full Commission consists of five commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms.
View the US Senate website noting the nominations withdrawn.TOPIC : People -
European Central Bank Launches Sensitivity Analysis on Effects of Interest Rate Changes
02/28/2017
The European Central Bank launched a sensitivity analysis of the banking books of directly supervised banks with a focus on interest rate changes. The analysis will be used to inform the ECB’s annual Supervisory Review and Evaluation Process and stress test. Under the Single Supervisory Mechanism, the ECB directly supervises significant banks, and indirectly supervises smaller or “less significant” banks, located in the Eurozone. The ECB is required to organize annual supervisory tests under the Capital Requirements Directive. The ECB will apply six hypothetical interest rate shocks, as set by the Basel Committee on Banking Supervision in the “Standards – Interest rate risk in the banking book”, which was published in April 2016. The ECB notes that the shocks will capture various scenarios with changes in the level and shape of the interest rate curve and will give the supervisors information on how the economic value of the banking book equity and the net interest income projections will change under each shock test. The exercise commenced on February 28, 2017 and the results will be used as part of the SREP assessment in calibrating the Pillar 2 guidance.
View the press release.
View 2017 stress test FAQs.
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Final Global Guidance on Unique Transaction Identifier Published
02/28/2017
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published Technical Guidance on the harmonization of the Unique Transaction Identifier. The development of a UTI was identified in September 2014 by the Financial Stability Board as a critical element for a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique product identifier and the harmonization of other key data elements. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date, 26 trade repositories have been established in 16 jurisdictions. The aggregation of data from those trade repositories is key to giving authorities a comprehensive view of the OTC derivatives market and activity.
Read more.TOPIC : Derivatives -
UK Definition of "Financial Advice" Set to Change from 2018
02/27/2017
HM Treasury published its response to its late 2016 consultation on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of "investment advice" set out in the Markets in Financial Instruments Directive. HMT is proceeding with the change as consulted on and will lay draft legislation before Parliament to give effect to the change. The Financial Conduct Authority published a statement about the change, setting out what the change will mean for firms advising on investments or providing a personal recommendation.
Read more. -
Timing for EU 2018 Stress Test Announced
02/27/2017
The European Banking Authority announced that the 2018 EU stress test would be launched at the beginning of 2018 and results would be published mid-2018. The EBA is currently preparing the methodology and templates and intends to discuss these with the industry in Q3 2017.
View the EBA's announcement. -
Committee on Payments and Market Infrastructures Publishes Analytical Framework of Distributed Ledger Technology
02/27/2017
The Committee on Payments and Market Infrastructures published a report on distributed ledger technology in payment, clearing and settlement. In the context of payment, clearing and settlement, DLT enables entities to carry out transactions without relying on a central entity to maintain a single ledger. Financial market infrastructures are entrusted by their participants with maintaining a central ledger and, in some cases, managing certain risks on behalf of participants. It has therefore been commented that DLT could reduce the reliance on a central ledger managed by a FMI.
The objective of the report is to provide central banks and authorities with an analytical framework for assessing DLT arrangements, focusing on those that involve restricted ledgers where access is limited to approved users only.
Read more. -
EU Corrections to Regulatory Technical Standards on Margin Requirements for Uncleared Transactions Enter Into Force
02/27/2017
A Commission Delegated Regulation amending the Regulatory Technical Standards on margin requirements for uncleared derivatives was published in the Official Journal of the European Union. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement the European Market Infrastructure Regulation. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin should be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as specifying a list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.
Read more.TOPIC : Derivatives -
European Commission Publishes Roadmap for Addressing National Barriers to Capital Flows
02/27/2017
The European Commission published a report on accelerating the Capital Markets Union by addressing national barriers to capital flows. The report is addressed to the European Parliament and the Council of the European Union. It focuses on issues that may impede investors' cross-border operations throughout the investment cycle. The report identifies what it sees as the main barriers to investment and sets out a suggested roadmap for Member States to address these barriers, most of which are actionable in 2017. The issues identified in the report include marketing requirements, administrative arrangements, regulatory fees for cross-border marketing, different approaches to crowdfunding, residence requirements, insufficient financial literacy, differences in insolvency regimes and withholding tax relief. Member States are invited to agree on the actions set out in the roadmap although the Commission may also consider whether any legislative proposals are appropriate.
Member States have also been invited to identify other barriers in CMU-relevant areas, such as national reporting requirements imposed in addition to existing EU legislation, barriers to the online distribution of investment funds, obstacles for smaller institutional investors ineligible for a passport under the Markets in Financial Instruments Directive and challenges involved in the distribution of retail financial products.
View the Commission's report. -
UK Financial Conduct Authority Publishes Final Changes to Rules on Delaying Disclosure of Information
02/24/2017
The Financial Conduct Authority published a Policy Statement and final changes to rules on delaying the disclosure of inside information in the Disclosure Guidance and Transparency Rules. Minor changes have been made since the FCA's consultation last year. The Market Abuse Regulation requires issuers publicly to disclose inside information which directly concerns them as soon as possible. MAR obliges the European Securities and Markets Authority to prepare Guidelines which further specify when an issuer might delay disclosure of inside information. ESMA's Guidelines, published on November 20, 2016, explain what would be considered a "legitimate interest", allowing an issuer to delay disclosure of inside information. It also provides a non-exhaustive indicative list of legitimate interests of the issuer that are likely to be prejudiced by the immediate disclosure of inside information and the situations in which delay of disclosure is likely to mislead the public, which include situations where the inside information which the issuer intends to delay disclosure of is materially different from the issuer's previous public announcement. ESMA's Guidelines have applied directly across the EU since January 10, 2017. The FCA has confirmed that it will comply with ESMA's Guidelines and the changes to the FCA's rules ensure that compliance. The final rules have been in force since February 24, 2017.
View the Policy Statement and final rules.
View ESMA's Guidelines. -
President Trump Signs Executive Order on Regulatory Reform
02/24/2017
President Trump signed the Enforcing the Regulatory Reform Agenda executive order that will establish a task force and regulatory reform officer at each US federal agency, appointed by agency heads. The purpose of these new roles will be to enforce the President’s agenda going forward, including the President’s previous executive order that requires agencies to repeal two rules for every new rule that they issue. The task forces are responsible for reviewing existing regulations within 90 days to determine if any can be repealed or amended.
View the Executive Order.TOPIC : Financial Services -
UK Regulator Publishes Proposals on Pillar 2A Capital Framework
02/24/2017
The Prudential Regulation Authority launched a consultation on proposed changes to the Pillar 2A capital framework. The Pillar 2A framework is effectively a layer of regulatory capital beyond standard requirements based on firm-specific quantitative requirements rather than regulatory discretion.
The PRA is proposing to revise the IRB benchmark, adjust the Pillar 2A approach for firms using the standardized approach for credit risk and include additional considerations for firms using both the standardized approach and IFRS as their accounting framework. The proposals are relevant to banks, building societies and PRA-designated investment firms. Responses to the consultation are due by May 31, 2017. The proposed implementation date for the updated Pillar 2A capital framework is January 1, 2018. The PRA will consider whether further changes are needed to the Pillar 2 framework as a result of the Basel Committee on Banking Supervision and the European Commission's related proposals.
View the consultation paper. -
US Securities and Exchange Commission Issues Guidance Update and Investor Bulletin on Robo-Advisers
02/23/2017
The US SEC published information and guidance for investors and the financial services industry on the use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online. Because of the unique issues raised by robo-advisers, the SEC’s Division of Investment Management issued a Guidance Update for robo-advisers that contains suggestions for how they can meet their disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940. Robo-advisers, as registered investment advisers, are subject to the substantive and fiduciary obligations of the Advisers Act. The Guidance Update notes that there may be a variety of means for a robo-adviser to meet its obligations to clients under the Advisers Act, and that not all of the issues addressed in the Guidance Update will be applicable to every robo-adviser.
Read more.TOPIC : Financial Services -
European Banking Authority Published Final Draft Technical Standards for Payment Service Providers
02/23/2017
The European Banking Authority published final draft Regulatory Technical Standards on the requirements of strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2). PSD2, which will apply from January 13, 2018, requires payment service providers to apply strong customer authentication measures where the payer accesses its payment account online, initiates an electronic payment transaction or carries out any action through a remote channel, which may imply a risk of payment fraud or other abuses.
The final draft RTS supplement PSD2 with requirements for: (i) strong customer authentication; (ii) exemptions from the authentication requirements depending on: the level of risk involved in the service provided, the amount, the recurrence of the transaction, or both or the payment channel used for the execution of the transaction; (iii) security measures to protect the confidentiality and the integrity of payment service users' personalized security credentials; and (iv) common and secure open standards of communication between account servicing payment service providers, Payment Initiation Services providers, Account Information Services providers, payers, payees and other payment service providers.
The EBA consulted on the draft RTS during 2016. Following consultation feedback, the EBA made changes to the final draft RTS. The final draft RTS have been submitted to the European Commission for consideration and adoption. It is proposed that the final RTS would apply 18 months after it comes into effect, therefore the earliest the requirements would apply from is November 2018.
View the final draft RTS.TOPIC : Payment Services -
Regulators Issue Guidance on Approach to Non-compliance with the Impending Variation of Margin Exchange Requirement
02/23/2017
The European Supervisory Authorities, the Financial Conduct Authority, the US prudential regulators, including the Federal Reserve Board and the Office of the Comptroller of the Currency, and the International Organization of Securities Commissions issued guidance as to the March 1, 2017 implementation of variation margin requirements on uncleared swaps. The guidance indicates how the respective supervisory authorities and regulators will approach compliance with the variation margin requirements.
The ESAs expect national regulators to apply their risk-based supervisory powers in day-to-day enforcement of the applicable legislation, including taking into account the size of the exposure to the counterparty and its default risk. The ESAs expect firms to document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained. The ESAs are not delaying application of the rules but are signaling that compliance will be evaluated on a case-by-case basis and they expect any compliance issues to be overcome in the next few months. This is a not dissimilar to the approach taken to reporting under EMIR, when practicalities prevented many persons from being able to connect to a trade repository on time, and no prosecutions were made for late compliance.
Read more.TOPIC : Derivatives -
US House Financial Services Committee Chairman Jeb Hensarling Sends Letter to Janet Yellen Regarding New Rulemakings
02/23/2017
US House Financial Services Committee Chairman Jeb Hensarling and the other 33 Republican members of the Committee sent a letter to US Board of Governors of the Federal Reserve System Chair Janet Yellen. Although Chair Yellen had stated in recent testimony that the Federal Reserve Board would abide by President Trump’s January 30, 2017 regulatory freeze, the letter further urged the Chair to refrain from proposing or adopting any new rules, absent an emergency, until the Senate confirms a Vice Chairman for Supervision of the Federal Reserve Board. The letter stated that if the Federal Reserve Board proceeded with adopting rules prior to the confirmation of a Vice Chairman, the lawmakers would work to “ensure that Congress scrutinizes the Federal Reserve’s actions - and, if appropriate, overturns them - pursuant to the Congressional Review Act.”
View the letter.
TOPIC : Financial Services -
US Federal Reserve Board Announces Annual Adjustment to the Asset-Size Threshold in Regulation I
02/22/2017
The US Federal Reserve Board announced the annual adjustment to the asset-size threshold in Regulation I, which determines the dividend rate that certain member banks earn on their Federal Reserve Bank stock. The updated total consolidated asset threshold is $10,122,000,000.
The Fixing America’s Surface Transportation (FAST) Act of 2015 provides that depository institution stockholders with total consolidated assets above the asset-size threshold shall receive a dividend on paid-in capital stock equal to the lesser of (i) 6 percent or (ii) the most recent 10-year Treasury auction rate prior to the dividend payment. The dividend rate for other member banks remains at 6 percent.
View notice. -
Global Loan Fund Survey Reveals No Regulatory Action Required at Present
02/20/2017
The International Organization of Securities Commissions published a report on the findings of the survey on loan funds that was carried out during 2016. The report covers loan funds in the area of investment funds and includes open-ended and close-ended funds, retail and professional investor funds. However, the report does not cover any type of securitization position or securitization special purpose vehicle. IOSCO concludes that further work on loan funds is not required at this stage because the loan fund market is a small, niche market and most jurisdictions consider that the rules already in place for funds are sufficient to address the specificities of loan funds, including the liquidity, credit and systemic risks that loan funds may pose. IOSCO will continue to monitor the loan fund market and will consider whether further work is required as the market develops.
View the report. -
European Supervisory Authorities Warn that Further Steps are Required on AML/CFT
02/20/2017
The European Supervisory Authorities published a joint Opinion on the risks of money laundering and terrorist financing affecting the EU’s financial sector. The ESAs - the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority - are required by the Fourth Money Laundering Directive to prepare the Opinion. The Opinion is intended to inform the European Commission's assessment of the AML and CFT risks affecting the EU financial market, inform the ESA's work on enhancing supervisory convergence and assist national regulators applying the risk-based approach to AML/CFT supervision. The Opinion sets out the AML/CFT risks that the EU financial sector is exposed to which include, amongst other things, ineffective systems and controls, regulatory arbitrage, lack of access to intelligence on terrorist suspects and the movement of high-risk transactions out of the regulated sector. The ESAs conclude that more is needed to ensure that the EU's AML and CFT defenses are effective, particularly as Member States move to a more risk-based AML/CFT regime. Some existing initiatives will help to address the risks, such as the proposed amendments to the Fourth Money Laundering Directive and the relevant Guidelines issued by the ESAs. However, the ESAs consider that enforcement agencies could assist by ensuring that financial institutions have timely access to relevant information, that national regulator could proactively raise awareness of supervisory expectations, including by providing targeted guidance, that national regulators should collect AML/CFT data in a more consistent manner to facilitate comparisons and track progress and that the EU authorities should identify ways to ensure that the EU's AML/CFT laws and guidelines are implemented effectively and consistently across the EU.
View the Opinion. -
New York State Department of Financial Services Finalizes Cybersecurity Regulation
02/16/2017
The New York State Department of Financial Services issued its final cybersecurity regulation for financial services companies. The final regulation, which takes effect March 1, 2017, requires banks, insurance companies, and other financial services institutions regulated by the NYSDFS to establish and maintain a cybersecurity program designed to protect consumers’ private data based on an assessment of its risk profile. The NYSDFS initially proposed the regulation in September 2016 and then revised and re-proposed the regulation in December 2016. The final rule requires that the program be adequately funded and staffed, overseen by qualified management, and reported on periodically to the most senior governing body of the organization. Additionally, the officer of each covered financial services companies must annually certify their compliance to the NYSDFS. The final rule contains several changes from the original proposal including clarification on the ability of a covered financial services company to rely on an affiliate’s cybersecurity program to satisfy the rule and expanded exemptions including for entities with limited activities in New York.
View the final rule.TOPIC : Cyber Security -
US Office of the Comptroller of the Currency Issues Revised Comptroller’s Licensing Manual Booklet
02/16/2017
The OCC issued a revised version of the “Changes in Directors and Senior Executive Officers” booklet of the Comptroller’s Licensing Manual. This revised booklet replaces the prior version which was issued in October 2009, and incorporates updated regulations that became effective July 1, 2015, addressing changes in directors and senior executive officers of national banks, federal savings associations, and federal branches of non-US banks. Specifically, the revised booklet explains when prior notice for changes in directors and senior executive officers is required, provides institutions with information regarding the contents of complete notices and addresses the 90-day review period.
View the updated booklet.
TOPIC : Corporate Governance -
Bank of England Re-Proposes Averaging Methodology for SONIA
02/16/2017
The Bank of England published a supplementary consultation paper on its revised proposed averaging methodology to be used for the Sterling Overnight Index Average Interest Rate Benchmark, known as SONIA. The BoE took over as administrator of SONIA on April 25, 2016. SONIA is currently based on a market for brokered deposits which has limited transaction volumes. In October 2016, the BoE consulted on its proposals to reform SONIA in four areas, including the SONIA calculation methodology. The Bank proposed to switch the current calculation to measuring the average rate using a volume-weighted median, rather than a volume-weighted mean. Following feedback to that proposal, the BoE is now proposing that SONIA be calculated as the volume-weighted trimmed mean rate of eligible transactions. This is calculated by removing transactions at outlying rates and calculating the mean of the remaining transactions.
Responses to the consultation are due by March 16, 2017. By the end of March 2017, the BoE intends to publish its final approach to the design of SONIA and the transition and publication arrangements in a summary and response to feedback document which will cover both this consultation and the October 2016 consultation. The BoE had intended to transition from the current benchmark to the proposed reformed SONIA between October and December of 2017. However, the BoE now expects that the transition will take place in March or April 2018.
View the consultation paper. -
European Banking Authority Consults on Draft Guidelines on Complaints of Alleged Infringements of PSD2
02/16/2017
The European Banking Authority published for consultation draft Guidelines on complaints procedures for alleged infringements of the Payments Services Directive 2 by payment service providers. The PSD2 provides for payment service users and other interested parties, including consumer associations, to submit complaints to national regulators regarding alleged infringements of the PSD2 requirements by payment service providers.
The proposed Guidelines will apply to national regulators of payment service providers. The proposed Guidelines require national regulators to have two different means by which a complaint can be submitted and to publicly disclose information on their procedures for complaints of alleged infringements. National regulators will be required to request certain information from complainants and also to provide complainants with certain information in response to their complaint. Furthermore, national regulators will need to have procedures in place to collate and analyze aggregated complaints information so that they can assess, for example, the nature of the most common types of complaints and the identity of the payment service providers subject to the most complaints. Responses to the consultation are due by May 16, 2017. The final Guidelines will apply from January 13, 2018 and will be updated on a regular basis thereafter.
View the consultation paper.TOPIC : Payment Services -
US Securities and Exchange Commission Extends Interim Final Rules Granting Exemptions for Security-Based Swaps
02/15/2017The US Securities and Exchange Commission adopted amendments to the expiration dates in its interim final rules that provided exemptions for certain securities-based swaps. The July 2011 interim final rules provided for exemptions under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 for security-based swaps that were security-based swap agreements prior to July 16, 2011 but are defined as “securities” under the Securities Act of 1933 and the Securities Exchange Act of 1934 solely because of Title VII of the Dodd-Frank Act. Under the July 2011 interim final rules, the exemptions were set to expire on February 11, 2013. The SEC has previously extended the exemption, first to February 11, 2014, then to February 11, 2017, and now to February 11, 2018. In its release, the SEC noted that the extension was being granted to avoid disruption in the security-based swaps market while the SEC continues to consider the impact of Title VII and whether regulatory action is appropriate.
View the interim final rule.TOPIC : Derivatives -
UK Regulator Publishes Data Suggesting Minor Decline in UK Corporate Bond Market Liquidity Conditions
02/15/2017
The Financial Conduct Authority published a research paper summarizing its most recent research into liquidity conditions in the UK corporate bond market. The report concludes that there has been a general decline in liquidity since mid-2014. This stands in contrast to previous research undertaken by the FCA for the period between 2008 and 2014 which found little evidence of a quantifiable deterioration in liquidity. The publication extends the analysis to include the period after 2014 incorporating new data about orders and quotes with a finding that there has been a moderate decline in transaction-based proxies for liquidity. The research also highlights that there has been an increase in the amount of failed or rejected trades, an increase in the amount of time taken to fill an order, decline in dealer quote rates on electronic bond trading platforms as well as a slight widening of some quoted and effective bid-ask spreads. The paper concludes that the combination of the information suggests that trading conditions in the UK have become more difficult over the past 18-24 months, however, the market is still relatively robust.
View the research paper.TOPIC : Securities -
European Securities and Markets Authority Concerned About MiFID II Loopholes
02/14/2017
The European Securities and Markets Authority published a letter, dated February 1, 2017, from it to the European Commission about the potential for loopholes to be exploited in the revised Markets in Financial Instruments package, known as MiFID II. MiFID II comes into effect on January 3, 2018. Part of the aim of MiFID II is to close some of the loopholes that were identified in the existing MiFID I legislation, including by ensuring that investment firms that operate internal matching systems and execute client orders on a multilateral basis become authorized as a trading venue. ESMA expresses the concern that certain investment firms that currently operate broker-crossing networks might seek to circumvent the provisions of MiFID II by setting up networks of interconnected systematic internalisers. ESMA commits itself to monitoring developments closely and states that it may consider clarifying the scope of the permitted activities of SIs as well as the characteristics of multilateral systems via Q&As. ESMA requests the Commission to consider whether it should adopt any legislation that might further clarify the definitions and concepts in MiFID II to prevent the loophole being exploited.
View the letter.TOPIC : MiFID II -
UK Regulator Proposes Changes to UK Listing Rules
02/14/2017
The Financial Conduct Authority has published a consultation paper proposing amendments to the Listing Rules of the FCA's Handbook. The FCA is proposing to, among other matters, (i) clarify the premium listing eligibility requirements and introduce new technical notes and additional guidance to give more context to the rules; (ii) introduce a new concessionary route to premium listing for certain property companies that cannot meet the track record requirements so that a property valuation report may be used to assess the company's eligibility for a premium listing; (iii) introduce new technical notes on the concessionary routes; (iv) amendments to the profit test within the class tests which are used to determine which governance requirements a premium listed issuer must comply with for certain large transactions; and (v) in the context of reverse takeovers, reversing the assumption of insufficient information being available to the market where a target issuer cannot provide that information so that the assumption will be that the market can operate smoothly on the basis of information that listed companies make publicly available as part of their disclosure of inside information requirements under MAR.
The FCA's discussion paper on the review of the effectiveness of the UK primary markets should be read in conjunction with the consultation paper. Responses to the FCA's proposed rule changes are requested by May 14, 2017. The FCA intends to publish its final rules in a Policy Statement in the second half of 2017.
View the consultation paper.
View the discussion paper. -
UK Regulator Launches Review of UK Primary Markets
02/14/2017
The Financial Conduct Authority launched its review into the effectiveness of primary markets by publishing a discussion paper on the UK primary markets landscape. The FCA is seeking views on how the UK primary capital markets can meet the needs of investors and operate effectively. It includes an overview of the UK's primary markets, how the listing regime fits in, the FCA's regulatory role and key trends in the UK's primary equity markets.
Read more. -
US Commodity Futures Trading Commission Issues Time-Limited No-Action Transition for March 1, 2017 Compliance Date for Variation Margin and No-Action Relief from Minimum Transfer Amount Provisions
02/13/2017
The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued a time-limited no-action letter (CFTC staff letter 17-11) which provides that, from March 1, 2017 to September 1, 2017, DSIO will not recommend an enforcement action against a swap dealer for failure to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date. The no-action letter does not postpone the March 1, 2017 compliance date for variation margin, rather it allows market participants a grace period to come into compliance. DSIO believes that without a sufficient transition period, there could be a significant impact on the ability to hedge positions for pension funds, asset managers and insurance companies that manage Americans’ retirement savings and financial security. This sort of phased compliance has been used many times in the implementation of the swaps rules contained in the Dodd-Frank Act.
Read more.TOPIC : Derivatives -
Legislation Introduced in the US Congress to Repeal and Reform the Consumer Financial Protection Bureau
02/13/2017
H.R. 1018 was introduced in the US House of Representatives which would alter the current governance structure of the Bureau of Consumer Financial Protection. Like a comparable bill that was introduced in the US Senate (S. 105), H.R. 1018 would replace the role of director of the Bureau with a 5-person commission. Other notable provisions that members of the commission will serve staggered terms, and that no more than 3 members can be from a single political party.
On February 17, 2017, H.R. 1031 was introduced in the US House of Representatives which seeks to repeal the Bureau of Consumer Financial Protection. A corresponding version of the bill, which calls for the Bureau to be eliminated by repealing title X of Dodd-Frank, was introduced in the US Senate (S. 370).
View H.R. 1031.
View H.R. 1018. -
Steven T. Mnuchin Sworn in as US Secretary of Treasury
02/13/2017
Steven T. Mnuchin was sworn in to serve as the 77th Secretary of the US Treasury. In this role, Secretary Mnuchin will be the principal economic advisor to President Trump on domestic and international financial, economic and tax issues. Secretary Mnuchin succeeds Jacob J. Lew, who served in the position under President Obama.
View Treasury’s press release.TOPIC : People -
Daniel K. Tarullo Submits Resignation as Member of the US Federal Reserve Board
02/10/2017
Daniel K. Tarullo submitted his resignation as a member of the US Federal Reserve Board, effective on or around April 5, 2017. He has been a member of the Federal Reserve Board since January 28, 2009.
View copy of Tarullo’s resignation letter.TOPIC : People -
EU Consultation on Proposed Draft Technical Standards on Central Contact Points for AML and CFT Purposes
02/10/2017
The Joint Committee of the European Supervisory Authorities launched a consultation on proposed Regulatory Technical Standards on the criteria for when a central contact point is appropriate and the functions of the central contact point. The Fourth Money Laundering Directive requires electronic money issuers and payment service providers with their headquarters in one EU member state and one or more establishments in other EU member states (other than as a branch) to appoint a central contact point in those other member states to ensure compliance with anti-money laundering and counter-financing terrorism rules and to facilitate supervision by the national authorities, including by providing documents and information on request. The ESAs (comprised of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) have published a proposed draft RTS which supplements those requirements by setting out the criteria that member states should consider when deciding whether a central contact point should be established and what functions it should carry out. If a member state does not require a central contact point to be established, the draft RTS would not apply. Each member state will be required to decide who the central contact point should be and how it should be set up.
View the consultation paper. -
US Federal Bank Regulators Issue Revised Economic Scenarios for 2017 Stress Testing
02/10/2017
The US Federal Reserve Board, the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation each released revised economic scenarios for use by certain financial institutions with total consolidated assets of more than $10 billion for the 2017 stress tests as required under the Dodd-Frank Act. The agencies had previously issued scenarios on February 6, 2017 however, these scenarios contained incorrect historical values for the BBB corporate yield in 2016.
The scenarios represent baseline, adverse and severely adverse scenarios and include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates and other relevant aspects of the economy and financial markets. While the baseline scenario represents expectations of private sector economic forecasters, the adverse and severely adverse scenarios are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions.
View Federal Reserve Board’s revised stress test scenarios.
View OCC’s stress test scenarios.
View FDIC’s revised stress test scenarios.
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UK Government Publishes Final Policy on Transposing MiFID II
02/09/2017
HM Treasury published a paper summarizing responses to its consultation on the transposition of the revised Markets in Financial Instruments Directive and three draft statutory instruments to facilitate transposition. Member States are required to adopt measures transposing MiFID II by July 3, 2017 and to apply the provisions from January 3, 2018. HM Treasury consulted on MiFID II transposition in March 2015 and sought feedback on draft legislation to facilitate transposition and its proposed policy approach to access for third country firms, data reporting services, position limits and reporting, unauthorised persons, structured deposits, the power to remove board members, organised trading facilities and binary options. Most respondents broadly agreed with the proposed measures for transposition. However, further guidance has been provided on numerous aspects of the proposed legislation. Since the consultation, a number of further issues in MiFID II requiring further legislative amendments as part of transposition have been identified and are included in the draft legislation and detailed in the report. HM Treasury notes that despite the UK voting to leave the EU, until exit negotiations are concluded, the UK remains a full member of the EU and must comply with MiFID II accordingly.
TOPIC : MiFID II -
Revised EU Commodity Derivatives Position Reporting Standards Published
02/09/2017
The European Securities and Markets Authority published revised final draft Implementing Technical Standards on the format of position reports by market operators and investment firms. The revised Markets in Financial Instruments Directive requires national regulators to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits will apply to the size of a position that a person can hold, including any other positions held on behalf of that person by group entities. Market operators and investment firms will be subject to certain position reporting requirements. The position reporting regime is intended to support the application and enforcement of position limits.
ESMA has revised the ITS that it submitted to the European Commission for endorsement in December 2015 because of difficulties experienced in implementing the original ITS in practice. Among other things, the revised ITS remove the obligation for positions to be reported gross. ESMA has submitted the revised ITS to the European Commission for endorsement. The MiFID II package will apply from January 3, 2018.
View the revised ITS.
TOPIC : MiFID II -
New Deputy Governor for Markets and Banking at the Bank of England
02/09/2017
HM Treasury announced that Charlotte Hogg had been appointed Deputy Governor for Markets and Banking at the Bank of England, effective March 1, 2017. Ms. Hogg will take over the role in addition to continuing her current role as Chief Operating Officer of the Bank of England. Ms. Hogg is replacing Minouche Shafik, who is taking up the role of Director at the London School of Economics in September 2017.
View the news release.
TOPIC : People -
Final Draft Technical Standards on the Exclusion of Transactions with Non-EU Non-Financial Counterparties from Credit Valuation Adjustment Risk
02/09/2017
The European Banking Authority published final draft Regulatory Technical Standards on the procedures for excluding transactions with non-financial counterparties established in a third country (which do not hold positions over the clearing threshold, or so called NFC-s) from the own funds requirement for credit valuation adjustment risk. The final draft RTS will supplement the requirements of the Capital Requirements Regulation. The EBA consulted on proposed draft RTS in August 2015. Firms' transactions with any NFC- will be excluded from the own funds requirements for CVA risk under the CRR, whether or not the NFC- is established in the EU. As NFC-s established in non-EU countries are not subject directly to EU regulation, the final draft RTS clarify that firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds. The EBA has also included an option for firms to verify the status of third country counterparties at the time of trade inception or on a periodic basis to take account of the situation that firms frequently enter into trades with NFC-s established in a third country. The final draft RTS align the treatment of NFC-s established in a non-EU country with the treatment of NFC-s established in the EU as recommended by the EBA in its February 2015 report. The final draft RTS has been submitted to the European Commission for endorsement.
View the RTS.
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UK Regulator Takes Enforcement Action Against Firms for Failing to be Open and Cooperative
02/09/2017
The Prudential Regulation Authority fined The Bank of Tokyo Mitsubishi UFJ Ltd and MUFG Securities EMEA plc for failing to be open and cooperative with the PRA about an enforcement action into BTMU by the New York Department of Financial Services. The DFS had investigated BTMU regarding possible breaches of US sanctions laws about which a settlement was reached in 2014. BTMU was fined by the PRA for breaching Fundamental Rules 6 and 7 of the PRA Rulebook in that it failed to communicate relevant information about its settlement with the DFS which meant that the UK regulatory implications were not adequately considered and that its reporting responsibilities to the PRA could not be met. BTMU also failed to inform the PRA of relevant information relating to the DFS matter. MUS was fined for breaching Fundamental Rule 7 because it failed to inform the PRA of the potential implications of the DFS matter for a senior MUS individual, which meant that the PRA could not consider whether the circumstances did or might impact that individual's fitness and propriety. BTMU and MUS were was fined £17,850,000 and £8,925,000 respectively, both figures incorporating a 30% discount, pursuant to the PRA Settlement Policy, which the firms qualified for because they agreed to settle at an early stage of the PRA's investigation.
View the PRA's final notice.
View the DFS consent order.TOPIC : Enforcement -
US Federal Reserve Board Announces Retirement of General Counsel Scott G. Alvarez
02/08/2017
The US Federal Reserve Board announced that Scott G. Alvarez, general counsel, will retire later in 2017, after nearly 36 years of service to the Federal Reserve Board. The Federal Reserve Board will begin a search for his successor.
View the Federal Reserve Board press release.TOPIC : People -
UK Financial Conduct Authority Discusses Open-Ended Funds Holding Illiquid Funds
02/08/2017
The Financial Conduct Authority published a Discussion Paper on open-ended investment funds investing in illiquid assets. The FCA is seeking feedback on whether its rules and regulatory approach to open-ended funds that hold illiquid assets are appropriate. The paper considers some of the risks that may arise when investors use open-ended investment funds to gain exposure to illiquid assets such as land, buildings, infrastructure and unlisted securities. The FCA is concerned that fund managers that manage funds that hold illiquid assets may face challenges when investors want to withdraw their funds quickly and at short notice. These include achieving realistic valuations of the underlying assets, and whether the need to accept increased redemption requests might lead a manager to favor exiting investors over those that wish to keep their money in the fund, particularly under stressed conditions. The results of the UK's referendum on whether to leave the EU led to uncertainty in the financial markets and open-ended funds had to work out how to value their property portfolios accurately and how to manage a significant increase in redemptions. The FCA paper describes the liquidity management issues experienced by certain UK property funds and how the FCA responded to those issues, describes the current UK regulations that apply to funds investing in illiquid funds and makes suggestions for possible approaches to the regulation of liquidity.
The FCA has requested feedback on the points raised by May 8, 2017. Once it has assessed the responses, the FCA will decide whether it needs to amend its rules or policy approach. If changes are required, the FCA will publish a consultation paper setting out its proposals.
View the Discussion Paper.TOPIC : Funds -
International Organization of Securities Commissions Publishes FinTech Research Report
02/08/2017
The International Organization of Securities Commissions published a research Report on financial technologies, or FinTech – innovative business models and emerging technologies that have the potential to transform the financial services industry. The Report focuses on the delivery of securities and capital markets products and services through FinTech, examining financing platforms, retail trading and investment platforms, institutional platforms and distributed ledger technologies. The Report analyzes the risks, benefits and opportunities of the products and services and summarizes some of the most recent regulatory responses.
View the Report.
TOPIC : FinTech -
EU Technical Standards on Additional Collateral Outflows for Derivative Transactions Published
02/08/2017
A Commission Delegated Regulation, in the form of Regulatory Technical Standards, on additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution's derivatives transactions was published in the Official Journal of the European Union. The Capital Requirements Regulation requires firms to add an additional outflow for collateral needs that would result from an adverse market scenario on a firm's derivatives transactions, financing transactions and other contracts if material. Due to materiality considerations, the EU has adopted the RTS for derivatives transactions first. The rules apply only to collateralized derivative transactions, including those that mature within 30 days. The RTS require that the calculation of the additional collateral outflows be based on the Historical Look Back Approach for market valuation changes developed by the Basel Committee on Banking Supervision. The text of the final RTS does not materially differ from the revised draft RTS, which the European Banking Authority submitted to the European Commission on May 3, 2016. The RTS will enter into force on February 28, 2017 and will apply directly across the EU.
View the RTS. -
European Authority Rules Out Regulating Distributed Ledger Technology for Now
02/07/2017
The European Securities and Markets Authority published a Report on the application of Distributed Ledger Technology to the securities markets. Distributed ledgers, sometimes referred to as blockchains, are essentially records or ledgers of electronic transactions that are maintained by a shared or distributed network of participants instead of a centralized entity. ESMA consulted in late 2016 on how DLT applies to securities markets. The Report provides ESMA's analysis of the key risks and benefits of DLT as applied to securities markets and how DLT maps to existing EU regulation.
ESMA is of the view that DLT could provide a number of benefits to securities markets but is also concerned that it may introduce new risks or magnify existing risks. Benefits of DLT include more efficient clearing and settlement services, enhanced reporting and supervision functions at firms and regulators for data sharing and risk management purposes, reduced costs related to the development of recovery plans in a cyber-attack or system breakdown scenario, reduced counterparty risk and enhanced collateral management. ESMA is concerned with a variety of risks, in addition to the well-documented issues of cyber security and fraud, such as the possible ramifications for market fairness and competition as well as financial instability.
Read more. -
US Commodity Futures Trading Commission Provides Time-Limited No-Action Relief for Aggregation Notice Filings for Position Limits
02/06/2017
The CFTC’s Division of Market Oversight issued a time-limited no-action letter stating that, from February 14, 2017 to August 14, 2017, it will not recommend an enforcement action for failure to file a notice when relying on certain aggregation exemptions from federal position limit levels. Absent this relief, on February 14, 2017, market participants would have been required to file notices to rely on certain aggregation exemptions under CFTC regulation 150.4(c).
DMO also announced the availability of a portal that provides the form and manner for filing aggregation exemption notices. This new portal is available on the Forms & Submissions page of www.cftc.gov.
Although the no-action letter provides temporary relief from the aggregation notice filing compliance date of February 14, 2017, DMO is providing the portal for participants who choose, of their own accord during the relief period, to file a notice with the CFTC of their intent to take advantage of certain aggregation exemptions under CFTC regulation 150.4(c).
View CFTC staff letter.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Releases CCAR Stress Test Scenarios for 2017
02/03/2017
The US Board of Governors of the Federal Reserve System released the scenarios to be used by banks and supervisors for the 2017 Comprehensive Capital Analysis and Review and stress test exercises (DFAST) mandated by the Dodd-Frank Act. The Federal Reserve Board concurrently issued instructions to firms participating in CCAR. For the 2017 cycle, a total of 13 of the largest and most complex bank holding companies will be subject to both the quantitative evaluation of their capital adequacy as well as a qualitative evaluation of their capital planning capabilities. The Federal Reserve Board had announced earlier, on January 30, 2017, that 21 firms with less complex operations will no longer be subject to the qualitative portion of CCAR.
Read more. -
EU Standards on Benchmarking Portfolio Assessments Published
02/03/2017
A Commission Delegated Regulation in the form of Regulatory Technical Standards for benchmarking portfolio assessment standards and assessment-sharing procedures was published in the Official Journal of the European Union. The RTS supplement the Capital Requirements Directive. The CRD requires that national regulators monitor the range of risk-weighted exposure amounts or own funds requirements (except as regards operation risk) for the exposures or those relating to transactions in benchmark portfolios resulting from the internal approaches adopted by firms. Regulators are also required to assess, at least annually, the quality of the relevant approaches adopted by firms. The EBA is required to assist regulators in their assessments. The RTS set out the standards for the assessment by national regulators and procedures for sharing of those assessments with other relevant EU national regulators and with the EBA. The RTS enter into force on February 23, 2017 and will apply directly across the EU.
View the RTS.
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President Trump Issues Presidential Memorandum Mandating Reconsideration of the Fiduciary Rule
02/03/2017
President Trump issued a Presidential Memorandum requiring the US Department of Labor to reconsider its proposed “fiduciary rule,” which subjects many of the investment recommendations from financial advisors to retail retirement clients to ERISA’s fiduciary standards and remedies. The Memorandum directs the Department of Labor to prepare an updated economic and legal analysis of the rule to determine whether, among other things, it may adversely affect the ability of Americans to gain access to retirement information and financial advice.
Read more.TOPIC : Financial Services -
President Trump Signs Executive Order on Financial Regulatory Reform
02/03/2017
President Trump signed an executive order setting forth “core principles” in the regulation of the US financial system and directing the Treasury Secretary to review and report back to the President within 120 days on the extent to which current government policies promote those principles and recommendations for actions to promote them. The core principles include the following: “prevent taxpayer-funded bailouts”; “foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry”; “enable American companies to be competitive with foreign firms in domestic and foreign markets”; “advance American interests in international financial regulatory negotiations and meetings”; and “restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.”
View Shearman & Sterling publication on the Trump executive order.
View executive order text.TOPIC : Financial Services -
UK Government Consults on Implementing the Revised EU Payment Services Directive
02/02/2017
The UK Government launched a consultation on implementation of the revised EU Payment Services Directive in the UK. The new Payment Services Directive (known as PSD2) aims to make payments between Member States as secure, easy and efficient as those made within a Member State. PSD2 focuses on electronic payments and payment services within the EU, regulating new types of payment services and payment services providers, which are currently unregulated, and stimulating competition in the electronic payments market.
The Government's consultation comprises a consultation on issues to be considered in implementing PSD2 in the UK and proposed draft regulations. The draft regulations will revoke the existing Payment Services Regulations although large parts of the new draft regulations will replicate parts of the existing PSRs. Consequential changes will also be required to other UK legislation, including the Electronic Money Regulations 2011. The consultation is relevant to banks, building societies, e-money institutions, payment institutions and payment users.
Read more.TOPIC : Payment Services -
Financial Stability Board Consults on Guidance on CCP Resolution and Resolution Planning
02/01/2017
The Financial Stability Board published proposed Guidance on central counterparty resolution and resolution planning. The aim of the proposed Guidance is to assist national authorities and FSB member jurisdictions in implementing effective resolution regimes, credit resolution strategies and plans for CCPs that are consistent with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions and the financial market infrastructure guidance annexed to the Key Attributes. The FSB published a Discussion Note on August 16, 2016 which sought feedback on aspects of CCP resolution that are key to the design of effective resolution strategies. The FSB's proposed Guidance is based on responses to that Discussion Note as well as further consultations with FSB member authorities. The FSB is seeking feedback on, amongst other things, the powers that resolution authorities should have to maintain the continuity of critical CCP functions, return the CCP to a matched book and address default and non-default losses, the treatment of equity of existing CCP owners in a CCP resolution and cross-border enforcement of resolution actions. Among others, it is proposed that resolution authorities should have power to write down initial margin as well as variation margin. The assessment for the "no creditor worse off" test is proposed to be based upon what would happen following exercise of all CCP post-default powers. Responses to the consultation are requested by March 13, 2017.
View the consultation paper.
View the FSB's summary of responses to the discussion paper.
View the discussion paper. -
UK Regulators Finalize Changes to Enhance Their Enforcement Decision-Making Processes
02/01/2017
The Financial Conduct Authority and Prudential Regulation Authority published a joint Policy Statement on changes to their enforcement decision-making processes. The changes are in response to the recommendations set out in HM Treasury's Review of enforcement decision-making at the financial services regulators (known as the Enforcement Review), published in December 2014, and the report by Andrew Green QC in the enforcement actions following the failure of HBOS (known as the Green Report), published in November 2015. The Enforcement Review and the Green Report made three overlapping recommendations about the regulators' decision-making processes covering pre-referral decision-making, communication and cooperation between and within the regulators and informing the subject of an investigation about the matters under investigation.
Read more.TOPIC : Enforcement -
Latest EU Report on High Earners Published
02/01/2017
The European Banking Authority published a Report on high earners using data accumulated as at the end of 2015. The Capital Requirements Directive, as amended, imposes compensation requirements on banks for staff who are considered to have a material impact on the bank's risk profile, and there is a cap on the ratio of fixed to variable compensation for identified staff – known as the bonus cap. The EBA is required to publish aggregated data on high earners who earn EUR1 million or more per financial year. The EBA's report analyzes information for the year 2015 and compares it to 2014 data. The analysis shows, amongst other things, that the number of high earners awarded EUR 1 million or more in annual remuneration has increased by 33%, largely as a result of changes in the exchange rate between the euro and pound sterling. The number of identified staff was largely unchanged between 2014 and 2015.
In previous years the EBA has published this data at the same time as the benchmarking of remuneration trends. Going forward, the benchmarking information will be published only biannually. The data on high earners will continue to be published annually.
View the Report.
TOPIC : Compensation -
European Securities and Markets Authority Announces Details of 2017 EU-Wide CCP Stress Test
02/01/2017
The European Securities and Markets Authority announced details of the 2017 EU-wide CCP stress test exercise. The European Market Infrastructure Regulation requires ESMA to conduct the exercise at least once per year to assess the resilience and safety of the EU’s CCPs from a systemic risk viewpoint. The exercise covers 17 EU CCPs and includes all products currently cleared by the CCPs. ESMA may issue recommendations to address any issues that are highlighted by the exercise. The results of the exercise are expected to be published in Q4 2017.
View ESMA's announcement and framework methodology. -
UK Prudential Regulation Authority Finalizes Reporting and Prudential Requirements for Ring-Fenced Banks
02/01/2017
The UK Prudential Regulation Authority published a Policy Statement, final rules and updates on several Supervisory Statements on the reporting, prudential and recovery and resolution requirements to implement the ring-fencing requirements for banks. The PRA's policy and final rules are relevant to all firms that are required to ring-fence their core banking activities before the implementation date of January 1, 2019. These firms are, broadly speaking, those with at least £25 billion of “core” deposits (defined as deposits from individuals and small businesses) and those that expect to exceed the threshold by January 1, 2019. UK banking groups that have more than £25 billion of core deposits will need to ring-fence the entity or entities that accept core deposits - called ring-fenced bodies - by transferring other business lines to different legal vehicles or undertaking other business separations.
Read more.TOPIC : Bank Structural Reform -
Senate Finance Committee Approves Nomination of Steven Mnuchin for Treasury Secretary
02/01/2017
The US Senate Finance Committee approved the nomination of Steven Mnuchin to serve as Secretary of the Treasury, overruling an attempt by Senate Democrats to stall the nomination vote by boycotting the committee hearing by temporarily suspending committee rules that require at least one Democratic committee member to be present to conduct business. The full US Senate is expected to vote on his nomination the week of February 6th.
View results of the Senate Finance Committee vote.TOPIC : People -
Proposed EU Guidelines on Transfer of Data Between Trade Repositories
01/31/2017
The European Securities and Markets Authority launched a consultation on proposed Guidelines on the transfer of data between trade repositories. The European Market Infrastructure Regulation requires counterparties and CCPs to report trades to a trade repository while ensuring that details of their derivatives contracts are reported without duplication. EMIR also requires trade repositories to maintain reported information for a period of ten years following the termination of the derivative. -
UK Policing and Crime Act Receives Royal Assent
01/31/2017
The Policing and Crime Act 2017 was enacted. The Act has wide reaching implications, including for the financial services industry. Among other things, the Act creates new civil monetary penalties and increases the maximum term of imprisonment for breaches of financial sanctions in the UK. The new monetary penalties regime will be administered by the Office of Financial Sanctions Implementation, which was established on March 31, 2016 and sits within HM Treasury. The OFSI may impose a monetary penalty if it is satisfied, on the balance of probabilities, that a breach has been committed and the offending person knew or had reasonable cause to suspect that their actions would be in breach of the obligations under the financial sanctions legislation. The maximum term on conviction for indictment has been set at seven years, and at six months for summary conviction.
Read more. -
State Financial Regulators Release Anti-Money Laundering Compliance Tool
01/31/2017
State financial regulators released a new, voluntary tool designed to help banks and non-depository financial institutions better manage Bank Secrecy Act/Anti-Money Laundering risk. The BSA/AML Self-Assessment Tool was developed by the Conference of State Bank Supervisors and state regulators and aims to help institutions better identify, monitor and communicate BSA/AML risk. In this way, the tool is intended to reduce uncertainty surrounding BSA/AML compliance and encourage greater transparency within the financial sector.
View the CSBS press release regarding the BSA/AML Self-Assessment Tool. -
US Consumer Financial Protection Bureau Issues Compliance Guide on Prepaid Rule and Remittance Transfers
01/31/2017
The CFPB provided summary and highlights information regarding the implementation of the Prepaid Rule, which creates tailored provisions for prepaid accounts governing disclosures, limited liability and error resolutions, and periodic statements. The CFPB concurrently issued a compliance guide on remittance transfers.
View the CFPB compliance guide on the Prepaid Rule.
View the CFPB compliance guide on remittance transfers.TOPIC : Consumer Protection -
Republican Lawmaker Calls on Federal Reserve to Freeze Talks on International Regulatory Standards
01/31/2017
Representative Patrick McHenry (R-NC) issued a letter to Federal Reserve Chair Janet Yellen, calling on the Federal Reserve to cease negotiating “binding” international financial regulatory standards in such forums as the Financial Stability Board and the Basel Committee “until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests.” Rep. McHenry serves as Chief Deputy Whip in the US House of Representatives and as Vice Chairman of the Financial Services Committee of the US House of Representatives.
View text of Rep. McHenry’s letter.
TOPIC : Financial Services -
UK Regulator Fines Major Bank for AML Control Failings Related to Mirror Trading
01/31/2017
The Financial Conduct Authority published a final notice issued to a major bank and fined it £163 million for failing to maintain an adequate anti-money laundering control framework between January 1, 2012 and December 31, 2015.The bank notified the FCA in early 2015 of concerns about its AML control framework after the bank had begun an investigation into suspicious securities trading, known as "mirror trading". The orders for both sides of the mirror trades were received and executed by the bank's Moscow office. The Moscow office executed the trades on behalf of the bank via remote booking by directly booking trades to the bank's trading books in the UK. The FCA's investigation revealed that the mirror trading was able to be executed by the bank's Moscow office because of the widespread deficiencies in the bank's AML control framework, in particular, the bank performed inadequate customer due diligence, failed to ensure that its front office took responsibility for it's Know Your Customer obligations, used flawed customer and country risk rating methodologies, had deficient AML policies and procedures, had an inadequate AML IT infrastructure, lacked automated AML systems for detecting suspicious trades and failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions.
Read more.TOPIC : Enforcement -
European Securities and Markets Authority Requests a Review of its Sanctioning Powers Under the European Market Infrastructure Regulation
01/30/2017
The European Securities and Markets Authority published an open letter to the European Commission asking it to consider several issues relating to its supervisory and sanctioning powers under the European Market Infrastructure Regulation and emphasizing similar aspects relating to Credit Rating Agencies. The letter follows the Commission's Report, published on November 23, 2016, assessing the issues arising from the implementation of the requirements of EMIR in which the Commission proposed a legislative review of EMIR in 2017. ESMA submitted four reports to the Commission in 2015 on the functioning of EMIR which included recommendations on how EMIR could be enhanced. The letter highlights the areas in those reports that ESMA considers the Commission should consider as part of the EMIR review this year.
Read more. -
US Board of Governors of the Federal Reserve System Finalizes Amendments to Capital Plan and Stress Test Rules
01/30/2017
The US Federal Reserve Board adopted a final rule amending the capital plan and stress test rules effective for the 2017 cycle. The final rule removes large and noncomplex firms, specifically those with total consolidated assets of at least $50 billion but less than $250 billion, nonbank assets of less than $75 billion, and that are not deemed, pursuant to the Federal Reserve’s Regulation Q, to be US global systemically important banks, from the qualitative assessment of the Federal Reserve’s Comprehensive Capital Analysis and Review, thereby significantly reducing the burden on such firms. Accordingly, the qualitative review in CCAR is now focused on the 13 largest, most complex financial institutions.
View text of the final rule. -
European Securities and Markets Authority Opines on Common Principles for the Creations of Share Classes in UCITS
01/30/2017
The European Securities and Markets Authority published its Opinion on the extent to which different types of units or shares (share classes) of the same Undertakings in Collective Investment in Transferable Securities fund should differ from one another. There is currently no common framework across the EU for share classes. Some member states prohibit the set-up of different share classes within a single fund while others permit varying degrees of flexibility. Investors in a UCITS fund invest in a common pool of assets, individual share classes or sub-sets of investors can be attributed different rights although there is no legal segregation of assets between the share classes. ESMA sets out four high-level principles in its Opinion which apply when different share classes are set.
Read more.TOPIC : Funds -
US Securities and Exchange Commission Chief Operating Officer to Resign
01/27/2017
The Chief Operating Officer of the US Securities and Exchange Commission, Jeffrey Heslop, announced that he will depart the agency in February. Kenneth Johnson, SEC Chief Financial Officer, will become the Acting COO.TOPIC : People -
US Commodity Futures Trading Commission Staff Changes
01/26/2017
Acting Chairman of the US Commodity Futures Trading Commission Giancarlo announced that the CFTC’s General Counsel, Jonathan L. Marcus, is leaving the agency. Mr. Marcus joined the agency in 2011 as Deputy General Counsel for Litigation, and was promoted to General Counsel in 2013. Robert A. Schwartz, currently the Deputy General Counsel for Litigation and Adjudication, will become the Acting General Counsel.
On January 27, 2017, Acting Chairman Giancarlo announced several additional staff changes at the Commission:
- Amir Zaidi has been appointed to lead the Division of Market Oversight.
- Vincent McGonagle has been named as the Acting Director for the Division of Enforcement.
- Jeffrey Bandman will step down from his role as Acting Director of the Division of Clearing and Risk to become an advisor on issues related to Financial Technology (FinTech). John Lawton, a 36-year employee of the Commission, has taken over as Acting Director of the Division of Clearing and Risk.TOPIC : People -
US Federal Reserve Board Issues Report on Efforts to Improve the US Payment System
01/26/2017
The US Federal Reserve Board issued a progress report which outlined accomplishments and anticipated future steps related to the ongoing initiatives that the Federal Reserve Board has underway to enhance the speed, efficiency and security of the US payment system. The progress report highlights collaborative efforts that are being pursued by the Federal Reserve Board in conjunction with various private sector businesses, financial services providers, financial institutions, consumer groups and government agencies in furtherance of the strategies outlined in the January 2015 publication of “Strategies for Improving the US Payment System.” The progress report details the work-to-date and future plans of two payments industry task forces that have effectuated the initiatives—one devoted to faster payments and the other to a more secure payment system.
View the progress report.TOPIC : Payment Services -
US House Financial Services Committee Chairman Jeb Hensarling Vows to Dismantle Dodd-Frank
01/26/2017
House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued a statement in which he criticized the Dodd-Frank Wall Street Reform and Consumer Protection Act for institutionalizing big bank bailouts. He noted that Republicans on the Financial Services Committee are eager to work with President Trump and the new administration to replace the Dodd-Frank Act with his draft legislation, The Financial CHOICE Act. Additionally, Chairman Hensarling announced subcommittee assignments for Republican members on the House Financial Services Committee.
View statement.
View the subcommittee assignments.TOPIC : Financial Services -
European Securities and Markets Authority Opines on Exemption for Spanish-Based Pension Schemes From the Clearing Obligation
01/25/2017
The European Securities and Markets Authority published an Opinion on Spanish-based pension schemes that are to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinion was requested by Comisión Nacional del Mercado de Valores (the Spanish Regulator responsible for supervising and inspecting Spanish Stock Markets). Transitional exemptions from the clearing obligation under EMIR can be granted to pension scheme arrangements that meet certain criteria, essentially, when over-the-counter derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator and the national regulator must then seek an Opinion from ESMA before making a final exemption decision. ESMA must consult the European Insurance and Occupational Pensions Authority before adopting an Opinion.
ESMA has adopted the Opinion on the basis that the Spanish Regulator is of the view that Personal Pension Funds would encounter difficulties in meeting variation margin requirements for centrally-cleared transactions due to limited holdings of cash within the entity (e.g. lower investment returns or transaction costs) and the risk of inefficiencies as a result of converting assets into cash.
View ESMA’s Opinion.
TOPIC : Derivatives -
Financial Stability Board Sees No Reason to Harmonize Regulatory Approaches to Re-hypothecation of Client Assets
01/25/2017
The Financial Stability Board published a Report on regulatory approaches to re-hypothecation of client assets. The Report is in response to the recommendation that the possibility of harmonizing client asset rules with regard to re-hypothecation should be examined as per Policy Recommendation 8 of the FSB's Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos. The FSB's conclusion is that there is no immediate rationale for harmonizing regulatory approaches to re-hypothecation of client assets. The FSB encourages its member jurisdictions to implement the recommendation in the Policy Framework (Recommendation 7) which provides that authorities should ensure that regulations governing re-hypothecation of client assets should encompass three principles relating to sufficient disclosure to clients, use of client assets that may be re-hypothecated and limitations on the ability to re-hypothecate client assets.
View the Report.
View the FSB Policy Framework.
TOPIC : Shadow Banking -
Financial Stability Board Finalizes Measure and Metrics of Non-Cash Collateral Re-Use in Securities Financing Transactions
01/25/2017
The Financial Stability Board published the final measure and metrics for non-cash collateral re-use in securities financing transactions. The measure and metrics are part of the FSB's global securities financing data collection initiative, the Standards for which were published in November 2015. The Standards identify a data element on collateral re-use eligibility to be collected for collateral received or posted for SFTs by national regulators to be provided (on an aggregated national/regional level) to the FSB. The globally aggregated data on re-use of collateral will be used to assess global trends in non-cash collateral re-use and to monitor the degree of interconnectedness in the collateral markets and the build-up of leverage.
The FSB's Report sets out the collateral re-use measure - which will only cover SFTs - and the data elements required for computing the collateral re-use measure and the associated metrics. The FSB notes that national authorities might require reporting entities to compute the collateral re-use measure themselves rather than just the underlying data. Many FSB members are currently working on the operational arrangements to initiate the official data collection and aggregation from end-2018 data. Data related to collateral re-use will be transmitted by FSB members to the FSB for global aggregation from January 2020. The FSB will review the measure and metrics of collateral re-use five years after the launch of the global data collection with regard to collateral re-use measures. The FSB encourages national authorities to consider monitoring collateral re-use activities beyond SFTs, as appropriate.
View the Report.TOPIC : Shadow Banking -
US Office of the Comptroller of the Currency Issues Examination Procedures on Third-Party Relationships: Risk Management Guidance
01/24/2017
The OCC issued examination procedures to supplement OCC Bulletin 2013-29 entitled “Third-Party Relationships: Risk Management Guidance,” which was originally issued October 30, 2013. These procedures use the concepts and definitions in OCC Bulletin 2013-29 but are designed to help examiners: (i) tailor the examination of each bank commensurate with the level of risk and complexity of the bank’s third-party relationships; (ii) assess the quantity of the bank’s risk associated with its third-party relationships; (iii) assess the quality of the bank’s risk management of third-party relationships involving critical activities; and (iv) determine whether there is an effective risk management process throughout the life cycle of the third-party relationship. The procedures include detailed questions examiners can ask when examining covered national banks and federal savings associations.
View the examination procedures. -
UK Regulator Proposals to Amend Client Money Distribution Rules
01/23/2017
The FCA published a consultation paper on proposed changes to the client money distribution rules in the Client Assets Sourcebook of the FCA Handbook - CASS 7A - as a result of the special administration regime review. The client money rules govern how client assets are to be distributed by an insolvency practitioner managing a failed investment firm. The proposals focus on rule changes following the introduction in early January 2017 by the Government of draft regulations to improve the regime in line with the Bloxham Report's recommendations, i.e. The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017, the Amending SAR Regulations.
Read more. -
EU Legislation Amending Technical Standards on the Format and Frequency of Trade Reporting Published
01/21/2017
A Commission Implementing Regulation amending Implementing Technical Standards on the format and frequency of trade reports submitted to trade repositories was published in the Official Journal of the European Union. The original ITS, published in the Official Journal on December 21, 2012, supplements the reporting requirements in the European Market Infrastructure Regulation. The European Securities and Markets Authority provided final draft amending ITS to the European Commission in November 2015. ESMA considered that the original standards needed to be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under EMIR since 2013. The text of the final amending ITS differs from the text of ESMA's final draft ITS, however, the changes are minor.
Read more.TOPIC : Derivatives -
EU Legislation Amending Technical Standards on Derivatives Trade Reporting Published
01/21/2017
A Commission Delegated Regulation amending Regulatory Technical Standards on the minimum details of data to be reported to trade repositories was published in the Official Journal of the European Union. The original RTS were published in the Official Journal on February 23, 2013 and supplement the reporting requirements imposed by the European Market Infrastructure Regulation. The European Securities and Markets Authority provided final draft amending RTS to the European Commission in November 2015. ESMA considered that the current standards need to be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under EMIR since 2013. The text of the final amending RTS differs from the text of ESMA's final draft RTS; however, the changes are minor. The revisions to the original RTS include: (i) allowing the use of multiple reports for the reporting of complex derivatives provided that counterparties agree the number of reports to be submitted; (ii) adding a new definition for the notional amount of a derivative; (iii) clarifying the reporting requirements for cleared trades; and (iv) requiring that all collateral that has been posted and received is reported, including amending the fields for reporting of collateral to, amongst other things, split the value field into initial margin posted and variation margin posted. The amending RTS will enter into force on February 10, 2017. The revised reporting obligations will apply from November 1, 2017, which should allow counterparties enough time to prepare for the incoming changes.
View the amending RTS.TOPIC : Derivatives -
UK Legislation Implementing the Bank of England and Financial Services Act Comes into Force
01/20/2017
The Bank of England and Financial Services Act 2016 (Commencement No 4 and Saving Provision) Regulations 2017 came into force. The Regulations set March 1, 2017 as the date on which certain provisions of the Bank of England and Financial Services Act 2016 will apply, including, those provisions which will transfer the functions of the Prudential Regulation Authority to the Bank of England. Those functions will be exercised through the Prudential Regulation Committee.
View the Regulations.
TOPIC : Financial Services -
Trump Administration Memorandum and Executive Order on Regulatory Freeze
01/20/2017
Trump Administration Chief of Staff Reince Priebus issued a memorandum to the heads of executive departments and agencies instituting a temporary freeze of regulations that have not yet become effective in order to allow for review of such regulations by the President’s appointees or designees. The memorandum, issued on the day of President Trump’s inauguration, contains an exception for “emergency situations or other urgent circumstances relating to health, safety, financial or national security matters.” The memorandum is somewhat unclear as to its applicability to independent regulatory agencies such as the US financial regulators including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the Commodity Futures Trading Commission and the Securities and Exchange Commission.
Read more.TOPIC : Financial Services -
HSBC to Provide Voluntary Redress for Historical Debt Collection Practices
01/20/2017
The Financial Conduct Authority announced that HSBC Bank Plc has voluntarily agreed to set up a redress scheme of approximately £4m for customers who suffered detriment by paying unreasonable debt collection charges imposed by HFC Bank Ltd and John Lewis Financial Services Ltd. HSBC now owns both HFC and JLFS. Customers of HFC and JLFS who, between 2003 and 2009, fell into arrears were referred to the firms’ nominated solicitors. The solicitors added a “debt collection charge” of 16.4% of the customer’s balance to each customer’s account. The charge was identified by the Office of Fair Trading in 2010 as unreasonable as it did not reflect the actual costs of collecting the debt and the OFT in November 2010 formally ordered HFC to stop adding the collection charge until it varied or introduced new terms into its agreements with customers to reflect the charge. JLFS was not within the scope of the OFT’s review. In practice, JLFS and OFT had stopped adding a debt collection charge in November 2009, and in 2010 reversed the charge from all live accounts.
Read more. -
European Commission Holds Public Consultation on the Capital Markets Union Mid-Term Review
01/20/2017
The European Commission launched a public consultation on the Capital Markets Union program and how it could be updated and completed, building on the initiatives that the Commission has presented so far, as part of the mid-term review. The mid-term review of the CMU action plan is scheduled for June 2017. The CMU Action Plan was published in September 2015 and set out priorities for putting in place the building blocks of a CMU by 2019. The Commission also published a Communication in September 2016 reaffirming its commitment to the CMU, calling for an acceleration of reform and outlining steps to increase the rate of completion. The Commission has completed 15 of the initiatives set out in the Action Plan (approximately half), including making progress on core legislative initiatives such as the proposed Prospectus Regulation and Securitization Regulation. Several more initiatives are expected to be launched in the coming months, including a proposal for simple efficient and competitive personal pensions, promotion of the FinTech sector with an appropriate regulatory environment and sustainable finance.
Read more.TOPIC : Financial Services -
US Commodity Futures Trading Commission Names J. Christopher Giancarlo Acting Chairman
01/20/2017
The CFTC designated Commissioner J. Christopher Giancarlo per seriatim as Acting Chairman of the agency. Mr. Giancarlo joined the CFTC on June 16, 2014 after being unanimously confirmed by the US Senate on June 3, 2014, to serve as a Commissioner of the CFTC. Commissioner Giancarlo succeeded Timothy Massad who had served as Chairman since June 5, 2014.
View CFTC press release.TOPIC : People -
European Commission Publishes Correcting Amendment to Regulatory Technical Standards on Margin Requirements for Uncleared Transactions
01/20/2017
The European Commission published a draft Commission Delegated Regulation amending the Regulatory Technical Standards on margin requirements for uncleared derivatives. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement the European Market Infrastructure Regulation. The original RTS on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal of the European Union on December 15, 2016. The correction is due to a technical error in the adoption process which resulted in the two paragraphs on the phase-in of the variation margin requirements to intra-group transactions being omitted.
EMIR requires counterparties to uncleared over-the-counter derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin is to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as specifying a list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.
Read more.TOPIC : Derivatives -
US Commodity Futures Trading Commission’s Enforcement Division Issues Advisories on Cooperation
01/19/2017
The US Commodity Futures Trading Commission’s Division of Enforcement issued two new Enforcement Advisories outlining the factors the Enforcement Division will consider in evaluating cooperation by individuals and companies in the agency’s investigations and enforcement actions.
The CFTC gives credit for cooperation in determining whether enforcement action is warranted, the nature of charges that should be brought and the appropriate level of sanctions to impose or seek. With the issuance of the recent advisories, the Enforcement Division aims to further incentivize individuals and companies to cooperate fully and truthfully in CFTC investigations and enforcement actions, including by providing high-quality cooperation, self-reporting to the Enforcement Division and providing early and material assistance to the Division.
The advisories complement the CFTC’s Office of the Whistleblower and Whistleblower Program, which provide monetary incentives to individuals who report possible violations of the Commodity Exchange Act that lead to a successful enforcement action, as well as privacy, confidentiality and anti-retaliation protections for whistleblowers who share information with or assist the CFTC.
View the advisories.
And view advisories.TOPIC : Derivatives -
European Banking Authority Final Guidelines on Application of Definition of Default Enter Into Force
01/19/2017
The European Banking Authority published translations of the final Guidelines specifying the application of the definition of default in relation to the Internal Ratings Based Approach and the Standardized Approach under the Capital Requirements Regulation. Publication of the translations triggers the date by which national regulators must inform the EBA as to whether they intend to comply with the Guidelines. That notification is due by March 20, 2017. The Guidelines will apply to national regulators and firms from January 1, 2021. However, national regulators have discretion to accelerate implementation of the Guidelines. The CRR sets out the definition of default of an obligor that is used for the purposes of the IRB and Standardized Approaches. The purpose of the Guidelines is to harmonize the definition of default across the EU framework so that EU banks apply regulatory requirements to their capital positions in a more consistent and comparable way, especially in the context of IRB models.
Read more. -
Enforcement Director Aitan Goelman to Leave US Commodity Futures Trading Commission
01/19/2017
The CFTC announced that Division of Enforcement Director Aitan Goelman will leave the agency on February 3, 2017. A successor has not yet been named.
View CFTC press release.TOPIC : People -
US Securities and Exchange Commission Signs Memorandum of Understanding with Hong Kong Securities and Futures Commission
01/19/2017
The SEC announced the establishment of a comprehensive arrangement with the Hong Kong Securities and Futures Commission (SFC). The new supervisory cooperation arrangement will augment the SEC’s and the SFC’s ability to share information about regulated entities that operate in the United States and Hong Kong, including investment advisers, broker-dealers, securities exchanges, market infrastructure providers and credit rating agencies. The new comprehensive arrangement expands upon the one from 1995 that was limited to investment management activities.
Supervisory cooperation arrangements establish mechanisms for ongoing consultation and the exchange of information regarding the oversight of global firms and markets. Such information may include routine supervisory information as well as information regulators need to monitor risk concentrations, identify emerging risks and better understand a globally active regulated entity’s compliance culture. These arrangements also facilitate the ability of the SEC and its counterparts to conduct on-site examinations of registered entities located outside the United States.
View Memorandum of Understanding.TOPIC : Securities -
US Board of Governors of the Federal Reserve System Finalizes Rule Adjusting Maximum Civil Money Penalties
01/18/2017
The US Board of Governors of the Federal Reserve System finalized a rule increasing the maximum civil money penalty limits for 2017, as required by law. A civil money penalty is a fine imposed by a federal agency to penalize misconduct.
In November 2015, a law was passed that requires all federal agencies to adjust their maximum civil money penalty limits annually for inflation, rather than every four years as previously required. The maximum civil money penalty limits depend on several factors, including the severity and type of violation. Additionally, the law dictates the annual adjustment formula for federal agencies.
The new penalty amounts apply as of January 15, 2017.
View the final rule. -
General-Counsel-Anne-K.-Small-to-Leave-US-Securities-and-Exchange-Commission
01/18/2017
The SEC announced that General Counsel Anne K. Small will leave the agency later this month. Upon Ms. Small’s departure, Sanket Bulsara, Deputy General Counsel for Appellate Litigation, Adjudication, and Enforcement, will become the Acting General Counsel.
View SEC press release.TOPIC : People -
European Authorities Publish Report on Joint Functioning of EU Capital Requirements and European Market Infrastructure Regulation
01/18/2017
The European Banking Authority and the European Securities and Markets Authority published a Report on the joint functioning of the Capital Requirements Regulation and the European Market Infrastructure Regulation. The focus of the Report is on capital requirements for central counterparties that also hold a banking license, leverage and liquidity for CCPs, large exposures, difference in application of the margin period of risk and the requirements on a client's exposures to clearing members.
The EBA and ESMA note that although the EMIR and CRR requirements may appear to be redundant for CCPs holding a bank license, because some aspects of the EMIR requirements are more stringent, they are in fact based on different definitions of capital and take into account different types of risks. Therefore, CCPs holding a banking license are subject to both capital requirements as matter of principle, with some exemptions when they are properly justified. There are currently 17 authorized CCPs, of which three hold a banking license - Eurex Clearing AG, LCH Clearnet SA and European Commodity Clearing AG.
Read more.
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Final Guidelines on Disclosure of Information on Commodity Derivatives and Spot Markets Take Effect
01/17/2017
The European Securities and Markets Authority published translations of the final Guidelines on information expected or required to be disclosed on commodity derivatives markets or related spot markets under the Market Abuse Regulation in the official languages of the EU. MAR replaced the current Market Abuse Directive and its implementing legislation from July 3, 2016. The publication of the translations triggers the application of the Guidelines from March 17, 2017. The Guidelines are relevant to national regulators and to commodity derivatives market participants such as investors, financial intermediaries, operators of trading venues and persons professionally arranging and executing transactions in commodity derivatives. National regulators have until March 17, 2016 to advise ESMA whether or not they intend to comply with the final Guidelines.
Read more. -
New York State Department of Financial Services Grants Virtual Currency License to Coinbase, Inc.
01/17/2017
The NYSDFS approved the application of Coinbase, Inc., a wholly owned subsidiary of Coinbase Global, Inc., for a virtual currency and a money transmitter license. As part of its review of Coinbase’s application, NYSDFS analyzed the company’s anti-money laundering, capitalization, consumer protection and cyber security policies. Coinbase, which is subject to ongoing supervision by NYSDFS, offers services for buying, selling, sending, receiving and storing bitcoin.
NYSDFS approved five firms for virtual currency charters or licenses, while denying other applications that did not meet NYSDFS’s standards. In addition to Coinbase, NYSDFS granted licenses to XRP II and Circle Internet Financial and charters to Gemini Trust Company and itBit Trust Company. ChangeCoin Inc., Ovo Cosmico Inc., Snapcard Inc. and OKLink PTE. LTD. each received application denial letters ordering them to stop any New York operations.
NYSDFS has previously licensed technology-based money transmitters under New York’s money transmitter law, online lenders under New York’s banking law and virtual currency exchanges under New York’s financial services law.
View NYSDFS press release.TOPIC : FinTech -
New York State Department of Financial Services Superintendent Submits Comment Letter to US Office of the Comptroller of the Currency Opposing Proposed Special Purpose National Bank Charter for FinTech Companies
01/17/2017
NYSDFS Superintendent Maria T. Vullo submitted a comment letter opposing the OCC’s proposal to create a new national bank charter for FinTech companies. Vullo noted that a one-size-fits-all federal charter will not work to create a level-playing field among all financial services companies, or to alleviate risks. Rather, she argued, the proposal increases risk, creates an opportunity for regulatory arbitrage and attacks states sovereignty.
The letter provides that the OCC has never regulated nonbank financial institutions, and that state regulators like NYSDFS are experienced and therefore better equipped to regulate cash-intensive nonbank financial service companies. Furthermore, the NYSDFS argued that the National Bank Act does not provide the OCC with authority to create this new proposed charter, which would create an entirely new federal regulatory program resulting in regulatory uncertainty and possible evasion of important state consumer protection laws. The letter also notes that a national charter would likely stifle, rather than encourage innovation, since it would provide a means for large “too big to fail” firms to control the development of technology solutions, thereby harming existing banks and small businesses seeking to serve local communities.
NYSDFS has called on state regulators, legislators and other policymakers to oppose the OCC’s proposed special charter and support the nation’s strong state-based regulatory system.
View NYSDFS comment letter.TOPIC : FinTech -
US Office of the Comptroller of the Currency Launches Web-Based System for Licensing
01/17/2017
The OCC launched the agency’s new web-based Central Application Tracking System (CATS). The system will assist authorized national banks, federal savings associations and federal branches and agencies with drafting, submission and tracking of licensing and public welfare investment applications and notices. CATS also allows OCC analysts to receive, process and manage those applications and notices. CATS replaces e-Corp and CD-1 Invest, the current OCC electronic filing systems.
The OCC plans to roll out institutions’ access to CATS in three phases. The first phase includes banks that are frequent electronic filers with the OCC. The second and third phases of the roll-out of CATS are scheduled to begin in spring 2017. OCC staff will notify institutions regarding the date of their access to CATS several weeks before such access is available.
View OCC bulletin regarding the new system.
TOPIC : Financial Services -
UK Prudential Regulator Confirms Increase in Deposit Protection Limit
01/16/2017
The Prudential Regulation Authority published a Policy Statement and final rules on raising the deposit protection limit. The Policy Statement follows the consultation paper published by the PRA in November 2016. It is proposed that the DPL will be raised to £85,000 from January 30, 2017. The Policy Statement provides feedback to the responses received to the consultation paper. The PRA received 24 responses, with most respondents supportive of the proposals to reset the DPL at £85,000. The purpose of the revised DPL is to provide depositors with PRA-authorized firms commensurate protection to that of depositors with firms authorized by regulators in other EU Member States. The Deposit Guarantee Schemes Directive requires non-Euro Member States to adjust their deposit protection limits every five years to ensure they are equivalent to the euro limit of EUR100,000 (£85,000 was added as a figure following recent currency fluctuations).
The DPL is effective from January 30, 2017. Firms will need to make changes to customer-facing materials required to implement the new deposit limit as soon as practicable from January 30, 2017, and at the latest, by June 30, 2017. The PRA expected firms to train their customer-facing staff to answer questions from customers about the change in the deposit limit, regardless of whether a firm's written materials are amended by January 30, 2017.
View the Policy Statement.
View the final rules.TOPIC : Consumer Protection -
UK Regulators Consult on the Management Expenses Levy Limit for 2017/18
01/16/2017
The Prudential Regulation Authority and the Financial Conduct Authority published a joint consultation paper on the management expenses levy limit for the Financial Services Compensation Scheme in 2017/2018. The MELL proposed for 2017/18 is £74.54 million. The FSCS is a last resort compensation fund for consumers of failed authorized financial services firms that fall under the regulatory remit of the FCA and PRA. The MELL is the maximum amount which the FSCS may levy in a year without further consultation. The proposed MELL of £74.54 million consists of £69.24 million for FSCS management of expenses and £5.3 million as an unlevied contingency reserve. The consultation also contains the proposed rules for the PRA and FCA to set the MELL in 2017/18. Responses to the MELL for 2017/18 as outlined in the consultation are due by February 13, 2017. The PRA and FCA aim to finalize and publish the rules in a policy statement to be published in March 2017 and final rules are expected to take effect from April 1, 2017 with invoices to be sent out to firms from July 2017.
View the consultation paper. -
EU Final Legislation Specifying Conditions for Data Waiver Permissions Published
01/14/2017
A Commission Delegated Regulation, in the form of Regulatory Technical Standards specifying conditions for data waiver permissions, was published in the Official Journal of the European Union. The Capital Requirements Regulation outlines the requirements specific to own-loss given default (“own-LGD”) for regulators when quantifying the risk parameters to be associated with rating grades or pools. The RTS lays down the mandatory conditions under which national regulators may grant firms permissions to use data covering a period of two years, rather than five years, for probability of default, own-LGD and own-conversion factor estimates as set out in the CRR. The RTS stipulates that exposures to central governments, central banks, banks and investment firms would be eligible for data waiver permissions, subject to certain additional requirements being met. First, exposures to corporates would be eligible for data waiver permissions where they are not structurally characterized by few or no observed defaults. Second, types of exposures which were not included in the bank or investment firm’s portfolio at the time when the firm started to implement the Internal Ratings Based Approach should not be eligible for a data waiver permission.
Read more. -
Federal Banking Agencies Extend Comment Period for Advance Notice of Proposed Rulemaking on Enhanced Cyber Risk Management Standards
01/13/2017
The Federal Reserve, the OCC and the FDIC extended the comment period on an advance notice of proposed rulemaking on enhanced cyber risk management standards. The proposal, originally issued on October 26, 2016, addressed enhanced cyber risk management standards for large and interconnected entities under the supervision of the federal banking agencies. The proposal addressed five categories of cyber standards: cyber risk governance; cyber risk management; internal dependency management; external dependency management; and incident response, cyber resilience and situational awareness. In its notice announcing the extension of the comment period, the federal banking agencies noted that the range and complexity of the issues addressed in the proposal resulted in the extension of the public comment period. All comments on the proposal are due on February 17, 2017.
View text of notice of extension of comment period.TOPIC : Cyber Security -
UK Financial Conduct Authority Publishes Guide on Applications and Notifications for MiFID II
01/13/2017
The Financial Conduct Authority published a guide on applications and notifications under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together the MiFID II package. MiFID II will apply from January 3, 2018. It will introduce, among other things, new processes and forms for authorizing investment firms and new activities, such as operating an Organised Trading Facility. It will also require notifications to be made to the FCA. The FCA's guide covers applications for investment firm authorizations, new data reporting service providers authorizations, recognition of investment exchanges and variation permission as well as the notifications required by authorized firms and exchanges, including passporting notifications.
In particular, investment firms should note that the FCA will be using new forms for authorizations and variation of permission for investment services and activities from January 30, 2017, and the new passporting notifications from July 31, 2017. All applications for authorization of investment firms and DRSPs or variation of permission must be submitted by July 3, 2017 to allow the FCA time to assess the applications before the MiFID II implementation date. Passporting notifications must be submitted by December 2, 2017 so that the FCA can send them to other EU regulators before January 3, 2018.
The information in the guide is currently up to date. The FCA intends to provide updates on processes for applications and notifications, where necessary, through its website.
View the guide.
TOPIC : MiFID II -
Two Convicted of Insider Dealing in the UK Sentenced
01/13/2017
The Financial Conduct Authority announced that Mr. Manjeet Mohal and Mr. Reshim Birk were sentenced having pleaded guilty to charges of insider dealing. Mr. Mohal was sentenced to ten months imprisonment suspended for two years for two counts of insider dealing. Mr. Birk was sentenced to 16 months imprisonment suspended for two years for one count of insider dealing. During the relevant period, Mr. Mohal came into possession of inside information through his employment relating to the takeover of Logica Plc by CGI Holdings (Europe) Ltd, which he then disclosed to his neighbor, Mr. Birk, and another individual. Mr. Birk then traded on that information, generating profits in excess of £100,000. Mr. Mohal and Mr. Birk were both ordered to undertake community work and a confiscation order of £162,876.69 was made against Mr. Birk.
View the announcement.TOPIC : Enforcement -
The US Office of Foreign Assets Control Issues Guidance for Compliance with US Sanctions Laws
01/12/2017
The US Office of Foreign Assets Control issued a guidance document regarding the provision of certain legal and compliance services by US attorneys and compliance personnel respect to US Sanctions laws. Contemporaneous with the issuance, the US Treasury Department also published new FAQs on the guidance. In the press release accompanying the issuance of the guidance, OFAC made clear that the guidance does not reflect a change in OFAC’s policy, but is published in order to respond to inquiries received by OFAC.
View text of the OFAC guidance. -
US House of Representatives Passes Bill Re-Authorizing the US Commodity Futures Trading Commission
01/12/2017
The US House of Representatives passed H.R. 238, the Commodity End-User Relief Act, a bipartisan bill to reauthorize the US CFTC. Although the bill largely mirrors previous legislation to reauthorize the CFTC, it included several regulatory reforms, including a provision regarding the regulation of cross-border swaps, and a provision that would require the CFTC to vote in order to change the current de minimis swap dealer registration threshold of $8 billion.
View text of the bill.TOPIC : Derivatives -
Financial Stability Board Publishes Final Recommendations to Address Structural Vulnerabilities from Asset Management Activities
01/12/2017
The Financial Stability Board published a report on policy recommendations to address structural vulnerabilities from asset management activities. The FSB recommendations aim to address four structural vulnerabilities from asset management activities that could cause financial stability risks: (i) liquidity mismatch between fund investment assets and redemption terms and conditions for fund units; (ii) leverage within funds; (iii) operational risk and challenges in transferring investment mandates or client accounts in stressed conditions; and (iv) securities lending activities of asset managers and funds. The FSB makes 14 recommendations, some of which have been amended since the proposed recommendations were consulted on in the last half of 2016. The recommendations are addressed to national supervisors of asset management activities and to the International Organization of Securities Commissions. Certain types of data are identified that the FSB considers should be collected by national supervisors and/or IOSCO. Steps are specified that national supervisors should take to address the potential financial stability risks. For example, issuing specific guidance to facilitate the use of exception liquidity management tools and the coordination of system-wide stress testing (albeit this is still in an exploratory stage). Another recommended step included requiring asset managers to establish comprehensive risk management frameworks which also cover risks other than the orderly transfer of client accounts and investment mandates.
View the Report.
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European Securities and Markets Authority Opines on the Scope of Product Intervention Powers
01/12/2017
The European Securities and Market Authority published an Opinion on the scope of the product intervention powers under the Markets in Financial Instruments Regulation. The Opinion focuses on the impact of the exclusion for fund managers from the scope of the MiFIR intervention powers. MiFIR gives national regulators the power to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments (such as units or shares in Undertakings in Collective Investment in Transferable Securities or Alternative Investment Funds) in the EU by investment firms and banks, whether the UCITS or AIF is internally or externally managed, or financial instruments with certain specified features or a type of financial activity or practice. The intervention power only applies to banks authorized under the Capital Requirements Directive and to investment firms authorized under the revised Markets in Financial Instruments Directive (known as "MiFID Firms"), when providing investment services and/or performing investment activities and to market operators including any trading venues they operate. The intervention powers will apply from January 3, 2018, in accordance with the application date of MiFIR.
Read more. -
US House of Representatives Passes Securities Exchange Act Reform Bill
01/12/2017
The US House of Representatives passed H.R. 78, the SEC Regulatory Accountability Act, sponsored by Rep. Ann Wagner (R-MO). The Act would require the US Securities and Exchange Commission to justify the costs and benefits of a proposed regulation prior to its issuance of the same. In addition, before issuing a regulation, the SEC would also be required to do the following: (i) identify the nature and source of the problem its proposed regulation is meant to address; (ii) identify and assess available alternatives; and (iii) ensure that any regulations are consistent and written in plain language. The legislation also contains language requiring the SEC to conduct a retrospective review of its regulations every five years and to perform post-adoption impact assessments of major rules.
View text of the bill.TOPIC : Financial Services -
European Securities and Markets Authority Follows Up on Supervision by National Regulators of Best Execution Requirements
01/11/2017
The European Securities and Markets Authority published a follow-up report to the 2015 peer review on best execution. The Markets in Financial Instrument Directive requires investment firms to provide best execution for their clients when executing their clients' orders. ESMA conducted a peer review on how national regulators supervised and enforced the requirements in 2011 and 2012 and published the results in February 2015, recommending, amongst other things: (i) prioritization of best execution by national regulators; (ii) the allocation of supervisory resources; and (iii) the adoption of a proactive approach to monitoring compliance with best execution requirements, including through onsite inspections. In 2016, ESMA began to assess whether national regulators had taken steps to address the shortcomings identified in the peer review. The 2017 report shows that national regulators are being more proactive in their supervision of best execution. However, there are still some deficiencies that need to be addressed as some national regulators were not able to show progress in relationship to deficiencies previously identified. ESMA's view is that regular and proactive supervision and monitoring of compliance with the best execution requirements is the only way to ensure investor protection in this area. Firms will continue to be subject to best execution requirements when the MiFID II package comes into effect on January 3, 2018 and ESMA urges national regulators to act to ensure that there is compliance with best execution requirements by investment firms.
View ESMA's 2017 follow-up report.
View the 2015 peer review report.TOPIC : MiFID II -
European Banking Authority Adopts Procedure for Investigating Breach of EU Law by National Regulators
01/11/2017
The European Banking Authority published a Decision of the Board of Supervisors of the EBA, dated December 23, 2016, adopting Rules of Procedure for the investigation of a breach of EU law. The Regulation establishing the EBA gives the EBA the power to investigate an alleged failure by a national regulator to apply the requirements of the Capital Requirements Regulation or the Capital Requirements Directive or their application in a way which appears to be a breach of EU law. The Decision sets out factors, criteria and other related matters that the EBA will take into account when it receives a request from a third party to initiate an investigation or to EBA own initiative investigations.
View the Decision. -
European Banking Authority Updates the Recommendations on Equivalence of Confidentiality Regimes
01/11/2017
The European Banking Authority published an updated recommendation on the equivalence of the confidentiality regimes of third country supervisory authorities. The EU Capital Requirements Directive provides that third country supervisory authorities may participate in a college of supervisors set up for an international cross-border bank if: (i) it is considered appropriate for that authority to participate; and (ii) the authority is subject to confidentiality requirements that are equivalent to those set out in the CRD. The EBA's recommendations only relate to the equivalence of the confidentiality regimes. The appropriateness issue is to be determined by each college of supervisors.
In April 2015, the EBA recommended that the confidentiality regimes of the supervisory authorities in the following countries should be considered as equivalent to the CRD IV requirements: Bosnia-Herzegovina, Brazil, Canada, China, FYR Macedonia, Mexico, Montenegro, Serbia, Singapore, Switzerland, Turkey and the United States. Those recommendations applied from April 2, 2015. The EBA updated the recommendations to include Albania from September 12, 2015.
The EBA has updated the recommendations again adding Australia, Hong Kong, Japan and Kosovo. The latest recommendations applied from January 12, 2017.
View the updated recommendations. -
Draft UK Legislation to Amend the Special Administration Regime for Investment Firms Published
01/10/2017
The UK Government published draft legislation to amend the Special Administration Regulations, i.e. The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017, the Amending SAR Regulations. The purpose of the draft legislation is to improve the return of client money when an investment firm fails. The changes are in line with the Bloxham Report's recommendations which aim to minimize the market impact of a failed firm's entry into special administration. The draft Amending SAR Regulations amend the scope of the SAR Regulations to include firms that manage an alternative investment fund or Undertakings for the Collective Investment of Transferable Securities or who act as a trustee or depositary for an AIF or UCITS. The Amending SAR Regulations will make the transfer of client assets from a failing firm to another financial institution easier because restrictions on transfers will be removed, including removing any restriction affecting what can or cannot be assigned as well as any requirement to obtain client consent. The draft Amending SAR Regulations also improve the bar date mechanism and provide for continuity of services for the safe custody of client assets. The draft Amending SAR Regulations are subject to Parliamentary scrutiny. They are expected to come into force in February 2017.
View the Amending SAR Regulations.
View the Bloxham report. -
New York State Department of Financial Services Announces that Anti-Terrorism Transaction Monitoring and Filtering Program Regulation is in Effect
01/05/2017
The New York State Department of Financial Services (NYSDFS) Superintendent Maria T. Vullo announced that the Department’s transaction monitoring and filtering program regulation took effect as of January 1st. Under the final regulation, institutions regulated by the NYSDFS must: maintain programs to monitor and filter transactions for potential Bank Secrecy Act and anti-money laundering violations and suspicious activity reporting; maintain a filtering program to prevent transactions that are prohibited by the Office of Foreign Assets Control; and submit a confirmation to the NYSDFS regarding compliance with the final rule.
View Shearman & Sterling client alert on the final rule.
View press release. -
US Office of the Comptroller of the Currency Releases Semiannual Risk Report
01/05/2017
The US Office of the Comptroller of the Currency released its Semiannual Risk Perspective for Fall 2016, which highlights key risks facing national banks and federal savings associations. The report highlighted that strategic risk remains high as banks make changes to their business models and adopt innovative products. The OCC also noted that banks continue to ease underwriting practices to boost loan volume and to respond to competition from bank and nonbank lenders in commercial, commercial real estate and auto lending, according to the report. The credit risk associated with such practices is increasing due to increased risk layering, rising loan policy exceptions and weaker covenant protection. The report cited operational risk as another key risk, particularly cybersecurity threats, increased reliance on third-party relationships and the need for sound governance over sales practices. The report is based on data received from national banks and federal saving associations through June 30, 2016.
View Report. -
European Banking Authority Publishes Translation of its Guidelines on Corrections to Duration for Debt Instruments
01/04/2017
The European Banking Authority published translations of the final Guidelines on the correction required for the calculation of Modified Duration for debt instruments subject to prepayment risk under the Capital Requirements Regulation. The Guidelines will apply from March 1, 2017.
The CRR establishes two methods to calculate capital requirements for general interest rate risk. The relevant methods are the Maturity-Based calculation and the Duration-Based calculation of general risk. The final Guidelines apply to the Duration-Based calculation. The Duration-Based calculation uses the concept of Modified Duration pursuant to the formula outlined in the CRR. This method is only valid for instruments that are not subject to prepayment risk. The EBA is mandated to issue guidelines establishing how to correct the Modified Duration calculation to reflect prepayment risk. The EBA Guidelines propose two approaches to correct the calculation. One option is to treat the debt instrument with prepayment risk as if it is a combination of a plain vanilla bond and an embedded option. The Modified Duration of the plain vanilla bond is therefore corrected with the change in value of the embedded option, which is estimated according to its theoretical delta, resulting from a 100 basis point movement in interest rates. The other option is to directly calculate the change in value of the whole instrument subject to the prepayment risk resulting from a 100 basis point movement in interest rates.
View the Guidelines. -
Delay to Finalizing Basel III
01/03/2017
The Basel Committee on Banking Supervision announced that it had, along with the Group of Central Bank Governors and Heads of Supervision, made progress towards completing the Basel Committee’s post-crisis regulatory reforms, known as Basel III. However, despite the progress, more time is needed to finalize some areas, including the final calibration, before those proposals can be reviewed by the GHOS. This impacts the meeting of the GHOS which had been scheduled for early January, which has been postponed accordingly. The Basel Committee gave no specific date as to when the work would be completed, saying only that it expects to complete the work in the near future.
View the press release. -
European Banking Authority Requests Extension for Delivery of Draft Technical Standards under EU Capital Requirements Legislation
01/03/2017
The European Banking Authority published a letter, dated December 23, 2016, in which it requests an extension of time from the European Commission for delivering certain draft technical standards which were due to be delivered by December 31, 2016 under the Capital Requirements Regulation and the Capital Requirements Directive. The EBA is requesting an extension for the Regulatory Technical Standards and the Implementing Technical Standards on the authorization of banks because of a combination of its significant workload and considerable resource constraints and issues arising in respect of new entrants and FinTech companies in addition to the need to achieve a balance between allowing Member States to retain their own authorization processes whilst harmonizing the information required. The EBA expects to be able to deliver the ITS and RTS by mid-2017.
The EBA is also requesting an extension for the RTS on consolidation methods which it has experienced difficulties with because of the interactions with the Basel framework and with the European Commission's recent adoption of legislation to amend CRR. The EBA expects to be able to finalize the draft RTS by the end of 2017.
Read more. -
US Federal Banking Agencies Release Annual Community Reinvestment Act Asset-Size Threshold Adjustments for Small and Intermediate Small Institutions
12/29/2016
The US Federal Reserve Board, the OCC and the Federal Deposit Insurance Corporation announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank and intermediate small savings association under the Community Reinvestment Act (CRA) regulations.
Read more. -
York State Department of Financial Services Reproposes Cybersecurity Regulation
12/28/2016
The New York State Department of Financial Services (NYSDFS) reproposed its first-in-the-nation cybersecurity regulation to protect New York State from the threat of cyber-attacks. The proposed regulation, which will be effective March 1, 2017, will require banks, insurance companies and other financial services institutions regulated by NYSDFS to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.
The NYSDFS considered comments submitted regarding the previously proposed regulation during a 45-day comment period, which ended on November 14, 2016, and has incorporated appropriate comments in the updated regulation that will be subject to an additional final 30-day notice and public comment period. The NYSDFS will focus its final review on any new comments that were not previously raised in the original comment process.
View reproposed regulation.TOPIC : Cyber Security -
US OCC issued a final rule, 12 C.F.R. § 7.1022, that prohibits national banks and federal savings associations (FSAs) from dealing or investing in industrial or commercial metals.
12/28/2016
The OCC issued a final rule, 12 C.F.R. § 7.1022, that prohibits national banks and federal savings associations (FSAs) from dealing or investing in industrial or commercial metals.
The final rule covers metal, including alloy, in a physical form primarily suited to industrial or commercial uses, such as copper cathodes and aluminum T-bars. The final rule supersedes a prior OCC determination permitting national banks to trade copper. The rule, however, still recognizes that national banks and FSAs may hold industrial or commercial metal under authorities that are distinct from dealing and investing. For example, national banks and FSAs may acquire industrial or commercial metal through foreclosures on loans and then sell the metal to mitigate loan losses.
The rule carries out an OCC recommendation included in its report to Congress and the Financial Stability Oversight Council under section 620 of the Dodd-Frank Act. Section 620 required the federal banking agencies to conduct a study of the activities and investments that banking entities may engage in under state and federal law and to consider the associated risks and how banking entities mitigate those risks.
The effective date of the final rule is April 1, 2017. Banks with existing holdings of industrial and commercial metal acquired through dealing or investing activities must divest of such metal as soon as reasonably practical, but no later than one year after the effective date of the final rule, subject to four one-year extensions available from the OCC in particular cases.
View the final rule. -
US Federal Reserve Board Releases Global Indicator Amounts for G-SIB Surcharge Calculation
12/28/2016
The US Federal Reserve published the aggregate global indicator amounts for the purposes of calculating the “Method 1” G-SIB Surcharge for 2016. The Federal Reserve Board’s G-SIB surcharge rule establishes a methodology to identify global systemically important bank holding companies in the United States based on certain indicators that are correlated with systemic importance. Under the G-SIB surcharge rule, a firm must calculate its G-SIB score using a specific formula (“Method 1”).
Read more. -
The US Office of Foreign Assets Control Published Updated Iranian Transactions and Sanctions Regulations
12/22/2016
OFAC published updated regulations on Iranian Transactions and Sanctions Regulation. The amended regulation narrows the definition of “goods of Iranian origin” and “Iranian-origin goods,” allowing for the export and reexport of medical devices and agricultural commodities to Iran. Further, the amended regulation expands the definition of “non-Iranian goods” to include goods transported on a vessel or aircraft through Iranian territorial waters or stopped at a port or place in Iran en route to a destination outside of Iran that have not otherwise come into contact with Iran.
View text of the OFAC regulation.
View FAQs on the regulation. -
European Banking Authority Reports on Cyclicality of EU Capital Requirements Framework
12/22/2016
The European Banking Authority published a report on the cyclicality of banks' capital requirements. The report examines whether the EU's risk-sensitive capital requirements create unintended pro-cyclical effects and whether any remedial steps are necessary or justified. The EU's capital requirements framework is set out in the Capital Requirements Regulation and the Capital Requirements Directive, together known as CRD IV. CRR requires the European Commission to prepare a biennial report for the European Parliament and the Council of the European Union on the issue. This report from the EBA is intended to feed into that report.
The EBA concludes that the impact of the EU capital requirements framework on the EU economic cycle is limited and that there are no strong reasons for shifting from the risk-sensitive framework. The EBA notes that EU banking legislation provides tools for regulators to respond to any pro-cyclicality concerns, as appropriate, and recommends periodic monitoring of the potentially cyclical impact of the EU bank regulatory framework (not only regulatory capital) and further research into the effectiveness and efficiency of counter-cyclical instruments.
View the EBA's report. -
EU Peer Review Report on Supervision of CCP Compliance with Margin and Collateral Requirements
12/22/2016
The European Securities and Markets Authority published the results of a peer review it has conducted into how national regulators ensure and assess compliance by CCPs with the margin and collateral requirements under the European Market Infrastructure Regulation. Under EMIR, ESMA has a coordination role between national regulators to build a common supervisory culture and consistent supervisory practices. ESMA is required to conduct a peer review of the supervisory activities of the national regulators of CCPs at least annually. ESMA's report on the peer review provides an overview of the approaches of national regulators and sets out ESMA's assessment of the degree of convergence between those approaches. ESMA found inconsistencies in the frequency and depth of the supervision of CCPs (even for CCPs of a similar size or complexity). ESMA highlights various areas for improvement to enhance supervisory convergence, including identification of new services which require an extension of a CCP's authorization, determining significant changes to a CCP's risk model and the ongoing review of CCP collateral policies. The report sets out some examples of good practice that ESMA observed during the review, such as having direct access to the data of a supervised CCP. ESMA intends to follow up on the findings from the peer review by, amongst other things, identifying appropriate tools to enhance supervisory convergence.
View ESMA's peer review report.
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The US Federal Deposit Insurance Corporation Releases a New Handbook for De Novo Institutions Applying for Deposit Insurance
12/22/2016
The FDIC released a handbook, developed to facilitate the process of establishing new banks, by offering guidance for navigating the phases of establishing an insured institution. The handbook, titled “Applying for Deposit Insurance—A Handbook for Organizers of De Novo Institutions,” is part of recent efforts by the FDIC to increase transparency and clarity regarding the deposit insurance application process. The standards in the Handbook relax certain requirements that had been imposed as a result of the financial crisis. Comments on the handbook are due February 20, 2017.
View handbook. -
Members of EU High-Level Expert Group on Sustainable Finance Appointed
12/22/2016
The European Commission announced the membership composition of the High-Level Expert Group on sustainable finance. The purpose of the Expert Group is to provide recommendations for a comprehensive EU strategy on sustainable finance as part of the Capital Markets Union. The Commission will draw on such recommendations when determining how to integrate considerations of sustainability into the EU’s rules for the financial sector. The Group’s advice will outline how the EU should design appropriate and proportionate financial policies, incentives and signals for financial institutions, corporate capital-raisers and markets to direct capital towards sustainable finance and to take operational steps to protect the stability of the financial system from risks related to the environment. The Group will start meeting as of January 2017. An interim report is expected around the middle of the year and a final report in December 2017.
View the announcement.
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Delay to Certain Draft Technical Standards Supplementing the EU Fourth Anti-Money Laundering Directive
12/22/2016
The Joint European Supervisory Authorities published an open letter notifying the European Commission that they would be unable to meet the deadline of December 26, 2016 for submitting final draft Regulatory Technical Standards supplementing the Fourth Anti-Money Laundering Directive. The 4AMLD mandates the ESAs (made up of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) to draft RTS on the measures that banks and other financial institutions should undertake to manage the potential risks of money laundering and terrorist financing where they have branches or majority-owned subsidiaries in third countries that prohibit the implementation of AML and CTF measures consistent with those required by 4AMLD. The delay is attributed to the ESAs' prioritization of other mandates under the 4AMLD for the Joint Committee Work Programme 2016. The ESAs deprioritized the draft RTS as enquiries with regulators and ESA stakeholder groups suggested that there were no countries that prohibited the requisite implementation of AML and CFT measures. Consequently, unlike under other mandates under the 4AMLD, the draft RTS would have limited application in practice. The ESAs intend to start working on the mandate in 2017 and expect to be able to submit final draft RTS by December 31, 2017.
View the letter. -
EU Equivalence Decision on Recognized Third Countries for Treatment of Exposures of Banks
12/21/2016
A Commission Implementing Decision was published in the Official Journal of the European Union, updating the list of third countries with equivalent regulatory arrangements in relation to prudential requirements for banks and investment firms for the purpose of the treatment of exposures. The Decision lists the countries whose arrangements for supervision and regulation of banks and investment firms are deemed by the European Commission to be equivalent to the standards of the EU as set out in the Capital Requirements Regulation. The Decision is based on assessments that reviewed the supervisory and regulatory arrangements in each country for: (i) banks; (ii) investment firms; and (iii) exchanges. The following nations and territory are now equivalent across categories (i) and (ii): Turkey, New Zealand, the Faroe Islands and Greenland. This Decision will enter into force on January 10, 2016.
View the list of equivalent third countries and territories. -
European Commission Publishes Proposed Directive on Countering Money Laundering by Criminal Law
12/21/2016
The European Commission published a legislative proposal for a Directive on countering money laundering by criminal law. The proposed Directive is intended to harmonize and establish minimum rules concerning the definition of criminal offenses and sanctions in the area of money laundering. The proposed Directive would implement international obligations such as the Warsaw Convention and Financial Action Task Force recommendations.
The proposed Directive provides for three specific money laundering activities that, when conducted intentionally, would be punishable as a criminal offense. Member States would be able to impose more stringent rules, for example, by making money laundering committed recklessly or by serious negligence a criminal offense.
Read more. -
European Banking Authority's Third Report on Impact of the Liquidity Coverage Ratio
12/21/2016
The European Banking Authority published its third impact assessment report for the liquidity coverage ratio requirements under the Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV. CRR mandates the EBA to prepare the LCR impact assessment report annually. The aim of the report is to assess the impact of the EU's LCR regulation on the EU banking sector. The report indicates a constant improvement of the average LCR across EU banks since 2011. In addition, it states that the average LCR for EU banks at the end of December 2015 was approximately 134%, with an aggregate gross shortfall of EUR 10.9 billion. This increase has been attributed to an increase in liquid assets.
The EBA is also required to report to the European Commission on whether the EU's timeframe should be amended to fit with the Basel III timeline. The report reviews the phasing-in of the liquidity coverage requirements, in particular, assessing whether there is a case for deferring the introduction of the 100% minimum binding standard from January 1, 2018 until January 1, 2019. Under the CRR and related secondary legislation, the EU LCR minimum requirement was set at 60% from October 1, 2015 and is gradually increasing to 100% in January 2018, a year ahead of the Basel implementation date. The EBA concludes that there is no significant evidence to recommend amending the current transitional framework because the existing level of non-compliance with the LCR under full implementation is low.
View the report. -
Former Equity Portfolio Manager Jailed by UK Court for 12 Months for Insider Dealing
12/21/2016
Mark Lyttleton, formerly an Equity Portfolio Manager at BlackRock Investment Management (UK) Limited, was sentenced to 12 months jail (reduced from 18 months) on two counts of insider dealing. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. Mr. Lyttleton had acted on inside information he obtained by working on deals relating to the relevant stocks and by being a party to conversations conducted by colleagues. The criminal offence of insider dealing is punishable by a fine or up to seven years imprisonment. The Financial Conduct Authority charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993 on September 29, 2016. On November 2, 2016, Mr. Lyttleton pleaded guilty to two counts of insider dealing at Southwark Crown Court. The third charge was subsequently dropped. In addition to the prison sentence, a confiscation order was made in the sum of £149,861.27 and costs were awarded to the FCA totaling £83,225.62.
View the FCA press release outlining a summary of the case facts.TOPIC : Enforcement -
European Supervisory Authorities Finalize Guidelines for the Prudential Assessment of Acquisitions and Qualifying Holdings
12/20/2016
The Joint Committee of the European Supervisory Authorities published a report outlining final joint Guidelines for the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. The Joint Committee consists of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The final Guidelines follow a consultation on draft guidelines published on July 3, 2015, and will replace previous guidelines published by the ESAs’ predecessors in 2008.
The purpose of the final Guidelines is to provide legal certainty and clarity on assessment processes relating to increases of control and acquisitions of banks, investment firms and insurance firms, bringing a more harmonized, clear and transparent process in prudential assessments by national regulators. In addition, the final Guidelines seek to provide clearer details on what information is required from proposed acquirers. The guidelines cover questions related to: (i) indirect acquisitions of qualifying holdings, persons acting in concert and decisions to acquire; (ii) assessment periods; and (iii) financial soundness of acquirers. The report summarizes the main points and comments that were raised in the twelve responses to its Consultation.
Read more. -
European Banking Authority Recommendations for the EU Covered Bonds Framework
12/20/2016
The European Banking Authority published recommendations for harmonizing the EU framework for covered bonds. For banks investing in covered bonds that meet certain criteria, the Capital Requirements Regulation sets preferential risk weights to be applied. The recommendations are set out in a report which builds on the EBA's 2014 Report on EU covered bond frameworks and capital treatment. The aim of the recommendations is to ensure that only financial instruments which comply with certain harmonized structural, credit risk and prudential standards are capable of being covered bonds, and as such have access to the special regulatory and capital treatment provided. Harmonizing the EU framework on covered bonds is part of the Capital Markets Union initiative launched by the European Commission in September 2015
Read more. -
President-Elect Trump Announces Nominations for Treasury Secretary and Commerce Secretary
12/20/2016
Over the past month, President-elect Donald Trump has made several selections for key administration posts. Notably, President-elect Trump said he would nominate Steven Mnuchin to serve as Treasury Secretary. Mnuchin was the Trump campaign’s national finance chair. He is also a former Goldman Sachs Partner and led the investor group that acquired the failed IndyMac Bank from the FDIC and operated it as OneWest Bank. While serving as campaign finance chair, Mnuchin outlined some of the economic priorities of the Trump administration: in August he said that a Trump administration would be “focused on lowering business taxes, making sure that US corporations are competitive around the world, bringing back cash from all around the world that’s sitting offshore.” President-elect Trump has also chosen Wilbur Ross as Commerce Secretary, a businessman who has not held any previous public office.TOPIC : People -
European Supervisory Authorities Publish Good Practices to Reduce Mechanistic Reliance on Credit Ratings
12/20/2016
The Joint Committee of the European Supervisory Authorities published a final Report containing Good Supervisory Practices for reducing sole and mechanistic reliance on credit ratings. The ESAs consist of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The purpose of the Report is to reduce the sole and mechanistic reliance on credit ratings, in accordance with requirements set out in legislation such as the Credit Rating Agencies Regulation, and to ensure a level of cross-sectoral consistency in the implementation of certain elements of the CRR. The ESAs have produced the report to assist regulators supervising entities such as banks, investment firms, insurance and reinsurance undertakings and investment companies. In particular, regulators' responsibilities of monitoring the adequacy of their supervised entities credit risk assessment processes, assessing the use of contractual references to credit ratings and encouraging them to mitigate the impact of any such references. The Report provides an overview of how regulators may approach their supervisory responsibilities under the CRA legislative package.
The Report contains two sets of common good practices. In the first, the ESAs propose a general framework for the monitoring of the use of credit ratings and the treatment of references to credit ratings in credit assessments. They also suggest potential alternatives or complementary measures to ratings and also how to address issues of proportionality arising from the varying scale and complexity of supervised entities. In the second set, there are specific practices to establish a common approach for supervision of how credit ratings are used across specific business processes, in particular, where credit ratings are most in danger of being used in a mechanistic way.
View the Report.TOPIC : Credit Ratings -
Final EU Agreement on Draft Prospectus Rules as Part of Capital Markets Union
12/20/2016
The Council of the European Union announced that it had reached an agreement with the European Parliament on prospectuses for the issuing and offering of securities. Finalization of the agreement comes after the provisional agreement reached on December 7, 2016. The draft Prospectus Regulation is part of the EU's Capital Markets Union plan. The proposed Prospectus Regulation will replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The aim is to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions. Some compromise has been reached in the final agreement, such that no prospectuses will be required for capital raisings and crowdfunding projects up to EUR1 million. It has also been agreed, among other things, that the threshold beyond which the issuance of a prospectus is mandatory be increased from €5 million to €8 million in capital raised. Below that threshold, issuers can raise capital in accordance with rules set for local growth markets. The Council expects Parliament to approve the regulation at first reading, with the final text then to be submitted for adoption by the Council.
View the Council's press release.
You may like to view our client note on the European Commission's proposal for a Prospectus Regulation.TOPIC : Financial Services -
European Banking Authority Proposals for Designation and Supervision of Significant-Plus Branches
12/20/2016
The European Banking Authority published for consultation draft Guidelines on supervision of significant branches. The proposed Guidelines set out how the consolidating supervisor, the home supervisor and the host supervisor should cooperate to prudentially supervise and coordinate monitoring of significant branches requiring intensified supervision. An "intensification test" is proposed to assess which branches should be designated as significant-plus branches. Significant-plus branches will be those that are assessed as important for the firm of the group or as performing critical functions or as important for the financial stability of the host Member State. A branch that is assessed to be a significant-plus branch would be subject to intensified supervision which would entail, amongst other things, a separate branch risk assessment, regular on-the-spot checks and inspections, extensive sharing of supervisory intelligence, coordinated application of supervisory and precautionary measures and reflection of the branch in the firm&'s recovery planning. The consultation closes on March 20, 2017.
View the consultation paper. -
US Commodity Futures Trading Commission Issues No-Action Relief for Derivatives Clearing Organizations and Entities Submitting Swaps for Clearing with Certain Derivatives Clearing Organizations
12/19/2016
The US CFTC issued time-limited no-action relief to derivatives clearing organizations (DCOs) and reporting entities for certain swaps reporting obligations amended by the Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps that was released on June 27, 2016. The no-action relief letter relieves DCOs from their obligations to report original swap terminations as required by the rule for up to six months or until DCOs can sufficiently test required changes to their reporting systems.
The CFTC also announced no-action relief for entities submitting swaps for clearing with DCOs acting under exemptive orders or no-action relief that has been provided by the CFTC. Entities submitting such swaps are relieved from obligations to terminate the original “alpha” swap and to report any swaps between DCO counterparties acting under such exemptive orders or no-action relief. Entities are also relieved from their obligation to report certain primary economic terms data fields for swaps intended to be cleared by such DCO counterparties as cleared swaps. The relief is conditioned upon the entity providing certain information to fulfil its reporting obligations.
View no-action letters.
Also view no-action letters.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Approves Rule Requiring Liquidity Coverage Ratio Disclosure
12/19/2016
The US Federal Reserve Board approved a final rule requiring large (generally defined as consolidated assets of $50 billion or more) depository institution holding companies, and certain nonbank financial companies supervised by the Federal Reserve, to publicly disclose their liquidity coverage ratio. The final rule requires these covered financial institutions to publicly disclose quantitative and qualitative information regarding their liquidity coverage ratio calculation on a quarterly basis. The disclosures must be made in a direct and prominent manner on the company’s public internet site or in a public financial or other public regulatory report and must remain available for five years. The Federal Reserve stated that requiring institutions to report their medium-term liquidity position would provide “a better indication of the overall strengths and weaknesses of a company’s liquidity position” rather than an examination of short-term swings in a company’s liquidity position. The final rule is similar to the rule proposed in November 2015; however, the rule as adopted extends the implementation timeline of the public disclosure requirements by nine months. Under the new rule, covered companies, which include those that have $700 billion or more in total consolidated assets or those that have $10 trillion or more in assets under custody, will need to start complying with the public disclosure requirements beginning on April 1, 2017. Other covered companies will be required to comply with the public disclosure requirements beginning on April 1, 2018.
View text of the final rule. -
US Federal Banking Agencies Issue FAQs Regarding Implementing New Accounting Standards for Credit Losses
12/19/2016
The US Federal Reserve, the FDIC, the US National Credit Union Administration and the OCC issued FAQs to assist institutions in implementing the new accounting standard for credit losses, which was recently issued by the US Financial Accounting Standards Board. The new standard, “Financial Instruments—Credit Losses,” replaces the existing incurred loss methodology in US GAAP and establishes the new current expected credit losses methodology (CECL). The FAQs expand on the “Joint Statement on the New Accounting Standard on Financial Instruments—Credit Losses,” which the agencies issued in June 2016. The agencies plan to continue issuing FAQs regarding the implementation of the CECL methodology.
View notice to the banks.
View FAQs. -
European Supervisory Authorities Consult on the Use of Big Data by Financial Institutions
12/19/2016
The Joint Committee of the European Supervisory Authorities launched a consultation paper on the use of big data by financial institutions. The ESAs are the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. Big data refers to the collection, processing and use of high volumes of different types of data from various sources, using IT tools and algorithms. Big data is used to reveal patterns or correlations, to generate new ideas or solutions or to more accurately predict future events. The objective of the consultation is for the ESAs to better understand the impact of the increased use of big data on the financial industry and to assess whether any supervisory or regulatory actions are needed. The ESAs do not consider that the existing EU legislation on data protection, competition, consumer protection and sectoral financial services regulations explicitly addresses big data. The discussion paper seeks feedback on whether there is sufficient flexibility in the existing legislation to cover big data, whether there are any gaps and how the existing legislation impacts the use of big data by the financial services sector. Responses to the consultation are requested by March 17, 2017. The ESAs expect to publish their decision on next steps, if any, before the end of 2017.
View the Discussion Paper.TOPIC : Financial Services -
Financial Stability Board Publishes 2017 Plan to Address Decline in Correspondent Banking
12/19/2016
The Financial Stability Board published an updated progress report outlining its action plan to assess and address the decline in correspondent banking. Correspondent banking relationships enable banks to access financial services in different jurisdictions and provide cross-border payment services to their customers. There has been an increasing concern about the decline in the number of correspondent banking relationships because the ability to send and receive international payments could be impacted, which may have repercussions on growth and the stability and integrity of the financial system. The FSB presented a four point action plan to the G20 in November 2015. The progress report describes the progress that has been made and outlines the deliverables for 2017 to further address the issues.
Read more. -
Financial Stability Board Consults on Internal Loss-absorbing Capacity of G-SIBs
12/16/2016
The Financial Stability Board published a consultative paper containing draft Guiding Principles on the internal total loss-absorbing capacity or Internal TLAC of global systemically important banks. The FSB is proposing the Guiding Principles to support the implementation of the TLAC Standard. The TLAC Standard is designed to ensure that failing G-SIBs will have sufficient loss-absorbing and recapitalization capacity available in resolution. The FSB committed to develop implementation guidance on the TLAC Standard, in particular for internal TLAC. Internal TLAC is the loss-absorbing resources that a resolution entity commits to its material subsidiaries. The proposed Guiding Principles cover, among other things: (i) the process for identifying material sub-groups, the composition of sub-groups, the distribution of internal TLAC between the entities within material sub-groups and the treatment of unregulated or non-bank entities; (ii) the role of home and host authorities and the factors to be considered when determining the size of the internal TLAC requirement; (iii) practical considerations relating to the issuance and composition of internal TLAC; (iv) the trigger mechanism for internal TLAC; and (v) cooperation and coordination between home and host authorities in triggering the write-down and/or conversion into equity of internal TLAC. Responses to the consultation are due by February 10, 2017. The FSB intends to review the technical implementation of the TLAC Standard by the end of 2019.
View the consultative paper.
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US Financial Crimes Enforcement Network Extends Timing of Report of Foreign Bank and Financial Accounts Filings
12/16/2016
US Financial Crimes Enforcement Network (FinCEN) announced that it is granting a further extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings. The extension was announced in light of the notice of proposed rulemaking FinCEN issued on March 10, 2016, which proposes to revise regulations implementing the Bank Secrecy Act regarding FBARs. Specifically, one of the proposed amendments in the notice would expand and clarify the exemptions for certain US persons with signature or other authority but no financial interests over foreign financial accounts. On December 8, 2015 FinCEN issued Notice 2015-1 to extend filing date for FinCEN Form 114 - FBAR for some individuals with signature authority over but no financial interest in one or more foreign financial accounts to April 15, 2017 (and has granted identical extensions that applied to similarly situated individuals since 2011). FinCEN is now further extending the filing due date to April 15, 2018, for individuals whose filing due date for reporting signature authority was previously extended by Notice 2015-1. This extension applies to reporting of signature authority held during the 2016 calendar year, as well as all reporting deadlines extended by previous Notices 2015-1, 2014-1, 2013-1, 2012-1 and 2012-2, along with Notices 2011-1 and 2011-2. For all other individuals with an FBAR filing obligation, the filing due date remains April 15, 2017.
View FinCEN Notice.
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UK Legislation to Ensure Continuity of Functions for Firms in Resolution Comes into Force
12/16/2016
The UK Bank Recovery and Resolution Order 2016 came into force. The Order implements in part the Bank Recovery and Resolution Directive which sets out the framework for the recovery and resolution of banks and investment firms. The Order amends the Banking Act 2009, the Financial Services and Markets Act 2000 and certain related secondary legislation to, amongst other things, ensure that the Bank of England as the UK's resolution authority and the Prudential Regulation Authority and Financial Conduct Authority as the regulators have powers to manage the failure of a bank or investment firm and their group companies to ensure that critical functions continued to be performed. The Order also provides specific powers to the PRA and FCA to replace directors and senior managers and appoint temporary managers in accordance with the BRRD, amends provisions relating to triggers of contractual termination rights and adds new provisions relating to the resolution of UK branches of third-country institutions.
View the Order.
TOPIC : Recovery & Resolution -
International Organization of Securities Commission Publishes Final Report on Benchmark Regulation
12/16/2016
The International Organization of Securities Commission published its final Report outlining Guidance on reporting in compliance with its Principles for Financial Benchmarks. The purpose of the Guidance is to increase the consistency and quality of reporting by Benchmark Administrators on their compliance with the Principles, which were published in July 2013. The Principles outline a set of recommended practices that should be implemented by Benchmark Administrators and Submitters. The Report follows a survey of 29 benchmarks conducted by IOSCO, to identify any relevant challenges and issues, on topics such as the status of their implementation of the Principles and the number of benchmarks they administered. IOSCO developed the Guidance on the feedback received.
View the Report.
View the Principles.
TOPIC : Financial Services -
UK Financial Conduct Authority Publishes Fourth Consultation on Implementing MiFID II
12/16/2016
The Financial Conduct Authority published its fourth consultation paper on the implementation of the revised Markets in Financial Instruments Directive in the UK. MiFID II regulates retail and wholesale investment business. The consultation covers technical matters that were outside the scope of previous consultations and includes proposed changes to the FCA Handbook on specialist regimes, tied agents, market data, SME growth markets and transitional fees.
The FCA is proposing to update section 18 of the Conduct of Business sourcebook of the Handbook by updating cross-references to correspond to the FCA's proposed changes to other sections of COBS. COBS 18 contains a number of tailored conduct regimes covering both MiFID and non-MiFID business, for specialist types of designated investment business.
The FCA is proposing amendments to Handbook rules on appointed representatives to reflect the technical changes in MiFID II and the tied agents regime. The proposals are particularly relevant to firms undertaking MiFID or equivalent third country business. Under MiFID II, all Member States will be required to maintain tied agents regimes, whereas they currently have an option as to whether to do so. As a result, the FCA is seeking to clarify the territorial application of the appointed representative rules. MiFID II also changes the scope of permitted activities relating to structured products for tied agents and the FCA is proposing to introduce new definitions of “MiFID optional exemption AR” and “structured deposit AR”. The new terms will define the new populations of authorised representatives to which MiFID tied agent requirements will also apply.
Read more.TOPIC : MiFID II -
Final EU Equivalence Decisions on Regulatory Regimes Under the European Market Infrastructure Regulation Published
12/16/2016
Ten decisions on the equivalence of third country regulatory regimes under the European Market Infrastructure Regulation were published in the Official Journal of the European Union.
CCPs established in third countries whose supervisory and legal regimes have been deemed to be equivalent to the EU regime may provide clearing services to clearing members or trading venues established in the Union. Such a CCP must be recognized by the European Securities and Markets Authority in accordance with the processes outlined in EMIR. The regulatory and legal regimes of India, New Zealand, Japan, Brazil, Dubai International Financial Centre and the UAE have been granted equivalence in relation to CCPs.
Read more. -
Financial Stability Board Consults on Proposed Guidance on Continuity of Access to Financial Market Infrastructure for Firms in Resolution
12/16/2016
The Financial Stability Board launched a consultation on proposed Guidance on continuity of access to financial market infrastructures for a firm in resolution. The FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions provides that resolution authorities should develop resolution strategies and plans for firms that are systemically important. One objective of those plans is to ensure that a firm can maintain its critical functions during resolution. In particular, access to the services that support those functions, including access to services provided by FMIs such as clearing, payment, settlement and custody shared services, should be maintained.
The proposed Guidance is intended to assist national supervisors and resolution authorities to evaluate whether a firm has appropriate arrangements to support continuity of access to critical FMI services in all circumstances. The proposed Guidance covers the arrangements needed to support access to FMIs at the level of providers of critical FMI services, arrangements at the level of the firm and/or FMI participants and the role of FMI supervisors in facilitating continuity of access to critical FMI services. Responses to the consultation are requested by February 10, 2017.
View the consultation paper.TOPIC : Recovery & Resolution -
European Central Bank Publishes Outcome of Supervisory Review and 2017 Recommendations on Dividends and Variable Remuneration
12/15/2016
The European Central Bank published the outcome of its second Supervisory Review and Evaluation Process in 2016 and updated Recommendations on dividend distribution and remuneration policies for 2017. The ECB comments that SREP outcomes reveal a broadly stable capital demand for 2017 and that any changes in individual bank levels reflect changes in individual bank risk profiles. The aggregate capital demand by directly supervised banks for 2017 is comparable to that of 2016, with an average of around 10% Common Equity Tier 1. The ECB also imposed liquidity measures that require banks to have higher liquidity coverage ratios than the regulatory minimum.
The updated ECB Recommendations on dividend distribution and remuneration policies are to be adopted in 2017, for the financial year 2016. The ECB has maintained its general stance on both topics whilst accounting for regulatory change on the obligation of the supervisor to differentiate between the types of Pillar 2 capital that a bank is required to hold.
View the press release.
View the recommendations.
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US Commodity Futures Trading Commission Issues No-Action Relief for Swaps with Eligible Affiliate Counterparties Located in Australia or Mexico
12/15/2016
The US CFTC issued a no-action relief letter for swaps executed between certain US swap market participants and their affiliated counterparties located in Australia or Mexico. The letter permits US swap market participants to rely on a provision of the inter-affiliate exemption from required clearing that has previously been available to counterparties located in the European Union, Japan, and Singapore. According to the CFTC, the letter was issued in light of the December 13, 2016 compliance date for the CFTC’s recent expansion of its clearing requirement to include fixed-floating interest rate swaps denominated in Australian dollars and Mexican pesos, as well as basis swaps denominated in Australian dollars.
View no-action relief letter.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Approves Final TLAC Rule
12/15/2016
The US Federal Reserve Board issued a final rule establishing total loss absorbing capacity (TLAC) long-term debt (LTD), clean holding company requirements and regulatory capital deductions for US global systemically important banks (G-SIBs) and the US intermediate holding companies of non-US G-SIBs. While the final TLAC rule is largely consistent with the Federal Reserve Board’s proposed rule issued in October 2015, the Federal Reserve Board made certain adjustments in the final rule in response to comments received. Notably, the Final Rule: (1) lowered certain of the TLAC and LTD requirements; (2) allows certain US intermediate holding companies to issue external LTD rather than require all such LTD to be issued to the foreign parent company or affiliate; (3) allows for the grandfathering of certain long-term debt including debt that was issued prior to December 31, 2016 and contained acceleration clauses or was governed by foreign law; and (4) removed the phase-in periods provided for under the proposed rule. Institutions that meet the relevant thresholds under the final rule would be required to comply with the requirements by January 1, 2019.
View final rule. -
US Office of the Comptroller of the Currency Issues Rules to Reduce Regulatory Burden
12/15/2016
The US Office of the Comptroller of the Currency released a final rule to remove outdated or unnecessary provisions of certain rules to reduce regulatory burden. The rule is a result of the OCC’s decennial review of its rules required by the US Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) of 1996. While the OCC is conducting the EGRPRA review jointly with the other federal financial regulatory agencies, the final rule addresses regulations that are exclusive to the OCC. Of note, the final rule: removes notice and approval requirements for certain changes in permanent capital involving national banks; clarifies national bank director oath requirements; removes certain financial disclosure requirements for national banks; integrates and updates OCC rules for national banks and federal savings associations relating to municipal securities dealers, Securities Exchange Act of 1934 disclosures, securities offering disclosures and insider and affiliate transactions; updates recordkeeping and confirmation requirements for national banks’ and federal savings associations’ securities transactions; and permits the electronic submission of filings required under the Securities Act of 1933 and the Securities Exchange Act. The OCC has also recommended legislative chances that would remove unnecessary burden for national banks and federal saving associations.
View final rule. -
EU Proposals to Amend Technical Standards on Trade Repository Data Published
12/15/2016
The European Securities and Markets Authority published proposals for amending the Regulatory Technical Standards on the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data. The European Market Infrastructure Regulation requires trade repositories to regularly publish aggregate positions by class of derivatives on the contracts reported to it and to provide access to the data that it collects and maintains to relevant authorities and regulators. ESMA was responsible for preparing the original RTS on the frequency and the details of the information to be made available as well as the operational standards required for aggregation and comparison of data across trade repositories.
TOPIC : Derivatives -
EU Final Secondary Legislation on Margin for Uncleared Derivatives
12/15/2016
A Commission Delegated Regulation outlining Regulatory Technical Standards supplementing the European Market Infrastructure Regulation on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. These RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated as well as outlining a broad list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.
The RTS provide for the largest counterparties to begin providing and collecting margin one month after the RTS enter into force. The requirements relating to variation margin will apply from one month after the RTS enter into force where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 3,000 billion. For all other counterparties, the variation margin requirements will apply from the latest of 1 March 2017 or one month after the RTS enter into force.
Read more.TOPIC : Derivatives -
European Banking Authority Publishes Final Report on MREL Framework
12/14/2016
The European Banking Authority published its final Report on the design and implementation of the minimum requirement for own funds and eligible liabilities framework. MREL is the EU equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. The Report is addressed to the European Commission following publication of its proposed banking reform package on November 23, 2016 which included proposals to amend the Bank Recovery and Resolution Directive and the Capital Requirements Regulation to integrate the TLAC standard into the EU's MREL framework. The EBA does not currently consider that any changes to the key principles underlining the Regulatory Technical Standards (adopted by the Commission in May 2016) on the criteria for setting MREL are needed. The Report does, however, identify changes with a view to improving the technical soundness of the MREL framework and implementing the TLAC standard as a key component of that framework. The EBA has made recommendations on twelve topics.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Publishes Final Draft Technical Standards on Information Sharing Between National Regulators for Passporting of Payment Services
12/14/2016
The European Banking Authority published final draft Regulatory Technical Standards on the cooperation and exchange of information between national regulators where an authorized payment institution would like to provide payment services in a Member State other than its home Member State (so-called passporting) under the Payment Services Directive (also known as PSD2). The Directive aims to make payments between Member States as secure, easy and efficient as those made within a Member State. PSD2 focuses on electronic payments and payment services within the EU, regulating new types of payment services and payment services providers, which are currently unregulated, and stimulating competition in the electronic payments market. The RTS aim to ensure that information about those entities that carry out business in EU Member States is exchanged between national regulators in a consistent way, that there is clarity for payment institutions about their regulatory requirements and specifies the information that is to be shared between national regulators. The EBA consulted on draft RTS in late 2015 and, having taken feedback into account, has made certain amendments to the final draft RTS, including removing some of the information requirements on payment institutions relating to governance arrangements and internal control mechanisms, outsourcing and the agent structural organization. In addition, the EBA has now provided separate templates for when a payment institution or e-money institution is using an agent or when a distributor is used.
Read more.TOPIC : Corporate Governance -
UK Financial Conduct Authority Proposes Changes to Financial Services Compensation Scheme Levies and Rules
12/14/2016
The Financial Conduct Authority launched a consultation on the future funding of the Financial Services Compensation Scheme as well as changes to the FSCS rules. The FSCS is the compensation scheme for customers of UK authorized financial services firms. It covers the business conducted by firms authorized by the Financial Conduct Authority and the Prudential Regulation Authority and protects, subject to certain limits, deposits, investment business, home finance, insurance policies and insurance broking. The FSCS is funded by contributions from firms across the financial services sector. The FCA's consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority, which concluded that the scale and impact of FSCS levies has increased sharply for certain firms recently, particularly those required to contribute towards claims for self-invested personal pensions. This causes concerns relating to the unpredictability of levies and, in some sectors, a relatively small number of firms being responsible for a large proportion of compensation claims.
Read more.TOPIC : Consumer Protection -
Final EU Guidelines on Pillar 3 Regulatory Disclosure Requirements
12/14/2016
The European Banking Authority published final Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation. The EBA's Guidelines aim to ensure harmonized implementation of the Basel III Pillar 3 requirements that were released in January 2015. The Guidelines introduce specific guidance and formats for Pillar 3 disclosures, including tables and templates. The Guidelines will apply to Globally and Other Systemically Important Institutions. However, national regulators are able to require other firms to apply the Guidelines when complying with their Pillar 3 disclosure obligations under CRR. The Guidelines apply for year-end 2017 disclosures. However, the EBA recommends that G-SIIs implement these for year-end 2016 disclosures, and strongly encourages implementation of the guidelines for a limited subset of disclosure requirements relating to risk-weighted assets and capital requirements for the year-end 2016 disclosures.
View the final Guidelines.
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US Federal Reserve Board and Federal Deposit Insurance Corporation Announce Four US G-SIBs Have Remediated Resolution Plan Deficiencies
12/13/2016The US Federal Reserve Board and the FDIC announced that Bank of America, Bank of New York Mellon, JP Morgan Chase and State Street had adequately remedied all deficiencies in their 2015 resolution plans that caused the plans to be deemed “not credible” by the regulators. The Federal Reserve Board and the FDIC announced that Wells Fargo has not adequately remedied two of the firm’s three deficiencies and it is expected to file a revised submission addressing the deficiencies by March 31, 2017. Wells Fargo is subject to restrictions on activities until the deficiencies are remedied.
View press release.TOPIC : Recovery & Resolution -
US Federal Deposit Insurance Corporation Proposes Rule Regarding Recordkeeping Requirements for Qualified Financial Contracts
12/13/2016
The FDIC released a notice of proposed rulemaking that proposed amendments to its rule regarding recordkeeping requirements for qualified financial contracts (QFCs) (12 CFR Part 371). The rule currently requires an insured depository institution in troubled condition to maintain detailed recordkeeping requirements about its QFCs which would ultimately make it easier for the FDIC to transfer, disaffirm or repudiate such QFCs in the event of an FDIC receivership. The proposed rule would align Part 371 more closely with the QFC recordkeeping requirements adopted by the Secretary of the Treasury in connection with the Orderly Liquidation Authority under Title II of Dodd-Frank. The proposed rule would expand the scope of records required to be maintained under Part 371 and update the recordkeeping requirements accordingly.
View notice of proposed rulemaking.TOPIC : Recovery & Resolution -
US Federal Banking Agencies Finalize Rule Expanding Examination Cycle for Small Insured Depository Institutions and US Branches and Agencies of Foreign Banks
12/12/2016
The US Federal Deposit Insurance Corporation, Federal Reserve Board and Office of Comptroller of Currency issued interagency final rules that increase the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle. The purpose of the rules is to reduce regulatory compliance costs for smaller institutions, while maintaining safety and soundness protections.
Under the final rules, qualifying well-capitalized and well-managed banks and savings associations with less than $1 billion in total assets are eligible for an 18-month examination cycle. Previously, only firms with less than $500 million in total assets were eligible for extended examination cycle. Qualifying well-capitalized and well-managed US branches and agencies of foreign banks with less than $1 billion in total assets are also eligible.
These rules have been in effect since February 29, 2016, pursuant to interim final rules previously adopted by the agencies. After soliciting comment on interim final rules, the agencies have re-issued them as final rules. Final rules are identical to interim final rules.
View final rules. -
US Federal Reserve Board Issues Statement of Policy Regarding Illiquid Fund Investments Under the Volcker Rule
12/12/2016
The US Board of Governors of the Federal Reserve System issued a statement of policy regarding how banking entities may seek an extension to conform their investments in certain illiquid hedge funds and private equity funds (covered funds) to the requirements of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule. As noted below, any such extension requests must be submitted by January 21, 2017.
The Volcker Rule provisions of the Dodd-Frank Act permits the Federal Reserve Board, upon an application by a banking entity, to provide up to an additional five years to conform investments in certain legacy illiquid covered funds where the banking entity had a contractual commitment to invest in the fund as of May 1, 2010. The five-year extension for certain legacy illiquid covered funds is the last conformance period extension that the Federal Reserve Board is authorized to provide banking entities under the statute.
Read more. -
US Board of Governors of the Federal Reserve System Names Director of Division of Financial Stability
12/12/2016
The Federal Reserve appointed Andreas Lehnert as director of its Division of Financial Stability, effective December 25, 2016.TOPIC : People -
EU Extends Transitional Measures for Exposures to CCPs Again
12/10/2016
A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation was published in the Official Journal of the European Union. The authorization process for existing CCPs established in the European Union is complete but there are still third-country CCPs, notably some based in the US, that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized. The implementing Regulation extends the transitional period by an additional six months to June 15, 2017.
The recent proposals to amend the CRR published by the European Commission include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third country CCP.
View the Implementing Regulation.
View more about the proposed amendments to CRR. -
US Federal Reserve Board Issues Proposal to Apply Existing Rating System for Bank and Savings and Loan Holding Companies
12/09/2016
The US Federal Reserve Board invited comment on a proposal to fully apply the Federal Reserve Board’s existing rating system for bank holding companies to savings and loan holding companies.
The Dodd-Frank Act transferred responsibility for the regulation and supervision of savings and loan holding companies to the Federal Reserve Board, effective July 2011. Since then, the Federal Reserve Board has applied its rating system to savings and loan holding companies on an “indicative” basis that describes how the savings and loan holding company would be rated. However, the assignment of an unsatisfactory indicative rating has not automatically triggered supervisory action.
The Federal Reserve Board’s rating system is in part used to determine the safety and soundness of a financial institution, as well as potential supervisory responses. Fully applying the rating system to both bank holding companies and savings and loan holding companies will help ensure consistent standards and supervision.
The proposal would fully apply the rating system to most savings and loan holding companies supervised by the Federal Reserve Board. However, it would not apply to savings and loan holding companies engaged in significant insurance or commercial activities. These firms would instead continue to receive indicative ratings.
Comments on the proposed rule must be received no later than February 13, 2017.
View proposed rule.
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US Federal Reserve Board Approves Technical Amendments to GSIB Surcharge Rule and Proposes Interim Reporting Rule
12/09/2016
The US Federal Reserve announced the approval of technical amendments to its rule regarding risk-based capital surcharges for US-based global systemically important bank holding companies (GSIB surcharge rule), requiring those firms to hold additional amounts of risk-based capital to avoid restrictions on capital distributions and discretionary bonus payments. The changes would not materially alter the underlying rule approved by the Federal Reserve Board in July 2015.
Read more. -
Provisional EU Agreement on Draft Prospectus Rules as Part of Capital Markets Union
12/08/2016
The Council of the European Union announced the conclusion of a provisional agreement with representatives of the European Parliament on new rules on prospectuses for the issuing and offering of securities. The draft Prospectus Regulation is part of the EU's Capital Markets Union plan. The proposed Prospectus Regulation will replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The aim is to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions.
View the Council's press release.
You may like to view our client note on the European Commission's proposal for a Prospectus Regulation. -
European Commission Reports on Diversity of Bank and Investment Firm Management Bodies
12/08/2016
The European Commission published a report on benchmarking of diversity practices under the Capital Requirements Directive. The CRD requires banks and investment firms to ensure that the composition of management bodies is sufficiently diverse in terms of age, gender, geographical provenance, education and professional background. Firms are required to put in place a policy promoting management body diversity and to publish the report, the firm's objectives, relevant targets (if any) and the extent to which these have been met. The Commission is required to report to the European Parliament and the Council of the European Union on the results achieved as a result of the requirements of CRD and on the appropriateness of benchmarking diversity practices. The Commission found that improvements could still be made, both for having a policy in place and achieving greater diversity and highlighted the need for firms and supervisors to take steps to ensure that the policies are put in place. In addition, the Commission concluded that the benchmarking of diversity practices is a useful tool for assessing the impact and effectiveness of the CRD requirements over time and to monitor for compliance. The Commission does not consider that any legislative amendments are required at this time.
View the report.
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FICC Markets Standards Board Final Guidelines on Surveillance and Training in Wholesale Markets
12/08/2016
The Fixed Income, Currency and Commodities Markets Standard Board published guidelines on surveillance and training in wholesale markets. The guidance is outlined in the FMSB's Statement of Good Practice for Surveillance in Foreign Exchange Markets and Statement of Good Practice for Conduct Training. The Statement of Good Practice for Surveillance highlights the FMSB's Core Principles that firms should consider in advance of designing and implementing their surveillance measures in the foreign exchange markets, such as ensuring that: (i) the surveillance function is independent of front office; (ii) there are effective governance controls; and (iii) there is a regular review of surveillance systems to ensure that they are fit for purpose given the element of constant change in risk. It also identifies emerging practices to combat the risk of insider dealing and market manipulation, including the use of automated voice surveillance systems using techniques such as Natural Language Processing.
Read more. -
Enforcement Director Ceresney to Leave US Securities and Exchange Commission
12/08/2016
The US Securities and Exchange Commission announced that Enforcement Director Andrew J. Ceresney will leave the agency by the end of the year. Upon Mr. Ceresney’s departure, Stephanie Avakian, Deputy Director of the SEC’s Enforcement Division, will become the Acting Director.
View SEC press release.TOPIC : People -
US Federal Reserve Board Finalizes Revisions to Form FR Y-7 Filed by Foreign Banking Organizations
12/07/2016
The US Federal Reserve Board published a notice in the Federal Register that it has finalized its proposed revisions to Form FR Y-7Q implementing the home country capital adequacy requirements prescribed in Sections 252.143(b) and 252.154(b) of Regulation YY. These revisions are effective December 31, 2016, except for the three new line items regarding a foreign banking organization’s (FBO) leverage ratio, which are effective March 31, 2018.
The Federal Reserve Board noted that the submission of the information required on Form FR Y-7Q constitutes compliance with both the home country capital adequacy reporting and the certification requirements of Regulation YY. Accordingly, commencing with the FR Y-7Q filings as of December 31, 2016, the Federal Reserve Board will treat each quarterly filing as a certification of the reporting FBO’s home country capital adequacy. The Federal Reserve Board also eliminated the proposed line items for Pillar II buffers and any “other” applicable capital buffer. However, it retained the line item for reporting home country GSIB buffers. Regarding confidentiality, the Federal Reserve Board considers all the required information to be publicly available, but will consider, on a case-by-case basis, requests by individual FBOs for confidential treatment of specific line items.
View the Federal Register notice. -
EU Draft Guidelines on Major Incident Reporting Published for Consultation
12/07/2016
The European Banking Authority launched a consultation on draft Guidelines on major incidents reporting under the Payment Services Directive 2. PSD2 requires payment service providers to notify their national regulator without delay of any major operational or security incident. The national regulator must assess the relevance of the incident to other authorities in its Member State and notify them accordingly. In addition, the national regulator must pass on the details of the incident to the EBA and the European Central Bank and, with them, assess the relevance of the incident to other EU bodies and Member States and notify them accordingly.
The EBA is responsible for preparing Guidelines addresses to PSPs on the classification of major incidents and on the content, the format, including standard notification templates and the procedures for notifying an incident to their regulator. In addition, the EBA must prepare Guidelines for national regulators on the criteria for assessing the relevance of an incident and the details of the incident report to be shared with other authorities. Both Guidelines must be developed in close cooperation with the ECB. The EBA's consultation paper sets out the proposed Guidelines as developed by the EBA with the ECB. Responses to the consultation are requested by March 7, 2017.
View the consultation paper.
TOPIC : Payment Services -
UK Payment Systems Regulator Consults Further Remedies for Competition Issues Relating to Bank Ownership of Payment Infrastructure
12/07/2016
The Payment Systems Regulator published proposals for remedying the lack of competition in the provision of UK payments central infrastructure for Bacs, FPS and LINK which means that the incumbent provider, VocaLink, faces limited competitive pressure and minimal incentives to provide more efficient and innovative services.
The PSR published its final report on its market review into the ownership and payment infrastructure competitiveness in the UK on July 28, 2016. The final report identified the competition issues and outlined potential remedies, including undertaking competitive procurement exercises, such as issuing guidance and requiring operators of payment service providers to follow a prescribed set of processes and implementing enhanced interoperability, including a common international messaging standard, for Bacs and FPS, and divestment by the four largest shareholders in VocaLink. Following feedback to those initial proposals, the PSR is now consulting on mandating competitive procurement exercises for Bacs, FPS and LINK when the operators of these systems purchase central infrastructure services and introducing the ISO 20022 messaging standard in future procurements for Bacs and FPS.
Read more. -
Division of Corporation Finance Director Higgins to Leave US Securities and Exchange Commission
12/06/2016
The SEC announced that Keith F. Higgins, Director of the SEC’s Division of Corporation Finance, plans to leave the SEC in early January. Upon Mr. Higgins’s departure, Shelley Parratt, Deputy Director for the Division of Corporation Finance, will become the acting Director. Ms. Parratt has served previously as acting Director.
View SEC’s press release.TOPIC : People -
UK Regulator Proposals to Amend the Conduct of Business Rules for Retail CfDs
12/06/2016
The Financial Conduct Authority published a consultation paper setting out its proposals to enhance the conduct of business rules for firms providing contract for difference products to retail clients and to limit the risks of CfDs for retail clients. The FCA is proposing to change its current rules because of increasing evidence of poor conduct by relevant firms and risks posed to retail customers. Amongst other things, the FCA is proposing to require all CfD firms to provide a standardized risk warning and mandatory profit-loss disclosures, to impose lower leverage limits for inexperienced retail clients (i.e. those with less than 12 months of active trading experience) and higher leverage limits for experienced retail clients, and to prohibit bonus and account opening promotions for their retail CfD products and platforms.
The FCA also sets out its policy proposals for the regulation of binary bets. Binary bets are expected to be brought within the UK regulatory perimeter as part of the UK implementation of the revised Markets in Financial Instruments Directive. The FCA is considering its policy approach for the protection of retail clients in relation to binary bets and is seeking feedback on its approach before it consults on formal proposals.
The consultation closes on March 7, 2017. The FCA expects to publish a Policy Statement and final rules in Q2 2017, with the expectation that the rules will come into force shortly afterwards.
View the consultation paper. -
UK Prudential Regulation Authority Publishes its Final Approach to Implementing the Systemic Risk Buffer
12/05/2016
The Prudential Regulation Authority published a Statement of Policy setting out its approach to the implementation of the systemic risk buffer. The SRB is used to prevent and mitigate long term non-cyclical macro-prudential or systemic risks not covered by the Capital Requirements Regulation. It is a firm-specific buffer based on a firm's risk weighted exposures and must be met with Common Equity Tier 1 capital. The Statement of Policy is relevant to ring-fenced bodies under the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits. These are jointly referred to as "SRB institutions". The UK Independent Commission on Banking recommended that the UK's systemically important SRB institutions be held to a higher capital standard. In addition to these recommendations, the UK legislation implementing the systemic risk buffer requires that the PRA apply the Financial Policy Committee framework as of January 1, 2019. The FPC's framework for the systemic risk buffer was published in May 2016.
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US Commodity Futures Trading Commission Reproposes Position Limits Rule and Finalizes Aggregate Positions Rule
12/05/2016
The Commodity Futures Trading Commission voted unanimously to repropose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Act. In a separate vote, the CFTC approved final aggregation regulations, which are a key component of the CFTC’s existing position limits regime. The reproposal will be open for public comment for 60 days after publication in the Federal Register.
Read more.TOPIC : Derivatives -
Federal Reserve Board Governor Daniel Tarullo Discusses Financial Regulation Since the Crisis
12/02/2016
Federal Reserve Board Governor Tarullo gave a speech defending post-financial crisis efforts to strengthen regulation governing the financial system. Governor Tarullo also criticized recent Republican legislative regulatory reform proposals, including the Financial CHOICE Act’s proposal to raise the leverage ratio of banks to 10% in return for relief from many other prudential requirements, including risk-based capital requirements.
View Governor Tarullo’s remarks. -
US Office of the Comptroller of the Currency to Grant Charters to Fintech Firms
12/02/2016
The Comptroller of the Currency, Thomas Curry, announced that the OCC would commence considering applications from financial technology companies that offer bank products and services for a grant of a special purpose bank charter. The ability to obtain a bank charter would eliminate the need for Fintech companies to register in multiple states, each with different laws and restrictions. Although the details of the charter are not final, the OCC released a paper discussing the issues and conditions that will be considered in granting special purpose bank charters. That paper indicates that such institutions would not be required to take FDIC-insured deposits. In a related Fintech development, Federal Reserve Board Governor Brainard gave a speech at a Federal Reserve Board conference on emerging financial technologies. She addressed various developments and the need to address related risks, and she noted the Federal Reserve Board’s earlier establishment of a working group on fintech innovation.
View the OCC press release.
View the OCC paper.
View Governor Brainard’s speech.
TOPIC : FinTech -
US Commodity Futures Trading Commission Proposes Rule Establishing Minimum Capital Requirements for Swap Dealers
12/02/2016
The CFTC issued a proposed rule establishing minimum capital requirements for Swap Dealers and Major Swap Participants. As required by section 731 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules mandate minimum levels of qualifying capital for certain Swap Dealers and Major Swap Participants that are not subject to the capital rules of a prudential regulator. Under the proposed rule, the calculation of capital may be performed using the alternative approaches method, which are based on existing US bank regulators’ capital requirements or the CFTC’s future commission merchant and the SEC’s broker-dealer net liquid asset capital requirements. In addition, Swap Dealers that predominantly engage in non-financial activities and Major Swap Participants can elect minimum capital requirements based on the tangible net worth of the entities or can use internal models to compute their regulatory capital, subject to CFTC or National Futures Association approval. The proposal also requires some Swap Dealers and Major Swap Participants to satisfy certain liquidity requirements as well as reporting, record-keeping and notification requirements. In a statement issued concurrently with the proposal, CFTC Chairman Timothy Massad expressed support for the rule, stating that the revised rule recognizes the diversity of business models amongst swap dealers. Comments on the proposal are due 90 days following the publication of the proposed rule in the Federal Register.
Read more.TOPIC : Derivatives -
G20 Priorities for 2017
12/02/2016
The G20 Leaders published the Priorities for the 2017 G20 Summit in Hamburg on July 7 and 8, 2017. The document sets out the areas in which the G20 will build on previous work and further areas. The priorities include improving global financial resilience with a focus on cross-border capital flows, continuing work on monitoring and regulating market-based finance (including shadow banking activities) and progressing the global and comprehensive implementation of the recommendations of the Financial Action Task Force on combating terrorist financing and money laundering, including a review of the FATF's structure and governance.
View the document setting out the G20 priorities for 2017.
TOPIC : Financial Services -
US House of Representatives Passes Legislation Eliminating $50 Billion Asset Threshold for SIFI Designation
12/01/2016
The US House of Representatives passed a bill (H.R. 6392) that would replace the current supervisory framework under the Dodd-Frank Act that automatically subjects all bank holding companies with $50 billion or more in total consolidated assets to enhanced prudential standards with a system that would authorize the Financial Stability Oversight Council to designate companies on a case-by-case basis if the FSOC makes a final determination that material financial distress at the bank holding company, or the nature, scope, size, scale, concentration, interconnectedness or mix of its activities could threaten the financial stability of the United States. G-SIBs, however, would be treated as if such a determination had been made. In a statement issued in support of the bill, Representative Warren Davidson (R-OH) stated that the bill “prevent[s] the Fed and Treasury from Blindly implementing new regulations proposed by an international entity, whether coming from the [BCBS] or unelected bureaucrats on the Financial Stability Board.” By contrast, Representative Maxine Waters (D-CA) called the legislation the “first step in the Trump agenda to deregulate Wall St.”
View text of HR 6392. -
UK Government Consults on Imposing Financial Penalties for Breach of Financial Sanctions
12/01/2016
The Office of Financial Sanctions Implementation (OFSI), which is a part of HM Treasury, published the UK Government's proposed approach to imposing financial penalties for breach of financial sanctions. OFSI was established earlier in 2016 and has responsibility for ensuring that sanctions are "properly understood, implemented and enforced in the UK". Financial sanctions may include prohibitions on the transfer of funds to a sanctioned country, freezing of the assets of a government, corporate entities or citizens of a particular country or targeted freezing of assets of individuals or legal entities. Provisions in the Policing and Crime Bill, currently going through Parliament, outline new administrative penalties, civil monetary penalties and an increase in the maximum custodial sentence for breaching financial sanctions to seven years on conviction on indictment (or six months' imprisonment on summary conviction) for breach of financial sanctions. OFSI is seeking feedback on its proposed Guidance on the circumstances in which it may consider that a monetary penalty is suitable and how it will set the penalty amount as well as the process for imposing a penalty and the circumstances in which details of any penalty may be published. The consultation closes on January 26, 2017. OFSI has stated that either interim or final Guidance will be published before the power to impose penalties comes into effect in April 2017. The proposed Guidance is based on the current version of the Bill and may need to be amended as appropriate once the final legislation is published.
View the consultation paper. -
European Commission Adopts Technical Standards on Criteria for the Ancillary Activity Exemption
12/01/2016
The Commission adopted Regulatory Technical Standards supplementing the revised Markets in Financial Instruments Directive, setting out when an activity is “ancillary” to a firm’s main business. MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business on a group basis and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Adoption of the RTS follows the consultation by the European Securities and Markets Authority on the draft RTS. The Commission proposed changes to ESMA's final draft RTS, which was submitted on September 28, 2015, including a capital test to distinguish a group’s main activates from its ancillary activities. The Commission requested a methodology to specify the allocation of capital between the main business activity and the ancillary activity to enable groups to demonstrate, based on the capital employed, where the group’s main business activity resides. On May 30, 2016, ESMA responded by way of formal opinion and revised draft RTS. Rather than a single capital based methodology, ESMA proposed five options for speculative trading and three for a group’s main activity. ESMA did not stipulate which of the options was to be preferred and did not specify a threshold for determining the percentage of speculative trading by a group‘s main activity that would trigger the requirement for authorization under MiFID II.
Read more.TOPIC : MiFID II -
US Federal Reserve Board Releases Discussion Paper on Distributed Ledger Technology
12/01/2016
In early December 2016, the US Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs released a discussion paper entitled “Distributed Ledger Technology in Payments, Clearing, and Settlement.”
The paper notes how digital innovations in finance, loosely known as Fintech, have garnered a great deal of attention across the financial industry. Distributed ledger technology (DLT) is one such innovation that has been cited as a means of transforming payment, clearing and settlement processes, including how funds are transferred and how securities, commodities and derivatives are cleared and settled. The paper examines how this technology might be used in the area of payments, clearing and settlement and to identify both the opportunities and challenges facing its practical implementation and possible long-term adoption. The authors state that DLT has the potential to provide new ways to transfer and record the ownership of digital assets; securely store information; provide for identity management; and other evolving operations through peer-to-peer networking, access to a distributed but common ledger among participants and cryptography. Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities transactions. These use cases could address operational and financial frictions around existing services.
Read more.TOPIC : FinTech -
European Rating Platform Launched
12/01/2016
The European Securities and Markets Authority announced the launch of a new database, the European Rating Platform. The ERP provides access to free, up-to-date information on credit ratings that have been issued by a credit rating agency that is registered or certified by ESMA, except for those issued under the investor-pays model. The ERP enables investors and other users of ratings to compare all credit ratings that exist for a specific rated entity or instrument. It holds rating history details from July 1, 2015 onwards, press releases accompanying the rating issuances and research reports for sovereign ratings.
View ESMA's announcement.
Go to the new ERP.
TOPIC : Credit Ratings -
US Comptroller of the Currency Thomas Curry Emphasizes the Need for Strong Capital and Liquidity
11/30/2016
Thomas Curry, Comptroller of the Currency provided remarks at The Clearing House’s Annual Conference, focusing on value of strong capital, the need for liquidity, and importance of effective supervision.
Curry began by highlighting that increased capital requirements, and leverage ratio requirements that supplement these capital standards, have led to large bank holding companies being projected to remain well-capitalized under most severe stress test scenario. He argued against reduction in capital and leverage requirements. He similarly emphasized the importance of strong liquidity requirements that were implemented since the financial crisis and noted that US banks have higher revenues and higher profits than their European counterparts under the new regulations.
Curry discussed the importance of “holistic” supervision, arguing that regulators and banks must continue to improve both metrics and “soft” standards of performance. Curry mentioned a trend in some banks to separate Chairmanship of the Board from the CEO position and noted that the OCC is considering whether it would make sense for all, or all of the largest, federally supervised banks to make the same change. Curry concluded by highlighting the performance of community banks and smaller institutions alongside large institutions and noting the progress made since 2008.
View Comptroller Curry's remarks. -
UK Financial Policy Committee Post-Brexit Referendum Financial Stability Report
11/30/2016
The Bank of England published its latest Financial Stability report. In the Report, the Financial Policy Committee explains the key risks affecting the UK financial system, how it is addressing these risks and the developments since the Brexit referendum. The Report also includes a summary of the results of the Bank of England's 2016 bank stress test.
The first part of the Report outlines in detail the Committee’s analysis of major risks posed to the stability of the UK economy and the action it is taking in light of such risks. The second part of the Report contains a summary of the Committee’s analysis of those risks and of the resilience of the financial system. The Committee comments that since the Referendum, financial stability in the UK has been maintained despite a challenging period of uncertainty around the domestic and global economic outlook. For example, there have been significant movements in asset prices, including a 12% fall in the sterling exchange rate index. The Committee also comments that the outlook for financial stability in the UK remains challenging as the economy has entered into a period of adjustment. Since July, vulnerabilities that stem from the global economic environment and financial markets have further increased, such as the expected expansionary fiscal policy that could follow the recent US election. The Committee comments that the UK banking system is capitalized to sustain the provision of financial services when faced with severe stresses. Since the global financial crisis, UK banks have built up capital resources with the aggregate common equity Tier 1 capital held by major UK banks now at 13.5% of risk-weighted assets (as at September 2016).
Read more. -
Guilty Pleas to Insider Dealing Charges Brought by the UK Financial Conduct Authority
11/30/2016
The Financial Conduct Authority announced that Manjeet Mohal and Reshim Birk had pleaded guilty to three counts of insider dealing at their trial at the Central Criminal Court. Mr. Mohal pleaded guilty to two counts of illegal disclosure of inside information and Mr. Birk pleaded guilty to one count of insider dealing. They will be sentenced on January 13, 2017. The FCA's investigation was brought in relation to the proposed takeover of Logica by CGI Holdings (Europe) Ltd. Two other individuals have been successfully prosecuted for insider dealing in relation to the same transaction.
View the FCA's announcement.TOPIC : Enforcement -
Counselor to the US Treasury Secretary, Antonio Weiss, Argues for the Preservation of the FSOC
11/29/2016
Antonio Weiss, Counselor to the US Treasury Secretary, argued that the FSOC has become a “critical nerve center during episodes of market volatility or stress,” providing a forum to assess system-wide risks, which was missing during the financial crisis. In the speech, Weiss stated that the establishment of FSOC has improved the ability of regulators to share information and collaborate in a way that no single regulator can do on its own.
View text of Weiss’s remarks.
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UK Regulator Launches Call for Input on Review of High-Cost Credit
11/29/2016
The Financial Conduct Authority launched a call for input into its review of high-cost credit, including the high-cost of short-term credit (HCSTC) price caps. The FCA took over regulation of consumer credit in April 2014. High-cost credit includes payday loans, home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor and logbook loans. As part of its policy to address the risk of consumer harm from such products, the FCA has introduced a HCSTC cap and new regulation for HCSTC lenders. The FCA has committed to reviewing the HCSTC price cap while also reviewing high-cost products as a whole to determine whether further policy intervention is required and if so, whether a more consistent approach is necessary. The FCA identifies overdrafts as a priority area for consumer protection and regulation. The FCA is seeking responses on issues with regard to the competition and provision of substitute or alternative high-cost credit products to overdrafts. The HCSTC price cap came into force on January 2, 2015. The FCA is seeking to assess whether there is evidence to suggest that it should consider changing the price cap.
Read more.TOPIC : Consumer Protection -
US Consumer Financial Protection Bureau Issues Bulletin on Detecting and Preventing Consumer Harm from Production Incentives
11/28/2016
The US Consumer Financial Protection Bureau issued a bulletin warning banks that creating incentives for employees and service providers to meet sales and other business goals can lead to illegal sales practices such as unauthorized account openings, deceptive sales tactics and steering consumers into less favorable products, all practices which may cause consumer harm. In addition, the bulletin outlines the CFPB’s expectation that institutions that choose to utilize incentives should institute effective controls for the risks that these incentives may present. Most importantly, the CFPB emphasizes the need for a robust compliance management system, which includes board of director and management oversight, training, monitoring and independent audits.
View CFPB bulletin.TOPIC : Consumer Protection -
Proposed European Regulation on CCP Recovery & Resolution Published
11/28/2016
The European Commission published a legislative proposal for a Regulation on the recovery and resolution of CCPs. The aim of the proposed Regulation is to set up a framework for the orderly recovery of a CCP through implementation of recovery plans. Under the proposal, a CCP's recovery plan will need to be agreed between the CCP and its clearing members. If the recovery measures do not restore the CCP’s viability, the CCP's resolution authority will have the power to take action to ensure the continuity of the CCP's critical functions and, if needed, resolve the CCP. This includes setting up bridge CCPs. In the event of losses arising under a resolution, these will be borne by a CCP's owners, creditors and counterparties in line with the hierarchy of claims in insolvency. Managers of a CCP will be capable of being replaced and held accountable for wrongdoing under the applicable national laws. The CCP recovery and resolution framework would apply to all CCPs established in the EU. It is not proposed that the recovery and resolution framework would apply to the wider group of a CCP, but a resolution authority would be able to decide on a case-by-case basis whether a recovery plan should include a parent company.
Read more. -
US Commodity Futures Trading Commission Extends No-Action Relief
11/28/2016
The CFTC extended the relief granted under No-Action Letters 15-62 and 15-63 until December 31, 2017. The extended no-action relief in CFTC Letter No. 16-80 exempts inter-affiliate swaps from the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act, subject to certain requirements. In addition, CFTC Letter No. 16-81 extends temporary relief from the trade execution requirement to certain affiliate counterparties.
View text of CFTC Letter No. 16-80.
View text of CFTC Letter No. 16-81.TOPIC : Derivatives -
UK Financial Conduct Authority Consults on Changes to Rules on Delaying Disclosure of Inside Information
11/28/2016
The Financial Conduct Authority published a consultation paper on proposed changes to its Disclosure Guidance and Transparency Rules sourcebook in the Handbook on delaying the disclosure of inside information. The Market Abuse Regulation requires issuers to inform the public as soon as possible of inside information which directly concerns them. MAR mandates the European Securities and Markets Authority to prepare Guidelines which further specify when an issuer might delay disclosure of inside information. ESMA's Guidelines, published on November 20, 2016, outline the legitimate interests of issuers to delay disclosure of inside information and provide a non-exhaustive indicative list on the legitimate interests of the issuer that are likely to be prejudiced by the immediate disclosure of inside information and the situations in which delay of disclosure is likely to mislead the public. ESMA's Guidelines will apply directly across the EU from January 10, 2017. The FCA has confirmed that it intends to comply with ESMA's Guidelines and is consulting on the consequential changes to its rules. The consultation closes on January 6, 2017.
Read more. -
UK Prudential Regulation Authority Issues Second Consultation Paper on Implementing MiFID II
11/25/2016
The Prudential Regulation Authority launched its second consultation on implementing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The consultation relates to requirements for a firm's management body and organizational requirements as well as to the new regulated activity of operating an Organised Trading Facility and the new financial instrument of "emission allowances" and structured products. The PRA consulted on its approach to passporting and algorithmic trading earlier in 2016 and has published its final rules for those areas. The PRA will consult on other aspects related to MiFID II in due course.
Read more.TOPIC : MiFID II -
European Banking Authority Launches Second Impact Assessment on Implementation of IFRS 9
11/24/2016
The European Banking Authority announced the launch of a second impact assessment on the implementation of International Financial Reporting Standard 9. The second impact assessment builds on the findings in the first impact assessment that was published by the EBA in a report on November 10, 2016. The Report analyzes the estimated impact of implementing IFRS 9 on firms and their regulatory capital and assesses the interaction between IFRS 9 and other prudential requirements. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 on January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9.
The second impact assessment will include questions focused on specific aspects around the main topics and findings from the first impact assessment. The EBA expects more detailed and accurate information from banks relating to their implementation of IFRS 9 than the previous assessment, as the information previously given reflected that banks were at an early stage of implementation.
Read more. -
Final EU Guidelines on Implicit Support for Securitization Transactions
11/24/2016
The European Banking Authority published translations of the final Guidelines on implicit support for securitization transactions under the Capital Requirements Regulation. The substantive content of the Guidelines is unchanged since the final Guidelines were published in August 2016. The publication of the translations triggers the application of the Guidelines which will apply from March 1, 2017.
Examples of relevant transactions include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR places restrictions on providing implicit support to securitizations. These rules apply in addition to the so-called "skin in the game" requirements on originators to retain part of the risk on securitizations. To prevent uncapitalized risks of implicit support, the CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR also states that a transaction is not considered to provide support to a securitization if it is executed under arm’s-length conditions and taken into account in the assessment of significant risk transfer. The CRR requires a sponsor or originator institution that has failed to comply with this requirement to, at a minimum, hold own funds against all of the securitized exposures as if they had not been securitized.
Read more. -
US Board of Governors of the Federal Reserve System Finalizes Dividend Rule
11/23/2016
The US Federal Reserve Board issued a final rule, amending Regulation I to implement provisions of the Fixing America’s Surface Transportation (FAST) Act, a five-year bill that reauthorized, at then-current levels, the core programs providing federal transportation funding to the states. The final rule adopts substantively all of the provisions of the interim final rule issued in February of this year. The rule will reduce the dividend rate for banks with total assets of more than $10 billion to the lesser of 6% or the most recent 10-year Treasury auction rate prior to the dividend payment. The rule also adjusts the treatment of accrued dividends when a Federal Reserve Bank issues or cancels capital stock owned by a large member bank.
View text of the rule. -
Basel Committee on Banking Supervision Consults on Revisions to Correspondent Banking Guidance for Money Laundering and Financing of Terrorism Risks
11/23/2016
The Basel Committee on Banking Supervision launched a consultation on proposed revisions to the correspondent banking and account opening annexes of its Committee Guidelines on sound management of risks related to money laundering and financing of terrorism. The Guidelines describe how banks should include money laundering and financing of terrorism risks within their overall risk management. The Basel Committee is seeking to confirm regulatory expectations on the assessment of money laundering and financing of terrorism risks in correspondent banking and its proposals follow the publication by the Financial Action Task Force of its Guidance on correspondent banking on October 21, 2016. The proposed revisions to the Guidelines develop the application of the risk-based approach for correspondent banking relationships, including recognizing that not all correspondent banking relationships carry the same level of risk. The proposed revisions also clarify expectations regarding the quality of payment messages and the conditions for using “know your customer” (KYC) services. Responses to the consultation are requested by February 22, 2017.
View the consultation paper.
View the Sound Management of Risks Related to Money Laundering and Financing of Terrorism.
View the FATF's Guidance.
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European Commission Reports on Feedback to the Call for Evidence on the EU Regulatory Framework for Financial Services
11/23/2016
The European Commission published a Communication to the European Parliament, the Council of the European Union on the follow-up to its Call for Evidence on the EU regulatory framework for financial services. The European Commission launched its Call for Evidence on the EU regulatory framework in September 2015 alongside its Action Plan for a Capital Markets Union. The Call for Evidence sought feedback on unnecessary regulatory burdens, inconsistencies, gaps and unintended consequences of EU financial services legislation. Following an analysis of the feedback received, the Commission has concluded that targeted action is required to address some of the shortcomings that have been highlighted. Where possible, the Commission has integrated the feedback into existing initiatives such as the review of the Capital Requirements Regulation and the European Market Infrastructure Regulation or the future development of the CMU but there are some instances where new policy action will be needed. The Communication includes an action plan indicating how the issues are intended to be addressed.
View the Communication.TOPIC : Financial Services -
European Commission to Further Assess Issues on Implementation of the European Market Infrastructure Regulation
11/23/2016
The European Commission published a Report assessing the issues arising from the implementation of the requirements of the European Market Infrastructure Regulation. EMIR imposes reporting and clearing obligations, risk mitigation techniques for derivatives that are not cleared and requirements on CCPs and trade repositories. The Report summarizes the issues that stakeholders and market participants have raised in response to the Commission's public consultation on EMIR, as well as input from EU authorities such as the European Securities and Markets Authority. The Report does not propose any legislative changes but sets out particular areas where future legislative amendments might be needed or which are to be studied further. The Commission is proposing a legislative review of EMIR in 2017.
Read more.TOPIC : Derivatives -
European Commission Proposes Draft "CRD5" Among Various EU Banking Sector Legislative Amendments
11/23/2016
The European Commission published a package of proposed legislative amendments in relation to the Bank Recovery and Resolution Directive, the Single Resolution Mechanism Regulation, the Capital Requirements Regulation and the Capital Requirements Directive. The amendments aim in part to introduce some of the revised global prudential standards from latest FSB/Basel developments, to apply a more proportionate approach to regulating banks and investment firms depending on their size and complexity and to remove some of the options and discretions that are currently available to EU Member States.
The changes to CRR and CRD IV include a new requirement on non-EU G-SIBs (or non-EU banking groups that have EU firms with total assets of at least EUR 30 billion) that have two or more EU firms to establish an EU intermediate holding company. This controversial proposal does not square well with US or other third country bank structural laws nor will it be reflected in banks' existing resolution and recovery plans, and so will doubtless be a contentious issue as it is developed further.
Read more. -
Final Draft EU Standards on the Assessment Methodology for the Use of Internal Models Published
11/22/2016
The European Banking Authority published a Report and the final draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the final draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. When finalizing the final draft RTS, the EBA took into account, to the extent possible under the existing CRR, the Fundamental Review of the Trading Book that the Basel Committee on Banking Supervision published in January 2016. The final draft RTS have been submitted to the European Commission for consideration.
View the final draft RTS.
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European Banking Authority Responds to Commission Request for Further Information on Application of Proportionality to Remuneration Provisions in the Capital Requirements Directive
11/21/2016
The European Banking Authority published a response to the European Commission’s request for further information on the EBA’s Opinion on the application of the principle of proportionality to remuneration provisions in the Capital Requirements Directive. On December 21, 2015, the EBA published its first Opinion, recommending a possible set of exemptions from some of the remuneration principles, specifically the variable elements of remuneration. The EBA's proposed amendments included: (i) the application of deferral arrangements; (ii) the pay out in instruments for small and non-complex institutions; and (iii) for identified staff that receive only a low amount of variable remuneration when specific criteria are met. The Commission requested further information from the EBA through a letter dated April 21, 2016 on the issue of proportionality. The EBA responded on May 27, 2016, noting the scope of its then-planned analysis and the limitations on such a response given the timing and available data resources.
The EBA found that all but five Member States allow for waivers in the areas of remuneration, that most Member States permit the application of waivers through thresholds based on balance total or by making case-by-case assessments. The EBA concluded that the extent to which banks and identified staff benefit from waivers differs significantly across the EU.
Read more. -
2016 List of G-SIBs Published
11/21/2016
The Financial Stability Board published an updated list of global systemically important banks. The 2016 list of G-SIBs includes the same banks as those in the 2015 list. However, some banks have moved to a higher or lower bucket due to improved data quality, changes in underlying activity and/or the use of supervisory judgement.
View the 2016 list of G-SIBs.
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UK Prudential Regulator Consults on Raising the Deposit Protection Limit
11/21/2016
The Prudential Regulation Authority published a consultation paper on proposals to reset the deposit protection limit at £85,000. The purpose of the update is to provide depositors with PRA-authorized firms commensurate protection to that of depositors with firms authorized by regulators in other EU Member States. The Deposit Guarantee Schemes Directive requires non-Euro Member States to adjust their deposit protection limits every five years to ensure they are equivalent to the euro limit of EUR100,000. The DGSD also requires that such countries, including the UK, must adjust their deposit protection limit to take into account currency fluctuations. Following the Brexit referendum on June 23, 2016, the PRA considers that a structural shift in the exchange rates has occurred and to comply with the DGSD, the PRA is proposing that the depositors’ protection level be raised to £85,000 from January 30, 2017. This will require an increase of £10,000 pounds from the limit that was set in 2015. The PRA is also proposing a five month transitional period until June 30, 2017 for firms to implement changes to their disclosure materials, advertising materials and Single Customer View (SCV) and Continuity of Access (CoA) systems to accurately reflect the new deposit protection limit. Prior to June 30, 2017, firms will be required to notify the PRA if they are ready to implement the rule changes and will become subject to the new rules from the next business day following notification. Separate notifications are available for: (i) SCV and CoA systems; and (ii) disclosure and advertising materials. The PRA notes that it will seek to maintain a stable deposit protection limit through uncertainty in foreign exchange markets resulting from the referendum, but will seek to avoid making further adjustments to the limit. Responses to the proposals are due by December 16, 2016.
View the Consultation Paper. -
US Commodity Futures Trading Commission Extends No-Action Relief from Swap Data Reporting Rules for Swap Dealers of Particular Jurisdictions
11/21/2016
The CFTC released a no-action letter extending further no-action relief from swap data reporting requirements for swap dealers and major swap participants established under the laws of Australia, Canada, the EU, Japan or Switzerland that are not part of an affiliated group in which the ultimate parent is a US swap dealer, major swap participant, bank, bank holding company or financial holding company for an additional year, from December 1, 2016 to December 21, 2017. In a December 20, 2013 no-action letter, the CFTC had exempted such registered swap dealers and major swap participants from these jurisdictions from the swap data reporting rules in Parts 45 and 46 of the CFTC’s regulations, an exemption which it later extended in 2014 and 2015. As the CFTC had not yet made comparability determinations as to whether the regulatory requirements of the foreign jurisdictions are comparable to and as comprehensive as its own, it believed that the extension of no-action relief is appropriate. The no-action relief will expire at the earlier of: (1) 30 days following the issuance of a comparability determination with respect to the reporting rules of the non-US swap dealer or non-US major swap participant’s jurisdiction; or (2) December 1, 2017.
View no-action letter.
TOPIC : Derivatives -
US Securities Exchange Commission Director of the Division of Trading and Markets to Leave
11/21/2016
The SEC announced that Stephen Luparello, Director of the Division of Trading and Markets, will leave the SEC by the beginning of 2017.
View SEC press release.TOPIC : People -
US Securities Exchange Commission Chief Litigation Counsel, Matthew C. Solomon to Leave
11/21/2016
The SEC announced that Matthew C. Solomon, the Chief Litigation Counsel for the SEC’s Enforcement Division, will leave the SEC early December 2016.
View SEC press release.TOPIC : People -
Final EU Secondary Legislation on Third-Country Firms' Applications for the Provision of Investment Services Published
11/19/2016
Regulatory Technical Standards on the required information for registration of third country firms and the format of information provided to clients was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation on the provision of services and performance of activities by third country firms following an equivalence decision with or without a branch. The RTS specifies the information necessary for registration with the European Securities and Markets Authority. The RTS requires firms to update ESMA, within 30 days, of any changes to the information provided in its application. MiFIR requires third country firms, before providing investment services for clients in the EU, to inform such clients that they are not permitted to perform services for clients other than eligible counterparties and professional clients within the definition of the revised Markets in Financial Instruments Directive and, furthermore, that they are not subject to supervision in the EU. The RTS provides that the notice must be provided in a “durable medium” (which includes electronic media); such that, amongst other things, it is in English or the in the official language, or one of the official languages, of the Member State where the services are to be provided.
View the RTS on application by third country firms for permission to provide investment services.TOPIC : MiFID II -
Final EU Secondary Legislation on Access to Benchmarks Published
11/19/2016
Regulatory Technical Standards on access in respect of benchmarks was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation. MiFIR provides for non-discriminatory access to benchmarks for the purposes of clearing and trading for central counterparties and trading venues. This includes access to the licenses of, and information relating to, benchmarks which are used to determine the value of some financial instruments for trading and clearing purposes. The RTS specifies that a person with proprietary rights to a benchmark must, upon request, make available to CCPs and trading venues the information necessary to perform their clearing or trading functions. For CCPs, the functions include the appropriate risk management of relevant open positions in exchange-traded derivatives, including netting, and compliance by the CCP with its obligations under the European Market Infrastructure Regulation. For trading venues, such functions include the initial assessment of the characteristics of the benchmark, the marketing of the relevant product and the support of the price formation process for the contracts admitted or being admitted to trading. The RTS state that the provision of price and data feeds must include the feed of the benchmark’s values and the prompt notification of any inaccuracy in the calculation of the benchmark values and of the updated or corrected benchmark values. The RTS also sets out general conditions on the provision of information through licensing and the minimum conditions that a benchmark owner must set for licensing agreements.
Read more.TOPIC : MiFID II -
US Federal Reserve Board Announces Broadened Post-Employment Restrictions on Senior Examiners and Officers
11/18/2016
The US Federal Reserve Board announced that it was broadening the scope of post-employment restrictions applicable to senior examiners and officers of Federal Reserve Banks. The revised rule broadens the one-year bar on accepting paid work from a financial institution from applying to only examiners who are “central points of contacts” (CPCs) to include deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers and supervisory team leaders. The new policy also prohibits former Federal Reserve Bank officers from representing third parties before current Federal Reserve employees for one year after leaving their position, and imposes a one-year ban on current employees discussing official business with these former officers.
The restriction on former officers became effective on December 5, 2016, and the restriction on senior examiner employment will become effective on January 2, 2017.
View press release. -
US Securities and Exchange Commission Chair Mary Jo White Discusses SEC Enforcement
11/18/2016
Chair of the Securities and Exchange Commission Mary Jo White discussed the SEC’s enforcement program, focusing on white collar crime in particular. She detailed the SEC’s “Investigate to Litigate” philosophy, where SEC staff are instructed to conduct all investigations with litigation in mind. She also discussed a number of measures the SEC has to detect misconduct, from advanced data analysis to whistleblowers. In particular, she highlighted the SEC’s focus on individual wrongdoers and its policy of requiring admissions as a condition for certain settlements.
Read more.TOPIC : Enforcement -
European Banking Authority Harmonizes Approach to Credit Risk for Exposures to Public Sector Entities
11/18/2016
The European Banking Authority published a list of public sector entities that may be treated as regional governments, local authorities or central governments when firms are calculating their capital requirements to EU public sector entities for credit risk purposes under the Capital Requirements Regulation. Exposures to the public sector entities that are included in the EBA's list will attract the same risk weight as the respective regional governments, local authorities or central governments. The EBA has compiled the list on its own initiative to enhance harmonization across the EU in this area.
View the EBA's list. -
FICC Markets Standards Board Consults on New Issue Process Standard for the Fixed Income Markets
11/18/2016
The Fixed Income, Currency and Commodities Markets Standard Board launched a consultation on a proposed New Issue Process Standard for the Fixed Income markets. The FMSB was established in 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the Financial Conduct Authority. The FMSB has created Standards to improve conduct in the FICC markets. The draft New Issue Process Standard is intended to improve existing practices so that the new issue process is further streamlined for all participants, including issuers, investors and lead managers. The proposed Standard builds on the ICMA recommendations for Investment Grade primary markets issuance. However, it is wider in scope as it will apply to syndicated offerings of fixed income bonds in the wholesale markets, including investment grade, high yield, securitization and emerging market debt offerings. Once published in final form, the Standard will apply to FMSB member firms who are expected to comply with it on a global basis, subject to regulatory restrictions in certain jurisdictions. Responses to the consultation are due by January 17, 2016.
View the proposed New Issue Process Standard.
TOPIC : Financial Services -
UK Regulator Publishes Interim Report on Asset Management Market Study
11/18/2016
The Financial Conduct Authority published an interim report following its Asset Management Market Study. As per The Terms of Reference, the FCA investigated three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA also looked at whether there are any barriers to innovation that prevent investors from obtaining better results.
The FCA found that, based on the evidence produced, a weak price competition exists in a number of areas of the asset management industry. The lack of competition has a material impact on the investment returns of investments as a consequence of their payments for asset management services. The FCA reviewed product development and innovation in the asset management market and concluded that there is some evidence of innovation and limited evidence of any significant structural or regulatory barriers to entry. The FCA is of the view that despite the interim finding raising concerns about how effectively competition drives value for investors in the asset management sector, there are also some competitive pressures building in parts of the market and this is likely to continue.
Read more. -
US Consumer Financial Protection Bureau Announces Inquiry into Consumer Challenges in Using and Securely Sharing Digital Financial Records
11/17/2016
The CFPB launched an inquiry into the challenges consumers face in accessing, using and securely sharing financial records. The CFPB is asking the public to report how much choice they are given about the use of their records, how secure it is to share them and to what extent they have control over them. The CFPB’s release noted that the Dodd-Frank Act gave consumers rights to electronically access their financial records, with the CFPB having rulemaking authority over the area.
The comment period will end on February 21, 2017.
View CFPB’s press release.
View Request for Information.TOPIC : Consumer Protection -
UK Payment Systems Regulator Publishes Consultation Paper on Proposed Financial Penalty Scheme
11/17/2016
The UK Payment Systems Regulator published a consultation paper and proposed guidance on the Financial Penalty Scheme that is applicable to penalty payment amounts retained by the PSR. The PSR’s enforcement powers under the Financial Services (Banking Reform) Act 2013 allow the PSR to impose penalties for compliance failures on firms subject to regulation. The PSR pays penalties it receives to HM Treasury whilst retaining an amount to cover enforcement costs. The PSR proposes to use the amount retained to reduce regulatory fees levied in a particular year from payment service providers. As a result, some of the PSR’s enforcement costs would be funded through penalties imposed, rather than through fees. The consultation paper outlines a number of situations that might arise and how the scheme could apply. For example, where payment service providers have become liable to pay penalties in the previous year and are also fee payers, the PSR would ensure that such parties do not receive any returned retained amounts under the Financial Penalty Scheme. Responses to the consultation are due by January 13, 2017.
View the consultation paper.
View the guidance on the Financial Penalty Scheme.TOPIC : Payment Services -
US Representative Hensarling Calls for Repeal of Dodd-Frank
11/16/2016
Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, gave a speech to the Exchequer Club laying out a potential financial regulatory agenda for the Trump Administration and Congressional Republicans to pursue. He began by calling for thwarting the Department of Labor’s fiduciary rule, as well as preventing the Consumer Financial Protection Bureau from regulating small dollar, “payday” loans.
Read more. -
European Banking Authority Consults on Proposals to Reintroduce the Maturity Ladder for Liquidity Reporting
11/16/2016
The European Banking Authority published for consultation draft amending Implementing Technical Standards to amend the current ITS on supervisory reporting of firms as amended by the ITS on additional monitoring metrics for liquidity reporting. Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements. The ITS on supervisory reporting include provisions on a firm's liquidity reporting requirements. Additional monitoring metrics for liquidity were added to the ITS in March 2016. The EBA's final draft ITS on those additional monitoring metrics included a maturity ladder templates and instructions which were removed by the European Commission before it adopted the ITS. The European Commission has since requested the EBA to update the maturity ladder in line with the detailed information of liquid assets as set out in the Delegated Act on the Liquidity Coverage Ratio. The EBA's proposed amending ITS are mostly concerned with reintroducing a maturity ladder in line with the reporting requirements provided for in the LCR Delegated Act. The EBA is due to submit the final revised draft ITS in March/April 2017. It is expected that the revised reporting requirements would apply from March 2018. The consultation closes on January 2, 2016.
View the consultation paper.
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US Commodity Futures Trading Commission Releases Stress Tests Results for Five Major Clearinghouses
11/16/2016
The CFTC released the results of supervisory stress tests of five major clearinghouses in the US and UK. The tests included eleven scenarios focusing on the most highly traded products at each clearinghouse. The tests focused on the largest clearing members at each clearinghouse, analyzing both their house and customer accounts. The CFTC noted three key findings: (1) clearinghouses have the pre-funded resources to remain resilient through a variety of extreme market price changes; (2) risk was diversified across the clearinghouses tested; and (3) clearing member risk was also diversified — no single scenario of the eleven accounted more than 19% of the worst outcomes.
View CFTC press release.TOPIC : Derivatives -
European Supervisory Authorities Publish Joint Guidelines on a Risk-Based Approach to Anti-Money Laundering and Terrorist Financing Supervision
11/16/2016
The Joint Committee of the European Supervisory Authorities published joint Guidelines on the characteristics of a risk-based approach to anti-money laundering and terrorist financing supervision. The ESAs consist of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Guidelines build on the ESA’s previous “Preliminary report on anti-money laundering and counter financing of terrorism Risk Based Supervision” that was published in October 2013. The Guidelines outline steps to be taken by regulators when conducting AML/CTF supervision on a risk-sensitive basis. The Fourth Anti-Money Laundering Directive, amongst other things, aims to bring European legislation in line with the Financial Action Task Force’s International Standards on Combating Money Laundering and the Financing of Terrorism. The ESAs emphasize that AML-and CFT-related risk-based supervision is ongoing and cyclical and the Guidelines outline four requisite steps that national regulators should apply. Step 1 involves the regulator identifying the money laundering or terrorist financing risk factors by obtaining information of both domestic, foreign and sector-wide threats. Step 2 requires the information to be used by the regulator to conduct a risk assessment and obtain a holistic view of the risks associated with each firm. Step 3 requires the allocation of supervisory resources factoring in issues such as the required focus, depth, duration and frequency of the on-site and off-site activities and supervisory staffing needs. Step 4 requires regulators to ensure that the risk assessment and level of allocated supervisory resources remains commensurate to AML/CFT risks through ongoing monitoring and reviewing processes. The Guidelines will apply one year after the Guidelines have been issued.
View the joint Guidelines.
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European Securities and Markets Authority Publishes Final Report on Validation and Review of Credit Rating Agencies' Methodologies
11/15/2016
The European Securities and Markets Authority published its final Report on Guidelines on how Credit Rating Agencies should review and validate their methodologies. The CRA Regulation requires CRAs to review their methodologies, as well as quantitative and qualitative techniques used as part of the validation of the methodologies, to ensure that they are rigorous, systematic and continuous and subject to validation based on historical experience. The Guidelines clarify ESMA’s expectation that a CRA must review its credit ratings and methodologies on an ongoing basis and at least annually. The Guidelines focus in particular on quantitative measures, and the purpose of the Guidelines is to increase the quality of such quantitative measures used by requiring CRAs to review their methodologies and to support the Regulatory Technical Standards on ratings methodologies. The Report follows a consultation published by ESMA on July 13, 2016. The Report provides a summary of the responses received and a qualitative assessment of the potential costs and benefits of the Guidelines. The Guidelines are to be translated into the official languages of the EU and will apply two months after the date of publication of those translations on ESMA’s website.
View ESMA’s Final Report.
TOPIC : Credit Ratings -
European Securities and Markets Authority Opines on Supervisory Approach for CCPs’ Service Extension
11/15/2016
The European Securities and Markets Authority published an Opinion outlining a common supervisory approach for regulators dealing with central counterparties that seek to extend or change their existing authorization under the European Market Infrastructure Regulation or to adopt a significant change to their risk model and parameters. The purpose of the Opinion is to build a common supervisory culture by creating uniform procedures and consistent approaches throughout the EU. EMIR requires a CCP wishing to extend its business to additional products and services not covered by its initial authorization to apply to its regulator for an extension, and to obtain validation before adopting any significant changes to its risk model and parameters. EMIR does not define or specify what “additional services and activities” are, nor the notion of “significant change.” The Opinion provides indicators to assist regulators to identify when a change is significant and to seek the college’s opinion, as required by EMIR, on the extension of services and activities.
Read more. -
US Senior Deputy Comptroller Grovetta Gardineer Speaks to the CRA and Fair Lending Colloquium
11/15/2016
Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs, spoke to the CRA and Fair Lending Colloquium about the role a “healthy culture” plays at regulated financial institutions. She called the Dodd-Frank reforms the process of establishing a “new normal,” warning institutions they cannot return to pre-crisis modes of operation. She highlighted compliance culture as a key element to a healthy institutional culture, noting OCC efforts to improve compliance supervision. She also noted a focus on existing and emerging risks in the fair lending and CRA spaces for the OCC.
View Senior Deputy Comptroller Gardineer’s remarks.TOPIC : Conduct & Culture -
US Government Accountability Office Reports on Limitations in Federal Reserve Stress Tests
11/15/2016
The Government Accountability Office released a report highlighting limitations in the Federal Reserve stress testing programs. The GAO report noted three specific areas that could hinder the effectiveness of stress tests: qualitative assessment disclosure and communication, scenario design and model risk management. Specifically, the GAO faulted the Federal Reserve for not disclosing full information on its qualitative assessment approach, posing challenges to companies that must meet assessment goals and for not analyzing whether the severe scenario used for stress testing adequately reflects a full range of possible outcomes in the event of a crisis. The GAO report makes 15 specific recommendations, which it reported that the Federal Reserve “generally agreed” with and noted specific ongoing and future efforts to implement these recommendations.
View GAO press release.
View the report. -
US Federal Deposit Insurance Corporation Board Approves Final Rule Establishing Recordkeeping Requirements for Deposit Accounts by Large Insured Institutions
11/15/2016
The Board of the FDIC approved a final rule establishing recordkeeping requirements for FDIC-insured institutions with more than two million deposit accounts. Such institutions are required to maintain complete and accurate data on each depositor and to implement information technology systems capable of calculating the amount of insured money for depositors within 24 hours of a failure. The final rule also established alternative requirements for certain deposit accounts with “pass through” deposit insurance coverage, including trust and brokered deposits, allowing for institutions to process these accounts during a longer time period after a failure. The rule will become effective on April 1, 2017.
View FDIC press release.
View final rule. -
Guidelines on the Assessment of Institutional Protection Schemes Published
11/15/2016
Guidelines laying down principles for the coordination of the assessment and monitoring by the European Central Bank and regulators of institutional protection schemes pursuant to the Capital Requirements Regulation was published in the Official Journal of the European Union. The Guidelines are applicable to Single Supervisory Mechanism regulators, which includes the ECB and regulators of the participating states. The Guidelines relate to the assessment of IPSs for the purpose of granting prudential permissions and waivers to IPS members pursuant to the CRR and to the monitoring of IPSs that have been recognized for prudential purposes. The Guidelines apply where member institutions simultaneously submit their application for prudential waivers. An IPS is a contractual or statutory liability arrangement that protects its member institutions and ensures that they have the liquidity and solvency needed to avoid bankruptcy where necessary. The CRR requires that regulators must approve and monitor the adequacy of the IPS’s systems for the monitoring and classification of risk and further requires that the IPS conducts its own review. Regulators may allow for certain derogations by an IPS member from certain CRR requirements. The Guidelines outline the process for regulators in making decisions relating to members of the same IPS that consist of both significant and less significant credit institutions. The purpose of the Guidelines is to ensure that regulators apply the same criteria when assessing IPS applications from less significant institutions and consistently monitor ongoing legal requirements. SSM regulators must comply with the Guidelines by December 2, 2016.
View the Guidelines. -
US Securities and Exchange Commission Commissioner Piwowar Calls for SEC to Take the Lead on FinTech
11/14/2016
SEC Commissioner Michael S. Piwowar spoke at the SEC’s Financial Technology Forum, calling for the SEC to take “the lead regulatory role” in the FinTech space, noting that the SEC is “uniquely situated” to do so. Piwowar claimed the current regulatory struggle for financial technology firms is not dealing with any specific regulation, but dealing with navigating multiple regulators and possibly contradictory regulation. He stated that the SEC is the ideal regulator for FinTech companies because many financial technology firms are already SEC registrants and the SEC has a unique mandate and capacity to regulate the emerging industry.
View Commissioner Piwowar’s remarks.TOPIC : FinTech -
European Central Bank Publishes Draft Guidance on Fit and Proper Assessment
11/14/2016
The European Central Bank published for consultation draft Guidance on the fit and proper assessment of members of management bodies of significant banks. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The purpose of the draft Guidance is to outline how the ECB will evaluate the qualifications, skills and proper standing of a candidate for becoming a member of a management body. The draft Guidance builds on the current draft guidance under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive published by the European Securities and Markets Authority and the European Banking Authority on October 28, 2016. The assessment criteria for the fitness and proprietary of members of the management body are outlined in the draft Guidance. The criteria include experience, reputation, conflicts of interest and independence of mind, time commitment and collective suitability. The draft Guidance provides information on the purpose, scope and type of interviews conducted by the ECB of appointees. The draft Guidance highlights how a decision is taken by the ECB after every fit and proper assessment and the various types of decisions that may be taken. The draft Guidance also notes that under the SSM Regulation, the ECB has the power to remove, at any time, members from the management body of a significant supervised entity who do not fulfill the fit and proper requirements, which is provided for in the SSM Regulation. The ECB is seeking feedback on its draft Guidance by January 20, 2017.
View the draft Guidance. -
US Commodity Futures Trading Commission Chair Timothy Massad Discusses Derivatives Regulation
11/14/2016
Timothy Massad, Chairman of the CFTC, spoke to the CME Global Financial Leadership Conference regarding derivatives regulation. In light of the election result, he highlighted three areas that his term as Chairman has focused on that he believes will continue to be important: technological changes in markets, the effects of the Dodd-Frank reforms and international concerns.
Read more.TOPIC : Derivatives -
US Securities Exchange Commission Chair Mary Jo White Announces Departure at End of Obama Administration
11/14/2016
SEC Chair Mary Jo White announced that she will leave the SEC at the end of President Obama’s term. The press release announcing her departure highlighted the SEC’s increased efforts at investor protection and the SEC’s new enforcement approaches, as well as rulemakings responding to issues raised by the financial crisis. The SEC completed all of the mandates placed upon it by the JOBS Act, as well as the majority of those under the Dodd-Frank Act under Chair White. The release also highlighted specific rulemaking initiatives under Chair White, as well as presented enforcement statistics over the past three years.
View SEC release.TOPIC : People -
Proposed Revisions to EU Supervisory Reporting Requirements for Sovereign Exposures and Operational Risk
11/14/2016
The European Banking Authority published a consultation paper proposing revisions to the Implementing Technical Standards on supervisory reporting.The ITS on supervisory reporting collate the prudential reporting requirements of banks under the Capital Requirements Regulation, related technical standards and other financial information required by national regulators. The ITS on supervisory reporting are updated when prudential or supervisory requirements change. The EBA is proposing to revise the ITS in relation to supervisory reporting in order to address weaknesses in the existing supervisory reporting requirements concerning sovereign exposures. The EBA has identified areas where additional information or gaps should be filled. In addition, the EBA is proposing to amend the ITS on supervisory reporting in relation to operational risk so that national regulators can more closely monitor losses due to operational risk events and analyze the drivers behind those events that lead to material losses, in particular for larger banks.
The EBA intends to submit the final draft revised ITS to the European Commission in March or April 2017. The revised reporting requirements are expected to apply from March 1, 2018. Responses to the consultation are requested by January 7, 2017.
View the consultation paper. -
European Banking Authority Consults on Proposed Guidelines on the Application of the IRB Approach
11/14/2016
The European Banking Authority published a consultation paper on proposed Guidelines on the application of the Internal Ratings-Based approach, in particular, the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. The draft Guidelines focus on the definitions and modelling techniques used in the estimation of risk parameters for both non-defaulted and defaulted exposures. The Guidelines aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms which the EBA raised in its Opinion and Report on the implementation of the regulatory review of the IRB approach to calculating risk-weighted exposure amounts for credit risk, published in February 2016.
Responses to the consultation are due by February 10, 2017. The EBA is proposing that the Guidelines would apply from the end of 2020 due to the numerous changes to rating systems that the Guidelines would involve.
View the consultation paper.
View the EBA's Opinion and Report on the implementation of the IRB approach. -
Delay to EU Clearing Obligation for Certain Financial Institutions Recommended
11/14/2016
The European Securities and Markets Authority published a Report recommending that the clearing obligation for financial institutions with low trading volumes be delayed until June 21, 2019. The European Market Infrastructure Regulation imposes a clearing obligation on certain classes of derivatives. ESMA has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swaps indices: iTraxx Europe Main and iTraxx Europe Crossover. The clearing obligation is being phased in, with those with the largest derivatives trading activity becoming subject to the obligation first. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to entities that are clearing members of EU CCPs from June 21, 2016.
ESMA's Report includes draft Regulatory Technical Standards which would amend the timing of the clearing obligation for financial institutions with a low volume of derivatives trading activity (namely those in category three). ESMA is proposing that the clearing obligation for these financial institutions would apply from June 21, 2019 for the clearing of OTC IRS and CDS. The European Commission has three months to decide whether to endorse the amending RTS.
View the final report.TOPIC : Derivatives -
HM Treasury Consults on New Rules for Financial Market Infrastructure Special Administration Regime
11/11/2016
HM Treasury published a consultation paper on rules for a financial market infrastructure special administration regime. A form of special administration for certain financial market infrastructure companies, excluding central counterparties, was introduced by The Financial Services (Banking Reform) Act 2013, known as FMI administration. CCPs are already subject to the special resolution regime in the Banking Act 2009. The entities covered by the FMI administration regime are non-CCP operators of payment systems and central securities depositories. HM Treasury is seeking views on new rules, and modifications to existing general insolvency rules, required to facilitate the effective functioning of an FMI administration. The proposed rules outline the application procedure for an FMI administration order and specify the application of the Insolvency (England and Wales) Rules 2016 with modifications.
Read more. -
US Commodity Futures Trading Commission Approves Rule Amending Chief Compliance Officer Annual Report Timing for Certain Registrants
11/10/2016
The US Commodity Futures Trading Commission announced its unanimous approval of a final rule amending CFTC regulation 3.3 to provide for a 90-day window after the end of an institution’s fiscal year for the filing of chief compliance officer annual reports. The amendment applies to futures commission merchants, swap dealers and major swap participants. The amendment also clarifies the filing requirements for swap dealers and major swap participants in jurisdictions for which the CFTC has granted a comparability determination on the reports’ contents. The rule will be effective upon publication in the Federal Register.
View final rule.TOPIC : Derivatives -
European Securities and Markets Authority Makes Public Statement on Implementing IFRS 9
11/10/2016
The European Securities and Markets Authority issued a public Statement on the implementation of IFRS 9. The purpose of the Statement is to promote consistent application of European securities and markets legislation, and more specifically, International Financial Reporting Standards. ESMA notes that issuers of securities admitted to trading on regulated markets and their auditors should take the public statement into consideration during the implementation of IFRS 9; in particular, when disclosing and auditing its effects on such financial statements. ESMA is of the view that in most cases it would be appropriate to provide disclosures about changes in accounting policies and impacts on an entity’s financial statements in the period of initial application already prior to the entity’s 2017 annual financial reports. ESMA highlights that IFRS 9 is expected to have significant impacts on firms and, in particular, on credit institutions, due to the new classification for financial assets as well as implementation of the new impairment model based on the ECL. ESMA's Statement provides an illustrative timeline for implementation and a non-exhaustive list of good practices of disclosure when issuers (in general, and not limited to financial institutions) expect the application of IFRS 9 to have a significant impact on their financial statements. ESMA notes that each individual issuer should take into account materiality and its individual circumstances to ensure that relevant and transparent financial information is provided to users of its financial statements.
View ESMA’s Statement.
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European Banking Authority Publishes Views From Impact Assessment on Implementation of IFRS 9
11/10/2016
The European Banking Authority published a Report outlining observations from its impact assessment on the implementation of International Financial Reporting Standard 9. The report analyzes the estimated impact of implementing IFRS 9 on firms and assesses the interaction between IFRS 9 and other prudential requirements. The impact assessment was launched in January 2016 on a sample of approximately 50 firms. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 from January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9. The EBA is proposing further steps to assist in monitoring the implementation of IFRS 9, including a second exercise on the impact of IFRS 9, ongoing dialogue on the implementation issues outlined in the Report through engagement with the EBA, firms and auditors and considering additional regulatory guidance on the interaction between existing prudential requirements and the applicable accounting framework, including any guidance on transitional arrangements for the application of revised accounting frameworks and clarifications regarding the current regulatory technical standards for specifying specific credit risk adjustments and general credit risk adjustments.
View the Report.
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Proposed EU Technical Standards on Pre-trade Transparency Requirements for Package Orders
11/10/2016
The European Securities and Markets Authority launched a consultation on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. When the legislation delaying the implementation of the MiFID II package was published, MiFIR was revised specifically to require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is not a liquid market (unless there is a liquid market for the package order as a whole).
ESMA is required to prepare draft Regulatory Technical Standards by February 28, 2017, setting out the methodology for determining the package orders for which there is a liquid market. ESMA is required to assess whether packages are standardized and frequently traded in preparing the RTS.
ESMA's consultation paper considers the treatment of packages for transparency purposes, taking into account the pre-trade transparency regime for package orders in the EU and the US and sets out ESMA's proposed methodology for determining package orders for which there is a liquid market. The consultation closes on January 3, 2017. ESMA will finalize the draft RTS for submission to the European Commission by the end of February 2017.
View the consultation paper.TOPIC : MiFID II -
Final EU Technical Advice Under Benchmark Regulation Published
11/10/2016
The European Securities and Markets Authority published its final Technical Advice to the European Commission on certain aspects of the EU Benchmark Regulation. The Benchmark Regulation 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 European Commission requested the Technical Advice from ESMA in February 2016. The Technical Advice covers: (i) the definition of benchmarks; (ii) measurement of the reference value of benchmarks; (iii) criteria for the identification of critical benchmarks; (iv) endorsement of a benchmark or family of benchmarks provided in a third country; and (v) transitional provisions.
The majority of the Benchmark Regulation will apply from January 1, 2018. Certain provisions, giving powers to ESMA to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016. ESMA intends to publish its final draft technical standards due under the Benchmark Regulation by April 1, 2017.
View the Technical Advice. -
Federal Reserve Bank of New York Releases Operating Policy on Market Operations Counterparties
11/09/2016
The New York Fed released a statement of its policies towards managing its open market operations counterparty relationships with private entities, which includes primary dealers in US Treasury securities. Generally, the New York Fed seeks to transact with regulated banks and broker-dealers of a sufficient scale that do not cause an undue level of credit risk exposure. The policy contains a series of expectations that the New York Fed has for counterparties, which includes following Treasury Market Practices Group or Foreign Exchange Committee best practices, providing insights and information to the New York Fed, meeting regulatory requirements and having a sound compliance program in place. The policy also discusses the behavioral expectations the New York Fed has for counterparties, which include that the firm participates competitively in operations where the firm is selected as a counterparty, maintains the required scale and continues to meet the standards of the New York Fed in terms of legal services, transaction support and resiliency and continuity. Under the revised standards for primary dealers, the amount of required regulatory net capital (as computed in accordance with the net capital rule of the SEC) for a broker-dealer has been reduced from $150 million to $50 million.
View the New York Fed's policy.TOPIC : Financial Market Infrastructure -
UK Prudential Regulation Authority Confirms MREL Buffer and Threshold Conditions Policy
11/08/2016
The Prudential Regulation Authority published its final Supervisory Statement on the relationship between a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) and capital and leverage buffers as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. The PRA also provided feedback on the responses to its consultation on its proposed approach. The PRA is maintaining its proposed approach without any substantive changes but has amended the Supervisory Statement to provide clarity to firms. The PRA's approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's Supervisory Statement should be read in conjunction with the Bank of England's policy documents on setting MREL. The PRA will apply the MREL buffer and Threshold Conditions policies in line with the interim and end-state MREL dates set by the BoE. A firm that cannot meet its MREL requirement should notify the PRA promptly.
View the PRA's Policy Statement on buffers and capital requirements for MREL.
View the PRA's Supervisory Statement on buffers and capital requirements for MREL. -
UK Bank of England Finalizes MREL Requirements
11/08/2016
The Bank of England published the final rules on implementing the EU Minimum Requirement for own funds and Eligible Liabilities (MREL). This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the Bank Recovery and Resolution Directive and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms.
Read more. -
European Banking Authority Consults on Bank Authorization Application Information Requirements
11/08/2016
The European Banking Authority published a consultation paper on proposed technical standards on the information to be provided by applicant banks to national regulators in support of their applications for authorization. The Capital Requirements Directive requires a bank to obtain authorization before it begins its operations. Member states set out the requirements for the authorization in their country which means that different standards apply across the EU. At the moment, national regulators stipulate the information required to be submitted in support of a bank's application for authorization and the requirements around the application process. CRD IV requires the EBA to prepare Regulatory Technical Standards setting out the information to be provided in support of an application for bank authorization, requirements applicable to shareholders and qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers by a national regulator. The EBA is also required to prepare Implementing Technical Standards setting out the forms, templates and procedures relating to an authorization application. Once the RTS and ITS enter into force, the requirements will be directly applicable across the EU, largely replacing the existing national regimes on information requirements for authorization applications. However, the proposed RTS do allow some flexibility for national regulators to require additional information from an applicant and provide that information is not required where a national regulator has waived a certain authorization requirement for a particular applicant bank. The EBA is proposing that an application for authorization includes, amongst other things, information on a bank's identification and history, own funds, the proposed activities the bank intends to carry out, shareholders and close links, organizational structure and internal audit policies and infrastructure.
Read more. -
US OCC Launches Web System for Banks to File Licensing and Certain Applications and Notices
11/07/2016
The US OCC announced that it will launch a web-based system for banks to file licensing and public welfare investment applications and notices early next year. The Central Application Tracking System will allow OCC-supervised institutions to draft, submit and track applications and notices online. The system also will allow OCC staff to receive, process and manage those submissions online. The first phase of the system’s rollout will start on January 17, 2017, with the second and third phases set to begin that spring. The new system will replace the current OCC systems, e-Corp and CD-1 Invest. Before the phase 1 rollout, the OCC will provide webinars and resources to explain registration and use of the new system.
View the OCC press release. -
International Organization of Securities Commissions Consults on Other Products and Services Offered by Credit Rating Agencies
11/07/2016
The International Organization of Securities Commissions published a consultation paper on the use of non-traditional products or services offered by credit rating agencies. IOSCO considers that these types of products and services are important because market participants use them to make investment and other credit-related decisions and issuers and obligors use them to make decisions about whether to obtain a credit rating from a particular CRA. Examples of the products and services include private ratings, confidential ratings, expected ratings, indicative ratings, prospective ratings, provisional ratings, preliminary ratings, credit default swap spreads, bond indices, research and portfolio assessment tools. IOSCO groups these products and services into six categories, providing descriptions for each category, namely: research, private, non-final, part of rating process, outside rating process and hybrids. IOSCO is seeking views on whether the other CRA products identified in the six groups are consistent with CRAs' and their users' understanding of the CRA industry, including whether the Code of Conduct and IOSCO CRA Principles apply to other CRA products. The consultation closes on December 5, 2016.
View the consultation paper.TOPIC : Credit Ratings -
EU Report on the Implications of Implementing Basel Frameworks for Counterparty Credit Risk and Market Risk Published
11/04/2016
The European Banking Authority published a Report on the impact of the adoption into EU legislation of the new international frameworks for counterparty credit risk and market risk. The EBA Report responds to Calls for Advice from the European Commission received in April 2016, as part of the Commission's review of the Capital Requirements Regulation.
As part of its review, the Commission is considering the impact of implementing the Basel Committee on Banking Supervision's framework for market risk, known as the fundamental review of the trading book (FRTB), published in January 2016 and the new standardized approach for the calculation of the exposure value of derivatives, known as SA-CCR, published in March 2014. The Commission asked the EBA to provide technical advice assessing the impact for EU banks resulting from the adoption of the Basel Committee's framework on market risk and whether any adjustments to that framework would be appropriate. The EBA was also asked for advice on the impact of implementing the SA-CCR, including the proportionate application of SA-CCR to smaller firms.
Read more. -
US Financial Crimes Enforcement Network Publishes Technical Amendments to Anti-Money Laundering Regulations
11/04/2016
The US Financial Crimes Enforcement Network published technical amendments to anti-money laundering (AML) regulations implemented pursuant to the Bank Secrecy Act (BSA). The final FinCEN rule, which became effective November 4, 2016, removes and replaces outdated references to obsolete BSA forms, removes references to outdated forms of recordkeeping storage media and replaces other outdated terms and references.
View text of the final rule. -
US Commodity Futures Trading Commission Issues Proposals to Automated Trading Regulations
11/04/2016
The CFTC approved the issuance of a notice of proposed rulemaking, seeking to enhance the CFTC’s previous notice of proposed rulemaking for automated trading regulation, which proposed a series of risk controls, transparency measures and other safeguards applicable to automated trading on all designated contract markets. Among other things, the supplemental proposal revises the proposed risk control framework of Reg AT to require pre-trade risk controls at two levels, with all so-called “AT Persons” and with futures commission merchants, rather than three. In addition, the proposed rule would limit access to source code by the Division of Market Oversight to special calls issued by the Commission itself. CFTC Chairman Timothy Massad and CFTC Commissioner Sharon Bowen each issued statements in favor of the supplemental proposal. Commissioner J. Christopher Giancarlo issued a statement of dissent, asserting that the supplemental notice does not go far enough in simplifying and streamlining the regulation.
Read more.TOPIC : Financial Services -
European Central Bank Aims to Harmonize Approach to Options and Discretions for All Banks within the Single Supervisory Mechanism
11/03/2016
The European Central Bank launched a consultation on proposals to harmonize how Euro member state national regulators of less significant banks exercise the options and discretions available to them under the Capital Requirements Regulation and Capital Requirements Directive. The ECB has already harmonized the application of options and discretions for the banks that it directly prudentially supervises under the Single Supervisory Mechanism. The ECB considers that it is appropriate to develop a harmonized approach of supervision for all banks within the SSM, to ensure the smooth functioning of the whole euro area banking system. To do so, the ECB is intending to adopt a Guideline, which would be legally binding, and a Recommendation, which would not be legally binding. The options and discretions relate to own funds requirements, capital requirements, large exposures, liquidity and transitional provisions. The consultation closes on January 5, 2017.
View the proposed Guideline.
View the proposed Recommendation.
View further information about the ECB's proposals. -
European Banking Authority Presents Proposed Design of a New Prudential Regime for Investment Firms
11/03/2016
The European Banking Authority published a discussion paper on the design for a new framework for applying prudential standards to non-bank investment firms that are not deemed to be systemically important. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second CfA in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them. The EBA published an Opinion on the criteria aspect of the CfA on October 20, 2016.
Read more. -
Draft EU Guidelines on Information Required for Authorization Applications by Payment Institutions
11/03/2016
The European Banking Authority published for consultation draft Guidelines on the detailed information required to be submitted with an application for authorization by payment institutions and electronic money institutions, and for the registration of account information service providers. The revised Payment Service Directive sets out the information that must be submitted to national regulators with applications for authorization or registration. The proposed Guidelines cover, amongst other things, information requirements on an applicant's program of operations, business plans, evidence of initial capital, governance and internal control mechanisms and data protection. The consultation closes on February 3, 2017.
View the consultation paper.TOPIC : Payment Services -
UK Government Consults on Beneficial Ownership Register for Money Laundering Purposes
11/03/2016
The UK Government Department for Business, Energy & Industrial Strategy launched a consultation on the requirement to maintain a central register of beneficial ownership information of corporate and other legal entities under the Fourth Money Laundering Directive. The Fourth Money Laundering Directive requires member states to hold information on beneficial ownership of corporate and other legal entities incorporated in their territory in a central register and that the information should be available to specific EU authorities and organizations. Since April 6, 2016, the UK has required UK companies, limited liability partnerships and societates europaeae to establish and maintain a register of persons with significant control over them and since June 30, 2016, those entities have been required to file such information with Companies House where it is publicly available. The BEIS is consulting on amendments and additions to the UK's current PSC regime that are needed to properly implement the 4MLD requirements, including, requiring entities to update information in the PSC register every six months of a change (instead of every 12 months) and making the proportion of suppressed PSC information which is not publicly available through Companies House available to banks and investment firms. BEIS also propose that the determination of whether an entity is in scope of the Directive is that is must be UK-incorporated and constitutionally capable of having a beneficial owner. The consultation closes on December 16, 2016. Member states are required to transpose 4MLD by June 26, 2017.
View the Discussion Paper.
You may like to view our client now on the current UK PSC Regime. -
US Commodity Futures Trading Commission Signs Counterpart to Memorandum of Understanding with Canadian Authority in Newfoundland and Labrador
11/02/2016
The CFTC announced that Chairman Massad had signed the Counterpart to a Memorandum of Understanding with the Superintendent of Securities for Newfoundland and Labrador and the Canadian Minister for Intergovernmental Affairs. The MOU was originally executed on March 25, 2014, and the scope of the MOU contemplates cooperation on regulation of markets and organized trading platforms, central counterparties, trade repositories and intermediaries, dealers and other market participants.
View text of Counterpart to MOU.TOPIC : Derivatives -
Former Investment Portfolio Manager Admits Insider Dealing
11/02/2016
The Financial Conduct Authority announced that Mark Alexander Lyttleton had pleaded guilty to two counts of insider dealing at Southwark Crown Court. The FCA charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993 on September 29, 2016. The third charge was subsequently dropped. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. Mr. Lyttleton had acted on inside information he obtained by working on deals relating to the relevant stocks and by being a party to conversations conducted by colleagues. The criminal offence of insider dealing is punishable by a fine or up to seven years imprisonment. The Judge, Anthony Leonard, told Mr. Lyttleton that his pleading guilty at an early stage of the prosecution process will be taken in account to and to his advantage. Mr. Lyttleton will be sentenced on December 21, 2016.
View the FCA's announcement.TOPIC : Enforcement -
Dame Clara Furse Leaves the UK's Financial Policy Committee
11/01/2016
The Bank of England announced that Dame Clara Furse had stepped down as an external member of the Financial Policy Committee.
View the announcement.TOPIC : People -
US Office of the Comptroller of the Currency Appoints New Senior Deputy Comptroller for Large Bank Supervision
11/01/2016
The OCC appointed Morris Morgan as the OCC’s Senior Deputy Comptroller for Large Bank Supervision. In this role, beginning on December 24, 2016, Mr. Morgan will direct the supervisors of the largest national banks and federal branches and agencies of non-US banks.
View OCC press release.TOPIC : People -
US Commodity Futures Trading Commission Issues Orders of Registration to Five Foreign Boards of Trade to Permit Trading by Direct Access from the US
10/31/2016
The CFTC issued Orders of Registration (Orders) to the following Foreign Boards of Trade (FBOT): (i) Eurex Deutschland; (ii) CME Europe Limited; (iii) ICE Futures Europe; (iv) The London Metal Exchange; and (v) London Stock Exchange plc. Under the Orders, each of the FBOTs is permitted to provide identified members or other participants located in the US with direct access to its electronic order entry and trade matching system.
The CFTC issued the Orders under part 48 of the CFTC’s regulations, which provides that such Orders may be issued to an FBOT that possesses, among other things, the attributes of an established, organized exchange and is subject to continued oversight by a regulator that provides comprehensive supervision and regulation that is comparable to the supervision and regulation exercised by the CFTC.
Upon review of their applications, the CFTC determined that these FBOTs have demonstrated their ability to comply with the requirements of CFTC regulations, including CFTC regulation 48.8, which outlines the conditions of registration. This regulation also permits any additional conditions that the CFTC deems necessary and may impose after appropriate notice and opportunity to respond. Each FBOT shall also continue to fulfill each of the representations it made in support of its applications for registration.
View CFTC press release.
TOPIC : Derivatives -
US Federal Regulatory Agencies Request Comment on Proposed Private Flood Insurance Rule
10/31/2016
The US Federal Reserve Board, the Farm Credit Administration, the FDIC, the National Credit Union Administration and the OCC issued a joint notice of proposed rulemaking to implement provisions of the Biggert-Waters Flood Insurance Reform Act.
Federal flood insurance statutes generally require regulated lending institutions to impose a mandatory purchase requirement for flood insurance in connection with loans secured by improved real property located in areas having special flood hazards. Under the Biggert-Waters Act, regulated lenders must accept, in satisfaction of this requirement, policies issued by private insurers that satisfy the criteria specified in the Biggert-Waters Act, in addition to policies made available by the Federal Emergency Management Agency.
The proposed rule includes provisions to help lenders identify private flood insurance policies they would be required to accept and provides that lenders retain their discretion to accept private flood insurance policies that do not meet the criteria for mandatory acceptance, provided certain conditions are met. Furthermore, the proposed rule would establish criteria to apply in determining that coverage offered by a mutual aid society provides the type of policy or coverage that qualifies as “flood insurance” for purposes of the federal flood insurance laws.
The agencies previously issued a proposal addressing private flood insurance and have decided to issue this second proposal for additional public comment based on comments received in response to the first proposal. Comments are due on or before January 6, 2017.
View proposed rule.TOPIC : Consumer Protection -
European Banking Authority Recommends Changing the Reference Point for the Target Level of National Resolution Funds
10/31/2016
The European Banking Authority published its final Report on the appropriate reference point for setting the target level of resolution financing arrangements required by the Bank Recovery and Resolution Directive. The BRRD provides that when a bank fails, shareholders and creditors of the bank must be the first to bear losses. To ensure the effective implementation of the other resolution tools available, member states are required to have pre-funded resolution financing arrangements, contributions to which are made by the banks in each member state. The BRRD currently provides for contributions of at least 1% of the amount of covered deposits of all the banks in a given member state by December 31, 2024. The EBA launched a consultation on its proposed approach for changing the reference point for resolution funds in July 2016.
The EBA is recommending that the basis should be changed from covered deposits to a total liabilities-based measure, specifically, total liabilities (excluding own funds) less covered deposits. The proposed methodology would align the current target level basis with that of the reference base used for the calculation for individual contributions to national resolution financing arrangements. The EBA is also recommending that if the European Commission proceeds with amending the basis for national resolution financing arrangements through a legislative proposal, it should consider adjusting the percentage of the target level and the target level basis for the Single Resolution Fund. The SRF is the combined fund that banks and investment firms that are in the Banking Union contribute to. The European Commission must now assess the Report and the EBA's recommendations and decide whether to make a legislative proposal.
View the Report.TOPIC : Recovery & Resolution -
UK Bank of England Governor Set to Stay Through Brexit Transition
10/31/2016
The Governor of the Bank of England, Mark Carney, announced that he would be extending his term of office at the Bank by a year to the end of June 2019. Mr. Carney commented that the extension of his term of office would go beyond the expected time for Brexit which should help to contribute to a smooth transition to the UK's new relationship with the EU.
View the announcement. -
European Banking Authority Proposes Guidelines on Internal Governance
10/28/2016
The European Banking Authority launched a consultation on draft revised Guidelines on internal governance for credit institutions and investment firms. The EU Capital Requirements Directive imposes governance requirements on banks and investment firms which include, amongst other things, requirements to have robust governance arrangements, to establish a risk committee and nomination committee and to have adequate risk management processes and internal controls. CRD requires the EBA to develop Guidelines on internal governance. The proposed new Guidelines set out the internal governance arrangements, processes and mechanisms that firms must implement to ensure effective management of the firm. The Guidelines will apply to a firm's governance arrangements, including their organizational structure and processes to identify, manage, monitor and report risks that they may be exposed to, taking into account the three lines of defense model. The EBA's current Guidelines on internal governance, published on September 27, 2011, will be repealed when the new Guidelines enter into force. Responses to the consultation are due by January 28, 2017.
View the consultation paper and proposed revised Guidelines.
View the current Guidelines. -
Progress Report on Implementation of Global Securities Reforms
10/28/2016
The International Organization of Securities Commissions published a report on the implementation of global securities reforms. The report sets out the progress made by jurisdictions in implementing changes in securities regulation relating to hedge funds, structured products and securitization, oversight of credit rating agencies, measures to safeguard the efficiency and integrity of markets and supervision and regulation of commodity derivative markets.
View the implementation report.TOPIC : Securities -
EU Consultation on Assessing the Suitability of Management
10/28/2016
The European Banking Authority and the European Securities and Markets Authority launched a joint consultation on proposed Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders. The revised Markets in Financial Instruments Directive and the Capital Requirements Directive require firms to assess the suitability of members of their management body. Firms subject to CRD must all assess the suitability of all key function holders that have a significant influence over the direction of the firm. The proposed Guidelines provide criteria for assessing the individual and collective knowledge, skills, experience, reputation, honesty, integrity and independence of members of the management body. The proposed Guidelines also include a framework for assessing whether individual members of management commit sufficient time to performing their duties, set out how diversity should be taken into account in the selection process for members of the management body and provide for appropriate financial and human resources to be allocated to induction and training.
View the consultation paper. -
UK Makes Technical Amendments to its Ring-Fencing Legislation
10/28/2016
The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016 was published. The Amendment Order amends the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 and the Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014. The Amendment Order, amongst other things, changes the definition of a UK deposit-taker so that it does not capture UK branches of foreign banks, and amends the duty of a ring-fenced bank to provide specified information so that it only applies where individuals are located in an EEA state and in relation to deposit accounts. The amendments come into force on December 1, 2016.
View the Amendment Order.TOPIC : Bank Structural Reform -
US Board of Governors of the Federal Reserve System Announces Annual Indexing of 2017 Reserve Requirement Exemption Amount and of Low Reserve Tranche
10/27/2016
The US Board of Governors of the FRS announced the annual indexing of reserve requirement exemption amount and low reserve tranche, two amounts used in determining reserve requirements of depository institutions under Regulation D.
All depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank or as a deposit in a pass-through account at a correspondent institution. Reserve requirements currently are assessed on the depository institution’s net transaction accounts (mostly checking accounts). Depository institutions must also regularly submit reports of their deposits and other reservable liabilities.
For net transaction accounts in 2017, the first $15.5 million, up from $15.2 million in 2016, will be exempt from reserve requirements. A three percent reserve ratio will be assessed on net transaction accounts over $15.5 million up to and including $115.1 million, up from $110.2 million in 2016. A ten percent reserve ratio will be assessed on net transaction accounts in excess of $115.1 million.
The new low reserve tranche and reserve requirement exemption amount will apply to the 14-day reserve maintenance period that begins January 19, 2017. The Federal Reserve Board also announced changes in two other amounts, the nonexempt deposit cutoff level and the reduced reporting limit, that are used to determine the frequency with which depository institutions must submit deposit reports.
View the Federal Reserve Board final rule. -
UK Prudential Regulation Authority Confirms Rules on Passporting and Algorithmic Trading under MiFID II
10/27/2016
The Prudential Regulation Authority published its final rules for transposing passporting and algorithmic trading aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA also published its responses to the feedback it received on its proposed rules which were included in the consultation paper published on March 24, 2016.
Read more.TOPIC : MiFID II -
UK Financial Conduct Authority Seeks Input in Developing its Future Strategy
10/26/2016
The Financial Conduct Authority launched a consultation on its approach to regulation. The consultation document, entitled 'Our future mission', asks a number of questions about the FCA's approach to regulation and aims to obtain feedback to assist in developing the FCA's future strategy. The consultation covers a wide range of topics, including, amongst others, consumer protection, the interaction between public policy and regulation, competition, the scope of regulation and whether the FCA Handbook should be reviewed. The consultation closes on January 26, 2017.
View the consultation document.TOPIC : Financial Services -
US Securities and Exchange Commission Proposes Amendments to Require Use of Universal Proxy Cards
10/26/2016
The US Securities and Exchange Commission voted to propose amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees. The proposal gives shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person.
The proposed rules would require proxy contestants to provide shareholders with a proxy card that includes the names of both management and dissident director nominees. The rules would apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies. In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.
To further facilitate shareholder voting in director elections, the SEC also voted to propose amendments to the proxy rules to ensure that proxy cards specify the applicable shareholder voting options in all director elections and require that proxy statements disclose the effect of a shareholder’s election to withhold its vote.
Comments should be received on or before January 9, 2017.
View proposed rule.TOPIC : Corporate Governance -
US Securities and Exchange Commission Adopts Final Rules to Facilitate Intrastate and Regional Securities Offerings
10/26/2016
The SEC adopted final rules that modernize how companies can raise money to fund their businesses through intrastate and small offerings while maintaining investor protections.
The final rules amend Securities Act Rule 147 to modernize the safe harbor under Section 3(a)(11) of the Securities Act, so issuers may continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147. The final rules also establish a new intrastate offering exemption, Securities Act Rule 147A, that further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state.
Read more.TOPIC : Securities -
US Office of the Comptroller of the Currency Issues Responsible Innovation Framework
10/26/2016
The OCC announced it will establish an office dedicated to responsible innovation and implement a formal framework to improve the agency’s ability to identify, understand and respond to financial innovation affecting the federal banking system.
The Office of Innovation will be headed by a Chief Innovation Officer assigned to OCC Headquarters with a small staff located in Washington, New York and San Francisco. The office will be the central point of contact and clearinghouse for requests and information related to innovation. It will also implement other aspects of the OCC’s framework for responsible innovation, which include: (i) establishing an outreach and technical assistance program for banks and nonbanks; (ii) conducting awareness and training activities for OCC staff; (iii) encouraging coordination and facilitation; (iv) establishing an innovation research function; and (v) promoting interagency collaboration.
The OCC expects the office to begin operations in first quarter 2017. To support implementation of the framework, the agency has named Beth Knickerbocker acting Chief Innovation Officer.
View OCC’s Recommendations and Decisions for Implementing a Responsible Innovation Framework.TOPIC : FinTech -
EU Reporting Instructions Released
10/26/2016
The European Securities and Markets Authority issued detailed reporting instructions and XML schema under its Financial Instruments Reference Data System. FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism.
View ESMA's announcement. -
US Financial Crimes Enforcement Network Issues Advisory and Frequently Asked Questions on Reporting Cyber-Events in Suspicious Activity Reports
10/25/2016
On October 25, 2016, FinCEN issued an Advisory and related Frequently Asked Questions (FAQs) regarding the reporting of cyber-events, cyber-enabled crime and cyber-related information through Suspicious Activity Reports (SARs).
According to FinCEN, while suspicious transactions may not always involve a cyber-event, relevant cyber-related information should still be included in SARs when available (e.g., Internet Protocol (IP) addresses and accompanying timestamps associated with fraudulent wire transfers being reported). Similarly, the FinCEN guidance provides that when suspicious transactions do involve cyber-events, a financial institution should include in SARs all relevant and available information regarding the suspicious transactions and the cyber-event - including the type, magnitude and methodology of the cyber-event as well as signatures and facts on a network or system that indicate a cyber-event. The advisory also encourages collaboration between in-house BSA/AML and cybersecurity units and sharing information with other financial institutions to the extent permitted under Section 314(b) of the USA PATRIOT Act.
Read more
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US Office of the Comptroller of the Currency Names Charles M. Steele Deputy Chief Counsel
10/25/2016
The OCC announced the appointment of Charles M. Steele as the agency’s Deputy Chief Counsel. Mr. Steele will supervise the Administrative and Internal Law, Community and Consumer Law, Enforcement and Compliance and Litigation divisions. He will also supervise the district counsel staffs in the OCC’s Southern District and Western District offices.
View the OCC press release.
TOPIC : People -
US Federal Reserve Board Secure Payments Task Force Seeks Comments from Industry Participants
10/25/2016The Secure Payments Task Force, a 160-member task force convened by the US Federal Reserve Board to advance the safety, security and resiliency of the national payment system, requested comments from payment system industry participants in connection with its efforts to enhance three priority areas: (i) payment identity management; (ii) data protection and (iii) information sharing related to payments risk and fraud. For each of these focus areas, working group members have been meeting to document the current environment, the attributes of a more effective environment, the desired outcomes in each area and the barriers to implementation of recommended solutions.
The Secure Payments Task Force has been working across payment industry segments to define challenges and develop potential solutions. An online survey has been created to gather comments on how the task force is addressing challenges related to the three focus areas. The goal is to help ensure that the solutions being pursued will meet industry needs.
The survey was open for comment through November 8, 2016.
View Informatin regarind the survey.TOPIC : Payment Services -
US Federal Reserve Board Approves Fee Schedule for Federal Reserve Bank Priced Services
10/25/2016
The US Federal Reserve Board announced the approval of fee schedules, effective January 3, 2017, for payment services the Federal Reserve Banks provide to depository institutions (priced services). The Monetary Control Act of 1980 requires that the Federal Reserve Board establish fees to recover the costs of providing priced services, including imputed costs, over the long run, to promote competition between the Reserve Banks and private-sector service providers.
The Reserve Banks project that they will recover 100 percent of their priced services costs in 2017. The Reserve Banks expect to fully recover actual and imputed expenses, including profit that would have been earned if a private business firm provided the services. Overall, the Reserve Banks estimate that the price changes will result in a 3.2 percent average price increase. In particular, the Reserve Banks estimate that the price changes will result in: (i) a 5.3 percent average price increase for FedACH® customers; (ii) a 3.3 percent average price increase for Fedwire® Funds customers; (iii) an 18 percent average price increase for Fedwire Securities Service customers; and (iv) an 8.1 percent average price increase for FedLine® customers. The fees will remain unchanged for the Reserve Banks’ National Settlement Service and check service. The 2017 fee schedule for each of the priced services is available on the Federal Reserve Banks’ financial services website at FRBservices.org.
View the Federal Register notice.
TOPIC : Financial Services -
US Federal Reserve Board Votes to Affirm the Countercyclical Capital Buffer at Current Zero Percent Level
10/24/2016
The US Federal Reserve Board announced that it had voted to affirm the countercyclical capital buffer at the current level of zero percent. The release notes that the CCyB is a macroprudential tool that can be used to raise capital requirements on internationally active banking organizations when such organizations are exposed to an elevated risk of above-normal future losses. In such circumstances, the CCyB would be available to help banking organizations absorb higher losses and to moderate credit supply fluctuations.
The Federal Reserve Board’s release noted that the Federal Deposit Insurance Corporation and the OCC were consulted before the Federal Reserve Board voted on this decision. Should the Federal Reserve Board in the future modify the CCyB amount, banking organizations would have twelve months before an increase becomes effective unless the Federal Reserve Board decides on an earlier effective date.
View the Federal Reserve Board press release. -
US Consumer Financial Protection Bureau Releases Project Catalyst Report Highlighting Consumer Innovation
10/24/2016
The US Consumer Financial Protection Bureau released a report highlighting market innovations with the potential for consumer benefits as part of its Project Catalyst, a collaborative effort for the CFPB to research and encourage new or emerging projects that are consumer-friendly. The CFPB highlighted how Project Catalyst has led to the regulator engaging with companies and entrepreneurs that are developing new financial products—the report highlighted how the placing of the CFPB’s “trial disclosure waiver” program and no-action letter policy under the auspices of Project Catalyst has led to the CFPB better supporting innovation.
Read more.TOPIC : FinTech -
European Banking Authority Responds to Commission Call for Advice on Large Exposure Framework
10/24/2016
The European Banking Authority published a report outlining its response to the Commission's call for advice, published on April 26, 2016, on the review of the large exposures framework laid down in the Capital Requirements Regulation. The Commission is considering whether to implement the agreed Basel Committee on Banking Supervision framework for measuring and controlling large exposures by modifying the CRR through a legislative proposal before the end of 2016. The EBA's Report analyzes the impact of aligning certain aspects of the large exposures framework pursuant to the CRR.
Read more. -
HM Treasury Director General of Financial Services Appointed
10/24/2016
Katharine Braddick was appointed Director General of Financial Services at HM Treasury. Ms. Braddick was previously Director for Financial Services (International and EU) at HM Treasury but has taken up her new post immediately. Ms. Braddick replaces Charles Roxborough who, in June of this year, was appointed Permanent Secretary to the Treasury.TOPIC : People -
UK Legislation Implements Financial Services and Markets Act 2000 Updates to Secondary Legislation
10/24/2016
The Financial Services (Banking Reform) Act 2013 (Consequential Amendments) (No. 2) Order 2016 was made. The Order amends secondary legislation as a result of updates to the Financial Services and Markets Act 2000 relating to disciplinary powers for the Financial Conduct Authority and Prudential Regulation Authority applying to the misconduct of individuals and the senior manager’s regime. The Order also amends FSMA secondary legislation which specifies a "qualifying EU provision" applied for the purposes of determining whether a person has been knowingly concerned in a contravention of a relevant requirement by an authorized person under the new section of FSMA relating to FCA and PRA powers. The Order will enter into force on November 21, 2016.
View the Order. -
Draft EU Technical Standards on MREL Reporting
10/24/2016
The European Banking Authority published for consultation draft Implementing Technical Standards on the reporting requirements of the minimum requirements for own funds and eligible liabilities. The ITS set out the procedures and templates for the identification and transmission of information by resolution authorities to the EBA on the MREL that has been set for each firm. The Bank Recovery and Resolution Directive requires national resolution authorities to set individual levels of MREL for each firm. MREL is the EU equivalent of US Total Loss-Absorbing Capacity (TLAC). The consultation closes on November 21, 2016.
View the consultation paper. -
US Consumer Financial Protection Bureau Director Discusses Financial Innovation
10/23/2016
CFPB Director Richard Cordray delivered a speech at Money 20/20, focused on how financial innovation can better serve consumers. Cordray noted that CFPB, as a new agency, feels an affinity towards innovators in finance. Cordray highlighted how FinTech companies and financial institutions are developing products that “cut across” regulatory frameworks and pledged that CFPB will continue to work with companies to encourage innovation, while ensuring laws are complied with—he cited enforcement actions CFPB has taken focused on deceptive conduct, while noting that the agency is not looking to punish actors for “raising novel issues” or questions that fall into “unforeseen cracks in regulatory framework.”
The majority of Cordray’s remarks focused on 2 points: (i) how innovation can facilitate access to financial markets and products to underserved populations and (ii) how technology can help consumers better manage their own finances. He noted that technology is giving customers who remain “locked out” of traditional banking system options beyond an all-cash economy. He also highlighted automatic or motivational tools that help encourage consumers to save and talked about various CFPB policies, including its no-action letter program that allows programs to hold promise for consumers but would be held back by regulatory uncertainty to proceed for a defined period. Cordray concluded that the interests the CFPB and FinTech firms are aligned at a deep level, as they both require a focus on service to consumers.
View Cordray's remarks.
TOPIC : FinTech -
US Federal Reserve Board Announces Plans to Collect Data from Banks on Secondary Market Transactions in US Treasury Securities
10/21/2016
The US Federal Reserve Board announced that it plans to begin collecting data on Treasury security secondary market transactions from banks. The Federal Reserve Board intends to negotiate with the Financial Industry Regulatory Authority to potentially act as the collection agent for this data on behalf of the Federal Reserve Board. These plans are intended to complement a recent FINRA rule change, approved by the SEC, requiring broker-dealers to report secondary market transactions in Treasury securities. The release cited the Inter Agency Working Group’s report on the market events of October 15, 2014, as recommending enhanced data collection activities. The Federal Reserve Board intends to seek public comment on the proposal.
View Federal Reserve Board release.TOPIC : Securities -
Financial Action Task Force Publishes Guidance on Correspondent Banking Services
10/21/2016
The Financial Action Task Force published Guidance on correspondent banking services, which it has developed in collaboration with the Financial Stability Board. The Guidance is in response to increased concerns about so-called "de-risking", whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The FATF considers that de-risking is inconsistent with FATF Recommendations, that it has negatively impacted correspondent banking and that it may result in financial transactions being directed into less regulated areas which would reduce transparency and increase exposure to money laundering and terrorist financing risks.
Read more. -
Financial Action Task Force Publishes Approach to Criminalizing Terrorist Financing
10/21/2016
The Financial Action Task Force published Guidance to assist countries on the content required to comply with the obligation to criminalize terrorist financing. The Guidance builds on FATF Recommendation 5, which provides measures to assist countries in fulfilling their legal requirements under the International Convention for the Suppression of the Financing of Terrorism 1999 and relevant United National Security Council Resolutions. The Guidance outlines various aspects that offenses relating to terrorist financing must cover when implemented by national legal systems. For example, a terrorist financing offense must cover all types of willful terrorist financing activity. The Guidance specifies that the requirement of willful conduct is largely based on the Terrorist Financing Convention and requires a mental element or mens rea, such that the conduct is deliberately committed with an unlawful intention. The Guidance also sets out the bases and rationale of the Convention and Resolutions to assist countries in the implementation of such requirements. The Guidance focuses on the specific elements of the Recommendation that have most commonly been identified as creating particular implementation challenges and provides examples of how such requirements have been implemented by differing legal systems.
View the Guidance.
View the FATF Recommendations. -
Federal Reserve Bank of New York President Delivers Opening Remarks at Conference on Culture within the Financial Services Industry
10/20/2016
William Dudley, President of the Federal Reserve Bank of New York, delivered opening remarks at the New York Fed’s third conference on culture in the financial industry. Dudley opened by citing “pervasive” evidence that the financial services industry faces deep-seated cultural and ethical problems and an erosion of trustworthiness that impedes the ability of the industry to do its job. Dudley argued that a trustworthy financial industry would also be a more productive industry, avoiding spending time on reputational or legal problems and better attracting top talent.
Dudley also argued that incentive structures and accountability will do more to improve the culture of the industry than “statements of virtues,” citing the need for real consequences rather than aspirational ideals. He argued that firms need to assess their incentive regimes to be consistent with good conduct, and supervisors should monitor compensation to see if incentive structures must be changed. Dudley also noted the role of the public sector and new rules in overcoming collective action and first-mover problems. Dudley concluded by arguing that an effort to air previously silent issues and discuss what had not been discussed before could be an effective tool in reforming the culture of the financial industry.
View President Dudley’s remarks.TOPIC : Conduct & Culture -
EU Recommendations on the Appropriateness of the Prudential Regime for Investment Firms
10/20/2016
The European Banking Authority published an Opinion on the criteria for identifying investment firms to which the EU regulatory capital requirements legislation should apply. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second Call for Advice in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them.
Read more. -
Final EU Guidelines on Market Soundings and Delaying Disclosure of Inside Information
10/20/2016
The European Securities and Markets Authority published updated translations of its final Guidelines on the implementation of the Market Abuse Regulation for persons receiving market soundings and on delayed disclosure of inside information. ESMA had published the translations on October 20, 2016 but due to a linguistic issue with the Polish version had to re-publish all of the translations. The substantive content of the Guidelines is unchanged. The publication of the translations triggers the application of the Guidelines and so the Guidelines will now apply from January 10, 2017 instead of December 20, 2016. ESMA consulted on the draft Guidelines in January 2016 and published final versions of the Guidelines in July 2016.
Read more. -
US Federal Reserve Board Grants Relief from Certain US Risk Committee Requirements Applicable to Foreign Banking Organizations under Regulation YY
10/19/2016
The US Federal Reserve Board issued letters to two banks, granting relief from certain US risk committee requirements under Regulation YY in light of certain home country corporate governance requirements and practices of the banks involved. Regulation YY requires foreign banking organizations with combined US assets of more than $50 billion but US non-branch assets of less than $50 billion to establish a US risk committee as a committee of the global board of directors, on a standalone basis, or as a joint committee with its enterprise-wide risk committee. One member of the committee must not be an officer or employee of the company or its affiliates (or an immediate family member of a person who is an executive officer of the company or its affiliates).
Read more. -
US Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation Issue Advanced Notice of Proposed Rulemaking on Enhanced Cyber Risk Management Standards.
10/19/2016
The US Federal Reserve Board, OCC and FDIC jointly released an advanced notice of proposed rulemaking seeking comments on enhanced cybersecurity risk-management and resilience standards. The new rule would apply to any depository institution or holding company with consolidated assets of at least $50 billion, foreign banking organizations with total US assets of at least $50 billion and financial infrastructure companies and nonbank financial companies supervised by the Federal Reserve Board.
Read more
TOPIC : Cyber Security -
International Bodies Publish Second Consultation on Harmonization of Key OTC Derivatives Data Elements
10/19/2016
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published a joint consultative report on the harmonization of a second batch of key OTC derivatives data elements. The report is in response to the 2009 G20 agreement that all OTC derivatives contracts would be reported to trade repositories - part of the G20’s overall commitment to reforming the OTC derivatives markets to improve transparency, mitigate systemic risk and prevent market abuse. This consultation complements the consultation on Harmonization of key OTC derivatives data elements (other than UTI and UPI), published in September 2015 and other reports on the Harmonization of the Unique Product Identifier. The purpose of this consultation is to develop guidance for regulators on definitions for the second batch of critical data elements that are important for global consistency and the meaningful aggregation of trade repository OTC derivatives transactions data. The consultation seeks views on matters including: (i) proposed definitions of key data elements; (ii) whether the proposed definitions cover different market practices globally; (iii) whether any alternative approaches to those mentioned in the report would better achieve the stated objectives; and (iv) whether the consultative guidance is unambiguous. A consultation on the third batch of key data elements is expected in 2017. Responses to the proposals are due by November 30, 2016.
View the consultation paper.
View the consultative report on the first batch of OTC derivatives data elements.
TOPIC : Derivatives -
European Commission Reports on Reporting Obligations under the Credit Rating Agencies Regulation
10/19/2016
The European Commission published a report on reporting obligations under the Credit Rating Agencies Regulation. The Report reviewed references to external credit ratings in EU legislation and in private contracts among financial markets counterparties and outlines potential alternatives to credit ratings produced by credit rating agencies that are currently used by market participants across the EU. The alternatives examined include the use of market-based credit risk assessments, internal credit risk assessment tools and third-party credit risk assessments. The Commission concluded that there are currently no feasible alternatives to replace external credit ratings entirely. The Report reviews the credit ratings market and provides an assessment of provisions in the CRA Regulation aimed at increasing competition in the credit rating market. The Implementing Technical Standards on the mapping of External Credit Assessment Institutions (published in the Official Journal of the European Union on October 12, 2016) is highlighted as promoting competition as it enables European banks and insurers to use smaller CRAs. The Commission commented that such mapping could create future opportunities for the use of smaller CRAs and possibly stimulate market development. The Report also examined the impact and effectiveness of the provisions in the CRA Regulation on governance and internal procedures; such as the prevention of conflicts of interests and alternative remuneration models.
Read more.TOPIC : Credit Ratings -
Financial Stability Board Publishes Assessment Methodology for the Key Attributes of Effective Resolution
10/19/2016
The Financial Stability Board published methodology for assessing the implementation of the Key Attributes of Effective Resolution Regimes for financial institutions in the banking sector. The methodology sets out the criteria to guide the assessment of a jurisdiction’s bank resolution framework and its compliance with the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions with the aim of promoting consistent assessments across jurisdictions. The Key Attributes were adopted in October 2011 and were endorsed as a new international standard for resolution regimes by the G20 Leaders at the Cannes Summit. They were supplemented in 2014 with new Annexes containing sector-specific guidance on, amongst other things, how the Key Attributes apply to insurers, financial market infrastructure and the protection of client assets in resolution. The Key Attributes apply to resolution regimes for any financial institution that could be viewed as systematically significant or critical in the event of failure. The Key Attributes also cover the resolution of financial groups and conglomerates; including holding companies of and non-regulated operational entities within a financial group or conglomerate. The Methodology would be used for the assessments performed by regulators of existing resolution regimes in their jurisdiction and any reforms to such regimes to implement the Key Attributes. It can also be applied to peer reviews of resolution regimes conducted within the FSB framework to monitor implementation by member jurisdictions. Assessments should include, amongst other things, a summary view of whether the resolution regime has the necessary scope and reflects the Key Attributes.
View the Methodology.
View the Key Attributes.
TOPIC : Recovery & Resolution -
UK Regulator Cancels Proposed Secondary Annuities Market
10/18/2016
The UK Government announced that it would not be taking forward its plans to create a secondary market for consumers to sell their annuity income. The market was to extend the recently introduced pension freedoms and flexibilities to individuals, who retired prior to April 2015. In December 2015, the Government announced that tax changes would come into effect from April 2017, which would allow individuals to receive all of the proceeds following the sale of an annuity as a taxable lump sum, arrange for the buyer to pay all of the proceeds into a flexi-access drawdown fund or arrange for the proceeds to be used to buy a new ‘flexible’ annuity. In April this year, the UK Government and the Financial Conduct Authority consulted on the proposed regulatory framework for the secondary annuities market. The UK Government’s view is that a balance between creating conditions for a competitive market with multiple buyers and sellers of annuities combined with sufficient consumer protections could not be achieved.
View the press release.
View the HM Treasury consultation.
View the FCA consultation.
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Final Report on Investment and Corporate Banking Market Study Published by UK Regulator
10/18/2016
The Financial Conduct Authority published its final report on the investment and corporate banking market study. The focus of the study was on primary market activities in the UK, including equity capital markets, debt capital markets and merger and acquisition services. The FCA published its interim report in April 2016, consulting on its proposed remedies to the deficiencies identified. The FCA does not consider the feedback received an indication that there is any reason to change its interim findings. The FCA concludes that whilst there are a wide range of banks and advisers active in the provision of primary markets services and despite finding that a number of clients, in particular corporate clients, believe that they are well served by such providers, there are some practices undertaken by certain providers that could have a negative impact on competition, particularly for smaller clients.
The FCA is proposing a ban on restrictive contractual clauses in investment and corporate banking engagement letters and contracts where the clause covers future corporate finance services carried out from a UK establishment. Some banks use clauses in agreements that oblige clients to award or offer future services to that same bank. The FCA considers the most restrictive of these the “right of first refusal” and “right to act” clauses - which the regulator proposes to prohibit. The FCA is proposing to exclude engagement letters relating to bridging loans from the prohibition; because the nature of this type of loan means that banks are unlikely to offer such a loan if it cannot confirm whether it would be instructed to provide the longer term financing. Responses to the consultation are due by December 16, 2017. The FCA aims to publish a policy statement early in 2017 and is proposing that the rules would also apply from early in 2017.
Read more.
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Steps Taken to Implement the Remedies Emerging from the UK's Retail Banking Market Investigation
10/14/2016
The UK's Competition & Markets Authority published proposals for the implementation of certain remedies to counter the adverse effects on competition which were identified in the CMA's final report on the retail banking market investigation. The CMA published its final report into the supply of retail banking services to personal current account customers and small and banking services to small and medium-sized enterprises (SMEs) in the UK in August 2016. In that report, the CMA made several recommendations, including the introduction of Open Banking, a single digital application that allows customers to manage their accounts with multiple providers. In response to that recommendation, the nine providers identified in the CMA's report have made proposals for the structure, membership, governance and funding arrangements of the Implementation Entity. It is proposed, amongst other things, that the Implementation Entity's Steering Group would comprise the nine providers as well as representatives of FinTechs, smaller "challenger" banks and payment service providers. Andrew Pinder has already been appointed as Implementation Trustee and will oversee the work of the Implementation Entity. Comments on the Implementation Entity proposals should be provided to the CMA by October 21, 2016.
Read more.TOPIC : Competition -
European Banking Authority Publishes Final Guidelines on Corrections to Duration for Debt Instruments under Capital Requirements Regulation
10/14/2016
The European Banking Authority published final Guidelines on the correction required for the calculation of Modified Duration for debt instruments subject to prepayment risk under the Capital Requirements Regulation. The CRR establishes two methods to calculate capital requirements for general interest rate risk. The relevant methods are the Maturity-Based calculation and the Duration-Based calculation of general risk. The final Guidelines apply to the Duration-Based calculation. The Duration-Based calculation uses the concept of Modified Duration pursuant to the formulae outlined in the CRR. This method is only valid for instruments that are not subject to repayment risk. The EBA has is mandated to issue guidelines establishing how to correct the Modified Duration calculation to reflect prepayment risk. The EBA has proposed two approaches to correct the calculation. One option is to treat the debt instrument with prepayment risk as if it is a combination of a plain vanilla bond and an embedded option. The Modified Duration of the plain vanilla bond is therefore corrected with the change in value of the embedded option; which is estimated according to its theoretical delta, resulting from a 100 basis point movement in interest rates. The other option is directly to calculate the change in value of the whole instrument subject to a repayment risk resulting from a 100 basis point movement in interest rates. The Guidelines will apply from March 1, 2017.
View the final Guidelines.
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European Securities and Markets Authority Publishes Final Guidelines on Remuneration Practices
10/14/2016
The European Securities and Markets Authority published two sets of final Guidelines on Sound Remuneration Policies under the Undertakings for Collective Investments in Transferable Securities Directive and the Alternative Investment Funds Management Directive. The Guidelines follow ESMA’s final report that was published in March of this year.
The UCITS Sound Remuneration Guidelines will apply to management companies, including those that are subsidiaries of credit institutions subject to sector-specific remuneration principles, and investment companies that have not designated a management company authorized under the UCITS Directive. The Guidelines set out the obligations of the management company to manage its financial situation and the governance of remuneration (which includes issues such as the design, approval and oversight of the remuneration policy) and outline the requirements for establishing and applying remuneration policies and practices for management companies and their identified staff, specifying the categories of identified staff.
Read more. -
Proposed Amendments to UK Proceeds of Crime and Terrorism Legislation
10/13/2016
A Bill was introduced in the UK Parliament proposing amendments to the Proceeds of Crime Act 2002 and Terrorism Act 2000. The Bill forms part of the UK Government’s Action Plan to counter money laundering and the funding of terrorism. The Government launched a consultation in April this year on its proposals to overhaul the UK approach to AML and CTF. The Government’s Response to the initial consultation was published on the same day that the Bill was introduced.
Read more.TOPIC : Enforcement -
International Standard for TLAC Holdings Published
10/12/2016
The Basel Committee on Banking Supervision published the final Standard for Total Loss Absorbing Capacity holdings. The Financial Stability Board published the TLAC requirements for global systemically important banks in November 2015, which set a minimum requirement for TLAC for G-SIBs, including a Term Sheet implementing the requirements. The Term Sheet states that G-SIBs must deduct, from their own TLAC or regulatory capital, exposures to TLAC instruments and liabilities issued by other G-SIBs and calls on the Basel Committee to further specify these requirements. The Basel Committee consulted in November 2015 on the proposed treatment of TLAC holdings in G-SIBs.
The TLAC holdings standard will require banks to deduct holdings of TLAC instruments that are not already included in regulatory capital from their own Tier 2 capital, subject to the thresholds that apply to existing holdings of regulatory capital and an additional 5 per cent threshold for non-regulatory-capital TLAC holdings only. In addition, instruments that are ranked at the same level as subordinated forms of TLAC must also be deducted.
The TLAC holdings standard will apply to G-SIBs and non-G-SIBs from January 1, 2019 for investments in
most G-SIBs which is the same time that the TLAC requirements apply. The TLAC holdings standard will apply later for G-SIBs headquartered in emerging market economies.
View the final Standard. -
EU Technical Standards on Mapping Credit Assessments by Credit Rating Agencies for Securitization Positions
10/12/2016
A Commission Implementing Regulation containing Implementing Technical Standards on the mapping of assessments by Credit Rating Agencies for securitization positions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR permits the risk weights under the standardized and internal ratings based approaches for securitization positions to be determined, if applicable, based on the credit quality of the positions. This credit quality is determined by reference to credit ratings issued or endorsed by ECAIs (i.e., credit rating agencies that are registered or certified under the EU Credit Rating Agency Regulation). The ITS determine the mapping between credit ratings and the credit quality steps for the allocation of risk weights set out in the CRR for securitization positions. The ITS enter into force from November 1, 2016.
View the ITS on mapping of credit assessments for securitizations.
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EU Technical Standards on Mapping Credit Assessments by Credit Rating Agencies Published
10/12/2016
A Commission Implementing Regulation containing the Implementing Technical Standards on the mapping of credit assessments to risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR requires the credit ratings scales used by ECAIs (i.e., credit rating agencies that are registered or certified under the EU Credit Rating Agency Regulation) to be mapped to the risk weights categories in the CRR.
The European Commission has adopted ITS that amended the final draft ITS submitted by the European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority). This is despite the ESAs rejecting the Commission's proposed amendments in an Opinion published in May 2016.
The ITS aim to ensure sound credit assessments to encourage financial stability in the EU and determine an objective approach for attributing risk weights to assessments carried out by ECAIs.
View the ITS on mapping of credit assessments for credit risk.
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UK Financial Conduct Authority Takes Action Against Sonali Bank for Money Laundering Failings
10/12/2016
The Financial Conduct Authority published the final notices issued to Sonali Bank (UK) Limited and its former Money Laundering Reporting Officer, Mr. Steven Smith for anti-money laundering failings. SBUK was fined £3,250,600 and restricted from accepting deposits from new customers for a period of 168 days. Mr. Smith was fined £17,900 and banned from performing the senior management functions of an MLRO or compliance oversight or the money laundering reporting controlled function in any UK regulated firm.
The FCA found that SBUK had breached Principle 3, which requires that a firm take reasonable steps to ensure that it has organized its affairs responsibly and effectively, with adequate risk management systems. The bank had failed, amongst other things, adequately to put AML monitoring procedures into place, to take steps to ensure that the importance of AML compliance was entrenched throughout the business, to implement oversight of the MLRO department or to ensure that its MLRO department was sufficiently resourced. SBUK also breached Principle 11, which requires firms to deal with the FCA in an open and cooperative way and to disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice. The bank had failed to notify the FCA in a timely manner of a suspected significant fraud committed by one of its employees against one of its customers.
Read more.TOPIC : Enforcement -
US Court of Appeals for the DC Circuit Declares Structure of the US Consumer Financial Protection Bureau Unconstitutional
10/11/2016
The US Court of Appeals for the DC Circuit declared the structure of the US Consumer Financial Protection Bureau unconstitutional, stating that the “massive, unchecked power” exercised by its director, Richard Cordray, lacks necessary supervision and direction from the President of the United States. It also vacated a $109.2 million penalty against PHH Corp., a home mortgage loan provider, sending it back to the CFPB for further proceedings.
Read more.TOPIC : Consumer Protection -
Basel Committee on Banking Supervision Consults on Regulatory Treatment of Accounting Provisions
10/11/2016
The Basel Committee on Banking Supervision published a consultation paper and discussion paper on the regulatory treatment of accounting provisions under the Basel III capital framework and related policy considerations. The International Accounting Standards Board and the US Financial Accounting Standards Board have adopted new provisioning standards that require the use of expected credit loss models rather than incurred loss models - the International Financial Reporting Standard (IFRS) 9 and the Current Expected Credit Losses (CECL), respectively. These standards modify provisioning standards to incorporate forward-looking assessments in the estimation of credit loss. The new IASB Standards will apply from January 1, 2018, although earlier application is permitted. The new FASB Standards will apply from January 1, 2020 for certain banks that are public companies and from 2020 for all other banks, although early application by all banks is permitted from 2019. The Basel Committee is considering the implications of new ECL models for regulatory capital because the new models will result in fundamental changes to the provisioning practices of banks. The consultation paper sets out the current regulatory treatment of provisions as well as the Basel Committee’s proposal to retain, for an interim period, the current regulatory treatment of provisions under the standardized and the internal ratings-based approaches. In particular, the Committee is proposing that, in the interim period, jurisdictions would extend their existing approaches to categorizing provisions as general provisions (GP) and specific provisions (SP) to provisions measured under the applicable ECL accounting model.
Read more. -
G7 Publishes Fundamental Elements of Cyber Security for the Financial Sector
10/11/2016
The G7 Cyber Expert Group published a statement on the fundamental elements of cyber security in the financial sector. The high-level elements are intended to assist a financial sector entity to design and implement their cyber security strategy and operating framework as well as to guide public authorities in developing their policies. The elements include the establishment of a cybersecurity strategy and operating framework, governance, risk and control assessments, monitoring, timely and proportionate responses to a cyber incident, the recovery of operations and remediation following a cyber security event, sharing information and reviewing the strategy and framework regularly to address relevant changes. The elements are not legally binding.
View the elements of cyber security.
TOPIC : Cyber Security -
Final EU Guidelines on Transaction Reporting, Order Record Keeping and Clock Synchronization Published
10/10/2016
The European Securities and Markets Authority published a Final Report providing its responses to the feedback on the proposed Guidelines on transaction reporting, order record keeping and clock synchronization under the MiFID II package. The final Guidelines were also published. The MiFID II package, which comprises the Markets in Financial Instruments Regulation and the revised Markets in Financial Instruments Directive as well as the related technical standards, imposes transaction reporting and order record keeping obligations on investment firms, approved reporting mechanisms, trading venues and systematic internalizers. The Guidelines focus on the preparation of transaction reports and order data records for various scenarios and aim to harmonize across Member States the approach to compliance with the MiFID II requirements. The Guidelines also include examples for reporting specific financial instruments with a focus on derivatives and provide further clarification on specific legislative provisions in the MiFID II package, on terms such as “reportable events” and “gateway-to-gateway latency”. The Guidelines will apply from January 3, 2018 in line with the application date of the MiFID II package.
View ESMA's Final Report and final Guidelines.
TOPIC : MiFID II -
Bank of England Consults on Reform of Sterling Overnight Index Average Interest Rate Benchmark
10/10/2016
The Bank of England published a consultation paper on the Bank’s proposals to reform the Sterling Overnight Index Average Interest Rate Benchmark, known as SONIA. The Bank of England, which took over as administrator of SONIA on April 25, 2016, notes that despite being viewed as critical for the sterling financial markets, SONIA is currently based on a market for brokered deposits which has limited transaction volumes. The consultation builds on the Bank’s earlier consultation in mid-2015, where it proposed that SONIA should capture a broader range of unsecured overnight deposits by including bilaterally negotiated transactions alongside brokered transactions. The Bank is seeking feedback on its proposals in four areas: (i) the SONIA calculation methodology: the Bank is proposing to switch the current calculation to measuring the average rate using a volume-weighted median, rather than a volume weighted mean; (ii) the definition of SONIA: the Bank is proposing to amend the definition of SONIA to reflect recent EU and IOSCO benchmark regulatory reforms and to account for international best practices for benchmark administration; (iii) transition planning: the Bank is working with market participants to transition from the current benchmark to the proposed reformed SONIA between October and December of 2017; and (iv) publication policies: the Bank is proposing to publish SONIA at 9:00 a.m. on the business day following the business to which the data pertains and to charge users who receive SONIA data on a timely basis directly from the Bank. Responses to the consultation are due by December 31, 2016. The Bank is expected to publish the final methodology for and definition of SONIA, the transition arrangements, and the publication and licensing arrangements in early 2017.
View the consultation paper. -
EU Report and Standardized Templates for Additional Tier 1 Instruments
10/10/2016
The European Banking Authority published an updated Report on the monitoring of Additional Tier 1 instruments and standardized templates for AT1 instruments. This follows a consultation in July 2016. The Capital Requirements Regulation sets out the eligibility criteria for AT1 instruments, which are further detailed in Regulatory Technical Standards. The CRR requires the EBA to review the quality of own funds instruments issued by banks across the EU. The Report sets out the results of its monitoring the issuances of AT1 capital instruments, assessing the terms and conditions of selected issuances against the criteria provided for in CRR and the related RTS. The Report is based on the review of 33 AT1 issuances from EU banks, which took place between August 2013 and December 2015, for a total amount of EUR 35.5 billion. The Report sets out detailed analysis of some of the clauses reviewed, including the EBA's views on those clauses, and interpretation of some of the CRR provisions, in particular the provisions relating to triggers.
Read more. -
US Federal Reserve Board Governor Delivers Remarks on Distributed Ledger Technology
10/07/2016
As part of remarks delivered at an Institute of International Finance panel on blockchain, US Federal Reserve Board Governor Lael Brainard addressed distributed ledger technology, noting that this technology may represent the most significant development in many years in payments, clearing and settlement. Brainard highlighted the payments system as an important area of oversight, noting that the FRB wants to maintain public confidence in the payments system, while supporting innovation that provides broadly shared benefits to the public over time, including through reduction of unnecessary frictions, costs and delays.
Among other things, Brainard discussed several use cases that the FRB explored in its discussions with industry stakeholders in order to illustrate the potential of distributed ledger technologies, as well as considerations important to the FRB in its assessment of benefits and risks. Regarding risk associated with the use of distributed ledgers, Brainard stated that, “[w]hat matters to us as policymakers and regulators is not only whether the migration to a new technological platform increases or reduces risks, but also whether risks are rendered more or less opaque, and how they are distributed among and between financial intermediaries and end users.”
Brainard noted that going forward, the FRB will deepen its engagement with a range of financial institutions and other stakeholders to refine its understanding of the new technologies, and will focus specifically on is responsibilities for the payments system, as well as its oversight of financial market intermediaries. The FRB expects to publish a research paper later this year that summarizes some key findings from its industry engagement on this topic thus far.
View Governor Brainard's remarks.TOPIC : FinTech -
Report to G20 on Beneficial Ownership
10/07/2016
The Financial Action Task Force published a report to the G20 Finance Ministers and Central Bank Governors updating them on the steps being taken by the FATF on implementation of international standards on transparency and beneficial ownership. In April 2016, the G20 Finance Ministers and Central Bank Governors requested the FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes to make initial recommendations by October 19, 2016 on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information, and its international exchange. The report states that many countries still do not implement the beneficial ownership requirements effectively. Therefore, the FATF has committed to focus on beneficial ownership in the FATF peer review follow-up process, to deliver recommendations on how countries can improve their implementation of beneficial ownership requirements and to improve cooperation between the FATF and the Global Forum to improve transparency on beneficial ownership. The FATF will be considering the initial recommendations further at its meeting on October 19, 2016. The FATF is also calling on the G20 members to issue a public commitment to meet the FATF standards on beneficial ownership because, in the FATF's view, prevention of the abuse of corporate vehicles can only be remedied by individual countries.
View the report on beneficial ownership. -
US Commodity Futures Trading Commission Extends Time-Limited No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements
10/07/2016
The US Commodity Futures Trading Commission Division of Market Oversight (DMO) extended time-limited no-action relief to swap execution facilities from certain requirements in the definition of “block trade” in CFTC regulations. Specifically, CFTC regulation section 43.2 defines a “block trade” as, among other things, a publicly reportable swap transaction that “[o]ccurs away from the registered [SEF’s] or [DCM’s] trading system or platform and is executed pursuant to the registered [SEF’s] or [DCM’s] rules and procedures.”
Subject to certain conditions, the no-action letter extends time-limited relief to SEFs from the “occurs away” requirement under section 43.2 until November 15, 2017 before 11:59 p.m., Eastern Standard Time, or the effective date of any CFTC action with respect to the issues discussed in this no-action letter. Among other things, the extension will allow the DMO to continue to evaluate best practices and a more permanent solution to the issues involved in screening block trade orders for compliance with risk-based limits including, if appropriate, amendments to CFTC regulations.
Parties to a swap who do not use the SEF functionalities this letter provides must ensure the required pre-execution credit check occurs.
View CFTC staff letter.TOPIC : Derivatives -
US Commodity Futures Trading Commission Signs Memorandum of Understanding with UK Financial Conduct Authority to Improve Supervision of Cross-Border Regulated Firms
10/06/2016
The CFTC announced that CFTC Chairman Timothy Massad and Andrew Bailey, Chief Executive of the FCA, signed a Memorandum of Understanding (MOU) regarding cooperation and the exchange of information in the supervision and oversight of certain regulated firms that operate on a cross-border basis in the United States and in the United Kingdom.
Through the MOU, the CFTC and FCA express their willingness to cooperate in the interest of fulfilling their regulatory mandates. The scope of the MOU includes the 20 firms registered with the CFTC as swap dealers.
View MOU.TOPIC : Derivatives -
European Banking Authority Draft Guidance on Information and Communication Technology Risk
10/06/2016
The European Banking Authority launched a consultation on the proposed Guidelines for the assessment of Information and Communication Technology risk under the Supervisory Review and Evaluation Process. The increasing complexity of ICT risk in the banking industry and the increasing potential adverse prudential impact such risks pose to individual firms and on the sector as a whole has led the EBA to propose the Guidelines. The purpose of the proposed Guidelines is to promote common procedures and methodologies for regulators throughout the EU when they are conducting supervisory assessments of a firm's governance and strategy on ICT and a firm's exposures and controls, as required by the Capital Requirements Directive. National regulators should apply the Guidelines to their assessment of firms proportionately, as set out in the EBA SREP guidelines. The proposed Guidelines should be read alongside the EBA SREP Guidelines. Responses to the consultation are due by January 6, 2017.
View the draft Guidelines.
View the EBA SREP Guidelines. -
UK Payment Systems Regulator Publishes Final Guidance on the European Interchange Fee Regulation
10/06/2016
The UK Payment Systems Regulator published the final Guidance on its approach to monitoring compliance with the EU Interchange Fee Regulation. The final Guidance consolidates the previous final Guidance published in March 2016 on enforcing compliance of the provisions of the Regulation that came into force on December 9, 2015, with the latest Guidance relating to provisions that subsequently came into force on June 9, 2016. The PSR has also published a Policy Statement which summarizes the main responses to the PSR's latest draft Guidance.
The Interchange Fee Regulation imposes caps on interchange fees on consumer debit and credit card transactions where the issuer and acquirer are both located in the EEA. The final Guidance applies to payment card schemes, issuing and acquiring payment service providers, processing entities, other technical service providers and merchants.
Read more.TOPIC : Payment Services -
European Securities and Markets Authority Consults on Proposed Guidelines on Trading Halts under MiFID II
10/06/2016
The European Securities and Markets Authority published draft Guidelines on trading halts by regulated markets under the revised Markets in Financial Instruments Directive. MiFID II requires regulated markets to temporarily halt or constrain trading if there is a significant price movement in a financial instrument (equity, equity-like and debt instruments) on that market or a related market in a short period. Regulated markets must also, in exceptional cases, cancel, vary or correct any transaction. ESMA is required to develop Guidelines on the calibration of those trading halts, taking into account the liquidity of the different asset classes and sub-classes, the nature of the market model and types of users. ESMA is also proposing Guidelines, at its own initiative, which set out how trading halts should be communicated to market participants and other venues and on the procedure and format of submissions by regulated markets to national regulators setting out the parameters for halting trading. The Guidelines will apply to national regulators, trading venues (regulated markets, MTFs and OTFs) and all trading systems allowing or enabling algorithmic trading. The consultation closes on December 6, 2016. ESMA intends to finalize the Guidelines in Q1 2017.
View the consultation paper.TOPIC : MiFID II -
US Consumer Financial Protection Bureau Issues Final Rule to Protect Prepaid Account Users
10/05/2016
The CFPB issued a final rule that applies federal consumer protections under Regulations E and Z for prepaid account users for the first time. Prepaid accounts may be loaded with funds by a consumer or by a third party, such as an employer. Consumers generally can use these accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits or send money to others.
Read more.TOPIC : Consumer Protection -
UK Financial Conduct Authority Fines Aviva for Client Asset and Money Failings
10/05/2016
The Financial Conduct Authority published the final notice issued to Aviva Pension Trustees UK Limited and Aviva Wrap UK Limited, fining the firms £8,246,800 for failing to have adequate controls and oversight arrangements to effectively control the outsourcing of administration of client money and external reconciliations of custody assets to Third Party Administrators and for failing to arrange adequate protection for client money and safe custody assets for which they were responsible. The FCA's Client Assets Sourcebook (CASS) rules aim to protect client money and custody assets if a firm becomes insolvent. Where a firm outsources its client asset and money administration, it remains responsible for ensuring that the FCA's rules are complied with. Whilst in this instance there was no loss of client money, the FCA deemed the failings to be especially serious, given that Aviva's annual external CASS reports had identified the breaches for consecutive years.
View the FCA's final notice.TOPIC : Enforcement -
US Office of the Comptroller of the Currency Releases Risk Reevaluation Guidance for Foreign Correspondent Banking
10/05/2016
The OCC issued risk management guidance to national banks, federal savings associations and federal branches and agencies regarding the periodic reevaluation of risks in connection with providing correspondent banking accounts for foreign banks. The guidance provides a collection of best practices for banks to consider when undertaking such periodic reevaluations and when determining whether to retain or terminate certain accounts. Such practices include, among others, communicating these decisions to bank senior management with consideration given to potential international financial inclusion impacts, considering mitigating information obtained from foreign financial institutions and ensuring a clear audit trail of the reasons and method used for account closure.
The guidance restates the OCC’s supervisory expectation that banks assess risks associated with foreign correspondent banking as part of their on-going risk management and due diligence practices. As a general matter, decisions to retain or terminate banking relationships reside with the bank. The OCC does not direct banks to open, close or maintain individual accounts without regard to the risks presented by an individual customer or the bank’s ability to manage the risk.
View OCC guidance.TOPIC : Financial Services -
European Securities and Markets Authority Consults on Proposed Guidelines on Product Governance Requirements under MiFID II
10/05/2016
The European Securities and Markets Authority published draft Guidelines on the target market assessment for the new product governance requirements in the revised Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients’ best interests during all the stages of the life-cycle of products or services. The requirements in MiFID II were further specified in secondary legislation which was adopted by the European Commission in April 2016. ESMA's proposed Guidelines focus on the ‘target market assessment’, which has been identified as the most important for achieving consistent application of the product governance requirements across the EU.
The proposed Guidelines set out, amongst other things, the determination of the potential target market by the manufacturer or distributor in terms of categories to be considered and differentiation on the basis of the nature of the product manufactured or distributed, regular reviews to assess whether products and services are reaching the target market and the distribution of products manufactured by entities not subject to the MiFID II product governance requirements by MiFID II distributor firms. ESMA has also included practical examples and case studies on the application of certain aspects of the proposed Guidelines. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017.
View the consultation paper.
TOPIC : MiFID II -
European Securities and Markets Authority Consults on Draft Guidelines for Management of Exchanges and Data Reporting Service Providers
10/05/2016
The European Securities and Markets Authoritypublished draft Guidelines on the requirements for the management body of market operators and Data Reporting Services Providers respectively. The revised Markets in Financial Instruments Directive requires all members of the management body of any market operator to be of sufficiently good repute, possess sufficient knowledge, skills and experience to perform their duties, to commit sufficient time to perform their functions and to act with honesty, integrity and independence of mind. Market operators must also promote diversity and allocate adequate human and financial resources to the induction and training of the management body. Similar requirements are placed on the management body of DRSPs but DRSPs are not required to promote diversity and allocate adequate human and financial resources to the induction and training of the management body.
The proposed Guidelines will apply to the management body of market operators which are the individuals who operate a regulated exchange and to DRSPs. Investment firms operating a multilateral trading facility, an organized trading facility or banks operating a trading venue will not be subject to the proposed Guidelines. Instead the management bodies of operators of these other types of trading venues will be subject to separate Guidelines developed under other provisions of MiFID II and the Capital Requirements Directive which ESMA and the European Banking Authority are expected to consult on soon. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017.
View the consultation paper.TOPIC : MiFID II -
US Federal Banking Agencies Release Public Sections of Resolution Plans for Eight Systemically Important Financial Institutions
10/04/2016
The US Federal Reserve Board and the FDIC posted the public portions of the required “targeted submissions” for eight systemically important US banking institutions. This follows the joint determination of the agencies in April of this year that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo was not credible or would not facilitate an orderly resolution under the US Bankruptcy Code, the standard established in the Dodd-Frank Act. Accordingly, the agencies issued joint letters to these firms detailing the deficiencies in their plans and requisite actions to be taken by the firms to address them. The firms were given until October 1, 2016 to remediate their deficiencies and file a targeted submission to the agencies detailing the remediation. A firm that has not remediated the identified deficiencies may be subject to more stringent prudential requirements.
The agencies jointly identified weaknesses in the 2015 resolution plans of Goldman Sachs, Morgan Stanley and Citigroup that the firms must address in their 2017 resolution plans. These firms were also required to file targeted submissions by the October 1st deadline.
View targeted submissions.
and.TOPIC : Recovery & Resolution -
US Federal Reserve Board Task Forces Begin Review of Faster Payments Solution Proposals
10/04/2016
Nearly 500 members of two national task forces convened by the US Federal Reserve Board began their review of nineteen proposals submitted by interested task force members across the payments industry that outline potential approaches for a faster payment system in the United States.
One task force is focused on faster payment capabilities, while the other is working to enhance payment system security. The review by the two task forces, each of which includes representatives of financial institutions, consumer groups, payment service providers, financial technology firms, businesses, government agencies and other interested parties, follows an independent analysis of the proposals by a global consulting firm, which assessed the proposals against 36 effectiveness criteria created by members of both task forces earlier this year.
A final two-part report is expected to result from the Faster Payments Task Force work effort. The first section, slated for release in January 2017, will describe the task force history and background. The report will detail gaps in the current payments landscape, identify opportunities for improvements and outline the benefits to the public of a faster payment system and the needs it would serve.
The second section of the final report, targeted for release in mid-year 2017, will include a discussion and assessment of the specific proposals, offering models of what an end-to-end faster payment system in the United States could look like and demonstrating how each proposal measured up against the various effectiveness criteria. This section will also identify strategic issues deemed important to the successful development of faster payments in the United States and recommend industry actions required to advance their implementation and adoption.
View Federal Reserve Board press release.TOPIC : Payment Services -
European Commission Adopts Technical Standards on Margin for Uncleared Derivatives
10/04/2016
The European Commission adopted Regulatory Technical Standards on risk mitigation techniques for uncleared OTC derivatives. The European Market Infrastructure Regulation requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. These RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated as well as outlining a broad list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.
The Joint Committee of the European Supervisory Authorities submitted final draft RTS to the Commission on March 8, 2016. The Joint Committee is made up of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. On July 28, 2016, the European Commission requested the ESAs to amend the final draft RTS and submit a modified version for approval. The ESAs rejected many of the proposed amendments in an Opinion published on September 8, 2016, including certain amendments relating to concentration limits on initial margin for pensions scheme arrangements, the proposed amendments to the calculation of the threshold against non-netting jurisdictions, amendments relating to the treatment of covered bonds and the treatment of bilateral derivative contracts where a counterparty is a CCP, transactions with third country counterparties and the process for regulators on the exemption of intragroup derivative contracts.
Read more.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Draft Regulatory Technical Standards on Consolidated Tape for Non-Equity Financial Instruments
10/03/2016
The European Securities and Markets Authority published a consultation paper containing draft Regulatory Technical Standards specifying the scope of the consolidated tape for non-equity financial instruments under the Markets in Financial Instruments Directive II. The RTS on the scope of tape for equity instruments was previously endorsed by the European Commission on June 2, 2016. ESMA's proposed draft RTS will amend the endorsed RTS on the equity consolidated tape by adding a list of non-equity asset classes that are to be included in the CTP electronic data stream. The list includes classes of bonds (excluding exchange traded commodities and notes), structured finance products, securitized derivatives, interest derivatives, foreign exchange derivatives, contracts for differences and emission allowances.
Read more.TOPIC : MiFID II -
Date of UK Stress Test Results Announced
10/03/2016
The Bank of England announced that the results of the UK 2016 banking stress test would be reported to the relevant firms involved on November 29, 2016 and published on November 30, 2016. The 2016 test is the first to be designed under the new approach to stress testing published in October 2015 and covers seven UK banks and building societies: Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, Nationwide Building Society, The Royal Bank of Scotland Group plc, Santander UK plc and Standard Chartered plc.
The Bank also announced that for the first time the UK stress test next year will include two scenarios: the annual cyclical scenario, which assesses the risks to the banking system resulting from the financial cycle, and an additional "exploratory" scenario which assesses a bank's resilience to a wider range of potential threats.
View the announcement.
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EU Authority Publishes Model Arrangements for Benchmark Colleges
10/03/2016
The European Securities and Markets Authority published Model Written Arrangements for Benchmark Colleges (dated September 30, 2016). The Benchmark Regulation requires the national regulator of a benchmark administrator that provides a critical benchmark to establish a college of regulators. ESMA will be a member of each of the colleges. The Model Written Arrangements are intended to provide a framework for establishing a college and for the exchange of information between the relevant regulators.
View the Model Written Arrangements.TOPIC : Financial Services -
European Banking Authority Publishes Final Guidelines on Implicit Support for Securitization Transactions
10/03/2016
The European Banking Authority published final Guidelines on implicit support for securitization transactions under the Capital Requirements Regulation. Examples of such transactions include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR places restrictions on providing implicit support to securitizations. These rules apply in addition to the so-called "skin in the game" requirements on originators to retain part of the risk on securitizations. To prevent uncapitalized risks of implicit support, the CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR also states that a transaction is not considered to provide support to a securitization if it is executed under arm’s length conditions and taken into account in the assessment of significant risk transfer. The CRR requires a sponsor or originator institution that has failed to comply with this requirement to, at a minimum, hold own funds against all of the securitized exposures as if they had not been securitized. The Guidelines set out an objective test in relation to the definition of arm's length conditions.
Read more. -
US Federal Reserve Board Survey Finds that Commercial and Industrial Loan Standards Unchanged, Residential Mortgage Loan Standards Eased
10/01/2016
The US Federal Reserve Board’s October 2016 Senior Loan Officer Opinion Survey revealed that, in general, banks did not change standards on commercial and industrial loans while they tightened standards on commercial real estate loans over the third quarter; banks also reported easing of standards on residential mortgage loans, whether or not the loans were eligible for purchase by government-sponsored enterprises. Banks also noted a weakening of demand from middle- and large-market firms for commercial loans and stronger demand for construction and land development loans in the CRE space. The Federal Reserve Board also asked special questions on commercial and industrial loan demand, and banks indicated that they do not expect changes in demand.
View the Federal Reserve Board’s survey report.TOPIC : Financial Services -
European Securities and Markets Authority Consults on Secondary Measures for Reporting of Securities Financing Transactions
09/30/2016
The European Securities and Markets Authority published a consultation paper on its proposed draft Implementing and Regulatory Technical Standards for the Securities Financing Transactions Regulation. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The purpose of the SFTR is to increase the transparency of such shadow banking activities. The SFTR will require both financial and non-financial market participants to report details of their SFTs to an approved EU trade repository. The draft RTS outlines the procedure and criteria for registration as a trade repository under the SFTR, the use of internationally agreed reporting standards, reporting logic and the main aspects of the structured content of SFT reports, the requirements regarding transparency of data, data collection, aggregation and comparison as well as access levels for different regulators.
Read more.TOPIC : Shadow Banking -
Final EU Guidelines on Information regarding Commodity Derivatives and Spot Markets
09/30/2016
The European Securities and Markets Authority published a Final Report and final Guidelines on information expected or required to be disclosed on commodity derivatives markets or related spot markets under the Market Abuse Regulation. This follows the consultation that ESMA undertook in March 2016. MAR replaced the current Market Abuse Directive and its implementing legislation from July 3, 2016. One of the changes that MAR will introduce is the expansion of the definition of inside information relating to commodity derivatives to cover price sensitive information relevant to the related spot commodity contracts as well as the derivative. This means that transactions in commodity derivatives based on inside information relating to underlying spot transactions will be expressly prohibited. In addition, the market manipulation prohibitions will include transactions in derivatives markets that manipulate the related spot commodity transaction and transactions in spot commodity markets that manipulate the related derivative.
Read more. -
US Office of the Comptroller of the Currency Publishes Final Recovery Plan Guidance
09/29/2016
The OCC published a final rule adopting enforceable guidelines for recovery planning by insured national banks, insured Federal savings associations and insured Federal branches of foreign banks with at least $50 billion in average total consolidated assets. The guidelines are effective on January 1, 2017, but are subject to phased-in compliance based on an institution’s asset size: six months for institutions with $750 billion or more, 12 months for institutions with $100 billion or more but less than $750 billion, and 18 months for institutions with $50 billion or more but less than $100 billion. The guidelines provide a framework for evaluating the financial impact of a severe stress on an institution, and various measures an institution could implement to be able to withstand such a period of stress.
The recovery plan must address the following elements, among others: triggers reflecting the bank’s vulnerabilities, recovery options, impact assessments for each option, escalation procedures, communications procedures and any other information that the OCC communicates in writing to the bank regarding the recovery plan. The OCC noted that it has no specific expectations regarding the length or detail of recovery plans, so long as the plan is specific to the characteristics of each institution. The OCC emphasized that recovery plans should be integrated into a bank’s risk governance framework, and a bank should coordinate its recovery plan with its holding company’s recovery and resolution planning. The guidelines also call for at least annual review of a bank’s recovery plan by management and the bank’s board, as well as management review after any material event.
View FR publication of final rule.TOPIC : Recovery & Resolution -
UK Regulator Finalizes Standards for Underwriting Buy-to-Let Mortgages
09/29/2016
The Prudential Regulation Authority published a Policy Statement and Supervisory Statement setting out its final policy approach to underwriting standards for buy-to-let mortgage contracts. The Supervisory Statement sets out the minimum standards that firms should use to underwrite buy-to-let mortgage contracts, including minimum requirements for affordability assessments. It also clarifies that the PRA's expectation is that the reduction of capital requirements under the Capital Requirements Regulation for loans to small and medium-sized enterprises should not be applied where the purpose of the loan is to fund a buy-to-let business. The standards will apply to all PRA-regulated firms undertaking buy-to-let lending that are not subject to regulation by the Financial Conduct Authority. The PRA expects firms within scope to ensure that the standards are adopted by other firms within their groups that undertake buy-to-let lending.
The new standards will need to be implemented by relevant firms by January 1, 2017 for the interest cover ratio tests and interest rate affordability stress tests. The remaining standards will need to be implemented by September 30, 2017.
View the Policy Statement.
View the Supervisory Statement. -
UK Financial Conduct Authority Consults Further on Implementation of MiFID II
09/29/2016
The Financial Conduct Authority launched its third consultation on the implementation of the revised Markets in Financial Instruments Directive in the UK. The consultation paper is split into two parts. The first part is on conduct of business requirements and covers topics such as inducements, research, client categorization, disclosure requirements, independence, dealing and managing, suitability, appropriateness and investment research. The second part covers a range of issues such as product governance, supervision and authorization, knowledge and competence requirements and perimeter guidance.
The FCA's conduct of business proposals follow on from its Discussion Paper published last year which covered two general issues: whether the MiFID II conduct rules should apply to insurance-based investments and pensions and whether the MiFID II rules applicable to the activities of advising on or selling structured products should be incorporated into the FCA's Conduct of Business sourcebook. On the first issue, the FCA has decided to wait until EU implementing measures under the Insurance Distribution Directive are finalized before it sets out its proposals. The FCA is intending to consult on implementing the IDD in 2017. On the second issue, the FCA has decided to proceed with incorporating such MiFID II rules into the Conduct of Business sourcebook. The FCA is proposing to apply individual conduct rules to those activities, which is in line with the provisions in MiFID II.
Read more.TOPIC : MiFID II -
Bank of England Proposes Code of Practice for Recognized Payment System Operators
09/29/2016
The Bank of England published a consultation paper proposing the introduction of a draft Code of Practice and Supervisory Statement on governance in recognized payment system operators. The final Code and the Supervisory Statement will contain the minimum governance requirements and expectations for recognized payment system operators to meet. Recognized payment systems include Bacs, CREST, CHAPS, LINK and Faster Payment Services. The Principles for financial market infrastructures, developed by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions, form the basis of the draft Code although the Bank has also taken into account other sources such as the UK Corporate Governance Code. Amongst other things, the draft Code would require a recognized payment system operator to be a systemic risk manager (by promoting the safety and efficiency of the payment system and supporting the stability of the financial system), review its performance annually and document its governance policies and procedures. It would also set out the requirements for composition of the board and expectations on governance arrangements. It is not intended that the Code would apply to a recognized payment system that is operated by a recognized clearing house or central securities depository because those entities are already subject to similar requirements under the European Market Infrastructure Regulation or the Central Securities Depositories Regulation. The Bank of England is proposing that the Code be implemented 12 months after publication of the final version. The consultation closes on December 2, 2016.
View the consultation paper. -
Proposed EU Technical Standards Under the Benchmark Regulation
09/29/2016
The European Securities and Markets Authority published for consultation the draft technical standards it is required to prepare under the Benchmark Regulation. The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third country entities and 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 a critical benchmark.
Read more.TOPIC : Financial Services -
EU Legislation Amending Technical Standards for Reporting of Financial Information to Regulators Published
09/29/2016
A Commission Implementing Regulation amending Regulatory Technical Standards on the reporting of financial information under the Capital Requirements Regulation was published in the Official Journal of the European Union. The RTS lay down uniform requirements in relation to supervisory reporting to regulators, pursuant to the Capital Requirements Regulation, in the following areas: (i) own funds requirements and financial information; (ii) losses stemming from lending collateralized by immovable property; (iii) large exposures; (iv) leverage ratio; and (v) Liquidity Coverage requirements and Net Stable Funding Requirements. The amending Regulation amends the definitions, templates, and instructions used for the purposes of supervisory reporting. The amending Regulation is based on draft RTS submitted by the European Banking Authority in March 2016. The amending Regulation will enter into force on October 19, 2016 and will apply from December 1, 2016 with the first reporting date being December 31, 2016.
View the amending Regulation. -
Former Investment Portfolio Manager Charged by UK Regulator with Insider Dealing
09/29/2016
The Financial Conduct Authority announced that it had instituted criminal proceedings against Mark Alexander Lyttleton for alleged insider dealing. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. The FCA has charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993. The actions of Mr. Lyttleton in question relate to trading in equities and a call option between October 2, 2011 and December 16, 2011. The criminal offense of insider dealing is punishable by a fine or up to seven years imprisonment.
View the press release.TOPIC : Enforcement -
US Comptroller of the Currency Discusses Bank Secrecy Act and Anti-Money Laundering Compliance
09/28/2016
The US Comptroller of the Currency, Thomas J. Curry, spoke at a conference of the Association of Certified Anti-Money Laundering Specialists about the OCC’s role in the BSA/AML regulatory regime and the risks the regime is meant to curtail. Curry noted that risks in the BSA and AML space are increasing and that banks must have effective systems for BSA and AML management and timely reporting. He cautioned against overly reactionary “de-risking,” where institutions shrink their exposure to high risk geographies and customers, warning that it can lead to entire regions being excluded from the global financial system.
Curry noted that regulators can work with banks they supervise to help them maintain and enhance risk-management systems by communicating expectations clearly. He highlighted specific actions regulators have recently taken, including the joint fact sheet published by the US Treasury on the BSA and AML examination process regarding foreign correspondent banking. He also highlighted upcoming OCC guidance that will clearly lay out the risk management expectations for banks regarding their foreign correspondent portfolios, including best practices for banks on governance, communications and risk mitigation regarding correspondent accounts. Curry closed by reiterating the key points from the joint fact sheet, namely that the OCC, like its fellow federal regulators does not follow a “zero-tolerance” approach to enforcement, and that a decision to terminate a banking relationship or exit a line of business lies solely with a bank.
View Comptroller Curry's speech. -
European Banking Authority Publishes Final Guidelines on Application of Definition of Default
09/28/2016
The European Banking Authority published the final Guidelines specifying the application of the definition of default in relation to the Internal Ratings Based Approach and the Standardized Approach under the Capital Requirements Regulation. The CRR sets out the definition of default of an obligor that is used for the purposes of the IRB and Standardized Approaches. The purpose of the Guidelines is to harmonize the definition of default across the EU framework so that EU banks apply regulatory requirements to their capital positions in a more consistent and comparable way, especially in the context of IRB models. The Guidelines expand on various aspects of the application of the definition of default including the “days past due” criterion for default identification, indications of unlikeliness to pay, specific aspects of the application of the definition of default for retail exposures, application of the default definition in a banking group, treatment of external data and criteria for a return to non-defaulted status.
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US Securities and Exchange Commission Proposes Enhanced Regulatory Framework for Covered Clearing Agencies
09/28/2016
The US Securities and Exchange Commission voted to establish enhanced standards for the operation and governance of securities clearing agencies that are deemed systemically important by the Financial Stability Oversight Council or that are involved in complex transactions, such as security-based swaps. Covered securities clearing agencies are required to adopt specific enhancements related to financial risk management, governance, recovery planning, operations and disclosure to market participants. The rules, if adopted, will come into effect 60 days after the final rule is published in the Federal Register, and covered security clearing agencies would be required to comply with the rule’s requirements within 120 days thereafter.
The SEC also voted to propose to apply the enhanced standards to other categories of securities clearing agencies, including all SEC-registered clearing agencies that are central counterparties, central securities depositories or securities settlement systems. Comments are due on the proposed amendments within 60 days of publication of the release in the Federal Register.
View proposed rule.TOPIC : Derivatives -
European Banking Authority Publishes Final Guidelines on Remuneration Policies for Retail Banking Sales Staff
09/28/2016
The European Banking Authority published final Guidelines on compensation policies and practices related to the sale and provision of retail banking products and services. The purpose of the Guidelines is to protect consumers from risks associated with poor compensation policies and practices that promote the mis-selling of financial products. The Guidelines apply to compensation paid to staff employed by credit institutions, credit intermediaries, payment institutions and electronic money institutions when selling deposits, payment accounts, payment services, electronic money, residential mortgages and other forms of credit to consumers. The Guidelines contain a framework for such firms to implement compensation policies and practices to improve the correlation between compensation of sales staff and the fair treatment of consumers, with the overall objective of reducing the risk of mis-selling whilst also minimizing conduct costs for firms. The final Guidelines have been amended following feedback received during consultation. Amendments include separate requirements for approval and monitoring of compensation policies and practices, clarification of the type of information to be recorded by firms to achieve compliance, limiting delegation of design and monitoring of compensation policies to ensure that the management body retains ultimate responsibility and clarification that the need to obtain advice on the compensation policies and practices is limited to firms that have established a compensation committee. The implementation date of Guidelines has been postponed from January 3, 2017 to January 13, 2018. The extension is to provide market participants with enough time to implement the Guidelines given the revised application date of MiFID II of January 3, 2018 and align with the application date of the Payment Services Directive II, January 17, 2018.
View the Guidelines.
TOPIC : Compensation -
US Commodity Futures Trading Commission Expands Interest Rate Swap Clearing Requirement
09/28/2016
The CFTC expanded the existing clearing requirement to interest rate swaps through an amendment to regulation 50.4(a), requiring that market participants submit a covered swap for clearing by a derivatives clearing organization. The amendment expanded four interest rate swap classes to require clearing by a DCO: (i) fixed-to-floating interest rate swaps denominated by the Australian dollar, Canadian dollar, Hong Kong dollar, Mexican peso, Norwegian krone, Polish zloty, Singapore dollar, Swedish krona and Swiss franc; (ii) basis swaps denominated in Australian dollars; (iii) forward rate agreements denominated in Norwegian krone, Polish zloty and Swedish krona; and (iv) overnight index swaps (OIS) denominated in Australian and Canadian dollars, as well as US dollar-, euro- and sterling-denominated OIS with termination dates up to three years. Unlike the proposed rulemaking, AUD-denominated forward rate agreements were not included in the final rule. Compliance with the final rule will be phased in over a two-year period according to an implementation schedule based on when analogous clearing requirements will take effect in other jurisdictions.
View final rule.
View Q&A document.TOPIC : Derivatives -
US Federal Reserve Board Chair Janet Yellen Testifies Before House Committee on Financial Services
09/28/2016
Janet Yellen, Chair of the Federal Reserve, testified before the Committee on Financial Services of the US House of Representatives. Yellen began by discussing the Federal Reserve Board’s efforts to strengthen regulation on the largest financial institutions, specifically efforts to strengthen the resiliency and provide for the resolvability of large and complex institutions. She discussed several changes to the Comprehensive Capital Analysis and Review program that have been made or are being contemplated by the Federal Reserve Board. She also highlighted efforts to reduce and streamline regulatory requirements applicable to community banks and proposed that Congress consider carving out community banks from the Volcker Rule and the incentive compensation limits of the Dodd-Frank due to the lower likelihood of the presence at community banks of the sorts of risks those provisions guard against. Yellen closed by briefly discussing current conditions in the financial system. She highlighted the improved financial conditions and funding positions of US G-SIBS, as well as the facts that large and regional banks are well capitalized and increasing in profitability and that community banks are significantly healthier and returning to profitability.
View FRB transcript of Chair Yellen's testimony.TOPIC : Financial Services -
UK Regulators Move to Amend UK's Senior Manager & Certification Regime
09/28/2016
The Prudential Regulation Authority and the Financial Conduct Authority launched a consultation proposing amendments to the Senior Manager & Certification Regime. Most of the changes result from the legislative changes made in the Bank of England and Financial Services Act 2016. However, the regulators are also proposing some other changes which they consider appropriate having had the opportunity to assess the SM&CR in practice.
Read more. -
UK Regulators Consult on Compensation Guidance
09/28/2016
The Prudential Regulation Authority and the Financial Conduct Authority published proposed revised guidance on remuneration, principally to bring their guidance into line with the European Banking Authority's Guidelines on Sound Remuneration Policies which apply from January 1, 2017. The remuneration rules and guidance will apply to banks, building societies and investment firms, including UK branches of non-EEA headquartered firms.
Read more.TOPIC : Compensation -
UK Prudential Regulation Authority Publishes Final Rules for Buy-Outs of Variable Remuneration
09/28/2016
The Prudential Regulation Authority published a Policy Statement and final rules on buy-outs of deferred variable remuneration, i.e., where a firm compensates a new employee for deferred variable remuneration not received from a previous employer due to the employee having left the former firm. Current compensation rules, which seek to encourage greater alignment between risk and reward, as well as more effective risk management, allow employers to withhold or reduce unpaid or unvested awards (i.e., the "malus" rules) or recoup paid or vested awards (i.e., the "clawback" rules). The PRA is concerned that the practice of buy-outs could undermine these rules as employees could evade accountability for their actions during a previous employment by moving to a new employer who buys out their cancelled deferred remuneration.
Read more.TOPIC : Compensation -
UK Regulators Propose Extending Some of Their Whistleblowing Requirements to UK Branches of Overseas Banks
09/28/2016
The Prudential Regulation Authority and the Financial Conduct Authority launched separate consultations on proposals to extend some of their whistleblowing requirements to UK branches of non-EEA banks. The proposals do not apply to UK branches of EEA banks. The regulators are proposing that non-EEA banks should be required to inform their employees about the regulators' whistleblowing services. Moreover, any non-EEA banking group that has both a UK subsidiary and a UK branch should inform branch staff about the subsidiary's whistleblowing arrangements. The PRA is also proposing that all insurers should inform employees about whistleblowing procedures. Since September 7, 2016, UK banks, building societies and credit unions with assets of £250 million or greater, PRA-designated investment firms, insurance and reinsurance firms within the scope of Solvency II or regulated by the Society of Lloyd's, as well as Lloyd's managing agents, have been required to implement internal whistleblowing procedures.They must also inform employees of the internal procedures and the whistleblowing services provided by the PRA and FCA and to ensure that employment contracts and settlement agreements do not deter employees from whistleblowing. Responses to the consultation are requested by January 9, 2017. The final rules are expected to apply from September 2017.
View the PRA's consultation paper.
View the FCA's consultation paper. -
UK Regulators Revise Rules on Regulatory References
09/28/2016
The Prudential Regulation Authority and the Financial Conduct Authority published revised rules on regulatory references for banking and insurance firms subject to the Senior Manager and Certification Regime and the Senior Insurance Manager Regime, respectively. Regulatory references are employment references passed between firms when an individual moves roles.
Read more. -
UK Financial Conduct Authority Discusses the Application of the Senior Managers Regime to a Firm's Legal Function
09/28/2016
The Financial Conduct Authority published a discussion paper about how and why the legal function currently falls within the Senior Manager & Certification Regimes and whether it should continue to do so. In the lead up to implementation of the SM&CR in March 2016, the FCA became aware of significant uncertainty amongst firms as to whether an individual responsible for the management of a firm's legal function would require approval as a Senior Manager. Where heads of legal are responsible for compliance, there is a clear need to register, but the position is less clear for heads of legal who do not hold this additional function.
Read more. -
US Commodity Futures Trading Commission Chairman Speaks to SIFMA Annual Meeting Regarding the Agency’s Ongoing Work and Rulemaking Efforts
09/27/2016
Timothy Massad, Chairman of the CFTC, spoke at the SIFMA annual meeting about clearinghouse regulation, technological changes and finishing Dodd-Frank rulemaking. Massad first highlighted ongoing CFTC work regarding stress testing across multiple clearinghouses to study systemic issues and interdependencies, recovery plans for systemically important clearinghouses and CFTC’s involvement in international coordination of clearinghouse recovery and resolution.
He next focused on two technological issues, cyberattack risk and automated trading. He highlighted CFTC rules about cyberdefense testing for market infrastructure firms. He also discussed efforts the CFTC took to address challenges posed by automated trading including working to finalize Regulation AT, which is designed to address the risk of disruption posed by automatic trading.
Chairman Massad discussed CFTC’s work finalizing rules required by Dodd-Frank Act, including margin rules on uncleared swaps effective on September 1, 2016. He noted that the CFTC is considering lowering the de minimis threshold (when an entity’s swap dealing activities require the entity to register with the CFTC) for swap dealing (from $8 billion to $3 billion). He also noted that the CFTC intends to repropose rules on capital requirements for swap dealers and major swap participants and that he expects the CFTC to issue a rule on certain aspects of cross-border application of swaps rules this fall.
View Chairman Massad's remarks.TOPIC : Derivatives -
G20 Anti-Corruption Action Plan 2017-2018 Published
09/27/2016
The G20 published its Anti-Corruption Action Plan for 2017-2018 and called on countries to implement the United Nations Convention against Corruption. The G20 established the Anti-Corruption Working Group in 2010, a body which is guided by rolling two-year action plans. The new Action Plan outlines areas of priority for the G20 and the Working Group, which amongst other things, include seeking to promote concrete and practical action to achieve enforcement of anti-corruption laws by taking steps to improve co-operation between law enforcement and other relevant authorities within and between member countries, implementing the Financial Action Task Force Recommendations on Transparency and Beneficial Ownership of Legal Persons and continuing to focus on combatting bribery and exploring the possible adherence of all G20 countries to the OECD Anti-Bribery Convention. The Working Group has been tasked with preparing a more detailed implementation plan, so that progress with the priorities can be tracked. It will report in 2017, on progress in implementing the commitments.
View the Action Plan.
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UK Regulator Publishes Final Rules on Risk-Based Levies for the Financial Services Compensation Scheme
09/27/2016
The Prudential Regulation Authority issued a Policy Statement relating to implementing risk-based levies for the Financial Services Compensation Scheme deposits. The Policy Statement contains final rules amending the Depositor Protection Part of the PRA Rulebook and a final Statement of Policy on the Financial Services Compensation Scheme and the calculation of firm contributions to the Scheme. The final rules and Statement of Policy are relevant to UK banks, building societies, credit unions, overseas firms with PRA deposit-taking permission, and the FSCS (the UK's administrator of its Deposit Guarantee Scheme). The rules applied from October 1, 2016.
Read more. -
Bipartisan Policy Centers Releases Report on Financial Regulation
09/26/2016
The Bipartisan Policy Center, a US-based non-profit organization, issued a paper entitled “Did Policymakers Get Post-Crisis Financial Regulation Right?” The paper analyzes the effects of financial regulation post-financial crisis and reported that, as a general matter, consumers are better protected than before the crisis but that there were increased barriers to affordable credit. In addition, the paper reported on unintended consequences of increased financial regulation, including the curtailment or shift of certain activities from banks to nonbank providers and a lack of coordination on rulemaking. Finally, the BPC recommended that the next president and Congress instruct regulators and appoint an independent commission to conduct a formal assessment of the post-crisis financial regulatory structure.
View BPC paper.TOPIC : Financial Services -
US Board of Governors of the Federal Reserve System Releases Proposed Rule to Modify Capital Plan and Stress Testing Rules
09/26/2016
The US BoG of the Federal Reserve System issued a proposed rule modifying the capital plan and stress testing rules for the 2017 test cycle. The proposed changes include eliminating the qualitative portion of Comprehensive Capital Analysis and Review for certain large and noncomplex firms (generally, firms with less than $250 billion in total consolidated assets), along with reduction in the amount of data that such firms are required to submit on the FR Y-14 regulatory reports. Such institutions however, would remain subject to quantitative CCAR requirements and to normal supervision by Federal Reserve Board regarding their capital planning. The proposed rule would be effective for the 2017 CCAR. Comments on the proposal are due by November 25, 2016.
In a speech given the same day, FRB Governor Tarullo stated that the Federal Reserve Board is considering adoption of a “stress capital buffer approach” to setting post-stress capital requirements whereby the G-SIB capital surcharge would be factored into the estimate of the amount of capital required under stress. However, Governor Tarullo emphasized that this was a preliminary proposal and would not apply to the 2017 cycle of CCAR.
View proposal.
View Govenor Tarullo speech. -
EU Final Legislation on Requirements for Firms to Hold Information on Financial Contracts
09/24/2016
A Commission Delegated Regulation outlining Regulatory Technical Standards specifying the information on financial contracts that a firm may be required to maintain was published in the Official Journal of the European Union. The Bank Recovery and Resolution Directive gives resolution authorities the power temporarily to suspend the termination rights of any counterparty to a contract with a firm that is under resolution. Both national regulators and resolution authorities may require a firm to maintain detailed records of financial contracts (generally, these are securities contracts, commodities contracts, futures and forwards contracts, swap agreements and inter-bank borrowing agreements) including as to whether or not they include suspensory provisions.
The RTS set out the minimum set of information on financial contracts that should be included in the detailed records held by a firm, which includes information such as whether a contract includes contractual recognition of resolution powers, information on value and valuation, collateral, termination rights, maturity and netting arrangements. The RTS also prescribe the circumstances in which the requirement to hold such records should be imposed and take a wide approach by including all firms or entities that might be subject to resolution actions.
Read more.TOPIC : Recovery & Resolution -
US Federal Reserve Board Proposes Stricter Regulatory Requirements on Firms Engaging in Physical Commodity Activities
09/23/2016
The US Federal Reserve Board issued a notice of proposed rulemaking to tighten capital and other regulatory requirements on financial holding companies that participate in physical commodity trading activities, to remove copper from the list of metals that bank holding companies are permitted to own and store as an activity closely related to banking and to rescind previous orders authorizing certain FHCs to engage in energy management services and tolling activities. A FRB staff memo on the proposed rule published on the same day identified fourteen FHCs that presently have the authority to engage in various physical commodity activities. As justification for the proposed rule, the FRB stated that legal risks associated with physical commodities activities can, at times, exceed the committed capital and insurance policies of the FHC, and that risk, with other legal and reputational risks, can pose a threat to safety and soundness of an FHC engaged in physical commodity activities.
In addition, the Federal Reserve Board proposed to rescind specific authorization to the five FHCs authorized to participate in energy tolling and energy management services. The FRB is reconsidering whether those activities are complementary to financial activities as is physical commodity trading. The Federal Reserve indicated that these activities do not support and are not directly related to otherwise permissible commodities derivatives activities or other financial activities. Comments on the proposed rule must be submitted by December 22, 2016.
View proposed rule.
View staff memo.TOPIC : Derivatives -
Representative Patrick McHenry of the US House of Representatives Introduces Fintech Legislation
09/22/2016
Representative Patrick McHenry (R-NC), introduced a bill entitled “Financial Services Innovation Act of 2016,” that would, among other things, establish Financial Services Innovation Offices (FSIOs) at applicable agencies in order to (i) support the development of financial innovations and (ii) establish procedures to streamline the time and cost of financial innovations. In addition, the proposed legislation includes a petition process through which covered persons (i.e., anyone offering financial services innovation products or services that submits a petition to an FSIO) may request a waiver from any regulation by submitting required information, including an alternative compliance strategy.
View full text of the proposed legislation.TOPIC : FinTech -
US Treasury Secretary Testifies before US House Financial Services Committee
09/22/2016
The US Treasury Secretary testified before the US House Financial Services Committee regarding the 2016 FSOC Annual Report. Secretary Lew’s remarks included a discussion of the forward-looking approach taken by FSOC and its efforts to engage with stakeholders and the public and to avoid “one-size fits all” regulations. Members of the House Financial Services Committee questioned Secretary Lew on a variety of topics, focusing on the categorization of “Too Big to Fail” and the designation of systemically important financial institutions. In addition, the committee asked Secretary Lew for his views on the joint Federal Reserve Board, FDIC, and OCC report to Congress which recommended repealing the authority for bank holding companies to engage in merchant banking activities. Secretary Lew distanced himself from the report, stating that the Treasury was not involved in its preparation.
View Secretary Lew's opening remarks.TOPIC : Financial Services -
UK Financial Policy Committee Maintains Countercyclical Buffer Rate
09/22/2016
The Financial Policy Committee of the Bank of England released a statement following its meeting on September 20, 2016. The FPC considers that the current outlook for financial stability in the UK remains challenging following the outcome of the referendum in June for the UK to leave the EU. The FPC has reaffirmed that it expects to maintain a countercyclical buffer rate of 0% until at least June 2017 unless any material changes warrant an amendment. The Prudential Regulation Authority's expectation is that banks should not increase dividends and other distributions as a result of the CCyB being maintained at 0%.
View the statement.
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EU Final Draft Technical Standards on the Exchange of Information between Regulators Regarding Qualify Holdings
09/22/2016
The European Banking Authority published final draft Implementing Technical Standards on the common procedures, forms and templates for the consultation process between the relevant national regulators when carrying out the prudential assessment relating to proposed acquisitions of qualifying holdings in credit institutions. The Capital Requirements Directive requires regulators to fully consult with each other when carrying out the assessment of a proposed acquirer of qualifying holdings. The final draft ITS supplements this requirement by setting out the requirements for the designation of contact points by regulators, as well as a timeframe and process for submitting the consultation notice and for providing the response. The final draft ITS provide templates for the response from the regulator from whom information has been requested. It also outlines language requirements and means of communication, as well as how mutual feedback would be carried out. The EBA has made certain amendments to the version of the ITS that it consulted on previously to take into account the final draft ITS prepared on a similar topic under the Markets in Financial Instruments Directive II, which was published by the European Securities and Markets Authority in March 2015. Those amendments seek to align the requirements across sectors. The final draft ITS must be submitted to the Commission for adoption before it can enter into force.
View the final draft ITS. -
European Banking Authority Consults on Minimum Amount of Professional Indemnity Insurance for Authorization under the Revised EU Payment Services Directive
09/22/2016
The European Banking Authority published a consultation paper proposing draft Guidelines on how to stipulate the minimum monetary amount of professional indemnity insurance required for authorization under the Payment Services Directive II. PSD2 entered into force on January 12, 2016, and will apply from January 13, 2018. The PSD2 recognizes new types of payment services that have emerged in the area of internet payments, such as payment initiation services and account information services. The PSD2 sets out the criteria on how to stipulate the minimum monetary amount of professional indemnity insurance or other comparable guarantee to be held by regulated firms. The draft Guidelines also set out the criteria, indicators, calculation methods and a formula that regulators should use when granting authorization or registration. The consultation paper explains the EBA's proposal for the use of a formula to calculate the minimum monetary amount of professional indemnity insurance or any comparable guarantee, when and how the lowest tier (the default value) should be used when calculating the monetary amount, provides details on indicators for the criteria set out in the PSD2 and the proposed methodology for some of the indicators. Responses to the consultation are due by November 30, 2016.
View the consultation page.
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European Banking Authority Consults on Proposed Draft Technical Standards Supplementing the Payment Accounts Directive
09/22/2016
The European Banking Authority published proposed draft technical standards on fee terminology and disclosure documents under the Payment Accounts Directive. The PAD aims to assist consumers to understand the fees of payment service providers and to make informed decisions about which account is most suitable for customers, by setting common standards for PSPs across EU Member States, harmonising the terminology used by PSPs and introducing fee information templates. The EBA is responsible for preparing draft Regulatory Technical Standards setting out the Union standardized terminology for the most common services linked to a payment account, as well as Implementing Technical Standards on the standardized presentation format of the fee information document (FID) and the statement of fees (SoF). The EBA's consultation paper sets out its proposed RTS and ITS, the options it has considered and the rationale for choosing the proposed requirements and examples of completed FIDs and SoFs. Responses to the consultation are due by December 22, 2016.
View the consultation paper.
TOPIC : Payment Services -
European Securities and Markets Authority Publishes Initial Proposals on the Trading Obligation under MiFIR
09/20/2016
The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China.
Read more.TOPIC : MiFID II -
HM Treasury Consults on Definition of Financial Advice
09/20/2016
HM Treasury published a consultation paper on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of “investment advice” set out in the Markets in Financial Instruments Directive. The consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority last year, which assessed how consumers could access advice on their finances more easily. The FAMR recommended that the government should consult on amending the definition of regulated advice in accordance with the MiFID definition, to the effect that only advice which makes a personal recommendation would be regulated. The consultation proposes a revised definition and seeks feedback on the costs and benefits of this change and any potential risks by November 15, 2016.
View the consultation page.
TOPIC : MiFID II -
EU Legislation Listing High-Risk Third Countries under the Fourth Money Laundering Directive
09/20/2016
A Commission Delegated Regulation identifying high-risk third countries with strategic deficiencies under the Fourth Money Laundering Directive was published in the Official Journal of the European Union, based on deficiencies identified by Financial Action Task Force.
The Regulation lists high-risk third countries which have provided a written high-level political commitment to address identified deficiencies and have developed an action plan with the FATF; countries listed: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu and Yemen. The Regulation identifies Iran as a high-risk third country that has provided a written high-level political commitment to address identified deficiencies and has decided to seek technical assistance in the implementation of the FATF action plan. The Regulation also identifies the Democratic People's Republic of Korea (DPRK) as high-risk third country which presents ongoing and substantial money-laundering and terrorist-financing risks, having repeatedly failed to address identified deficiencies.
View the Regulation.
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CEO and Chairman of Wells Fargo Testifies Before the US Senate Banking Committee
09/20/2016
Wells Fargo CEO and Chairman John Stumpf, US Comptroller of the Currency Thomas J. Curry and CFPB Director Richard Cordray testified before the US Senate Banking Committee in a hearing entitled “An Examination of Wells Fargo’s Unauthorized Accounts and the Regulatory Response.” Comptroller Curry said he directed the US OCC examiners to review the sales practices of all large and mid-size banks supervised by the OCC to “assess the sufficiency of controls with respect to sales practices.” Comptroller Curry also noted that discoveries at Wells Fargo “demonstrate the importance of aligning incentives with appropriate behavior, highlighting the need to finalize interagency incentive compensation rule sooner rather than later.”
During the hearing Senators questioned Mr. Stumpf on issues of executive accountability, compensation clawbacks, validity of “cross-selling” products and business lines and bank regulator accountability. Mr. Stumpf also provided testimony before the US House of Representatives Financial Services Committee on September 29, 2016.
View hearing.
View Comptroller statement.TOPIC : Enforcement -
US Federal Deposit Insurance Corporation Updates Deposit Insurance Fund Figures
09/20/2016
FDIC Chairman Martin Gruenberg issued a statement on the release of updated data regarding the FDIC’s Deposit Insurance Fund. (DIF) The DIF balance stood at almost $78 billion, leading to a reserve ratio of 1.17%, an eight-year high. Chairman Gruenberg’s statement noted that the FDIC still intends to reach the statutory minimum ratio of 1.35% set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, before September 30, 2020.
View text of Chairman Gruenberg’s statement. -
US Federal Deposit Insurance Corporation Publishes Semi-Annual Update of Global Capital Index
09/20/2016
The US Federal Deposit Insurance Corporation released the semi-annual report of the Global Capital Index. In a concurrent statement, Vice-Chairman Thomas M. Hoenig noted that while Global Systemically Important Banks did increase their equity capital, a beyond-proportionate increase in assets led to a net increase in the overall leverage of G-SIBs. Vice-Chairman Hoenig also noted that asset quality in Europe remains an issue in comparison to the United States, with more than three times as many non-performing loans, and that better-capitalized banks trade at a premium when compared to banks with weaker capital positions. Vice-Chairman Hoenig noted that, while banks are better capitalized now, with average leverage ratios of around 5%, such ratio remains inadequate should banks have to withstand losses similar to the last financial crisis.
View text of Vice-Chairman Hoenig’s statement.
View Global Capital Index. -
US Chamber of Commerce’s Center for Capital Markets Competitiveness Writes Letter to Federal Reserve Board Regarding Proposed Repeal of Merchant Banking Authority
09/19/2016
The Center for Capital Markets Competitiveness of the US Chamber of Commerce wrote a letter to Scott Alvarez, General Counsel of the Federal Reserve Board, requesting that the Federal Reserve Board withdraw its report, issued pursuant to Section 620 of the Dodd-Frank Act, advocating for a repeal of merchant banking authority for financial holding companies.
The letter noted that there was no opportunity for stakeholders to comment on the proposed removal of merchant banking authority, and alleged that the Federal Reserve Board, by presenting the contents of the letter as a policy recommendation to Congress, “short-circuited” the notice-and-comment procedure. The Center also alleged that the Federal Reserve Board failed to identify the benefits of repealing merchant banking authority in the report, unjustly presenting a one-sided case for its recommendations to Congress.
The Center also took issue with the substance of the proposal, arguing that repealing merchant banking authority would deny companies access to capital at a time when credit is already difficult to access, particularly in light of what the Center characterized as “hypothetical” risks in comparison to the “real” benefits of merchant banking. The letter concludes by recommending that the Federal Reserve Board withdraw its report and hold a series of public meetings to develop a “more robust” recommendation on merchant banking policy.
View letter.TOPIC : Derivatives -
International Task Force to Review Cyber Security of Wholesale Payments
09/16/2016
The Bank for International Settlements' Committee on Payments and Market Infrastructures announced that it had established a task force to review the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions. The CPMI is tasked with setting global standards for payment, clearing and settlement services. The first phase will involve a review of current practices in the area, with future efforts to be determined based on the findings. The task force follows efforts by the CPMI on cyber security and operational risk, including publication of the Guidance on cyber resilience for financial market infrastructures, and the CPMI-IOSCO Principles for Financial Market Infrastructures.
View the press release.
View the Guidance on cyber resilience.
View the Principles for Financial Market Infrastructures.TOPIC : Cyber Security -
US Commodity Futures Trading Commission Chairman Keynote Remarks at 4th Annual North American Derivatives Summit
09/15/2016
As part of his keynote remarks at the 4th Annual OTC Derivatives Summit North America, US Commodity Futures Trading Commission Chairman Timothy Massad addressed the CFTC’s achievements in the past year and more specifically, the implementation of global rules setting margin for uncleared swaps and the de minimis threshold for swap dealers.
With respect to the rules on margin for uncleared swaps, Massad stressed the importance of harmonizing the substance of the rules with other regulators, including US domestic prudential regulators and international jurisdictions, as well as addressing the cross-border implications of transactions. Massad pointed to the broad scope of substituted compliance with the rules of other jurisdictions as well as agreed timetables for implementation with international regulators. Massad maintained that despite his disappointment following the European Commission’s announcement of a delay in the implementation of their rules, it was appropriate to maintain the September 1, 2016 initial compliance date for transactions between the largest swap dealers.
Regarding the swap dealer de minimis threshold, Massad stated he will recommend a one-year delay in the scheduled reduction of the de minimis threshold for swap dealer registration in order for the CFTC to have more time to consider the issue. The current de minimis threshold of $8 billion is scheduled to decrease to $3 billion in December 2017. Massad also said that he has asked the other CFTC members to consider a reproposed rule setting capital requirements for swap dealers, noting that “[i]t makes sense to finalize this before turning to the threshold" and adding that he hopes it will be done “shortly.”
Chairman Massad Full Remarks.TOPIC : Derivatives -
US Comptroller of the Currency Discusses the Condition of the US Federal Banking System
09/15/2016
The Comptroller of the Currency Thomas J. Curry addressed how the US federal banking system has progressed since the Great Recession and the 2008 financial crisis, the strength of US banks today and the need for continued vigilance to manage risks. Among other things, the Comptroller discussed leverage ratios and their role as an additional line of defense, or backstop, to the risk-based capital measures. Curry criticized the proposals of some to “water down” the ratios by manipulating what is included or excluded from consideration and stressed the need for clear definitions that accurately and transparently capture the leverage of regulated banks. Curry argued that “weakening the ratio through special exclusions only undermines our original intent and weakens the protection against excessive leverage.” He further noted that while some wish to exclude certain assets from measures of leverage on the grounds that it could affect certain business lines’ profitability, “the essence of assessing a bank’s leverage is about comparing its equity to its assets, and carving out various assets would cut against the very meaning of leverage.”
View the Comptroller's full remarks. -
Alberto Musalem to Resign from Federal Reserve Bank of New York
09/14/2016
The Federal Reserve Bank of New York announced that Alberto G. Musalem, executive vice president and head of the Integrated Policy Analysis Group (IPA), will resign from the New York Fed effective January 6, 2017. On October 1, 2016, Mr. Musalem will assume the role of senior advisor to the president of the New York Fed, William C. Dudley.
A successor for Mr. Musalem will not be named. The work of IPA will continue, but as of October 1, 2016, its responsibilities and staff will be reassigned to the Markets, Research and Statistics, and Supervision Groups, as well as to the Executive Office.
View The New York Fed press release.TOPIC : People -
UK Payment Systems Regulator Designates BACS Current Account Switching Service as an Alternative Arrangement
09/14/2016
The UK Payment Systems Regulator published a decision designating the Current Account Switch Service operated by BACS Payment Schemes Limited as an alternative arrangement under the Payment Accounts Regulations 2015. This follows an application from BACS to the PSR on June 9, 2016, for the Current Account Switch Service to be designated as an alternative arrangement pursuant to the PARs. The PARs make provision for the switching of a consumer’s payment account to a new account at the consumer’s request. Switching services must meet certain requirements, unless the PSR designates the service as an alternative arrangement. In order to be designated as an alternative arrangement, the scheme must meet certain criteria set out in the PARs, such as clearly being in the interests of consumers.
View the Decision.
TOPIC : Payment Services -
US Office of the Comptroller of the Currency Releases Bank Supervision Operating Plan for Fiscal Year 2017
09/14/2016
The US Office of the Comptroller of the Currency released its bank supervision operating plan for fiscal year (FY) 2017. The plan sets forth the foundation for policy initiatives and for supervisory strategies applicable to individual banks. OCC staff members will use this plan to guide their supervisory priorities, planning and resource allocations.
Of note, the agency indicated that it will focus on Bank Secrecy Act/anti-money laundering compliance management in 2017. Additional supervisory strategies for FY 2017 will focus on: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; and (iv) change management processes to address new regulatory requirements.
The OCC will provide periodic updates about supervisory priorities through the Semiannual Risk Perspective in the spring and fall of 2017, and with a mid-cycle operating plan status report in the third quarter of FY 2017.
View the OCC's Fiscal Year 2017 Operating Plan. -
European Commission Establishes Brexit Negotiation Task Force for UK Exit Negotiations
09/14/2016
The European Commission established a task force to prepare and conduct negotiations with the United Kingdom. The Task Force will assist the Commission on all strategic, operational, legal and financial issues related to the negotiations. Sabine Weyand, currently Deputy Director-General in the Commission's trade department (DG TRADE) will become the Deputy Chief Negotiator as of 1 October 2016. The announcement follows the appointment of Michel Barnier as Chief Negotiator on July 27, 2016. Mr. Barnier will commence his role from October 1, 2016. The Commission noted that once the UK triggers the process to leave the EU, Mr. Barnier will then make the necessary contacts with the UK authorities.
View the press release.
You might like to view our Brexit resource page, which is available here. -
UK Regulator Bans former Barclays Wealth Management Chief Operating Officer
09/14/2016
The Financial Conduct Authority published a Final Notice banning Mr. Andrew James Tinney from the UK financial services industry. Mr. Tinney was the Global Chief Operating Officer of Barclays Wealth and Investment Management, a division of Barclays Bank PLC, between May 20, 2010 and December 17, 2012. During that period, Mr. Tinney was responsible for overseeing global technology, operations and infrastructure activities as well as having joint responsibility for the entity’s legal function, including a compliance function. In his role as COO, Mr. Tinney was approved by the FCA to carry out certain functions and was required to comply with the FCA’s Statements of Principle; in particular, he was required to act with integrity. The acts in question stem from Mr. Tinney’s appointment as Chairman of a Steering Committee to oversee a remediation program that Barclays was undertaking to correct certain deficiencies identified by the Securities Exchange Commission during its examination of Barclays Wealth’s US operation, Barclays Wealth Americas (BWA).
Read more.TOPIC : Enforcement -
US Office of the Comptroller of the Currency Proposes Framework for Receiverships for Uninsured Federally Chartered National Banks
09/13/2016
The OCC issued a proposed rule setting forth a framework for placing uninsured national banks regulated by the OCC into receivership. While the National Bank Act and Federal Deposit Insurance Act specify the Federal Deposit Insurance Corporation as receiver for insured banks and savings associations, the law grants the Comptroller of the Currency broad authority to choose a receiver for uninsured national banks. The proposal would not apply to federal savings associations, all of which are insured, or to uninsured US branch offices of foreign banks.
The proposed rule describes: (i) the appointment of a receiver and required federal notice; (ii) the process for submitting claims against the receivership; (iii) the order of priorities for payment of administrative expenses and claims; (iv) the powers and duties of the receiver; (v) the payment of dividends on claims; (vi) the sources of funds for payments and claims; and (vii) the status of fiduciary and custodial assets and accounts.
While the OCC has not appointed a receiver for an uninsured national bank in many years, the agency believes that clarifying the framework, process and authority promotes the orderly resolution of such institutions if required and contributes to the broader stability of the federal banking system.
All uninsured national banks are currently trust banks. However, the OCC noted that it retains discretion to grant new charters for uninsured banks, and the OCC specifically stated that an uninsured federal bank charter may be an appropriate entity for delivering banking procedures in a new way in light of technological innovations in financial services.
The deadline to submit comments on the proposed rule is November 14, 2016.
View the proposed rule.
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EU Legislation on Indices and Recognized Exchanges under the Capital Requirements Regulation
09/13/2016
Implementing Technical Standards listing the main indices and recognized exchanges for the use of eligible collateral in accordance with the Capital Requirements Regulation was published in the Official Journal of the European Union.
The CRR states that equities or convertible bonds included in a main index may be used by institutions as eligible collateral for credit risk mitigation purposes. One of the eligibility criteria for collateral is that it should be sufficiently liquid. To be considered as main indices for the purposes of the CRR, equity indices should consist mainly of equities that can reasonably be expected to be realizable when an institution needs to liquidate them. Equity indices listed include STOXX Asia/Pacific 600, TSX60, Hang Seng Mainland 100 Index (China), FTSE Europe Index, S&P BMI France, Nikkei 300 and the OMXS60. The convertible bond indices listed as main indices are Exane ECI-Europe, Jefferies JACI Global and Thomson Reuters Global Convertible.
Read more. -
NYS Financial Services Department Proposes Cybersecurity Regulations
09/13/2016
The New York State Department of Financial Services proposed regulations requiring banks, insurance companies and other NYDFS-regulated institutions to promptly adopt a cybersecurity program and setting forth certain minimum standards with respect to such program. As part of the establishment of a cybersecurity program, each covered entity would be required to, among other things, adopt a written cybersecurity policy, designate a chief information security officer responsible for implementing, overseeing and enforcing its new program and policy and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties. Institutions would also be required to comply with additional requirements in order to protect the confidentiality, integrity and availability of information systems. The proposed regulations would also require senior management of covered entities to file an annual certification confirming compliance with the regulations, beginning in January 2018.
The NYDFS notes that while these regulatory minimum standards are warranted, it is not the intention that such standards be overly prescriptive so that cybersecurity programs can match the relevant risks and keep pace with technological advances. The proposed regulations are subject to a 45-day notice and public comment period before their final issuance.
View proposed regulations.TOPIC : Cyber Security -
US Comptroller of the Currency Discusses Marketplace Lending
09/13/2016
As part of the inaugural Marketplace Lending Policy Summit 2016, US Comptroller of the Currency Thomas J. Curry discussed marketplace lending’s risks and associated policy questions. Of note, Comptroller Curry addressed the OCC’s work around responsible innovation and feedback it has received to date on potentially granting federal banking charters to fintech firms. Curry noted that if the OCC does decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness and fairness that other federally chartered institutions must meet.
View Comptroller Curry's remarks. -
Bank of England Deputy Governor for Markets and Banking to Leave the Bank
09/12/2016
The Bank of England announced the departure of Minouche Shafik, Deputy Governor for Markets and Banking. Ms. Shafik will relinquish her position in February 2017, taking up the role of Director at the London School of Economics in September 2017. Ms. Shafik's successor has not yet been named.
View the news release.TOPIC : Financial Services -
UK Regulator Consults on Qualification Standards for Financial Advisers
09/12/2016
The Financial Conduct Authority published a consultation paper on proposed updates to the current appropriate qualification examination standards. Individuals within regulated firms that, for example, advise on securities, derivatives or retail investment products, are required to have appropriate qualifications. The FCA will seek to amend the appropriate exams standards to ensure that exam content is current and reflects the knowledge that the FCA considers necessary for individuals to perform their roles competently. The proposed changes do not alter the FCA's policy on appropriate qualification requirements, introduce new appropriate qualification requirements or change the level of achievement required to meet the FCA rules on appropriate qualifications. The FCA is also proposing amendments to the Training and Competence Sourcebook of its Handbook to clarify how to read and use the appropriate qualification tables as well as seeking views on a standalone equity release qualification which relates to the UK mortgage market and the provision of advice on alternative sale and lease back arrangement (home reversions) accounts. Responses to the consultation are due by December 13, 2016.
View the consultation paper.
TOPIC : Financial Services -
European Central Bank Draft Guidance on Non-Performing Loans
09/12/2016
The European Central Bank published proposed draft Guidance on non-performing loans. The proposed Guidance addresses the main aspects of strategy, governance and operations for resolving NPLs. Once finalized, the Guidance will apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. Eurozone banks will be expected to apply the Guidance proportionately with those banks that have a high level of NPLs taking greater actions. The ECB Banking Supervision emphasizes that an NPL strategy should outline the bank’s approach and objectives regarding the effective management and ultimate reduction of NPL stocks in a clear, credible and feasible manner for each relevant portfolio. The ECB also published the results of a survey which it undertook with eight national supervisory authorities. The survey assesses the legal and supervisory practices of eight of the Eurozone countries. The ECB considers that some of those countries should revise and strengthen the legal framework on NPLs. Responses to the consultation are due by November 15, 2016.
View the draft Guidance and related information.
View the draft Guidance.
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European Commission Calls for Acceleration of Capital Markets Union
09/09/2016
The European Commission published a Communication calling for implementation of the Capital Markets Union to be accelerated. The CMU is part of the third pillar of the Commission Investment Plan for Europe. The CMU Action Plan was published in September 2015. It outlined a program for implementation by 2019 and set out changes to strengthen EU capital markets. The Commission stated that due to the changing political context in the EU, it would be taking forward priority areas to complete the CMU and undertaking a mid-term review in 2017. Priorities include proposals to reduce differences in European insolvency regimes, the removal of withholding tax barriers, simplification of the EU personal pension products, improving the use of European savings and increasing the performance of the EU economy. The Commission called for European Parliament and Member States to do everything within their power to deliver the measures proposed under the CMU Action Plan as soon as possible.
View the Commission press release.
View the Communication.
View the Action Plan.
TOPIC : Financial Services -
US Federal Financial Institutions Examination Council Revisions to Information Security Booklet
09/09/2016
The US Federal Financial Institutions Examination Council issued a revised Information Security booklet, which is part of the FFIEC’s IT Examination Handbook. The Information Security booklet summarizes the factors necessary to an effective information security program. The booklet sets forth updated guidelines for examiners evaluating the adequacy of information security programs of financial institutions and describes the following aspects of effective information security operations, which include (i) effective threat identification, assessment and monitoring and (ii) incident identification assessment and response. In addition, the booklet discusses assurance reports (addressing IT system design and operation) and testing of information security programs as methods to assess and achieve the effectiveness of such programs.
View FFIEC's IT Handbook.TOPIC : Credit Ratings -
European Banking Authority Reports on Core Funding Ratio
09/08/2016
The European Banking Authority published a report analyzing the core funding ratio across the EU. The report comes in response to a call for advice from the European Commission to explore the possibilities of the core funding ratio as a potential alternative metric for the assessment of EU banks’ funding risk, taking into account proportionality.
Read more. -
US Commodity Futures Trading Commission Final Rules for System Safeguards for Japan Uncleared Swap Margin Rules
09/08/2016
The U.S. Commodity Futures Trading Commission approved a final rule instituting system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories and derivatives clearing organizations. In addition, the CFTC also issued a comparability determination for certain of Japan’s margin requirements for uncleared swaps. The CFTC’s determination would permit substituted compliance with Japan’s uncleared swap margin rules in place of the uncleared swap margin provisions of Title VII of the Dodd-Frank Act.
View full text of CFTC final rule on system safeguards testing requirements.
View full text CFTC comparability determination.TOPIC : Derivatives -
US Federal Banking Agencies Issue Joint Report on Banking Activities and Investments
09/08/2016
On September 8, 2016, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the OCC jointly issued, pursuant to a requirement under Section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a study on the scope of permissible activities and investments engaged in by banking entities, and the associated risks of those activities. The banking entities covered in the study include insured depository institutions and any company that controls an insured depository institution or is treated as a bank holding company.
The report recommends changes to mitigate risks associated with banking activities, including (i) repealing the authority of financial holding companies to engage in merchant banking and commodities activities, (ii) reviewing certain activities to determine whether changes in regulations are needed and (iii) clarifying certain prudential rules and regulations. If enacted, the Federal Reserve Board’s recommendations relating to merchant banking and commodities activities would significantly restrict the permissible activities of FHCs established under the Gramm-Leach-Bliley Act in 1999. The Federal Reserve Board also recommended the repeal of exemptions available to owners of industrial loan companies and grandfathered savings and loans.
View the text of the Report.
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US Consumer Financial Protection Bureau Fines Wells Fargo for Illegal Sales Practices
09/08/2016
The US Consumer Financial Protection Bureau issued an enforcement action against Wells Fargo Bank, N.A. for widespread sales practices violations, including opening unauthorized deposit and credit card accounts on behalf of customers without their knowledge or consent in order to boost sales figures. The CFPB consent order finds that Wells Fargo’s violations included: (i) opening deposit accounts and transferring customer funds without the customer’s authorization, knowledge or consent; (ii) applying for credit card accounts without customer authorization, as a result of which many customers incurred fees; (iii) issuing and activating debit cards using consumers’ information without authorization; and (iv) creating false e-mail addresses to enroll consumers in on-line banking services without their knowledge or consent.
View full text of the CFPB consent order.TOPIC : Enforcement -
US Board of Governors of the Federal Reserve System Sets Framework for Setting the Countercyclical Capital Buffer
09/08/2016
The Federal Reserve Board issued a policy statement setting forth the framework for setting the Countercyclical Capital Buffer for private-sector credit exposures in the United States. The CCyB is a macroprudential tool that is intended to assist banking organizations in absorbing shocks associated with fluctuations in credit conditions. As a general matter, the CCyB applies to large internationally active banking organizations that are subject to the advanced approaches capital rules (i.e., those with more than $250 billion in assets or $10 billion in on-balance-sheet foreign exposures), and to any depository institution subsidiary of such banking organizations. The policy statement describes the types of financial system vulnerabilities and other factors that the Federal Reserve Board may take into account as it evaluates settings for the buffer, which may include: leverage in the nonfinancial and financial sectors, maturity and liquidity transformation in the financial sector and asset valuation pressures. However, the range of indicators and models that may be considered will likely change over time. Once activated, the CCyB imposes heightened capital requirements on such covered institutions, which heightened requirements may be removed or reduced by the Federal Reserve Board upon determination that financial conditions that led to the activation of the CCyB have abated or lessened. In addition, the policy statement notes that the Federal Reserve Board will provide notice and seek comment from the public on the proposed level of the CCyB as part of making any final determination to change the CCyB.
View Federal Reserve Board policy statement. -
US Federal Reserce System Extends Deadline for FR Y-9C
09/08/2016
The US Board of Governors of the Federal Reserve System adopted revisions to the FR Y-9C reporting form, a standardized financial statement for consolidated bank holding companies. The Federal Reserve Board revised the FR Y-9C to, among other things, delete existing data items, increase existing thresholds for certain data items, and clarify certain instructional items. The changes were originally proposed to take effect on March 31, 2016. In response to comments, the Federal Reserve Board is generally delaying the effective date for implementation for certain changes to September 30, 2016, while others will become effective March 31, 2017.
View the text of adopting release -
EU Legislation Amending Indicators used in the Methodology for the Identification of Global Systemically Important Institutions
09/08/2016
A Commission Delegated Regulation amending the Regulatory Technical Standards specifying the methodology for the identification by national regulators of global systemically important institutions and the definition of subcategories of GSIIs was published in the Official Journal of the European Union. The RTS specify quantifiable indicators forming the five categories to be used when measuring the systemic significance of a bank. The RTS is based on international standards developed by the Basel Committee on Banking Supervision to assess global systemically important banks and on the higher loss absorbency requirement. This methodology is regularly updated. The Amending Regulation updates the reporting templates and reporting instructions for the data collection for 2016 as well as the current values of the indicators that are to be determined.
The Amending Regulation entered into force on September 9, 2016.
View the Regulation.
View the original RTS.
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US Comptroller of Currency Prohibiting Industrial or Commercial Metals Investments
09/08/2016
As it indicated it would do in the Joint Report on Banking Activities and Investments, the OCC issued a proposed rule that would prohibit national banks and federal savings associations from dealing and investing in industrial or commercial metal. If finalized, the prohibition would cover metal, including alloy, in a physical form primarily suited to industrial or commercial use (including, for example: copper cathodes, aluminum T-bars and gold jewelry). The proposal states that such metals do not constitute “exchange, coin, and bullion” under 12 USC 24(Seventh), nor would buying or selling such metals for the purpose of dealing or investing in that metal be part of or incidental to the business of banking. By operation of various federal laws, the prohibition would also apply to FDIC-insured state banks and to US branches and agencies of foreign banks. Comments must be submitted 60 days from the date of the proposed rule’s publication in the Federal Register.
View Text of OCC Proposed Rule -
European Supervisory Authorities Opine on Final Draft Technical Standards on Uncleared Derivatives
09/08/2016
The Joint Committee of the European Supervisory Authorities published an Opinion on the European Commission's proposed amendments to the final draft Regulatory Technical Standards on risk mitigation techniques for uncleared OTC derivatives under the European Markets Infrastructure Regulation. The Joint Committee is made up of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Opinion includes a revised version of the final draft RTS.
Read more.TOPIC : Derivatives -
US Federal Reserve Bank Presidents Testify before US House of Representatives
09/07/2016
US Federal Reserve Bank Presidents Esther George (Kansas City) and Dr. Jeffrey Lacker (Richmond) testified before the US House of Representatives Financial Services Subcommittee on Monetary Policy and Trade, in a hearing entitled “Federal Reserve Districts: Governance, Monetary Policy, and Economic Performance.” Addressing the appearance of conflicts of interest arising from the presence of bankers on Reserve Bank boards of directors, President George noted that the Federal Reserve Board in Washington, D.C. is ultimately responsible for bank supervision and that Reserve Bank directors do not participate of bank supervisory matters. President Lacker noted that Reserve Bank directors have no formal role in crafting banking regulations. Each president also addressed the structure of the Federal Reserve System in the context of the role played by monetary policy in the economy.
View Details regarding the hearing.TOPIC : Financial Services -
G20 Leaders Publish Communiqué
09/06/2016
The G20 Leaders published the Communiqué from the Hangzhou Summit. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda, including, for example, finalization of Basel III by the end of 2016, full implementation of the OTC derivatives reforms and removing legal and regulatory obstacles to the reporting of OTC derivatives trades, developing effective cross-border resolution regimes and implementing the total loss absorbing capacity (TLAC) standard. The G20 Leaders also noted the importance of monitoring emerging systemic risks including those derived from shadow banking and asset management. For the continued protection of the global financial system, and with a focus on anti-money laundering, counter terrorism and tax evasion, the G20 have asked the Financial Action Task Force and the Global Forum to prepare initial proposals by October 2016 to improve implementation of transparency standards in the international financial system, including the collection of beneficial ownership information of legal persons and legal arrangements and international information sharing arrangements.
View the Communiqué.
TOPIC : Financial Services -
UK Regulator Bans Sole Trader Investment Business from the UK Financial Services Industry
09/01/2016
The Financial Conduct Authority issued a final notice banning Ms. Elizabeth Anne Parry from the UK financial services industry. The actions of Ms. Parry which gave rise to this decision concern alleged breaches of FCA Handbook provisions implemented on December 31, 2012 following the Retail Distribution Review. The RDR was a wide-ranging review of the retail investment market and the resulting proposals were intended to ensure that financial advice is given only by appropriately qualified advisers. The Training and Competence section of the FCA Handbook was subsequently amended to raise the required benchmark qualification level for all retail investment advisers and introduced an overarching standard for continuing professional development. All individual investment advisers were required to reach the QFC Level 4 or equivalent and hold a Statement of Professional Standing. The FCA concluded that on separate occasions between January 29, 2013 and September 3, 2015, Ms. Parry made misleading statements and provided falsified documentation with the intention of misleading the FCA to believe that she had attained the appropriate qualifications from her professional body to provide investment advice to retailers.
Read more.TOPIC : Enforcement -
US Commodity Futures Trading Commission Public Comment on Proposed Whistleblower Rule Amendments
09/01/2016
The US CFTC requested public comment on proposed amendments to the Whistleblower Rules found in Part 165 of the CFTC’s regulations. The amendments would improve the process for reviewing whistleblower claims and clarify staff authority to administer the whistleblower program. The proposal would also strengthen the CFTC’s authority to protect whistleblowers from retaliation through CFTC enforcement action under the Commodity Exchange Act.
The amendments would also make changes to eligibility requirements, the award claims process (and review of that process), whistleblower identifying information and the treatment of employer confidentiality provisions. Comments to the proposed amendments were due on September 29, 2016.
View proposed Whistleblower Rule Amendments.TOPIC : Derivatives -
Financial Stability Board Reports on Progress on its Workplan to Reduce Misconduct Risk
09/01/2016
The Financial Stability Board published a second progress report on its workplan to reduce misconduct risk. The workplan was first agreed in May 2015 and the FSB published its first progress report in November 2015. The workplan involves: (i) reviewing the effectiveness of reforms to compensation tools in reducing the risk of misconduct; (ii) examining whether the global standards of conduct in the fixed income, commodities and currency (FICC) markets need to be improved; and (iii) reforming the major financial benchmarks. The FSB's second progress report sets out the progress made to date as well as the expected dates for finalization of some of the work. By the end of 2016, the International Organization of Securities Commissions will publish final guidance for benchmark administrators on the content of the statements of compliance that administrators will be conducting a follow-up review of WM/Reuters 4 pm London Closing Spot Rate. The report also noted current reforms to the key IBOR benchmarks with a final report to be released in the course of 2017. Other items that are in the pipeline include publishing recommendations on the application of regulatory compensation tools to reduce misconduct risk by the end of 2017 and a wide-ranging FX Global Code for the wholesale foreign exchange market is expected to be finalized by May 2017.
View the progress report.
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US Securities and Exchange Commission Proposes Amendments to Require Hyperlinks to Exhibits in Filings
08/31/2016
The SEC proposed rule and form amendments that would require certain registrants to include a hyperlink to exhibits in their filings, thereby making it easier to locate documents attached to company filings. The proposed amendments would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of the filings. The public comment period will remain open for 45 days following publication in the Federal Register.
View the proposed rule.TOPIC : Securities -
US CFTC Extends Comment Period on Amendments for Commodity Pool Operator Annual Reports
08/30/2016
The US CFTC extended the comment period to September 20, 2016, on its proposed amendments to Regulation 4.22 with respect to the annual report that each commodity pool operator registered or required to be registered with the CFTC must distribute for each commodity pool that it operates.
View proposed amendments.TOPIC : Derivatives -
US Federal Banking Agencies and US Treasury Department Release Joint Fact Sheet on Foreign Correspondent Banking
08/30/2016
The US Department of Treasury, the US Federal Reserve Board, the US FDIC, the US OCC and the National Credit Union Administration released a joint fact sheet on foreign correspondent banking that sets forth supervisory and enforcement processes with respect to anti-money laundering and sanctions in the area of correspondent banking. Among other things, the fact sheet notes that while US depository institutions that maintain correspondent accounts for foreign financial institutions (FFIs) are not required to conduct due diligence on an FFI’s customers, US depository institutions must establish appropriate, specific and risk-based due diligence policies, procedures and processes that are reasonably designed to assess and manage the risks inherent with these relationships. The release further provides that while the regulators are not adopting a zero tolerance philosophy that mandates the strict imposition of formal enforcement action regardless of the facts and circumstances of the situation, the regulators are taking the threats posed by criminals, money-launderers and terrorist financers very seriously and continue to use their authorities to safeguard the US financial system against abuse.
View fact sheet. -
US Securities and Exchange Commission Whistleblower Program Surpasses $100 Million in Awards
08/30/2016
The US Securities and Exchange Commission announced that awards to whistleblowers have surpassed the $100 million mark with the SEC’s whistleblower program’s issuance of the second-largest award of more than $22 million that was announced the same day. The whistleblower program was established by Congress to incentivize whistleblowers with specific, timely and credible information about federal securities law violations to report such information to the SEC. To date, enforcement actions resulting from whistleblower tips have resulted in orders for more than $500 million in financial remedies.
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions ordered exceed $1 million. The SEC paid its first award in 2012, just over a year after its Office of the Whistleblower opened for business. All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.
View SEC press release.
View information about the whistleblower program.TOPIC : Enforcement -
US Securities and Exchange Commission Adopts Amendments Providing Authorities Access to Data Obtained by Security-Based Swap Data Repositories
08/29/2016
The SEC adopted amendments to a rule that requires security-based swap data repositories to make data available to regulators and other authorities, allowing them to share information and more effectively oversee the security-based swap market.
The Dodd-Frank Act establishes provisions for regulators to access security-based swap data from data repositories. Building on a proposal from September 2015, the final rule amendments implement these provisions and, among other things: (i) require either a memorandum of understanding or other arrangement between the SEC and the recipient of the data to address the confidentiality of the security-based swap data provided to the recipient; (ii) identify the five prudential regulators named in the statute, as well as the Federal Reserve banks and the Office of Financial Research, as being eligible to access data; and (iii) address factors that the SEC may consider in determining whether to permit other entities to access data.
View The final rule.TOPIC : Securities -
Basel Committee on Banking Supervision Progress Report on Basel III Implementation
08/29/2016
The Basel Committee on Banking Supervision published a report to the G20 leaders, providing an update on implementation of the Basel III regulatory reforms since the Basel Committee’s last progress report in November 2015. The Basel Committee concluded that the Basel III capital and liquidity standards have generally been transposed into domestic regulations within the time frame set by the Committee. Since the last report, key components such as the risk-based capital standards and the Liquidity Coverage Ratio have now been enforced by all member jurisdictions, while the global systematically important banks framework has been enforced by all member jurisdictions that are home jurisdictions to G-SIBs. The Basel Committee highlighted the ongoing efforts of member jurisdictions to adopt other Basel III standards such as the leverage ratio and the Net Stable Funding Ratio.
Read more. -
US Federal Reserve Board Adopts Rating System to Supervise Financial Market Infrastructures
08/26/2016
The US Federal Reserve Board issued a notice that it had adopted the “ORSOM” rating system for its review of FMIs over which the Federal Reserve Board has jurisdiction, including financial market utilities designated as systemically important by the Financial Stability Oversight Council. The ORSOM system judges FMIs on five categories which the Federal Reserve Board noted highlight the issues FMIs face: Organization, Risk management, Settlement, Operational risk and IT, and Market support, access and transparency. The Federal Reserve Board’s notice also specifies particular regulations and guidance that would be examined under each ORSOM category. The rating scale runs from 1, strong, to 5, unsatisfactory, in each category, with the FMI receiving a 1-5 aggregate overall rating as well.
View The Federal Reserve Board’s release.TOPIC : Financial Market Infrastructure -
Financial Stability Board Reports on Implementation of Over-the-Counter Derivatives Reforms
08/26/2016
The Financial Stability Board published its eleventh progress report on the implementation of reforms by standard-setting bodies, national and regional authorities and market participants to the over-the-counter derivatives market as agreed by the G20. Such reforms include the trade reporting of OTC derivatives, central clearing of standardized OTC derivatives and higher capital and minimum margin requirements for non-centrally cleared derivatives. The FSB concluded that the progress of implementing reforms is continuing, but that regulators have noted challenges to implementation.
Read more.TOPIC : Derivatives -
US Financial Crimes Enforcement Network Proposes a Rule Imposing Anti-Money Laundering Programs on Banks Without a Federal Regulator
08/25/2016
The US Financial Crimes Enforcement Network issued a notice of proposed rulemaking pursuant to Section 326 of the USA PATRIOT Act that would lay out minimum standards for anti-money laundering programs and remove the AML program exemption for banks that lack a Federal functional regulator. The proposed rule would amend 31 CFR Chapter X to broaden the application of the AML requirements, customer identification programs and beneficial ownership requirements to cover all banks, not just those subject to regulation by a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions and certain trust companies. Comments must be submitted to FinCEN by October 24, 2016.
View FinCEN’s release. -
US Securities and Exchange Commission Amends Investment Advisers Act Rules and Forms
08/25/2016
The SEC published a final rule adopting amendments to Form ADV and several rules under the Investment Advisers Act of 1940 aimed at enhancing disclosure of information by investment advisers. The amendments will require investment advisers to provide additional information about various aspects of their businesses, including separately managed account business, branch operations, and their use of social media. The amendments will also facilitate streamlined registration and reporting by groups of funds and require advisers to maintain additional records related to adviser performance information. The amendments will become effective 60 days after their publication in the Federal Register, and advisers will be required to comply with the amended rules on October 1, 2017.
View the SEC’s final rule.TOPIC : Securities -
US Securities and Exchange Commission Invites Comments on Regulation S-K Disclosure Requirements
08/25/2016
The SEC issued a request for comment on Subpart 400 of Regulation S-K, which requires certain disclosures about management, certain security holders and corporate governance of the disclosing firm. The request is part of a broader initiative to improve the disclosure requirements of Regulation S-K. The review will also inform the study mandated by the Fixing America’s Surface Transportation Act which requires the SEC to study Regulation S-K requirements in order to best modernize and simplify the substance of the disclosure requirements as well as the manner of the presentation of disclosed information. Input may include comments on existing requirements as well as potential disclosure issues that commenters believe Regulation S-K should address. The comment period is open for 60 days after the publication of the release in the Federal Register.
The SEC’s request for comment.TOPIC : Securities -
International Consultation on Good Practices for Fees and Expenses for Collective Investment Schemes
08/25/2016
The International Organization of Securities Commissions published a final report outlining good practices on fees and expenses for collective investment schemes. The report is aimed only at CISs whose shares or units are permitted to be sold to retail investors. IOSCO states that appropriate information about fees and expenses should be available so that an investor can take them into account when making an investment decision rather than relying purely on past performance. IOSCO’s Committee on Investment Management reviewed existing practices with respect to fees and expenses in collective investment schemes in 2004 and again in 2015, with good practices published as a result of the review in 2004. The latter review reflected a wider range of regulatory approaches towards markets at different stages of maturity, as well as taking account more recent developments in its member jurisdictions, in light of the natural evolution of best practices since the 2004 report as regulators adapted their approach.
Read more.TOPIC : Funds -
Report on Implementation of Global Corporate Governance Principles
08/23/2016
The Organization for Economic Co-operation and Development published a progress report on the implementation of the G20/OECD Principles of Corporate Governance. The Principles were endorsed by G20 Leaders at their summit in Antalya on November 15-16, 2015 and are one of the Key Standards for Sound Financial Systems adopted by the Financial Stability Board. The progress report provides an update on the main developments that have helped jurisdictions to implement the Principles, including translations of the Principles into languages other than the official languages of the OECD. It also discusses the review and update of the methodology used by the OECD to assess the implementation of the Principles, as well as containing information on the FSB peer review of the implementation of the relevant Principles. The review will assess how FSB member jurisdictions have implemented the Principles for publicly listed financial institutions, such as banks, insurers, asset managers and financial holding companies. The final version of the Methodology is expected to be adopted in November 2016. The OECD intends to continue with its thematic peer reviews and the next peer review is expected to launch in the first half of 2017.
View the progress report.TOPIC : Corporate Governance -
Final EU Technical Standards on the Valuation of Derivatives for Bail-in Published
08/23/2016
A Commission Delegated Regulation on the valuation of derivatives for the purpose of bailing-in derivative liabilities in the form of Regulatory Technical Standards was published in the Official Journal of the European Union. The final RTS do not differ substantively from the RTS adopted by the European Commission on May 23, 2016. The Bank Recovery and Resolution Directive provides that a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions, including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine the value of those derivative liabilities at the moment of exercise of the resolution power. The RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives. The RTS entered into force on September 12, 2016.
View the RTS on the Valuation of Derivatives for Bail-in.TOPIC : Recovery & Resolution -
Final EU Technical Standards on Business Reorganization Plan Requirements Following Bail-In
08/23/2016
A Commission Delegated Regulation outlining the Regulatory Technical Standards on the elements of a business reorganization plan and the minimum contents for reporting progress in the implementation of the plan was published in the Official Journal of the European Union. The final RTS do not differ substantively from the RTS adopted by the European Commission on May 10, 2016. The final RTS supplement the requirements set out in the Bank Recovery and Resolution Directive which require a firm that has been bailed in to submit a plan to the resolution authority on how the firm, or parts of it, might be restored to long-term viability within a reasonable timescale.
Read more.TOPIC : Recovery & Resolution -
US Federal Deposit Insurance Corporation New Issues of Supervisory Insights
08/22/2016
The US FDIC released the Summer 2016 issue of its publication, Supervisory Insights. The magazine contains two original articles and the regular “Regulatory and Supervisory Roundup” which provides summaries of recently released regulations and supervisory guidance. An article entitled “De Novo Banks: Economic Trends and Supervisory Framework,” lays out trends the FDIC staff has observed in de novo formation, the FDIC application review process and steps the FDIC takes to supervise and support new banking institutions. Another article entitled, “Matters Requiring Board Attention (MRBA)” provides a survey of trends among issues appearing in the MRBA section of examination reports. The article notes several specific trends: first, examinations resulting in MRBAs have declined since 2011, second, there have been relative increases in credit concentration risk management and liquidity management-related MRBAs, and third, corporate governance and IT practices are additional areas of increasing concern.
View Summer 2016 Supervisory Insights.
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US Office of the Comptroller of the Currency Proposes Mandatory Stay-and-Transfer Provisions Requirements for Certain Qualified Financial Contracts
08/19/2016
The OCC issued a notice of proposed rulemaking that would require OCC-supervised subsidiaries, branches and agencies of US and foreign global systemically important banking organizations to amend certain qualified financial contracts to prohibit the immediate termination of such contracts and the exercise of certain other default rights by counterparties if the firm enters bankruptcy or a special resolution proceeding. Covered QFCs are defined to include swaps, derivatives, repurchase, reverse repurchase and securities lending and borrowing transactions. Under the proposed rule, any covered QFC would be required to include a contractual stay-and-transfer provision analogous to the stay-and-transfer provision provided for in Title II of the Dodd-Frank Act that supports the orderly resolution of financial firms in their contracts. Moreover, the proposed rule would also limit the default rights of a counterparty in the event of the insolvency of the G-SIB or its affiliates. Comments must be submitted to the OCC by October 18, 2016.
The proposed rule is largely analogous to a proposed rule issued by the Federal Reserve Board on May 3, 2016 and provides a substantively parallel rule for OCC-regulated institutions within a G-SIB group.
View the notice of proposed rulemaking.TOPIC : Recovery & Resolution -
International Consultation on Good Practices for the Termination of Investment Funds
08/18/2016
The International Organization of Securities Commissions published a report outlining a proposed set of good practices on the voluntary termination of investment funds. The decision to terminate an investment fund can have a significant impact on investors, in terms of the costs associated with such an action or the ability of investors to redeem their holdings during the termination process. Therefore, IOSCO’s objective is to develop a set of good practices for the termination of collective investment schemes and other fund structures such as commodity, real estate and hedge funds, which take into account investors’ interests during the termination process.
Read more.TOPIC : Funds -
Second Consultation on Harmonization of the Unique Product Identifier Launched
08/18/2016
The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions published a second report on proposed guidance for a harmonized Unique Product Identifier. The purpose of the UPI is to uniquely identify OTC derivatives products that regulators require, or may require in the future, to be reported to trade repositories. The UPI system will assign a code to each OTC derivative product which maps to a set of data elements describing the product in a corresponding reference database. Currently, OTC derivative trades can be reported to one of the six trade repositories currently authorized in the EU. However, in order to properly mitigate systemic risk and protect against market abuse, it is necessary for data across trade repositories to be aggregated and for reporting fields to be harmonized so that national regulators have a comprehensive view of the OTC derivatives markets and trading activity. The first consultation focused on the reference database (or classification system). The focus of this second consultation is on the possible form, content and granularity of reference data assigned to each OTC derivative product.
Comments on the proposals are due by September 30, 2016, with publication of final guidance expected around the end of 2016.
View the second consultative report.
View the first consultative report.
TOPIC : Derivatives -
Financial Stability Board Reports on Risks Posed by Central Counterparties and the CCP Workplan
08/16/2016
The Financial Stability Board published a progress report on its CCP workplan. The progress report provides an update on implementation of a workplan agreed on by the FSB, the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions (the Group) in April 2015. The workplan focuses on the resilience, recovery planning and resolvability of CCPs and coordinating the roles of each organization in achieving a new international framework for CCPs.
Read more. -
US Commodity Futures Trading Commission Finalizes Report on De Minimis Exception to Definition of Swap Dealer
08/15/2016
The CFTC issued a final report on the de minimis exception from the definition of a “swap dealer” under CFTC Regulation 1.3(ggg). The exception currently applies to a person whose swap dealing activities are less than an aggregate gross notional amount of $8 billion over the prior 12-month period. Unless the CFTC takes action, the $8 billion threshold will be reduced on December 31, 2017 to $3 billion. While CFTC staff did not ultimately issue a recommendation, they noted the advantages and disadvantages of implementing, delaying or changing the $3 billion threshold, creating different threshold for various asset classes or creating a multi-factor test for determining the de minimis exception.
CFTC Commissioner J. Christopher Giancarlo issued a statement upon release of the report expressing disappointment that the staff did not recommend eliminating or delaying the transition to a $3 billion threshold. He noted that market participants now have to prepare for the implementation of the lower threshold and at the same time urged the Commission to keep the registration threshold at $8 billion.
View CFTC Report.
View Commissioner Giancarlo's statement.TOPIC : Derivatives -
Federal Reserve Bank of New York Names Michael Held Executive Vice President and General Counsel
08/12/2016
The Federal Reserve Bank of New York named Michael Held executive vice president, head of the Legal Group and general counsel, effective August 15, 2016. He will also serve on the New York Fed’s Management Committee. As head of the Legal Group, Mr. Held will oversee the day-to-day operations of the group, which include Legal, Bank Applications, Compliance, the Corporate Secretary’s Office, Federal Reserve Law Enforcement Unit and Records Management.
View The New York Fed press release.TOPIC : People -
UK Prudential Regulator Reminds CRR Firms about Management Body Diversity
08/12/2016
The UK Prudential Regulation Authority published an open letter to all firms subject to the Capital Requirements Regulation reminding firms of the requirement in the PRA Rulebook to have in place a policy promoting diversity on the management body. The letter follows a report by the European Banking Authority on Benchmarking Diversity Practices published on July 8, 2016. The PRA cited the report which highlighted that, of UK firms surveyed, only 15% had a policy to promote diversity on their management body. The PRA is also interested in how firms have promoted diversity among Senior Managers.
View the letter.
View the General Organisational Requirements.
View the EBA Report.
TOPIC : Corporate Governance -
EURIBOR Categorized as a Critical Benchmark under EU Legislation
08/12/2016
A Commission Implementing Regulation establishing a list of critical benchmarks used in financial markets under the Benchmark Regulation was published in the Official Journal of the European Union. The Benchmark Regulation provides for different categories of benchmarks depending on the risks involved, imposing additional requirements on benchmarks considered to be critical, including the power of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark. The Commission Implementing Regulation stipulates that the Euro Interbank Offered Rate is a critical benchmark on the basis that it is important for credit loans and mortgages in the EU. EURIBOR is the first benchmark to be listed. The Commission Implementing Regulation entered into force on August 13, 2016. For the most part, the Benchmark Regulation will apply from January 1, 2018. Certain provisions, giving powers to the European Securities and Markets Authority to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016.
View the Commission Implementing Regulation.
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European Banking Authority Consults on Draft Standards for Payment Service Providers
08/12/2016
The European Banking Authority published a consultation paper on draft Regulatory Technical Standards specifying the requirements of strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2). PSD2, which will apply from January 13, 2018, requires payment service providers to apply strong customer authentication measures where the payer: (i) accesses its payment account online; (ii) initiates an electronic payment transaction; and (iii) carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.
Read more.TOPIC : Payment Services -
European Banking Authority Opines on Virtual Currencies and the Fourth Anti-Money Laundering Directive
08/11/2016
The European Banking Authority published an Opinion on the Commission’s proposed amendments to the Fourth Anti-Money Laundering Directive and its application to virtual currencies. The Commission is proposing to bring custodian wallet providers (CWPs) and virtual currency exchange platforms (VCEPs) within the scope of the 4MLD so that they would, among other things, have to apply customer due diligence controls when exchanging virtual currencies for real currencies, and put in place policies and procedures to detect, prevent and report money laundering and terrorist financing.
Read more. -
White House Report on Impact of Financial Reform of Community Banks
08/10/2016
The White House Council of Economic Advisers released a report analyzing the impact of regulations issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act on community banks, defined generally as banks with assets less than $10 billion. The report disputed claims that increased regulations have negatively impacted smaller-size institutions, noting areas where community banks have remained strong since the Dodd-Frank Act. The report also describes certain long-standing structural challenges that precede the Dodd-Frank Act which community banks have continued to face, and noted the “importance of implementing Dodd-Frank in a way that allows community banks to compete on a level playing field.” In response, Republicans on the US House of Representatives Financial Services Committee published a blog post countering the assertions in the White House report, and posted statements from various community bankers and other small financial services operators commenting on the negative ways in which Dodd-Frank Act reforms have impacted their respective institutions.
View text of the White House Report.
View the HFSC blog post. -
US National Institute of Standards and Technology Seeks Cybersecurity Information in Digital Economy
08/10/2016
The US NIST issued a request for information regarding current and future cybersecurity initiatives in the digital economy in connection with its directive to support the Commission on Enhancing National Cybersecurity. The Commission will ultimately make recommendations on actions that can be taken to strengthen cybersecurity in both the public and private sectors. NIST is seeking information on current trends, progress being made, short-term initiatives and perceived long-term challenges in respect of several topics relating to cybersecurity as the Commission formulates recommendations intended to “increase the protection and resilience of the digital ecosystem.” Topics on which the Commission is soliciting information include: critical infrastructure cybersecurity, cybersecurity research and development, international markets and the internet of things. Comments were due on September 9, 2016.
View NIST Request for Comment.TOPIC : Cyber Security -
US Commodity Futures Trading Commission Amendments to Timing Chief Compliance Officer Annual Report
08/09/2016
The CFTC issued proposed amendments to CFTC Regulation 3.3 concerning chief compliance officers of futures commission merchants, swap dealers and major swap participants. The proposed amendments would codify existing no-action relief (CFTC Staff Letter 15-15) regarding when such registrants must furnish their CCO annual report to the CFTC, clarify filing requirements for registrants located in a jurisdiction for which the CFTC has issued a comparability determination and delegate to the Director of the Division of Swap Dealer and Intermediary Oversight authority to grant extensions to the CCO annual report filing deadline. Comments on the proposed amendments were due by September 12, 2016.
View Proposed Amendments.
View CFTC Staff Letter.TOPIC : Derivatives -
UK Competition and Markets Authority Final Report on Retail Banking Market Investigation
08/09/2016
The UK Competition and Markets Authority published its final report on its market investigation into the supply of retail banking services to personal current account customers and small and medium-sized enterprises (SMEs) in the UK. The report outlines its findings and a proposed package of remedies. The CMA aims to implement all elements of the package by the end of September 2018.
Read more.TOPIC : Competition -
US Commodity Futures Trading Commission Allows Expanded SIDCO Use of Fed Accounts
08/08/2016
The CFTC approved an exemption for Federal Reserve Banks that maintain customer accounts for certain derivatives clearing organizations from liability under the Commodity Exchange Act. The exemption allows the Federal Reserve Banks to hold customer funds of DCOs designated by the FSOC as systemically important without being subject to liability under the CEA and also exempts the Federal Reserve Banks from private rights of action that could otherwise be brought under the CEA.
View CFTC Press Release which includes Links to Exemption.TOPIC : Derivatives -
US Commodity Futures Trading Commission Restricts Use of Certain Money Market Funds for Margin
08/08/2016
The CFTC’s Division of Clearing and Risk issued an interpretative letter where CFTC staff stated that it would be inconsistent with CFTC regulations for a DCO to accept or hold initial margin in the form of, or to invest funds belonging to the DCO, its clearing members or clearing members’ customers in, certain prime and government money market funds that have authority to suspend redemptions. However, government MMFs that do not adopt such redemption restrictions would remain acceptable for margin collateral and investments.
The CFTC’s Division of Swap Dealer and Intermediary Oversight issued a related no-action letter. Although an FCM will generally not be permitted to invest segregated customer funds (including an FCM’s own funds held in a segregated account) in such prime and government MMFs, the letter allows such investments if they are limited to the amount of funds the FCM holds in excess of the firm’s targeted residual interest. The letter also addresses the treatment of permitted MMF investments by an FCM under Rule 1.25.
View CFTC Press Release including links to interpretative and no-action letters.TOPIC : Derivatives -
US Office of the Comptroller of the Currency Released a Second Notice Soliciting Comments on the Bank Secrecy Act/Anti-Money Laundering Risk Assessment System
08/08/2016
The OCC released a second notice soliciting comments on the expansion of the Bank Secrecy Act/Anti-Money Laundering Risk Assessment System to all OCC-supervised institutions. As noted in the original OCC proposal, published on January 4, 2016, the current information collection system applies only to community banks. Pursuant to the notice, the OCC continues to seek comments on, among other items, the accuracy of the OCC’s estimate of the burden of the collection of information, and ways to enhance the quality and utility of the information to be collected, and ways to minimize the burden of the collection on respondents, including through the use of automated collection technologies. Comments on the MLR System were due by September 7, 2016.
View text of the OCC notice. -
Financial Stability Board Launches Thematic Peer Review on Corporate Governance
08/08/2016
The Financial Stability Board launched its thematic peer review regarding the implementation of the G20/Organisation for Economic Co-Operation and Development (OECD) Principles of Corporate Governance. These Principles have been designated as one of the FSB’s key standards for sound financial systems. The Principles cover governance frameworks, disclosure and transparency, rights and equitable treatment of shareholders, key ownership functions and responsibilities. The objective of the peer review, as outlined in the terms of reference, is to understand and assess how FSB member jurisdictions have applied the principles to publicly listed regulated financial institutions (banks, insurers, asset managers and financial holding companies). The FSB is seeking feedback on, for example, the design of corporate governance frameworks and whether they promote transparent and fair markets, the protection of shareholders rights and how corporate governance structures can facilitate equitable treatment for all shareholders. The review is limited to those Principles which apply to listed regulated financial institutions, but it is hoped that it may allow for a more in-depth analysis of particular topics which are relevant for the FSB's broader remit.
The feedback is due by September 9, 2016 with a final report expected to be published in early 2017.
View the FSB terms of reference.
View the G20/OECD Principles of Corporate Governance.
TOPIC : Corporate Governance -
US Commodity Futures Trading Commission Publishes Final Response to Court Remand on Costs and Benefits of Cross-Boarder Guidance
08/04/2016
The CFTC issued a Final Response to the United States District Court for the District of Columbia Remand Order in Securities Industry and Financial Markets Association, et al. v. United States Commodity Futures Trading Commission, which was a challenge by industry groups to the CFTC’s guidance as to the application of certain requirements to cross-border swaps transactions. In a decision issued on September 16, 2014, the District Court denied the plaintiffs’ demand that the CFTC be enjoined from enforcing extraterritorially Title VII of the Dodd-Frank Act and related regulations, and upheld the CFTC’s 2013 cross-border guidance. The District Court did direct the CFTC to further explain and consider the costs and benefits of certain rules.
Read more.
TOPIC : Derivatives -
European Banking Authority Amends Technical Standards on Benchmarking of Internal Approaches under CRD IV
08/04/2016
The European Banking Authority published an amended version of its implementing technical standards on benchmarking of internal approaches under the Capital Requirements Directive IV. The ITS have been amended to assist regulators in their 2017 benchmarking assessment of internal approaches for credit risk and market risk. The 2016 exercise covered credit risk for so-called high-default portfolios (small and medium enterprises and retail) and market risk portfolios. The 2017 exercise will focus on low-default portfolios. The EBA noted that it intends to update the ITS annually to ensure the quality of future benchmarking exercises. The amended ITS have been published as a package of documents with consolidated instructions, templates and annexes. The amended ITS have been submitted to the European Commission but as of yet have not been adopted.
View the amended ITS.
View the amended draft benchmarking package. -
UK Prudential Regulator Publishes Statement on the Leverage Ratio
08/04/2016
The Prudential Regulation Authority published a statement inviting firms to apply for a temporary modification of the application of the Leverage Ratio, Public Disclosure and Reporting Leverage Ratio parts of the PRA Rulebook to them. The modification is available to firms that are currently subject to the UK leverage ratio framework. The statement follows a recommendation in July from the Financial Policy Committee of the Bank of England on the composition of the total exposure measure for the purposes of the leverage ratio, which stated that when applying its rules on the leverage ratio, the PRA should consider allowing firms to exclude from the calculation of the total exposure measure those assets constituting claims on central banks where they are matched by deposits accepted by the firm that are denominated in the same currency and of identical or longer maturity.
Read more. -
US Office of the Comptroller of the Currency Names Peggy Sherry Deputy Chief Financial Officer
08/03/2016
The OCC announced the selection of Peggy Sherry to be the agency’s Deputy Chief Financial Officer. In this role, Sherry will oversee the planning and execution of the agency’s annual operating budget and will be responsible for the oversight of the OCC’s financial systems, internal and financial controls program, travel policy and operations and agency records management functions as well as the OCC’s Office of Management’s compliance and strategic planning functions. She assumes these duties in September, succeeding Gary Crane, who is retiring.
View OCC press release.TOPIC : People -
US Federal Banking Agencies Extend Deadline for Resolution Plan Submissions
08/02/2016
The US Federal Reserve Board and the FDIC announced that for 38 firms, the deadlines to submit resolution plans will be extended from December 31, 2016 to December 31, 2017. The firms include 36 domestic bank holding companies and foreign banking organizations, as well as two nonbank financial companies designated by the Financial Stability Oversight Council. The agencies expect to provide feedback on the firms’ December 2015 plans for use in their December 2017 submissions. This extension will allow the firms additional time to incorporate feedback and guidance into their next plan submissions.
View the list of firms subject to the extension.TOPIC : Recovery & Resolution -
US Federal Banking FAQ for Assessing Diversity Policies and Practices of Regulated Institutions
08/02/2016
The US Federal Reserve Board, the FDIC and the OCC issued frequently asked questions (FAQs) regarding the process for how financial institutions they regulate may begin to submit self-assessments of their diversity policies and practices starting with year-end 2015. Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the federal financial regulatory agencies to develop standards for assessing the diversity policies and practices of its regulated institutions, which became effective on June 10, 2015. The standards provide a framework for regulated institutions to assess and establish or strengthen their diversity policies and practices. Financial institutions are strongly encouraged to disclose on their websites their diversity policies and practices, as well as information related to their self-assessments, to maximize transparency, and to provide their policies, practices and self-assessment information to their primary federal financial regulator.
View FAQs.TOPIC : Corporate Governance -
US Federal Reserve Board Invites Comment on Interim Final Rule Adjusting Maximum Civil Money Penalties
08/01/2016
The US Federal Reserve Board invited comment on an interim final rule adjusting the Federal Reserve Board’s maximum civil money penalties, as required by law.
In November 2015, a law was passed that requires all federal agencies to adjust their maximum civil money penalty limits annually, rather than every four years, as previously required. Additionally, the law sets forth the adjustment formula for federal agencies. The Federal Register notice details the civil money penalty adjustments made by the Federal Reserve Board.
The interim final rule became effective on August 1, 2016, and will apply to those penalties assessed after this date. The Federal Reserve Board was accepting comments until August 30, 2016.
View interim final rule.TOPIC : Enforcement -
UK Regulator Policy Statement on Implementation of the Payment Accounts Regulations
08/01/2016
The Financial Conduct Authority published a policy statement on changes to the FCA Handbook to implement the Payment Accounts Regulations 2015 (PAR). The policy statement summarizes feedback from its consultation on the implementation of the PAR in March of this year and contains the subsequent final changes to the FCA Handbook and the finalized non-Handbook guidance.
Changes to the Handbook and Guidance touch on various issues. Minor amendments have been made to the Guidance to provide clarity on the definition of a “payment account” in the Handbook and the scope of the PAR provisions on packaged accounts has been clarified. Amendments have also been made in relation to the regulatory reporting requirements. For example, the total number of refusals of switching and basic bank account applications would now need to be reported (rather than the proportion of total applications refused). The reporting deadline has also been extended to two months (instead of one month) after the end of the reporting period.
Changes to the Handbook and Guidance will come into effect on September 18, 2016, which is the same day as the date on which the Payment Account Regulations provisions on packaged accounts, switching and basic bank accounts enter into force.
View the policy statement.TOPIC : Payment Services -
US Federal Agencies Finalize Rule Exempting Certain Commercial and Financial End Users from Margin Requirements
08/01/2016
Te US Federal Reserve Board, FDIC, OCC, Federal Housing Finance Agency and Farm Credit Administration announced a final rule exempting from the agencies’ margin requirements certain non-cleared swaps with commercial end users, small banks, savings associations, Farm Credit System institutions and credit unions with $10 billion or less in total assets. Certain non-cleared swaps with certain treasury affiliates, certain financial cooperatives and captive finance companies also are exempted. In all cases, the non-cleared swaps must hedge or mitigate commercial risk of these counterparties and satisfy the applicable requirements for an exemption from mandatory clearing.
The exemptions were first adopted by interim final rule published in the Federal Register in November 2015. The final rule adopts the earlier interim final rule as final without change. The agencies established initial and variation margin requirements for non-cleared swaps, as required by the Dodd-Frank Act, in a separate rulemaking published in November 2015.
View Final Rule.TOPIC : Derivatives -
Federal Reserve Bank of New York Announces Appointment of Denise Scott to Board of Directors
07/29/2016
The Federal Reserve Bank of New York announced that Denise Scott, executive vice president for programs at the Local Initiatives Support Corporation (LISC), has been appointed a Class C director of the New York Fed by the Federal Reserve Board. Starting August 1st, Scott will be filling the remainder of Dr. Marc Tessier-Lavigne’s term, which expires on December 31, 2016. Scott will be eligible for reappointment at that time.
View The New York Fed press release.TOPIC : People -
US Federal Deposit Insurance Corporation Requests Comment on Bank Appeals Guidelines and Third-Party Lending Guidance
07/29/2016
The US FDIC requested comments on updates to its guidelines for institutions to appeal certain material supervisory determinations, as well as comments on draft guidance regarding third-party lending. The two items are part of a package issued by the FDIC to improve the transparency and clarity of the FDIC’s supervisory policies and practices, and to ensure that institutions have clear and fair avenues to pursue when there are differences of opinion regarding supervisory matters.
Read more.
TOPIC : Financial Services -
US Federal Banking Agencies Release Results of Shared National Credit Review
07/29/2016
The US Federal Reserve Board, the FDIC and the OCC released the results of the Shared National Credit (SNC) review. The review showed that the level of adversely rated assets remained higher than in previous periods of economic expansion, raising the concern that future losses and problem loans could rise considerably in the next credit cycle. The elevated level of risk observed during the recent SNC examination stems from the high inherent risk in the leveraged loan portfolio and growing credit risk in the oil and gas portfolio.
Read more.TOPIC : Financial Services -
UK Prudential Regulation Authority Consults on Proposed Approach to Implementation of the Systemic Risk Buffer
07/29/2016
The Prudential Regulation Authority published a consultation paper on its proposed approach to the implementation of the systemic risk buffer. The consultation paper is relevant to ring-fenced bodies under the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits (where one or more of the accountholders is a small business) and shares (excluding deferred shares). These are jointly referred to as “SRB institutions”. The UK Independent Commission on Banking recommended that UK systematically important SRB institutions be held to a higher capital standard. In addition to these recommendations, the UK legislation implementing the systematic risk buffer requires that the PRA apply the Financial Policy Committee framework as of January 1, 2019. The PRA’s proposals outline the scope of the framework, the capital implications of the SRB and the PRA’s approach to applying the SRB.
The PRA has proposed that: (i) it will, in the exercise of sound supervisory judgement, only deviate from the SRB rates derived from the FPC framework in exceptional cases; (ii) for building societies in scope of the framework, the applicable basis of the framework will be the group consolidated basis for building societies that are the parents of consolidation groups and the individual basis for all others; (iii) the initial SRB rates will be set and announced by the PRA in early 2019 and will apply three months after being set; and (iv) following the application of the initial SRB rates, rates will be set and announced annually and will apply in the second year following the calendar year in which they were set.
Responses to the proposals are due by October 28, 2016.
View the PRA update.
View the consultation paper.
View the FPC framework and associated consultation paper. -
UK Regulator Introduces Financial Crime Reporting Obligations
07/29/2016
The Financial Conduct Authority published final rules on financial crime reporting, which will introduce obligations for banks, large investment firms, building societies, mortgage lenders, large electronic money institutions, certain large consumer credit firms, life insurers and retail investment and mortgage intermediaries. Relevant firms will be required to provide details annually on, among other things, the jurisdictions and types of customers as well as the number of suspicious activity reports to the FCA. The reporting obligation will only apply to a firm's business that is subject to the Money Laundering Regulations 2007. The FCA is introducing the new requirement so that it can adopt a more risk-sensitive supervisory approach. Due to the feedback it received to its consultation on the implementation timeline, the FCA has extended the remittance deadline by 60 days so that firms with an accounting year end of December 31 will need to submit the data by late March the following year. The FCA is also allowing firms to complete the first Financial Crime Report on a best endeavors basis.
View the FCA's Policy Statement and final Rules. -
UK Regulator Publishes Second Consultation Paper on Implementation of MiFID II
07/29/2016
The Financial Conduct Authority published a second consultation paper on implementation of the Markets in Financial Instruments Directive II and the associated proposed changes to the FCA Handbook. The first consultation paper, published on December 15, 2015, related to issues associated with the FCA’s regulation of the secondary trading of financial instruments. The proposals in the second consultation paper are relevant to many different firms, including investment banks, inter-dealer brokers, stockbrokers, investment advisers, corporate finance firms, trading venues, investment managers and prospective Data Reporting Services Providers. The Consultation Paper includes full implementation of relevant parts of MiFID II, consistent with FCA pronouncements that roll-out of MiFID II will not be affected by the Brexit vote.
Read more.TOPIC : MiFID II -
Results of EU Stress Test Published
07/29/2016
The European Banking Authority published the results of the EU-wide stress test. The stress test covered 51 EEA banks and assessed the resilience of the EEA banking sector to adverse financial conditions. Unlike the stress tests conducted in 2011 and 2014, the 2016 stress test did not aim to identify possible capital shortfalls, as the EBA considers that after five years of continuous capital raising in the EU banking sector, the crisis type of stress test appears to be less relevant. It is intended instead that supervisors will use the 2016 results to assess banks’ forward looking capital planning. The results of the stress test will be used by national regulators in their Supervisory Review Process to assess each bank's capital planning going forward.
View the stress test documentation. -
US Board of Governors Federal Reserve Expansion of CFO Attestation to Intermediate Holding Companies07/28/2016
The Federal Reserve Board published a proposal to extend for three years, with revision, the Capital Assessments and Stress Testing information collection applicable to bank holding companies with total consolidated assets of $50 billion or more and US intermediate holding companies established by foreign banking organizations. The Federal Reserve Board proposed revising the FR Y-14A, Q and M schedules to expand the chief financial officer attestation reporting requirement applicable to US BHCs subject to the Large Institution Supervision Coordinating Committee (LISCC) framework to US IHC respondents on a phased-in basis beginning with reports as of December 31, 2017. The CFO-attestation requirement was finalized for US BHCs earlier this year and implementation is required on a phased-in basis for reports as of December 31, 2016.
The proposal also provides for revisions to the FR Y-14A that include data on the supplementary leverage ratio as well as to include information on material operational risks included in loss projections, operational risk scenarios and updated documentation requirements to align with SR Letter 15-18. Comments were due by September 26, 2016.
View Federal Reserve Board Proposal. -
US Consumer Financial Protection Bureau Proposal to Overhaul Debt Collection Market
07/28/2016
The US Consumer Financial Protection Bureau outlined proposals under consideration that would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt. Pursuant to the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, debt collection companies would be required to limit communications, clearly disclose debt details and make it easier to dispute the debt. When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred.
View outline of proposals under consideration.TOPIC : Consumer Protection -
European Commission Proposes Amended Rules for Margin for Uncleared Swaps
07/28/2016
The European Commission published regulatory technical standards on margin for uncleared swaps and a letter to the European Supervisory Authorities notifying them of the Commission's intention to endorse (with amendments) the draft RTS submitted by the ESAs in March 2016.TOPIC : Derivatives -
US Commodity Futures Trading Commission and Canadian Authorities Sign Counterparts to Memorandum of Understanding on Cross-Border Supervision
07/28/2016
The CFTC announced the signing of counterparts with certain Canadian authorities to a Memorandum of Understanding (MOU), originally executed on March 25, 2014, regarding cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in the United States and in Canada. The scope of the MOU includes markets and organized trading platforms, central counterparties, trade repositories and intermediaries, dealers and other market participants.
View CFTC press release and counterparts to MOU.TOPIC : Derivatives -
European Commission Adopts Technical Standards Detailing the Reporting of Transactions Obligations under MiFIR
07/28/2016
The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards supplementing the Markets in Financial Instruments Regulation. MiFIR will, from January 3, 2018, require an investment firm to report complete and accurate details of transactions in financial instruments no later than the close of the following business day to its national regulator. One of the purposes of the reporting obligation is for national regulators to undertake market surveillance, including to monitor for market abuse.
Read more.TOPIC : MiFID II -
UK Payment Systems Regulator Reports on Bank Ownership of Payment Infrastructure
07/28/2016
The Payment Systems Regulator published its final report on its market review into the ownership and payment infrastructure competitiveness in the UK. The final report follows the PSR’s interim report which was published in February 2016. The PSR has concluded that there is currently no effective competition in the provision of UK payments central infrastructure services for Bacs, FPS and LINK (notwithstanding general satisfaction by operators and PSPs in terms of value for money, quality of service and innovation received from providers). This is partly because the operators have not periodically run competitive procurement processes or sufficiently tested the market when reproducing core infrastructure services. This means that the incumbent provider, VocaLink, has faced limited competitive pressure and minimal incentives to provide more efficient and innovative services.TOPIC : Financial Market Infrastructure -
US Commodity Futures Trading Commission Proposes to Amend the Conditions for Exemption from Registration for Certain Foreign Persons
07/27/2016
the CFTC announced that it is seeking comment on proposed amendments to CFTC Regulation 3.10(c) to modify an exemption from registration for certain foreign persons in connection with commodity interest transactions solely on behalf of persons located outside the US, or on behalf of certain international financial institutions. The amendments would codify certain existing no-action relief. Comments were due by September 6, 2016.
View CFTC proposal.TOPIC : Derivatives -
European Banking Authority Publishes Further Criteria on Preferential Treatment for Calculating the Liquidity Coverage Requirement for Intra-group Liquidity Flows
07/27/2016
The European Banking Authority published final draft Regulatory Technical Standards on the criteria for the application of preferential treatment in cross-border intragroup credit or liquidity lines, or within an institutional protection scheme. The Capital Requirements Regulation permits regulators to grant preferential treatment for transactions within a group or an institutional protection scheme by applying higher inflow rates (in the case of the liquidity receiver) or lower outflow rates (in the case of the liquidity provider) for calculating the liquidity coverage requirement for intra-group liquidity flows. Where transactions within a group or an institutional protection scheme constitute cross-border positions, preferential treatment is conditional upon compliance with additional objective criteria specified in the Liquidity Coverage Ratio Delegated Act. The Capital Requirements Regulation mandates the EBA to develop draft RTS to specify additional objective criteria.
Read more. -
EU Legislation on Reporting of Administrative Sanctions for Infringement of the UCITS Directive
07/26/2016
A Commission Implementing Regulation on Implementing Technical Standards on the standard procedures and forms for national regulators to submit information on penalties imposed under the Undertakings for Collective Investment in Transferable Securities Directive was published in the Official Journal of the European Union. The UCITS Directive requires member states to implement laws imposing administrative sanctions and other administrative measures on individuals and companies that infringe the requirements of the Directive.
The ITS set out the common procedures and forms for national regulators to report annually to the European Securities and Markets Authority those administrative penalties and measures that they have imposed in accordance with the UCITS Directive in the previous calendar year. The ITS applied from August 15, 2016.
View the ITS.TOPIC : Funds -
European Banking Authority Proposes Guidelines for Implementation of an Expected Credit Loss Accounting Model
07/26/2016
The European Banking Authority published draft Guidelines on bank’s credit risk management practices and accounting for expected losses. IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recognition and Measurement for the accounting periods beginning on or after January 1, 2018. IFRS 9 requires the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. Many EU banks use the IFRS standards and because the use of an ECL accounting model involves some discretion in it application, the EBA is proposing that bank’s use the Guidelines when implementing and applying IFRS 9. The proposed Guidelines should be read in conjunction with the relevant provisions of the CRR and CRD. The consultation closes on October 26, 2016. The EBA intends to finalize the Guidelines in Q4 2016 or Q1 2017. The finalized Guidelines will need to be implemented by January 1, 2018.
View the consultation paper. -
European Banking Authority Final Report on Communications under the Audit Directive
07/26/2016
The European Banking Authority published its final report on guidelines for communication between regulators supervising credit institutions and statutory auditors and audit firms carrying out the statutory audit of credit institutions. The Audit Regulation requires that effective dialogue must be established between regulators supervising credit institutions on the one hand and the statutory auditors and audit firms carrying out the audit of those firms on the other. The EBA’s guidelines include an underlying general framework that should underpin communication between regulators and auditors at all times. The guidelines include seven principles and detailed guidance relating to the main elements of effective communication. The seven principles address: (i) the scope and relevance of information shared; (ii) requests by regulators for information from auditors; (iii) the sharing of information with auditors by regulators; (iv) methods of communication and communication channels; (v) the identity, competence and knowledge of participants in the communication between regulators and auditors collectively; (vi) the frequency of information-sharing between regulators and auditors; and (vii) communications between regulators and auditors collectively (such as a group of auditors, or a professional body representing auditors) .
The guidelines will be transposed into the official languages of the EU and will apply from March 31, 2017.
View the Final Report.
TOPIC : Credit Ratings -
US Office of Financial Research Studies Whether New Bilateral Trading Rules Incentivize Central Clearing of Derivatives
07/26/2016
The OFR published a working paper that examines whether new rules imposed on bilateral trading incentivize central clearing of derivatives. By comparing the total capital and collateral costs when banks transact bilaterally to the capital and collateral costs when they clear through CCPs, the study finds that central clearing is sometimes more expensive. While “the cost comparison does not necessarily favor central clearing, . . . when it does, the incentive may be driven by questionable differences in CCPs’ default waterfall resources.” In the absence of a cost advantage for central clearing, market participants may be motivated to customize contracts in order to trade them bilaterally. The authors find that without a cost advantage, banks may also be less inclined to move legacy trades to CCPs.
View OFR working paper.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Draft Technical Standards on Reporting Sanctions and Measures Imposed
07/26/2016
The European Securities and Markets Association published a final report on draft implementing technical standards concerning the procedures and forms for submitting information regarding administrative and criminal investigations, sanctions and other administrative measures under the Market Abuse Regulation. The technical standards relate to requirements under MAR for national member state regulators to submit two types of information to ESMA: (i) aggregated information on all administrative and criminal sanctions and other administrative measures imposed, and criminal investigations undertaken, under relevant provisions of MAR; and (ii) administrative and criminal sanctions and other administrative procedures that are disclosed to the public by regulators, which must be simultaneously reported to ESMA.
ESMA submitted the draft technical standards to the European Commission for endorsement on July 26, 2016.
View the final report. -
European Banking Authority Consults on Connected Clients under the Capital Requirements Regulation
07/26/2016
The European Banking Authority published a consultation paper proposing an updated version of the guidelines on the implementation of the large exposures regime that was issued by the Committee of European Banking Supervisors on December 11, 2009. The large exposures regime has since been amended by the Capital Requirements Regulation and complemented by European Commission and EBA guidelines. In light of the CRR amendments, the EBA has reviewed and updated the 2009 CEBS Guidelines and presented the results of the review in the consultation paper. -
UK Regulator Reports on Credit Card Market
07/26/2016
The Financial Conduct Authority published its final report outlining findings from its credit card market study. The FCA credit card market study was launched in November 2014. The purpose of the study was to analyze the credit card market and determine whether it is working in the interest of consumers and to develop remedies to improve the situation if needed. Interim findings were published in November 2015 with potential remedies mooted for certain issues such as the frequent withdrawal of firms’ promotional offers and the fees associated with a single month’s missed payment. The final report summarizes feedback received on the interim report and outlines the FCA’s package of remedies. -
US Office of Financial Research Releases Biannual Update of Risks to Financial Stability
07/25/2016
On July 25, 2016, the US Office of Financial Research issued its biannual update of the risks to US financial stability. The report finds that, overall, risks to US financial stability remain in the medium range but have been pushed higher by the UK vote to exit the EU. The OFR notes that, “[t]he result surprised financial markets and was a negative shock to investor confidence. It introduces months or years of uncertainty about the rules governing the UK’s investment, financing, and trade relations . . . . Because the UK economy and especially the UK financial system are highly connected with the rest of Europe and the United States, severe adverse outcomes in the UK could pose a risk to US financial stability.” The OFR report observes that the key vulnerabilities addressed in the OFR’s 2015 Financial Stability Report issued last December also persist, adding that: (i) credit risks in US nonfinancial businesses and in some major foreign markets are still elevated; (ii) long-term US interest rates have declined to ultra-low levels, which can motivate excessive risk-taking and borrowing, and many key foreign interest rates are now negative, with uncertain consequences for financial stability; and (iii) uneven resilience persists in the US financial system.
View The OFR Financial Stability Monitor.TOPIC : Financial Services -
US Federal Reserve Extends Comment Period for Detailing Conceptual Frameworks for Capital Standards
07/25/2016
The US Federal Reserve Board extended until September 16, 2016, the comment period for the advanced notice of proposed rulemaking detailing conceptual frameworks for capital standards that could apply to systemically important insurance companies and to insurance companies that own a bank or thrift. The Federal Reserve Board proposal presents one approach, known as the “consolidated approach,” that would apply to systemically important insurance companies and a second approach, referred to as the “building block approach,” for the supervised insurance companies that own a bank or thrift. The Federal Reserve Board extended the comment period, originally set for August 17, 2016, to allow interested persons more time to analyze the issues and prepare their comments.
View Proposed Rule. -
European Banking Authority Consults on Changing the Basis for the Level of Resolution Financing Arrangements
07/25/2016
The European Banking Authority launched a consultation on the appropriate reference point for setting the target level of resolution financing arrangements required by the Bank Recovery and Resolution Directive. The BRRD provides that when a bank fails, shareholders and creditors of the bank must be the first to bear losses. To ensure the effective implementation of the other resolution tools available, member states are required to have pre-funded resolution financing arrangements, contributions of which are made by the banks in each member state. The BRRD currently provides for contributions of at least 1% of the amount of covered deposits of all the banks in a given Member State by December 31, 2024. The BRRD requires the EBA to make recommendations to the Commission on whether the basis for those arrangements should be changed. The EBA is seeking feedback on its proposal to recommend to the Commission that the basis should be changed to one of: (i) total liabilities (excluding own funds) less covered deposits; (ii) total liabilities (excluding own funds); or (iii) total liabilities (including own funds).
Read more.TOPIC : Recovery & Resolution -
US Commodity Future Trading Commission Staff Issues Advisory Clarifying Chief Compliance Officer Reporting Line Requirements
07/25/2016
The CFTC’s Division of Swap Dealer and Intermediary Oversight issued a staff advisory regarding chief compliance officer reporting line requirements for swap dealers, major swap participants and futures commission merchants under CFTC Regulation 3.3. The advisory clarifies the regulation’s required elements and addresses additional supervisory relationships that a chief compliance officer may have with senior management in addition to those with the board or the senior officer of the registrant.
View CFTC staff advisory.TOPIC : Derivatives -
UK Prudential Regulator Consults on Reporting and Prudential Requirements for Ring-Fenced Banks
07/23/2016
The UK Prudential Regulation Authority published a consultation paper on aspects of its policy to implement the ring-fencing requirements for banks. The consultation covers reporting, prudential and recovery and resolution requirements. The proposals are relevant to all firms that are required to ring-fence their core banking activities before the implementation date of January 1, 2019 (which are firms, broadly speaking, with at least £25 billion of core deposits) and to growing firms that expect to meet this threshold by 2019. UK banking groups that have more than £25 billion of core deposits will need to ring-fence the entity/ies that accept deposits - called ring-fenced bodies, by transferring other business lines to different legal vehicles or undertaking other business separations.
The PRA proposes to establish reporting requirements on a sub-consolidated basis when an RFB sub-group is formed, by extending all non-Capital Requirements Regulation reporting requirements that currently apply on a consolidated basis to banking groups affected by ring-fencing to an RFB sub-group and requiring RFBs to submit certain non-CRR reporting returns on a sub-consolidated basis, requiring RFBs to report on a sub-group’s intragroup exposures, related collateral and funding transactions.
Read more.TOPIC : Bank Structural Reform -
US Markets Granted Equivalence Status under European Market Infrastructure Regulation
07/22/2016
The European Securities and Markets Authority published a list of US designated contract markets considered equivalent to a regulated market in the European Union. The list is based on a Commission Implementing Decision published in the Official Journal of the European Union on July 2, 2016, which considered that 15 DCMs located in the United States are equivalent. The DCMs have been deemed equivalent for purposes of the definition of over-the-counter derivatives in the European Markets and Infrastructure Regulation. This means that derivative contracts traded on these DCMs would not be deemed to be OTC derivatives and therefore not be subject an obligation to clear the transactions, report on them and undertake risk mitigation steps as if they were OTC, under EMIR. To be deemed equivalent, a third country market must comply with legally binding requirements in its home state equivalent to the Markets in Financial Instruments Directive and must also be subject to effective supervision and enforcement in that third country on an on-going basis.
View the Commission Implementing Decision.
View ESMA’s library on post trading. -
Report on Asset Quality in the EU Banking Sector
07/22/2016
The European Banking Authority published a report on the recent dynamics, cross-country dispersion and drivers of non-performing exposures in the EU banking sector. The report covers a review of 166 EU banks from September 2014 to March 2016. The EBA notes that there is a high disparity between jurisdictions, suggesting that the average non-performing loan (NPL) ratio is up to three times higher in the EU than in other jurisdictions. The report provides an overview of asset quality across jurisdictions and analyzes the riskiness of counterparties in different countries and the structural characteristics of local markets that can affect credit quality, provisioning policies and recovery of distressed assets. -
European Banking Decision on Quality of Certain Unsolicited Credit Assessments of External Credit Assessment Institutions
07/22/2016
A Decision of the European Banking Authority on unsolicited credit assessments was published in the Official Journal of the European Union. The EBA decided that unsolicited credit assessments of certain External Credit Assessment Institutions (ECAIs) did not differ from their solicited credit assessments. An ECAI is a credit rating agency that has been registered or certified under the EU CRA Regulation or a central bank issuing credit ratings which are exempt from the application of the CRA Regulation.
Read more. -
Bank of England Proposes to Extend its Enforcement Remit
07/22/2016
The Bank of England published a consultation paper on a proposed unified Enforcement Decision Making Committee. The EDMC would take decisions on the matters regarding: (i) firms and individuals regulated by Prudential Regulation Authority; (ii) financial market infrastructure; and (iii) the resolution of contested enforcement cases. The consultation follows a recommendation by HM Treasury to extend the proposed EDMC model across all the areas where the Bank has enforcement powers. The EDMC would be established by the Court of Directors of the Bank of England and its 15 members would be independent from the Bank’s executive management structure and would be appointed for a renewable 3 year term. The EDMC would undertake administrative processes, not judicial, and would be similar to the FCA's Regulatory Decisions Committee, with a right of appeal to a judicial body after its decisions was reached. The EDMCs remit would include all contested statutory notice decisions. The Bank seeks feedback on the creation of the EDMC including on its proposed composition, independence, jurisdiction, decision making powers and processes.
Responses to the consultation are due by October 21, 2016. The Bank aims to publish guidance on the consultation as part of a comprehensive external policy statement on the Bank’s enforcement process during the course of 2017.
View the consultation paper.TOPIC : Enforcement -
European Securities and Markets Authority Fines Fitch for Breach of EU Regulations
07/21/2016
The European Securities and Markets Authority issued Fitch Ratings Limited with fines totaling €1.38 million for numerous allegedly negligent breaches of the requirements relating to sovereign ratings set out in the EU Credit Rating Agencies Regulation.
On January 26, 2012, Fitch informed Slovenia of its intention to downgrade its sovereign rating, whilst providing no information establishing the grounds for its intention. Fitch subsequently sent such information on the following day, but, three hours after doing so, it made a public announcement of the sovereign rating downgrade. ESMA found Fitch to be in breach of the requirement under the CRA Regulation that a credit rating agency must inform the rated entity at least 12 hours before publication of the credit rating and of the principal grounds on which the order is based to give the entity an opportunity to highlight any factual errors to the CRA.
Read more. -
UK Regulator Reports on Thematic Review on Equity Market Dark Pools
07/21/2016
The Financial Conduct Authority published the findings of its thematic review of the UK equity marketplace, focusing on dark pools and broker crossing networks. The FCA examined promotional activity and the identification and management of conflicts of interest by dark pool operators, as well as issues of governance, oversight and controls. The report is based on the definition of “dark pool” as a trading venue with no pre-trade transparency, such that all orders, prices and volumes are anonymous.
Read more.TOPIC : Financial Services -
UK Payment Systems Regulator Final Report on Market Review into Supply of Indirect Access to Payment Systems
07/21/2016The Payment Systems Regulator published its final report on its market review into the supply of indirect access to payment systems. Banks, building societies and other payment service providers rely on payment systems to transfer money between accounts. The PSR commented that provision of access to payment systems is essential in enabling effective supervision of and innovation in payments. Indirect access to payment systems occurs when one payment service provider relies on another payment service provider to provide access. The PSRs final conclusions remain largely unchanged from its interim report.
The PSR concluded that generally, competition in the supply of indirect access appears to be producing some good outcomes. For example, large indirect payment service providers (IPSPs) have a number of options to access payments systems, there is a reasonable level of overall satisfaction with the quality of the indirect access offering that IPSPs receive.
Read more.
TOPIC : Payment Services -
Consumer Financial Protection Bureau Announces Changes to Senior Leadership
07/20/2016
The CFPB announced that Chris D’Angelo was appointed to serve as the CFPB’s Associate Director for Supervision, Enforcement and Fair Lending, Nellisha Ramdass was appointed to serve as the CFPB’s Deputy Chief Operating Officer and Richard Lepley was appointed to serve as the CFPB’s Principal Deputy General Counsel in the Office of the General Counsel in the CFPB’s Legal Division.
View The CFPB press release.TOPIC : People -
US Federal Agencies Issue Proposal to Extend the Country Exposure Report
07/20/2016
The OCC, Department of the Treasury, Federal Reserve Board and FDIC jointly published a notice proposing to extend, with revision, the Country Exposure Report (FFIEC 009) and the Country Exposure Information Report (FFIEC 009a). The revisions would (i) require that institutions provide their Legal Entity Identifier on both reporting forms, if applicable and (ii) add Intermediate Holding Companies to the Federal Reserve Board’s respondent panel. The agencies had previously requested comments on these changes. The proposed revisions have now been submitted to the Office of Management and Budget for approval. The changes would take effect September 30, 2016.
View notice. -
UK Regulator Publishes Findings on RegTech Call for Input
07/20/2016
The Financial Conduct Authority published a Feedback Statement on its call for input on implementation of future RegTech in the UK. The FCA defines RegTech as a sub-set of FinTech with a focus on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities. The Feedback Statement summarizes industry responses to the FCA’s call for input, outlines the FCA’s approach to RegTech for 2016/17 and the activities it will prioritize. The FCA intends to increase engagement and collaboration with the RegTech community, noting that it has restricted potential to assist the industry in defining standards and guidelines to provide certainty for firms purchasing new technology capabilities. The FCA aims to improve compliance and reduce the overall costs of regulation by encouraging innovation development and the adoption of new technologies that help and improve the interface between the regulator and regulated firms.
View the feedback statement.TOPIC : FinTech -
Clearing obligation for EEA currency interest rate swaps under EMIR published in the Official Journal of the European Union
07/20/2016
A Commission Delegated Regulation supplementing the European Market Infrastructure Regulation with regard to Regulatory Technical Standards on the clearing obligation was published in the Official Journal of the European Union. The RTS relates to classes of over the counter (OTC) derivatives that are to be subject to the clearing obligation, and specifies that the following classes will be subject to the clearing obligation under the European Markets Infrastructure Regulation: (a) fixed-to-float interest rate swap classes denominated in NOK, PLN and SEK; and (b) forward rate agreement classes denominated in NOK, PLN and SEK will be subject to the clearing obligation under EMIR. These classes will not include contracts concluded with covered bond issuers or with cover pools for covered bonds, provided that they meet certain conditions set out in the RTS.TOPIC : Derivatives -
FinCEN FAQs on Customer Due Diligence Requirements
07/19/2016
The US Department of the Treasury’s Financial Crimes Enforcement Network issued guidance in respect of its May 2016 final rule governing Customer Due Diligence requirements for financial institutions in the form of responses to frequently asked questions. In particular, FAQ #5 highlights amendments to AML program requirements by clarifying that the CDD rule creates a specific obligation for covered financial institutions to implement and maintain risk-based procedures for conducting ongoing customer due diligence, which procedures should include (i) understanding the nature and purpose of the customer relationship; and (ii) conducting ongoing monitoring to identify and report suspicious transactions, as well as to maintain and update customer information on a risk basis.
View FinCEN FAQs. -
New EU Directive on Security of Information Systems
07/19/2016
A new Directive on cyber security was published in the Official Journal of the European Union. The Directive aims to achieve a common level of security of network and information systems within the EU. It requires all Member States to adopt a national strategy on the security of network and information systems and establishes security and notification requirements for operators of essential services and for digital service providers. The Cyber Security Directive applies to certain credit institutions, any operator of a trading venue and central counterparties.
Read more.TOPIC : Cyber Security -
European Securities and Markets Authority Advice on Extension of AIFMD Passport to non-EU AIFMs and AIFs
07/19/2016
The European and Securities Markets Authority published its advice to the European Parliament, Council and Commission on the extension of the Alternative Investment Fund Managers Directive passport to non-EU Alternative Investment Fund Managers and Alternative Investment Funds in twelve non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States. ESMA has reviewed whether there are significant obstacles with regard to investor protection, competition, market disruption and the monitoring of systemic risk.
Read more.TOPIC : Funds -
European Commission Adopts Technical Standards on Organisational Requirements for Investment Firms Engaged in Algorithmic Trading
07/19/2016
The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards specifying the organisational requirements of investment firms engaged in algorithmic trading. The adopted RTS supplement the revised Markets in Financial Instruments Directive (MiFID II) by specifying the systems, procedures, arrangements and controls to be put in place and maintained by investment firms to address the risks that may arise in financial markets due to the increased use and development of trading technology. The adopted RTS also outlines requirements of systems and controls for investment firms acting as general clearing members (those not involved with algorithmic trading).
Read more.TOPIC : MiFID II -
MD of International Monetary Fund Concerned about Breakdown in Correspondent Banking
07/18/2016
The Managing Director of the International Monetary Fund, Christine Lagarde, gave a speech before the Federal Reserve Bank of New York about the struggles facing the global financial market’s smaller players in the aftermath of the financial crisis. Director Lagarde stated that due to heightened post-financial crisis regulations and anti-money laundering rules, many large global banks were prompted to reevaluate their correspondent banking models with smaller countries, and chose to reduce cross-border banking services offered to those entities considered too risky or unprofitable. In connection with those trends, Director Lagarde expressed concern that the global consequences of large banks withdrawing from vulnerable smaller countries, if left unaddressed, could become systemic and disruptive. She urged regulators to collect data and facilitate discussions with banks on this issue. Finally, Director Lagarde emphasized that “a strong and open international financial system is key to restore momentum in the global economy,” and that global banks must avoid “knee-jerk” reactions to increased regulatory costs.
View Director of Lagarde's speech.
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Senators Urge Regulators to Reconsider Regulations Applicable to Regional Banks
07/18/2016
Senators Tim Kaine (D-Va) (the Democratic vice-presidential nominee), Mark R. Warner (D-Va.), Gary C. Peters (D-Mich.) and Robert P. Casey (D-Pa.) wrote a letter to the heads of the US Federal Reserve Board, the FDIC and the OCC, requesting an exemption for certain large regional banks from the requirements of the liquidity coverage ratio and the advanced approaches risk-based capital rules. In their letter, the senators argue that it would be unfair for large regional banks to be subjected to the same LCR and capital rules requirements as are applied to riskier, more complex, systemically important banks.
Currently, because LCR reporting requirements are based on an asset threshold test, some large regional banks are subject to heightened LCR requirements, which requires, among other things, certain daily reporting of liquidity levels. Large regional banks may also, by virtue of size or foreign exposure, be subject to the “advanced approaches” capital requirements that dictate capital reserves a bank must hold to cover potential losses. The senators argue that regional banks should be exempted from complying with the burdens of both the LCR requirement and the Advanced Approaches requirements because they do not share the “same risk profile or complexity” as systemically important banks. The Senators also stated generally that the regulatory regime should move away from reliance on an internal models approach on the theory that such reliance obscures a bank’s financial status.
View full text of the letter. -
US Commodity Futures Trading Commission Extends Designation of DTCC-SWIFT as Provider of Legal Entity Identifiers for Another Year
07/18/2016
The CFTC issued an Order extending the designation of DTCC-SWIFT as the provider of legal entity identifiers for entities under its jurisdiction, including swaps and swap counterparties, by another year. The CFTC initially designated DTCC-SWIFT as LEI provider by an Order on July 23, 2012. The CFTC has previously extended such designation. Consistent with the prior CFTC orders, registered entities and swap counterparties subject to the CFTC’s jurisdiction can continue to comply with the CFTC’s swap data recordkeeping and reporting rules by using LEIs issued by DTCC-SWIFT.
View CFTC Order.TOPIC : Derivatives -
Decision of European Central Bank on Disclosure of Confidential Information
07/16/2016
A Decision by the European Central Bank on the disclosure of confidential information in the context of a criminal investigation was published in the Official Journal of the European Union. Pursuant to the Single Supervisory Mechanism, the ECB and/or national regulators can receive requests from national criminal investigation authorities for the disclosure of confidential information created or received in the course of their supervisory tasks and responsibilities. EU law has implications for the conditions under which confidential information held by regulators within the SSM, including the ECB, may be disclosed to national criminal investigation authorities. “Confidential information” includes information covered by data protection rules, by the obligation of professional secrecy, including those in the Capital Requirements Directive. The Decision sets out the processes and conditions under which confidential information will be provided to criminal investigation authorities.
The decision entered into force on August 5, 2016.
View the decision. -
UK Regulator Decision Notice to Cancel Investment Business Permission
07/15/2016
The Financial Conduct Authority published a Decision Notice, dated April 22, 2016, notifying KWS Wealth Management Limited of its decision to cancel their permission to carry out the regulated activity of an investment business. Mr Smith is the sole director, shareholder and approved person at KWS. On October 15, 2015, Mr. Smith was convicted by a UK Crown Court of dishonestly failing to disclose information which he was under a legal duty to disclose. Mr. Smith was sentenced to 12 months’ imprisonment, suspended for 24 months, and was ordered to pay a £100 victim surcharge. The FCA had asked KWS to apply for cancellation of its permission as the FCA considered it was failing to satisfy the suitability threshold condition due to the actions or Mr. Smith, but the firm failed to comply. KWS has since referred the case to the Upper Tribunal (Tax and Chancery Chamber) for determination.
View the decision notice.TOPIC : Enforcement -
European Central Bank Revises Eurosystem Oversight Policy Framework
07/15/2016
The European Central Bank published a revised version of its Eurosystem Oversight Policy Framework, which describes the role of the Eurosystem in oversight of financial market infrastructure. Eurosystem promotes the safety and protection of FMIs and acts as the central bank of issues in EU and international cooperative arrangements for securities and derivatives clearing and settlement systems. FMI includes payment systems, and clearing and settlement systems. The revised version of the current framework, which builds on the edition published in September 2015, takes into account the significant regulatory and institutional changes and market developments that have affected Eurosystem’s oversight function since July 2011. This includes the revised and enhanced harmonized international standards and EU law such as the CPSS-IOSCO Principles for Financial Market Infrastructures.
View the oversight policy.
TOPIC : Financial Market Infrastructure -
European Banking Authority Launches Data Collection Exercise to Assist with Review of the Prudential Framework for Investment Firms
07/15/2016
The European Banking Authority launched a data collection exercise to support its response to the European Commission’s Call for Advice on a new prudential framework for investment firms subject to the Markets in Financial Instruments Directive. In December 2014, the Commission sought technical advice from the EBA and the European Securities and Markets Authority on whether the current prudential framework applicable to MiFID investment firms under the Capital Requirements Directive and Capital Requirements Regulation was appropriate in terms of risk sensitivity, proportionality and complexity. In response, the EBA concluded that the regime was not appropriate for the risks that MiFID investment firms are exposed to and made recommendations.
Read more. -
US FDIC Chairman Testifies on De Novo Banks and Industrial Loan Companies
07/14/2016
Chairman of the US FDIC Martin J. Gruenberg testified before the Committee on Oversight and Government Reform of the US House of Representatives regarding de novo banks and industrial loan companies. During his testimony, he provided an overview of recent banking industry performance and condition, discussed trends in de novo bank and ILC formation, and steps the FDIC is taking to support the creation of de novo banks. Chairman Gruenberg testified that there have been few de novo banks formed in recent years, noting that since January 2011, the FDIC has received only ten applications for deposit insurance for de novo institutions and no applications for new ILCs. Of these ten applications, three were approved, five were withdrawn and two are still in process. Gruenberg noted that although community bank earnings have recovered in recent years, low interest rates and narrow net interest margins have kept bank profitability ratios (return on assets and return on equity) well below pre-crisis levels, making it relatively unattractive to start new banks. Gruenberg also noted that the FDIC is continuing to monitor developments with respect to the formation of new banking institutions, and recently announced a number of initiatives to support the efforts of viable organizing groups in creating new institutions. For example, the FDIC has begun a “Questions and Answers” series to help applicants better develop their proposals and has presented an overview of the deposit insurance application process to a conference of state bank supervisory agencies. Moreover, on April 6, 2016, the FDIC reduced the period of enhanced supervisory monitoring of newly insured depository institutions from seven years to three years.
View Chairman Gruenberg's Testimony. -
US Securities and Exchange Commission Proposes Amendments to Update and Simplify Disclosure Requirements
07/13/2016
The SEC proposed amendments to eliminate redundant, overlapping, outdated or superseded provisions of its rules, in light of subsequent changes to public disclosure requirements, accounting standards and technology. The amendments, along with comments received on a release seeking information to simplify and improve disclosure requirements under Regulation S-K, are designed to further inform the Commission’s actions to enhance disclosure effectiveness and efficiency. The SEC is also seeking comment on certain disclosure requirements that overlap with US Generally Accepted Accounting Principles (GAAP) to determine whether to retain them or refer them to the Financial Accounting Standards Board for incorporation into GAAP. The proposed amendments are part of a broader staff review of the disclosure requirements that issuers are required to make to investors and the requirements of the Fixing America’s Surface Transportation Act (FAST) to eliminate provisions of Regulation S-K that are duplicative, overlapping, or unnecessary. There will be a 60-day comment period.
View The SEC’s proposed amendments.TOPIC : Securities -
US Securities and Exchange Commission Amends Rules Related to Security-Based Swap Transaction Reporting
07/13/2016
The SEC adopted a series of amendments and related guidance regarding Regulation SBSR, which governs the regulatory reporting and public dissemination of security-based swap transactions. The amendments, among other things, assign reporting duties for platform-executed security-based swaps submitted for clearing and those resulting from the clearing process, establish reporting and publication requirements for certain cross-border security-based swaps, and prohibit swap data repositories from imposing fees or usage restrictions on data that Regulation SBSR requires be made public. The goal of the amendments and guidance is to increase transparency in the security-based swap market by facilitating better public access to transaction information and expanding the scope of Regulation SBSR to cover additional transactions and entities. The amendments and guidance will be effective on October 11, 2016. The rules and guidance also establish a compliance schedule for portions of Regulation SBSR, providing that transaction reporting will not begin until after security-based swap dealers and major security-based swap participants have registered with the SEC.
View the final rule.TOPIC : Securities -
UK Regulator Issues Final Notices Cancelling Permission to Carry Out Regulated Activities
07/13/2016
The Financial Conduct Authority issued three final notices cancelling the permission to carry out regulated activities of Edge Performance 10 Limited, Mr. Mark Andrew Walker and Volpe Capital Management LLP.
In each case, the FCA was not satisfied that the firm was a fit and proper person. Both firms and Mr. Walker had failed to comply with the regulatory requirement to submit a required return to the FCA. They had also failed to respond to repeated requests for the form to be submitted, thereby failing to comply with Principle 11 of the FCA's Principles for Businesses which requires firms to be open and cooperative in their dealings with the FCA. As a consequence, the FCA concluded that each had failed to satisfy the suitability Threshold Condition.
View the final notice for Edge Performance 10 Limited.
View the final notice for Mr. Walker.
View the final notice for Volpe Capital Management LLP.
TOPIC : Enforcement -
European Proposals to Delay Clearing Obligation for Financial Counterparties with Limited Derivatives Trading Activity
07/13/2016
The European Securities and Markets Authority launched a consultation on proposals to delay the application of the clearing obligation for financial counterparties and alternative investment funds with a limited volume of derivatives activity.
The European Market Infrastructure Regulation imposes a clearing obligation on certain classes of derivatives. ESMA has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD NOK, PLN and SEK) and to two classes of credit default swaps indices: iTraxx Europe Main and iTraxx Europe Crossover. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to entities that are clearing members of EU CCPs from June 21, 2016.
TOPIC : Derivatives -
US Federal Reserve Board Governor Daniel Tarullo Discusses Shadow Banking Regulation
07/12/2016
US Federal Reserve Board Governor Daniel Tarullo discussed the risks of shadow banking activities at the Center for American Progress and Americans for Financial Reform Conference. He focused his remarks on the characteristics of shadow banking-related financial activities and institutions that are most likely to pose risks to financial stability, namely the risk of “runnable liabilities,” defined as short-term, “pay-on-demand” transactions that are not insured by the federal government. These transactions are thought to pose a severe risk to financial stability since their pay-on-demand feature implies that, in the event of stress caused by credit-risk concerns, wide swings in short-term interest rates, or deteriorations in market liquidity, investors may behave as they would during times of stress and redeem shares, unwind transactions or decide not to roll over positions. Tarullo stated that this type of runnable funding, while less prevalent than before the financial crisis, is a key area for prudential regulators to focus analysis and policy initiatives. He stressed that while liquidity standards, stress testing and resolution planning exist to help curb the risk of runnable funding for prudentially regulated firms, liquidity runs that could threaten financial stability may exist in the non-regulated sector. Governor Tarullo suggested a number of key issues to be considered in creating a regulatory framework for these transactions, including whether one versus multiple agencies should regulate the industry and whether or not regulation should be uniform or should be tailored to take into account the characteristics of the market actors and business models involved in the funding relationship.
View Governor Tarullo’s speech on shadow banking.TOPIC : Shadow Banking -
European Central Bank Guidance on Recognition of Institution Protection Schemes
07/12/2016
The European Central Bank published its Guide on the approach for the recognition of institution protection schemes for prudential purposes. The Capital Requirements Regulation defines an IPS as a contractual or statutory liability arrangement which protects its member institutions and ensures that they have the liquidity and solvency needed to avoid, where necessary, bankruptcy. Certain waivers or derogations of capital requirements are available for IPS member institutions under CRR. In particular, CRR provides that the ECB may, subject to certain exceptions, allow credit institutions to apply a 0% risk weight to exposures to other counterparties which are members of the same IPS with the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 and Tier 2 items. The ECB directly supervises the largest Eurozone banks for prudential purposes and overseas the prudential supervision by national regulators of the smaller Eurozone banks. The ECB's Guide sets out how it intends to assess compliance of an IPS and its members with the requirements set out in the CRR to grant such a waiver.
View the Guide.
View the feedback statement.
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US Office of the Comptroller of the Currency Releases Its Semiannual Risk Perspective for Spring 2016
07/11/2016
The OCC released its Spring 2016 Semiannual Risk Perspective, reflecting bank financial data as of December 31, 2015. The report identifies credit, strategic, operational and compliance risks as top concerns from a safety-and-soundness perspective. Specifically, strategic risk remains high as banks struggle to execute their strategic plans and faces challenges in growing revenue, and credit risks have increased as banks search for yield in an environment of strong loan growth and easier underwriting standards. With respect to operational risk, greater cyber security threats and increased reliance on third-party service providers have caused operational risk to remain high. Further, as banks struggle to comply with new rules, such as the integrated mortgage disclosure requirements, and the mandates of the Bank Secrecy Act, compliance risk management also continues to pose challenges. Risk issues identified in the Spring 2016 report are largely consistent with those identified in the Fall 2015 Report.
View The OCC Semiannual Risk Perspective for Spring 2016.TOPIC : Financial Services -
US House of Representatives Passes Three Bills Aimed at Combatting Terrorist Financing
07/11/2016
The House of Representatives passed three bills aimed at combatting terrorist financing.
H.R. 5594, the “National Strategy for Combatting Terrorist, Underground, and Other Illicit Financing Act,” would require the President, acting through the Treasury Secretary, to develop and submit to Congress annually a national strategy to combat money laundering and terrorist financing and related report. The bill requires the Treasury Secretary to consult with various heads of state and the Federal banking agencies to develop and integrate this terrorist financing strategy into the broader counter-terrorism strategy of the US.
Read more.TOPIC : Financial Services -
Basel Committee on Banking Supervision Revises its Securitization Framework
07/11/2016
The Basel Committee on Banking Supervision published an amended Securitization Framework to include alternative regulatory capital treatment for simple, transparent and comparable (STC) securitisations. The Securitization Framework, which was initially published on December 11, 2014, forms part of Basel III. The amendments to the Securitization Framework provide for lower capital charges to apply to STC Securitizations, and include criteria that should be applied to differentiate STC securitizations from other securitizations. The new capital treatment for STC securitizations should be read in conjunction with the criteria for identifying STC securitizations (published by the Basel Committee and the International Organization of Securities Commissions in July 2015). The Securitization Framework, as amended, is due to come into effect in January 2018.
View the updated Securitization Framework. -
UK Regulator Launches Review of Crowdfunding Rules
07/08/2016
The Financial Conduct Authority launched a call for input into its review of the implementation of its crowdfunding rules. The FCA implemented rules regulating FCA-authorized firms operating crowdfunding services on April 1, 2014 and committed to reviewing these rules in 2016. The FCA is seeking views on changes in the market since the rules were implemented, emerging risks for consumers, and areas where the FCA might consider adapting its rules.
Read more.TOPIC : Financial Services -
UK Prudential Regulator Policy Statement on Operational Continuity in Resolution
07/07/2016
The Prudential Regulation Authority published a Policy Statement on operational continuity in resolution. The Appendices to the Policy Statement set out a final Supervisory Statement and the PRA Rulebook: CRR Firms: Operational Continuity Instrument 2016.
The Policy Statement provides feedback to responses to the PRA consultation on this topic in December 2015. Based on responses received, the PRA concluded that no significant changes were required to its proposals. The Supervisory Statement sets out its expectations of firms to ensure operational continuity of critical services to facilitate recovery actions, orderly resolution and post-resolution restructuring. Compared to the draft Supervisory Statement, the PRA has amended the financial resilience expectations by removing the capital expectation and stating that the Bank of England will consider whether a loss absorbing capacity should be allocated within groups to ensure operational continuity as part of the minimum requirement for own funds and eligible liabilities (MREL) regime.
The Operational Continuity Instrument 2016 sets out the final text of the new Operational Continuity Part of the PRA Rulebook and will come into effect on January 1, 2019.
View the Policy Statement.
View the Supervisory Statement.
View the Operational Continuity Instrument 2016.
TOPIC : Recovery & Resolution -
UK Prudential Regulator Publishes Policy Statement on Implementation of Ring-Fencing
07/07/2016
The UK Prudential Regulation Authority published a Policy Statement on the implementation of ring-fencing, covering prudential requirements, intragroup arrangements and the use of financial market infrastructures. The policy statement summarizes feedback received to the consultation paper published in October 2015. The PRA states that it does not consider that the responses received to the consultation paper have necessitated any significant changes to its proposals.
Read more. -
US Federal Reserve Formalizes One Year Conformance Extension for Volcker Legacy Fund Investments
07/06/2016
The US Federal Reserve Board extended until July 21, 2017, the conformance period for banking entities to divest ownership in certain legacy investment funds and terminate relationships with funds that are prohibited under section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule. This order formalizes the Federal Reserve Board’s December 2014 announcement that it would make this extension to provide for orderly divestitures and to prevent market disruptions.
This extension would permit banking entities additional time to divest or conform only “legacy covered fund” investments, such as prohibited investments in hedge funds and private equity funds that were made prior to December 31, 2013. This extension does not apply to investments in and relationships with a covered fund made on or after December 31, 2013, or to proprietary trading activities; banking entities were required to conform those activities to the final rule by July 21, 2015.
This is the final of the three one-year extensions that the Federal Reserve Board is authorized to grant. Additionally, upon the application of a banking entity, the Federal Reserve Board is permitted under section 619 to provide up to an additional five years to conform investments in certain illiquid funds, where the banking entity had a contractual commitment to invest in the fund as of May 1, 2010. The Federal Reserve Board expects to provide more information in the near term as to how it will address such applications.
View Federal Reserve Board order approving extension.TOPIC : Bank Structural Reform -
US Commodity Futures Trading Commission Staff Issues Advisory Regarding Compliance Requirements of Suspicious Activity Reporting and Economic Sanctions Programs
07/06/2016
The CFTC Division of Swap Dealer and Intermediary Oversight issued a staff advisory to remind futures commission merchants and introducing brokers of their compliance obligations to report suspicious activities to the Financial Crimes Enforcement Network. In addition, the staff advisory reminds all CFTC registrants of their compliance obligations regarding economic sanctions programs against countries and groups of individuals administered by the Office of Foreign Assets Control. The staff advisory provides a brief outline of the requirements of suspicious activity reporting and the requirements of OFAC.
View CFTC staff advisory.TOPIC : Derivatives -
EU Technical Standards on Information Banks to Provide to Resolution Authorities for Resolution Plans
07/06/2016A Commission Implementing Regulation setting out the Implementing Technical Standards on the provision of information to national resolution authorities for the purpose of developing resolution plans was published in the Official Journal of the European Union. The Bank Recovery and Resolution Directive provides that resolution authorities must prepare a resolution plan for each bank and empowers resolution authorities to require firms to provide information for that purpose. The ITS set out the procedure for the provision of that information, as well as the templates to be used which will capture the minimum set of information required, including, for example, organizational structure, critical counterparties and pledged collateral.
The ITS entered into force on July 26, 2016.
View the ITS on provision of information for resolution plans.
TOPIC : Recovery & Resolution -
European Commission Proposes Further Changes to the EU's Anti-Money Laundering and Counter Terrorism Regime
07/05/2016
The European Commission published proposed revisions to the EU Fourth Money Laundering Directive. The Commission is proposing to bring virtual currency exchange platforms and custodian wallet providers within the scope of 4MLD so that they would, among other things, be required to apply customer due diligence and establish place policies and procedures to detect, prevent and report money laundering and terrorist financing. The Commission is also proposing to lower, from EUR 250 to EUR 150, the thresholds for non-reloadable pre-paid payment instruments to qualify for the exemption from customer due diligence requirements. It further proposes to require all EU member states to set up automated centralised mechanisms to enable swift identification of holders of bank and payment accounts and to harmonize the regime on enhanced customer due diligence for countries that have weak AML & CFT regimes. Public access to information on beneficial ownership of companies and trusts engaged in commercial activities is also proposed and Financial Intelligence Units are to be given greater powers to request information from entities that are subject to 4MLD.
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UK's Financial Policy Committee Responds to Brexit Vote by Eliminating the Countercyclical Buffer for Bank Capital
07/05/2016
The Bank of England published its latest Financial Stability Report in which the Bank's Financial Policy Committee sets out the key risks to the UK's financial system and weighs them against the resilience of the system. In March 2016, the FPC had identified areas through which there could be increased risk to the UK's financial stability as a result of the vote by the UK public to leave the EU. Such areas include financing of the UK's large current account deficit, the commercial real estate market, the high level of household indebtedness, limited growth in the global economy and vulnerabilities in the functioning of the financial markets. The FPC states that there is evidence that some of these risks have begun to crystallize and that the current outlook for financial stability is challenging. The FPC is monitoring closely the risks of, amongst other things, further deterioration in investor appetite for UK assets, adjustments in commercial real estate markets tightening credit conditions and reduced and fragile liquidity in core financial markets.
To support the supply of credit and in support of market functioning, the FPC has reduced the UK countercyclical capital buffer rate from 0.5% to 0% of banks' UK exposures with immediate effect. This rate is expected to remain in effect until June 2017, and will reduce regulatory capital buffers by £5.7 billion. The FPC continues to monitor the risks closely.
View the report.
You may like to view our client publications and webinar materials on the impact of Brexit, available here. -
European Banking Authority Assesses Governance and Indicators in EU Recovery Plans
07/05/2016
The European Banking Authority published a comparative report on recovery plan governance and indicators. Banks and certain large investment firms are required by the Bank Recovery and Resolution Directive to prepare recovery plans and to submit them to their national regulator. The national regulator must assess the credibility of the recovery plans. The BRRD requires firms to include appropriate conditions and procedures for the timely implementation of any recovery actions and a framework of indicators that identify the points at which certain recovery actions may be taken. The EBA compared the recovery plans of 26 European cross-border banking groups with parent firms located across 12 EU countries. The aim of the analysis is to assess how firms are implementing the requirements of the BRRD as well as draft technical standards on the content of recovery plans and EBA Guidelines on recovery indicators and to consider the credibility and effectiveness of governance arrangements across the sample banks. The EBA hopes that the analysis will assist regulators in their assessments of recovery plans, in particular, in identifying crucial elements to be considered by institutions when designing credible governance arrangements and effective indicator frameworks.
Read more.TOPIC : Recovery & Resolution -
European Banking Authority Reports on Level of Asset Encumbrance
07/04/2016
The European Banking Authority published its second report analyzing the level of asset encumbrance across EU banks. The analysis aims to assist EU supervisors in assessing how banks manage funding stress as well as the impact that switching from unsecured to secured funding might have on banks in conditions of stress. The report is based on data received for December 2014 and December 2015 further to a requirement under the Capital Requirements Regulation for banks to report levels of repurchase agreements, securities lending and all forms of asset encumbrance to national regulators and for the EBA to prepare annual reports based on that data. The analysis shows that there has been no significant increase in the overall weighted average encumbrance ratio over the last year. The report noted that high levels of asset encumbrance in some countries (notably Denmark and Sweden) were driven by large covered bond markets or by high central bank funding in countries affected by the sovereign debt crisis (e.g. Greece) or by high levels of repo financing and collateral requirements for OTC derivatives (e.g. UK and Belgium).
View the report.
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UK Court Finds Three Guilty of LIBOR Manipulation
07/04/2016
The UK's Serious Fraud Office announced that Jonathan James Mathew, Jay Vijay Merchant and Alex Julian Pabon had been convicted by a jury at Southwark Crown Court of conspiracy to defraud for manipulation of the US Dollar LIBOR. The three individuals are all former employees of Barclays Bank Plc, which was fined £59.5m by the Financial Conduct Authority in 2012 for misconduct relating to benchmark submissions. No verdicts were reached for two co-defendants, Stylianos Contogoulas and Ryan Michael Reich, and the SFO is seeking a retrial, as announced on July 6, 2016. Sentences for the three convicted individuals were announced on July 7, 2016 - Jonathan James Mathew was sentenced to four years imprisonment, Jay Vijay Merchant was sentenced to six and a half years imprisonment and Alex Julian Pabon was sentenced to two years and nine months imprisonment.
View the SFO's first announcement.
View the SFO's second announcement.
View the SFO's sentencing announcement.TOPIC : Enforcement -
US Federal Financial Institutions Examination Council Releases Revisions to the Consolidated Reports of Condition and Income
07/01/2016
The Federal Financial Institutions Examination Council approved revisions to the Consolidated Reports of Condition and Income (Call Report) that will take effect on September 30, 2016 and March 31, 2017. The revisions were proposed by the three US federal banking agencies in September 2015 (see FIL-39-2015, dated September 18, 2015), and included certain burden-reducing changes, a number of instructional clarifications and certain new and revised Call Report data items (e.g., a new item on “dually payable” deposits in foreign branches of US banks). After considering comments received on the proposal, FFIEC and the banking agencies are proceeding with most of the proposed reporting changes, with some modifications.
The Call Report revisions are part of an initiative launched by the FFIEC in December 2014 to identify potential opportunities to reduce burden associated with Call Report requirements for community banks, such as the costs arising from the Call Report preparation process.
View summary of the revisions.TOPIC : Financial Services -
Amendments to Transaction Reporting under the Markets in Financial Instruments Regulation Proposed
07/01/2016
The European Securities and Markets Authority submitted two amendments to the European Commission on the final draft regulatory technical standards on transaction reporting obligations under the Markets in Financial Instruments Regulation. The draft RTS were first submitted on September 25, 2015. The final draft RTS outlines transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other financial instruments such as bonds and derivatives.
Read more.TOPIC : MiFID II -
Final EU Technical Standards on Disclosure of Inside Information and Delaying Disclosure of Inside Information
06/30/2016
A Commission Delegated Regulation in the form of Implementing Technical Standards on the means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information was published in the Official Journal of the European Union. The Market Abuse Regulation requires an issuer to inform the public as soon as possible of information which directly concerns the issuer. An issuer may delay disclosing the information in certain circumstances, for example, if immediate disclosure is likely to prejudice the legitimate interests of the issuer. The ITS set out the technical means for issuers to publicly disclose inside information and the means for delaying the public disclosure of inside information. The ITS also requires an issuer bank or investment firm that wishes to delay disclosure of inside information to notify its regulator in writing to obtain the regulator's consent to the delay. The ITS applied from July 3, 2016.
View the RTS on Disclosing or Delaying Disclosure of Inside Information.
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Final EU Technical Standards on Conditions for Buy-Back Programmes and Stabilization to be Exempt from the Market Abuse Ban
06/30/2016
A Commission Delegated Regulation in the form of Implementing Technical Standards on the means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information was published in the Official Journal of the European Union. The Market Abuse Regulation requires an issuer to inform the public as soon as possible of information which directly concerns the issuer. An issuer may delay disclosing the information in certain circumstances, for example, if immediate disclosure is likely to prejudice the legitimate interests of the issuer. The ITS set out the technical means for issuers to publicly disclose inside information and the means for delaying the public disclosure of inside information. The ITS also requires an issuer bank or investment firm that wishes to delay disclosure of inside information to notify its regulator in writing to obtain the regulator's consent to the delay. The ITS applied from July 3, 2016.
View the RTS on Disclosing or Delaying Disclosure of Inside Information.
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European Securities and Markets Authority Opines on Further Exemptions from the Clearing Obligation for Pension Schemes
06/30/2016
The European Securities and Markets Authority published an Opinion, dated June 23, 2016, on a Denmark-based pension scheme that is to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinion was requested by Finanstilsynet (the Danish financial supervisory authority) and relates to life insurer personal schemes. ESMA published a positive opinion for three other types of Danish pension schemes in April this year: life insurer occupational schemes, labor market related life insurer and multi employer pension fund. Transitional exemptions from the clearing obligation under EMIR can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must then seek an Opinion from ESMA before making a final exemption decision. This follows the extension of the transitional exemption period from the clearing obligation for pension funds to August 16, 2017 which is the revised date by which pension funds must comply with the EU clearing obligation under EMIR.
View ESMA's Opinion.
TOPIC : Derivatives -
New York State Department of Financial Services Issues Final Anti-Terrorism Transaction Monitoring and Filtering Program Regulation
06/30/2016
The New York State Department of Financial Services issued its Transaction Monitoring and Filtering Program Requirements and Certifications final rule, which includes several notable departures from the proposal issued by DFS on December 1, 2015. The issuance of the final rule is another example of DFS enforcing anti-money laundering and sanctions requirements applicable to banks under US federal law. Like the proposed rule, the final rule requires covered institutions to maintain a transaction monitoring program for potential Bank Secrecy Act/anti-money laundering violations and suspicious activity reporting, maintain a filtering program to prevent transactions prohibited by the Office of Foreign Assets Control and submit to the DFS annually a confirmation regarding compliance with the DFS’ transaction monitoring and filtering program requirements.
Perhaps most significantly, and apparently in recognition of serious concerns raised by the industry during the comment period, the final rule does not include the proposed “annual certification” by an institution’s chief compliance officer attesting to a covered institution’s compliance with the rule, nor does it include a reference to criminal penalties for filing an incorrect or false certification. Instead, the final rule requires an annual board resolution or senior officer compliance finding confirming that the covered institution is in compliance with the regulation “to the best of the [individual’s] knowledge.” The final rule also introduced “reasonably designed” standard into the transaction monitoring and filtering programs that institutions must establish.
View DFS final rule. -
US Federal Reserve Board Releases Annual Determination of Aggregate Consolidated Liabilities
06/30/2016
The US Federal Reserve Board released its annual determination of the aggregate consolidated liabilities of financial companies as required by section 622 of the Dodd-Frank Act, which prohibits a financial company from combining with another company if the resulting company’s liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies.
Financial companies subject to the limit include insured depository institutions, bank holding companies, savings and loan holding companies, foreign banking organizations, companies that control insured depository institutions and nonbank financial companies designated for Federal Reserve Board supervision by the FSOC.
As of July 1, 2016, aggregate consolidated liabilities equal $21,786,571,865,000, which is the average of the year-end financial sector liabilities of the preceding two years and will be the measure of aggregate consolidated liabilities for purposes of section 622 of the Dodd-Frank Act for the time period from July 1, 2016 through June 30, 2017.
View Federal Reserve Board announcement.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Finalizes Updates to Frequently Asked Questions on Brokered Deposits
06/30/2016
The US FDIC finalized updates to its Frequently Asked Questions regarding identifying, accepting and reporting brokered deposits. In general, brokered deposits are treated less favorably than nonbrokered deposits for various supervisory purposes, including a prohibition on accepting such deposits if an insured depository institution’s capital falls below certain thresholds under the Prompt Corrective Action (PCA) framework.
In November 2015, the FDIC released for comment proposed updates to the FAQs that were originally issued in January 2015. After consideration of the comments received, the agency retained a majority of the proposed updates, with certain clarifications and the addition of new FAQs.
The FAQs are based on the statute, regulation and explanations of the requirements for identifying and accepting brokered deposits provided to the industry through published advisory opinions and the FDIC’s Study on Core Deposits and Brokered Deposits issued in July 2011, as well as on comments received since publication of the FAQs. The FAQs provide plain language information about categorizing brokered deposits.
Key updates since the FAQs were issued in January 2015 address matters related to: (i) business professionals and deposit referral programs; (ii) deposits gathered through “dual hatted,” “dual” and “call center” employees (as explained in the FAQs) or contractors; (iii) deposits underlying government-sponsored prepaid or debit card programs; (iv) whether certain non-maturity deposits are brokered; and (v) actions an insured depository institution should take if it holds certain brokered deposits and falls below “well capitalized” for PCA purposes.
View updated FAQs.TOPIC : Financial Services -
FICC Markets Standards Board Proposes Reference Price Transactions Standard
06/30/2016
The FICC Markets Standards Board published a draft standard for Reference Price Transactions for the fixed income markets. This is the first standard that the FMSB has published since it was established in June 2015 in response to the Fair and Effective Markets Review conducted by the HM Treasury, the Bank of England and the Financial Conduct Authority. The FMSB’s objective is to improve conduct in the wholesale Fixed Income, Currency and Commodities markets. Feedback on the proposed standard was due by September 8, 2016. The standards serve as a supplement to applicable law, rules and regulation and seek to deal with traders’ conflicts of interests where hedging entered into by the liquidity provider could influence the reference price transaction. Once finalized, the standard will apply to all FMSB member firms (just over 30 firms to date) on a global basis.
View the proposed standard.TOPIC : MiFID II -
MiFID II Implementation Delayed to 2018
06/30/2016
EU legislation postponing the implementation date of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation was published in the Official Journal of the European Union. The MiFID II package will now formally not apply until January 3, 2018 instead of 2017. The postponement includes all of the technical standards and national laws although member states will need to transpose the requirements into national laws by July 3, 2017. In addition to the provisions delaying the implementation date, certain substantive amendments have also been made to the original texts of MiFID II. For example, Securities Financing Transactions, as defined in the new Securities Financing Transactions Regulation, will be excluded from the pre- and post-trade transparency obligations under MiFID II and there are revisions to specifically require the public disclosure of bid and offer prices for package orders.
Read more.TOPIC : MiFID II -
UK Regulator Amends Rules on Contractual Recognition of Bail-in
06/29/2016
The Prudential Regulation Authority published final amendments to its rules on the contractual recognition of bail-in. The Bank Recovery and Resolution Directive requires EU banks and certain investment firms to include clauses in certain contracts governed by non-EU law by which the creditor agrees to recognise that the liability may be bailed in by the national resolution authority. In November 2015, the PRA issued a Modification by Consent which disapplied the requirement for unsecured liabilities that are not debt securities (known as "phase 2 liabilities") where compliance would be impracticable until June 30, 2016. The PRA published its final rules and extended the Modification by Consent until July 31, 2016. The amended rules applied from August 1, 2016. The PRA also published a Supervisory Statement which provides guidance on the meaning of the term "impracticable" by providing a list of non-exhaustive examples of impracticability such as it is illegal in the third country to include contractual recognition language in agreements or instruments creating liabilities governed by the laws of that third country and the creation of liabilities is governed by international protocols which the firm has no power to amend. The onus will be on firms to demonstrate that compliance with the contractual recognition requirement would be impracticable.
View the amended rules, final Policy Statement and Supervisory Statement.
TOPIC : Recovery & Resolution -
European Commission Reports on the Appropriateness of Credit Claims as Collateral
06/29/2016
The European Commission published a report on the appropriateness of the inclusion of credit claims as collateral in the Financial Collateral Directive, including the appropriateness of the restriction on member states to require any formal act for the creation of or validity of such collateral unless the formal act was necessary for the purposes of perfection, priority, enforceability or admissibility in evidence against the debtor or third parties. The Commission assessed the laws that member states implemented across the EU and concluded that, although there is not full harmonization on implementation of the option, the option to include credit claims as collateral should not be removed from the Financial Collateral Directive without further work being undertaken to assess the related impacts. In addition, the Commission considers that action taken within the Capital Markets Union to remove barriers to cross-border clearing and settlement will likely improve the current uncertainty in cross-border exchange of collateral.
View the report.
TOPIC : Financial Services -
US Federal Reserve Board Results of Comprehensive Capital Analysis and Review
06/29/2016
The US Federal Reserve Board announced that it has not objected to the capital plans of 30 of the 33 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve Board objected to two firms’ plans and while one other firm’s plan was not objected to, it is being required to address certain weaknesses and resubmit its plan by the end of 2016.
CCAR evaluates the capital planning processes and capital adequacy of the largest US-based bank holding companies (including US BHC subsidiaries of non-US banking organizations), including the firms’ planned capital actions such as dividend payments and share buybacks and issuances. When considering a firm’s capital plan, the Federal Reserve Board analyzes, and may object to a capital plan based on, quantitative factors (e.g., a firm’s projected capital ratios under a hypothetical scenario of severe economic and financial market stress) and qualitative factors (e.g., the strength of the firm’s capital planning process, which incorporate the risk management, internal controls and governance practices that support the process). If the Federal Reserve Board objects to a capital plan, a firm may not make any capital distribution unless expressly authorized by the Federal Reserve Board.
Since the first round of stress tests led by the Federal Reserve Board in 2009, the common equity capital ratio, which compares high-quality capital to risk-weighted assets, of the 33 bank holding companies in the 2016 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 12.2 percent in the first quarter of 2016. This reflects an increase of more than $700 billion in common equity capital to a total of $1.2 trillion during the same period.
View CCAR 2016 assessment framework and results. -
International Guidance on Cyber Resilience for Financial Market Infrastructures Published
06/29/2016
The Bank for International Settlements' Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published Guidance on cyber resilience for financial market infrastructures. The Guidance supplements the CPMI-IOSCO Principles for Financial Market Infrastructures and aims to assist FMIs to improve their cyber resilience. The Guidance is not intended to impose additional standards on FMIs, but rather to provide FMIs with further detail on how they can enhance their cyber resilience capabilities and limit the increasing risks that cyber threats pose to financial stability. FMIs are expected to take a risk-based approach to implementing the Guidance and to act immediately to improve their cyber resilience, taking the Guidance into account. In particular, FMIs are expected to develop plans by June 2017 to improve their capability to meet the two-hour return to operations requirements.
View the Guidance on cyber resilience for financial market infrastructures.
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Proposed EU Guidelines on Implementing the Revised Pillar 3 Framework
06/29/2016
The European Banking Authority launched a consultation proposing Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation. The EBA aims to ensure harmonized and timely implementation of the Basel III Pillar 3 requirements that were released in January 2015. The proposed Guidelines will introduce specific guidance and formats for disclosure, using tables and templates. Responses to the consultation are due by September 29, 2016. The Guidelines are set to apply for year-end disclosures 2017. However, the EBA recommends that Globally Systemically Important Institutions implement a limited subset of disclosures relating to risk-weighted assets and capital requirements for the year-end 2016 disclosures.
View the consultation paper. -
US Senator Elizabeth Warren Introduces Derivatives Legislation
06/29/2016
US Senator Elizabeth Warren (D-Mass), along with US Senator Mark Warner (D-Va), introduced a new derivatives regulation bill. The Derivatives Oversight and Taxpayer Protection Act proposes to strengthen federal oversight of the derivatives market and ensure that big financial firms, instead of taxpayers, will be held responsible for derivative losses.
If enacted, Senator Warren’s bill would greatly expand the regulatory capacities and powers of the CFTC. It proposes to provide the CFTC with a stable funding stream and allows the agency to impose penalties large enough to impact the bottom lines of even the largest financial firms. The bill also proposes to place certain cross-border and foreign exchange swaps under CFTC jurisdiction, changes how derivatives are treated in bankruptcy, requires posting of initial margin for inter-affiliate swaps, limits the use of netting in calculating risk-based capital and leverage limits relating to derivatives transactions and requires regulators to review derivatives clearinghouses.
View text of the bill.TOPIC : Derivatives -
US Financial Stability Oversight Council Votes to Rescind Designation of GE Capital as a Systemically Important Financial Institution
06/29/2016
The FSOC announced the rescission of its designation of GE Capital Global Holdings LLC (GE Capital) as a systemically important financial institution (SIFI). The FSOC unanimously decided that GE Capital no longer meets the standards for SIFI designation. Therefore, GE Capital will not be subject to enhanced prudential standards or supervision by the Board of Governors of the Federal Reserve System.
FSOC originally designated GE Capital as a SIFI in 2013 after identifying a number of key concerns, including the company’s reliance on short-term wholesale funding and its leading position in a number of funding markets. Since then, GE Capital made strategic changes to decrease its total assets by over 50%, reduce its interconnectedness with large financial institutions and have more stable funding. In order to become less systemically important, it has undergone a corporate reorganization, a series of divestitures and a transformation of its funding model.
View the public explanation of the basis for the FSOC’s rescission.
View FSOC press release.TOPIC : Financial Services -
EU Extension of Exemption for Commodity Dealers Finalized
06/29/2016
An EU Regulation extending the exemption for commodity dealers from large exposures requirements and own fund requirements was published in the Official Journal of the European Union. The exemption has been extended from December 31, 2017 to December 31, 2020 or until a revised framework for the application of the Capital Requirements Regulation to commodity dealers and investment firms comes into force, whichever is the earlier. The European Council announced in March this year that it had agreed to the extension.
Read more. -
EU Regulation on Benchmarks Finalized
06/29/2016
The final EU Regulation on Benchmarks was published in the Official Journal of the European Union. The Benchmark Regulation has been introduced in response to the numerous instances of benchmark manipulation that have emerged in recent years. In addition, the Benchmark Regulation is intended to harmonize across the EU the rules that have implemented the International Organization of Securities Commissions Principles for Financial Benchmarks and Principles for Oil Price Reporting Agencies.
The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third country entities, requirements for governance and control of administrators, provides for different categories of benchmarks depending on the risks involved and imposes additional requirements on benchmarks considered to be critical, powers of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.
Read more.
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US Securities and Exchange Commission Proposes Requiring Investment Advisers to Adopt Business Continuity and Transition Plans
06/28/2016
The SEC proposed a rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The new rule requires investment advisers to prepare in advance for significant disruptions in their operations—whether temporary or permanent (such as a natural disaster, cyber-attack, technology failures, etc.)—thereby mitigating client and investor harm.
The proposed rule would require an adviser’s plan to be based on the particular risks associated with its operations, but also include policies and procedures addressing specified components, such as the maintenance of systems and protection of data, pre-arranged alternative physical locations, communication plans and review of third-party service providers. The rule would allow advisers to tailor the detail of their plans to the complexity of their business operations.
SEC Chair Mary Jo White commented that this rule was “the latest action in the Commission’s efforts to modernize and enhance regulatory safeguards for the asset management industry.” In addition to the proposed rule, the SEC staff issued related guidance addressing business continuity planning for registered investment companies, including oversight of operational capabilities of key fund service providers.
View the SEC press release.
View the proposed rule.
View SEC staff guidance.TOPIC : Securities -
European Banking Authority Publishes Translations of the Final Guidelines on Sound Remuneration Policies
06/28/2016
The European Banking Authority published translations of its final Guidelines on sound remuneration policies. The final Guidelines are applicable to banks and investment firms and cover all staff with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines will apply from January 1, 2017 and will repeal the existing guidelines produced by the Committee of European Banking Supervisors in December 2010. The Guidelines set out detailed requirements for remuneration policies, the related governance arrangements and processes for implementing remuneration policies.
View the Final Guidelines.TOPIC : Compensation -
US Federal Reserve Board Governor Powell Delivers Speech on the Impact of Brexit
06/28/2016
US Federal Reserve Board Governor Jerome Powell delivered remarks to the Chicago Council on Global Affairs, highlighting the impact of Brexit on the outlook for the US economy.
Governor Powell voiced concern that the Brexit vote has the potential to create new headwinds for economies around the world, including the United States. He noted that while it may be “far too early to judge the effects of the Brexit vote,” it will be important to assess implications for the US economy, and for the stance of policy to foster continued progress towards the objectives of maximum employment and price stability in the United States.
Governor Powell noted that for some time, the principal risks to the US labor market recovery and economic growth have been from abroad. Due to the high and continuously appreciating trade-weighted value of the US dollar, the economy inevitably “imports” trading partners’ weak economic performances and financial volatility. Powell stated that to successfully contain the impact of the British referendum, the Federal Reserve Board is “prepared to provide dollar liquidity through existing swap lines” with central banks to address pressures in global funding markets. Powell also noted that while financial conditions have “tightened” since the Brexit vote, markets have continued to function in an “orderly” manner and the US financial markets remain resilient.
View Governor Powell’s speech. -
US Supreme Court Denies Writ of Certiorari in Madden v. Midland Funding
06/27/2016
The US Supreme Court elected not to review a Second Circuit decision that found debt purchased from a national bank by a non-national bank entity to be subject to state usury laws.
Read more.
TOPIC : Financial Services -
US Securities and Exchange Commission Proposes Amendments to Smaller Reporting Company Definition
06/27/2016
The SEC voted to propose amendments that would increase the financial thresholds in the “smaller reporting company” definition. By expanding the number of companies that qualify as smaller reporting companies, the proposal is intended to “promote capital formation and reduce compliance costs for smaller companies” according to SEC Chairman Mary Jo White. Smaller reporting companies may qualify for scaled disclosures provided in Regulations S-K and Regulations S-X.
The proposed rules would enable a company with less than $250 million of public float to provide scaled disclosure as a smaller reporting company, as compared to the $75 million threshold under the current definition. If a company does not have a public float, it would be permitted to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.
It is important to note, however, that the SEC is not proposing to increase the $75 million threshold in the “accelerated filer” definition. As a result, smaller reporting companies with $75 million or more of public float will be subject to accelerated filer requirements.
View SEC press release.
View the proposed rule.TOPIC : Securities -
US Commodity Futures Trading Commission Issues Final Rule to Amend Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps
06/27/2016
The CFTC approved a final rule that amends existing swap reporting regulations to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions and to improve the efficiency of data collection and maintenance associated with the reporting of the swaps involved in cleared swap transactions.
The final rule removes uncertainty as to which counterparty to a swap is responsible for reporting creation and continuation data for each of the various components of a cleared swap transaction. For example, it clarifies whose obligation it is to report the extinguishment of a swap upon its acceptance by a derivatives clearing organization for clearing. The CFTC anticipates that the rule will have a number of other benefits, including a reduced likelihood of double counting notional exposures and an improved ability to trace the history of a cleared swap transaction from execution between the original counterparties to clearing novation. The rule was published in the Federal Register on June 27, 2016, and will become effective 180 days from the date of publication.
View Final Rule.TOPIC : Derivatives -
US Federal Reserve Board Releases Results of Supervisory Bank Stress Tests
06/23/2016
The US Federal Reserve Board released the results of supervisory stress tests for 33 participating BHCs, representing more than 80 percent of US domestic banking assets. According to the Federal Reserve Board, the largest US bank holding companies “continue to build their capital levels and improve their credit quality, strengthening their ability to lend to households and businesses during a severe recession.”
Under the most severe hypothetical scenario, the results project that loan losses at the 33 participating firms would total $385 billion during the nine quarters tested. This “severely adverse” scenario features a severe global recession with the domestic unemployment rate rising five percentage points, accompanied by a heightened period of financial stress and negative yields for short-term US Treasury securities. In addition to results under the severely adverse hypothetical scenario, the Federal Reserve Board also released results from the “adverse” scenario, which features a moderate recession and mild deflation in the United States. In this scenario, the average common equity tier 1 capital ratio of the 33 firms fell from an actual 12.3 percent in the fourth quarter of 2015 to a projected minimum level of 10.5 percent in the first quarter of 2018.
The Dodd-Frank Act supervisory stress tests are one component of the Federal Reserve Board’s analysis during the CCAR, which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. This is the sixth round of stress tests led by the Federal Reserve Board since 2009 and the fourth round required by the Dodd-Frank Act.
View Supervisory Stress Test Methodology and Results. -
US Commodity Futures Trading Commission Requests Public Comment on Swap Clearing Requirement Submissions
06/23/2016
The CFTC requested public comment on 34 submissions CFTC received in past several years from seven registered derivatives clearing organizations pursuant to section 2(h)(2)(B) of Commodity Exchange Act and CFTC regulation 39.5(b). Submissions cover certain interest rate swaps, credit default swaps, foreign exchange non-deliverable forwards, energy swaps, agricultural and inflation swaps. Public comments will inform CFTC as it considers whether to propose swap clearing requirement pursuant to section 2(h)(2)(D) of CEA.
In posting these submissions, CFTC is not proposing swap clearing requirement, as CFTC did most recently on June 9, 2016, regarding certain interest rate swaps. Submissions do not include swaps subject to this recent proposal or swaps currently required to be cleared under the CFTC’s existing clearing requirements. If CFTC decides to propose a clearing requirement determination for any of the swaps covered by the submissions posted on June 23, then, at that time, the CFTC will invite further public comment in response to a notice of proposed rulemaking, similar to the one published in the Federal Register on June 16, 2016 (81 Fed. Reg. 39506).
Comments may pertain specifically to a single submission or generally to several or all submissions. The CFTC is particularly interested in comments that provide data and analysis and discusses the swaps in terms of the five factors that CFTC is required to consider in determining whether to issue a clearing requirement determination under section 2(h)(2)(D) of the CEA. The comment period ended on July 25, 2016.
View CFTC press release.TOPIC : Derivatives -
US Comptroller of the Currency Highlights Framework for Evaluating Responsible Innovation
06/23/2016
US Comptroller of the Currency Thomas J. Curry delivered remarks as part of the US OCC’s Forum on Responsible Innovation, highlighting the OCC’s efforts to develop a framework for identifying and evaluating responsible innovation. Comptroller Curry defined a responsible innovation as one that meets the changing needs of consumers, businesses and communities, is consistent with sound risk management and aligns with the company’s business strategy. Within the context of a federal banking system, a responsible innovation is one that would help institutions achieve their public purpose without compromising their safety or soundness. During his remarks, Comptroller Curry made references to the OCC White Paper on responsible innovation that was released in March 2016.
In addition to Comptroller Curry’s remarks, the forum brought together thought leaders from banks, financial technology companies, academia, community and consumer groups and the OCC to discuss developments, opportunities and challenges related to financial innovation. The forum examined questions such as whether financial technology companies and banks could coexist and learn from one another and what the impact of innovation on consumers and communities may be.
View Comptroller Curry’s remarks.TOPIC : FinTech -
Beverly F. Cole Named Deputy Comptroller for Compliance Supervision
06/22/2016
The OCC announced that Beverly F. Cole will become its Deputy Comptroller for Compliance Supervision. In this new role, Ms. Cole will serve as the operational executive responsible for developing and promulgating compliance operational protocols, examination strategies and schedules. She will oversee a staff implementing bank supervision policy for compliance and establish programs to ensure efficient bank supervision for compliance. She will report to the Senior Deputy Comptroller for Compliance and Community Affairs. She took on these duties in July 2016.
View The OCC press release.TOPIC : People -
US Federal Reserve Board Vice Chairman Fischer Responds to Criticisms of the Dodd-Frank Act’s Orderly Liquidation Authority and the Federal Reserve Board’s Total Loss-Absorbing Capacity Proposal
06/22/2016
As part of his remarks at the Riksbank Macroprudential Conference in Stockholm, US Federal Reserve Board Vice Chairman Stanley Fischer responded to criticisms of the Dodd-Frank Act’s orderly liquidation authority and the Federal Reserve Board’s proposed total loss-absorbing capacity, or TLAC, requirement.
The proposed TLAC requirement mandates that systemically important firms maintain a minimum level of long-term, outstanding debt that could be used to absorb losses and recapitalize the firm in an orderly resolution under either the Bankruptcy Code or the orderly liquidation authority.
In his remarks, Fischer addressed the three most common criticisms of the TLAC proposal, starting with whether TLAC is a redundant backup OLA because the Bankruptcy Code provides an adequate framework for the resolution of any financial company. He also assessed whether OLA provides for a taxpayer bailout of systemically important funds through the orderly liquidation fund, concluding that it does not since OLA allows for liquidity support, and that any losses incurred by the fund would be covered by assessments imposed on large financial firms. Finally, he set forth reasons why TLAC requirements should not lead to GSIBs increasing their leverage and thereby their probability of failure.
View Vice Chairman Fischer’s speech.
TOPIC : Recovery & Resolution -
Financial Stability Board Proposes Recommendations to Address Structural Vulnerabilities from Asset Management Activities
06/22/2016
The FSB launched a consultation on proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The FSB recommendations aim to address four structural vulnerabilities from asset management activities that could cause financial stability risks. Those vulnerabilities are: (i) liquidity transformation by investment funds; (ii) leverage within funds; (iii) operational risk and challenges in transferring investment mandates in stressed conditions; and (iv) securities lending activities of asset managers and funds. The FSB makes 14 recommendations and seeks feedback on the proposals by September 21, 2016. The FSB intends to finalize the recommendations by the end of 2016.
View the consultation paper.TOPIC : Shadow Banking -
European Central Bank Publishes Supervisory Statement on Governance and Risk Appetite Frameworks for Euro Banks
06/21/2016
The Banking Supervision arm of the European Central Bank published a Single Supervisory Mechanism supervisory statement on governance and risk appetite. In 2015, a thematic review was undertaken of all significant firms in the euro area to assess their management bodies and their risk appetite frameworks. The supervisory statement reports on the findings from that review, identifies good practices and sets out supervisory expectations for a bank's board and risk appetite framework, aiming to guide banks on their implementation of international best practices.
View the supervisory statement.
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US FDIC Proposes to Amend References to Credit Ratings for Activities of Foreign Bank Organizations
06/21/2016
The FDIC issued a notice of proposed rulemaking to remove and modify references to credit ratings with respect to permissible activities for certain foreign banking organizations, consistent with section 939A of the Dodd-Frank Act and the FDIC’s authority under section 5(c) of the Federal Deposit Insurance Act. Specifically, the proposed rule amends subparts A and B of the FDIC’s international banking regulations (12 C.F.R. Part 347). The proposed rule would delete references in Subpart A to nationally recognized statistical rating organization credit ratings in the definition of “investment grade” and replace such references with alternative standards for determining the creditworthiness of securities and other financial instruments. Subpart B would be amended in a similar fashion to eliminate references to credit ratings in respect of the eligibility criteria for assets that foreign banks may pledge in order to satisfy the FDIC’s asset pledge requirement. Comments on the proposed rulemaking were due by August 29, 2016.
View FDIC notice of proposed rulemaking. -
US Federal Deposit Insurance Corporation Approves Final Rule to Revise the Securitization Safe Harbor Rule
06/21/2016
The FDIC released a final rule revising the Securitization Safe Harbor Rule (12 C.F.R. Part 360.6) to clarify that its requirement that servicers of securitized assets take loss mitigation action within 90 days after an asset becomes delinquent does not conflict with the Consumer Financial Protection Bureau’s Regulation X (12 C.F.R. Part 1024), which prohibits a mortgage loan servicer from initiating foreclosure notices or filings unless a mortgage loan is more than 120 days delinquent. Specifically, the Securitization Safe Harbor Rule is being revised to clarify that documents governing a securitization transaction need not require the servicer of securitized assets to take any action that would be prohibited by Regulation X in order to satisfy the 90-day loss mitigation requirement of the securitization safe harbor. The final rule is effective July 27, 2016.
View the FDIC final rule.TOPIC : Securities -
US Federal Deposit Insurance Corporation Approves Terrorism Risk Insurance Program Reauthorization Act Final Rule
06/21/2016
The US FDIC approved a final rule developed jointly by the FDIC, the OCC, the Federal Reserve Board, the Farm Credit Administration and the Federal Housing Finance Agency that, pursuant to Title III of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), exempts certain non-cleared swaps and non-cleared security-based swaps with certain financial and non-financial end users from initial and variation margin requirements required pursuant to Sections 731 and 765 of the Dodd-Frank Act. Specifically, the final rule exempts from the margin requirements certain swaps with counterparties that are commercial end users, certain captive finance affiliates, treasury affiliates, cooperatives and small financial institutions. The final rule is effective October 1, 2016.
View FDIC final rule.TOPIC : Derivatives -
Commissioner of the US Commodity Futures Trading Commission Outlines Proposals to Improve Governance in Regulated Entities
06/21/2016
As part of her remarks at the Managed Funds Association Forum, CFTC Commissioner Sharon Bowen outlined various proposals to improve governance in CFTC-regulated entities.
Commissioner Bowen emphasized maintaining independent, high-caliber boards of directors. She suggested that the boards of CFTC-regulated entities “craft qualitative and quantitative standards for directors” to ensure individuals meet expected fitness standards, “create a strong company ethos” to improve the culture of compliance and limit the tenure of independent audit and compensation committee members to protect director independence.
Commissioner Bowen also proposed swap execution facility reform, calling for the centralized oversight of SEF surveillance and enforcement functions. She proposed that “all SEFs should be under one self-regulatory organization . . . whether that is the NFA or some other SRO,” so as to increase the efficiency of enforcement mechanisms, standardize rules and increase transparency.
Finally, with regards to swap intermediaries, Commissioner Bowen stated that “the CFTC should also require registration and testing of all swap intermediaries.” Registration would allow the CFTC to obtain more information about those entities intermediating trades in the market, and assess whether their actions are appropriate. Moreover, having robust testing standards for swap intermediaries would serve as a quality control check.
View Commissioner Bowen’s remarks.TOPIC : Derivatives -
US Financial Stability Oversight Council Releases Sixth Annual Report
06/21/2016
The FSOC released its 6th annual report to Congress. The FSOC reports annually to Congress on a range of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States and the activities of the FSOC. The report also makes recommendations to promote market discipline, maintain investor confidence and enhance the integrity, efficiency, competitiveness and stability of US financial markets.
This year, in particular, the report focused on cyber security, as well as risks associated with asset management products and activities, capital and liquidity, central counterparties and reforms of wholesale funding markets. The report also made recommendations about promoting market discipline, maintaining investor confidence and enhancing the competitiveness and efficiency of the US financial markets.
View the Report.TOPIC : Financial Services -
European Securities and Markets Authority Updates Its Waivers for Pre-Trade Transparency Requirements under MiFID I
06/20/2016
The European Securities and Markets Authority published an updated document on its approach to waivers to certain pre-trade transparency requirements under the current Markets in Financial Instruments Directive. MiFID I allows national regulators to grant waivers to regulated markets and multilateral trading facilities from certain pre-trade transparency requirements for shares based on the market model or the type and size of orders. ESMA first published the document in August 2015, setting out examples of pre-trade waivers under MiFID I. The document is intended to assist national regulators in ensuring that their supervisory practices are in line with ESMA’s opinions and to assist firms by clarifying the content of the MiFID I requirements.
View ESMA's document.TOPIC : MiFID II -
US Senators Urge Federal Reserve Board and Federal Deposit Insurance Corporation to Use Statutory Tools Congress Has Provided Where Resolution Plans Are Found Not Credible
06/20/2016
US Senators Elizabeth Warren (D-Mass.) and Joe Donnelly (D-Ind.) sent a letter to the Federal Reserve Board and the FDIC encouraging the agencies to use “all statutory tools at their disposal” if banks’ resolution plans, also known as living wills, are found not credible. The Senators expressed concern that, eight years after the financial crisis, and “after a multi-year review process, the living wills of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy.” The Senators further noted that Section 165 of the Dodd-Frank Act provides the Federal Reserve Board and the FDIC “the authority to impose more stringent prudential requirements on, or even ultimately restructure, large financial institutions unable to craft credible resolution plans on their own.”
Earlier this year, the Federal Reserve Board and the FDIC jointly determined that five large financial institutions had submitted living wills that were not credible. The agencies have required those five firms to address the deficiencies and submit revised plans by October 1 of this year.
View the text of the letter.TOPIC : Recovery & Resolution -
US Agencies Issue Joint Statement on New Accounting Standard on the Measurement of Credit Losses
06/17/2016
The Federal Reserve Board, the US Federal Deposit Insurance Corporation, the US Office of the Comptroller of the Currency and the US National Credit Union Administration released a joint statement providing information about the new Financial Accounting Standards Board statement regarding credit loss estimation. The joint statement provides supervisory views regarding the recently introduced standard which introduces the current expected credit losses methodology for estimating credit losses. This standard applies to all banks, savings associations, credit unions and financial holding companies, regardless of their asset size. Early application is permitted for fiscal years after December 15, 2018, but the rule becomes effective in 2020 for public business entities that are US Securities and Exchange Commission filers, and in 2021 for public business entities that are not SEC-filers and private companies.
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European Securities and Markets Authority Opines on Regime for Disclosure of Inside Information by Emission Allowance Market Participants
06/17/2016
The European Securities and Markets Authority published its Opinion on the proposed requirements for Emission Allowance Market Participants to disclose inside information under the Market Abuse Regulation. ESMA's Opinion is in response to the European Commission's notification that it intended to endorse, subject to certain amendments, ESMA's Implementing Technical Standards on the public disclosure of inside information by issuers and EAMPs and on the means for delaying public disclosure of inside information. The European Commission is concerned that the ITS will lead to EAMPs being subject to duplicative disclosure requirements under the EU Regulation on wholesale energy market integrity and transparency, known as REMIT. The Commission's view is that the ITS should deem the REMIT disclosure requirements sufficient for the purposes of disclosure requirements under MAR, so as to avoid imposing duplicative requirements on EAMPs.
Read more. -
EU Secondary Legislation Under the Market Abuse Regulation on Investment Recommendations Published
06/17/2016
An EU Delegated Regulation containing Regulatory Technical Standards on investment recommendations under the Market Abuse Regulation was published in the Official Journal of the European Union. MAR will apply from July 3, 2016 except for those concepts that will be introduced by the revised Market in Financial Instruments Directive and the Market in Financial Instruments Regulation, which will apply from 3 January 2018.
The RTS set out the technical arrangements for objective presentation of investment recommendations and for disclosure of particular interests or conflicts of interest. The RTS require that a firm producing a recommendation must disclose its identity, as well as the names and identities of the individuals involved in preparing a recommendation. Firms that disseminate recommendations will be subject to similar disclosure obligations and must also indicate on a recommendation the date on which it was first disseminated. Firms producing recommendations must also disclose relevant interests or conflicts of interest.
View the RTS on investment recommendations. -
EU Technical Standards on Preventing Market Abuse and Reporting Suspicious Transactions Published
06/17/2016
An EU Delegated Regulation containing Regulatory Technical Standards on preventing market abuse and reporting suspicious transactions under the Market Abuse Regulation was published in the Official Journal of the European Union. MAR will apply from July 3, 2016 except for those concepts that will be introduced by the revised Market in Financial Instruments Directive and the Market in Financial Instruments Regulation, which will apply from 3 January 2018.
The RTS impose requirements on operators of trading venues and persons professionally arranging or executing transactions to monitor for and report insider dealing or market manipulation. A template suspicious transaction and order report (known as a STOR) will need to be used for reporting suspicious transactions. The RTS also impose a requirement on operators of trading venues and persons professionally arranging or executing transactions to provide adequate training for their staff involved in monitoring detection and identification of orders and transactions that might be insider dealing or market manipulation, including for staff involved in processing orders and transactions.
View the RTS on preventing market abuse and reporting suspicious transactions. -
Technical Standards on Reporting to the European Banking Authority Under the BRRD Published
06/17/2016
A Commission Implementing Regulation laying Implementing Technical Standards under the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The ITS outlines the uniform forms, templates and definitions for the identification and transmission of information by regulators and resolution authorities to the European Banking Authority. The BRRD outlines obligations for regulators and resolution authorities on the application of simplified obligations in relation to the contents and details of recovery plans, the date by which the first recovery plans are to be drawn up and the frequency for updating the recovery plans.
Read more.TOPIC : Recovery & Resolution -
EU Level 2 Legislation on Market Soundings Published
06/17/2016
Two EU Delegated Regulations containing technical standards on the requirements relating to market soundings under the Market Abuse Regulation were published in the Official Journal of the European Union. MAR will apply from July 3, 2016 except for those concepts that depend on the entry into effect of the revised Market in Financial Instruments Directive and the Market in Financial Instruments Regulation, which will apply from January 3, 2018.
Read more. -
Director of US Office of Financial Research Discusses Financial Resilience
06/16/2016
Director of the US Office of Financial Research (OFR) Richard Berner spoke about financial resilience, including how to define, measure and monitor financial stability or resilience. He noted that resilience has two key aspects: the system’s shock-absorbing capacity and incentives that are aligned to limit excessive risk taking. He noted that the OFR has helped promote financial stability by developing tools to assess and monitor threats to financial resilience and improving the scope and quality of data to measure such threats, including, for example, the Financial Stability Monitor, a tool the OFR uses to measure macroeconomic, market, credit, funding and liquidity, and contagion risk. While in the OFR’s assessment, overall threats to financial stability remain at a moderate level, Berner highlighted macro risks (i.e., low growth rate and inflation), cybersecurity and credit risk as key areas of vulnerability.
View the speech.TOPIC : Financial Services -
Five Charged by UK Regulator for Alleged Investment Fraud
06/16/2016
Following investigation by the Financial Conduct Authority, five persons appeared in a UK court charged with conspiracy to defraud, together with offences under the Financial Services and Markets Act 2000 and the Fraud Act 2006. Two of the five accused have also been charged with perverting the course of justice and one has been charged with money laundering offenses contrary to the Proceeds of Crime Act 2002. The offenses relate to the promotion and sale of shares in Atlantic Equity LLC (formerly known as Berkley Brookes LLC), between July 2013 and March 2014. This was achieved through a succession of four alleged “boiler room” companies, all of which traded from the Docklands area of London. The FCA alleges that the defendants promoted investment schemes that offered investors interests in a supposed commercial development in Madeira in which a total of 175 investors may have potentially lost approximately £2.75 million.
Following the hearing, a trial has been set for September 4, 2017.
View the FCA press release.TOPIC : Enforcement -
Chairman of the US Federal Deposit Insurance Corporation Provides Remarks on the Impact of Post-Crisis Reforms on the US Financial System and Economy
06/15/2016
FDIC Chairman Martin Gruenberg provided remarks on the improvements to the US financial system and the economy as a result of the regulatory reforms that have been implemented since the financial crisis. He noted that there has been strong loan growth at US banks, and that it is outpacing GDP growth and other measures of household and business credit, suggesting that banks would be better positioned to extend credit in the event of economic distress. Gruenberg further noted that bank earnings have improved since the financial crisis and that almost two-thirds of all institutions reported higher earnings in 2015 as compared to 2014, despite economic challenges that the industry has faced, suggesting an improvement in bank profitability. Despite changes in the way corporate and Treasury bond trading is conducted, Gruenberg suggested that post-crisis market liquidity for such bonds has not declined and that liquidity conditions are strong. Gruenberg insisted that bank loan growth suggests the relative importance of banks as the ultimate holder of the credit risk associated with loans despite the increase in nonbank lending activity. He stated that banks are better capitalized and better able to absorb losses, and thus that the financial system is more resilient and more stable than before the crisis.
View the speech.TOPIC : Financial Services -
European Banking Authority Publishes Annual Report
06/15/2016
The European Banking Authority published its annual report which provides a review of the EBA’s work in 2015 and sets out key areas of focus it has forecast for the short term future. The EBA lists its achievements in 2015 in the following categories: (i) completing the Single Rulebook and enhancing consistency in prudential regulation; (ii) concluding the regulatory framework for effective recovery, resolution and deposit guarantee schemes; (iii) strengthening supervisory convergence and ensuring the consistent implementation of supervisory and regulatory practices across the EU; (iv) identifying, analyzing and addressing the key risks in the EU banking sector; (v) protecting consumers monitoring financial innovation and ensuring secure and efficient payment services across the EU; (vi) international engagement; and (vii) working on cross-sectoral issues. -
European Securities and Markets Annual Report 2015
06/15/2016
The European Securities and Markets Authority published its 2015 annual report. The report reviews ESMA’s mission and objectives for 2015 and measures its achievements against its 2015 objectives. The report also provides information on ESMA's operations, budget and structure. ESMA is charged with enhancing the protection of investors and promoting stable and orderly financial markets, with various roles under legislation such as EMIR and MiFID. The report states that ESMA has made significant steps in realizing its mission by assessing risks to investors, markets and financial stability, completing a single rulebook for EU financial markets, promoting supervisory convergence and supervising credit rating agencies and trade repositories.
View the report. -
US Commodity Futures Trading Commission Reopens Comment Period for Certain Elements of Regulation Automated Trading
06/14/2016
The CFTC reopened the comment period for certain elements of its notice of the proposed rulemaking regarding Regulation Automated Trading (Regulation AT), initially proposed in December 2015. The extension comes after a public roundtable meeting on June 10. Comments will be accepted from June 10, 2016 to June 24, 2016 on the topics that were discussed at the roundtable, including items on the discussion points paper released by the CFTC, the agenda for the roundtable discussion, as well as topics that arose during the roundtable.
View the press release.TOPIC : Derivatives -
US Commodity Futures Trading Commission Approves Final Rule to Amend Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps
06/14/2016
The CFTC approved a final rule to amend existing swaps reporting regulations in order to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions. The final rule modifies Part 45 of the CFTC’s regulations, by removing uncertainty as to which counterparty to a swap is responsible for reporting data for each of the components of a cleared swap transaction, including to further clarify whose obligation it is to report the extinguishment of a swap once a derivatives clearing organization has accepted the transaction for clearing. The rule also improves the efficiency of data collection and maintenance associated with the reporting of the swaps involved in a cleared swap transaction. Specifically, the CFTC indicated that it expects that it will reduce the likelihood of double counting notional exposures and will improve the ability to trace the history of a cleared swap transaction from execution between the original counterparties to clearing novation. The rule will become effective 180 days after it is published in the Federal Register. The rule also codifies previous CFTC no-action letters by eliminating the requirement for swap dealer/major swap participant reporting counterparties to report daily valuation data for cleared swaps effective immediately upon publication in the Federal Register.
View the final rule.
View Chairman Massad's statement.TOPIC : Derivatives -
First US Clearing House Recognized in Europe under EMIR
06/14/2016
The European Securities and Markets Authority published an updated list of recognized central counterparties based in third countries. Under the European Markets Infrastructure Regulation, third-country CCPs must be recognized by ESMA to operate and offer services in the European Union. The list has been updated to include the Chicago Mercantile Exchange Inc., established in the United States of America. Inclusion of the CME brings the list of recognized CCPs to nineteen members from countries including Australia, Hong Kong, Japan and Singapore. Such jurisdictions have been deemed by the European Commission to have legal and supervisory provisions for CCPs equivalent to the regime for EU CCPs under EMIR.
View the list and ESMA's update.
TOPIC : Derivatives -
European Commission Adopts Regulatory Technical Standards on the Direct, Substantial, and Foreseeable Effect of Derivative Contracts within the European Union
06/13/2016
The European Commission adopted a Commission Delegated Regulation supplementing the Markets in Financial Instruments Regulation. Under MiFIR, a new trading obligation is introduced for shares and other sufficiently liquid instruments. Such instruments must be traded on EU regulated exchanges or trading platforms or third country recognized exchanges and trading platforms. The trading obligation applies generally to third country entities that would be subject to the clearing obligation under EMIR if they were established in the Union. The trading obligation will apply to derivatives transactions pertaining to a class of derivatives that has been declared subject to the trading obligation, provided that the contract has a direct, substantial and foreseeable effect within the Union or where such obligation is necessary or appropriate to prevent the evasion of any provision of this Regulation. The adopted Regulation sets out the regulatory technical standards on the direct, substantial and foreseeable effect of derivative contracts within the European Union and the prevention of the evasion of rules and obligations, and therefore establishes when third country counterparties would be subject to the trading obligation mandated by MiFIR.TOPIC : MiFID II -
European Commission adopts Regulatory Technical Standards on Volume Cap Mechanism and Provision of Information for the Purposes of Transparency and other Calculations under MiFIR
06/13/2016
The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation with regard to Regulatory Technical Standards on the volume cap mechanisms and the provision of information for the purposes of transparency and other calculations. The adopted Regulation specifies general terms with regards to data submissions and reporting to ensure the consistency of data content, quality and format.
Read more.TOPIC : Funds -
Securities and Markets Stakeholder Group Position Paper on Supervisory Convergence
06/13/2016
The Securities and Markets Stakeholder Group published advice to the European Securities and Markets Authority in a Position Paper on Supervisory Convergence. The Paper outlines supervisory convergence as one of the key strategies to be pursued by ESMA from 2016 until 2020. The SMSG also outlines the possible role it may take in supporting ESMA to ensure consistent supervisory practice across the European Union.
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EU Regulation Proposal for Program to Enhance Consumer and End User Protection and Involvement in Financial Services Policy Making
06/13/2016
The European Commission published a proposal for a Regulation to provide funding for two financial expertise non-profit organizations: Finance Watch and Better Finance. The Commission initiated at the end of 2011 a pilot project aimed at providing grants to support the development of a financial expertise center to the benefit of consumers and other end-users and to enhance their capacity to participate in EU financial services policy making. As part of these efforts, operating grants were awarded to Finance Watch and Better Finance. Finance Watch seeks to defend the interests of civil society in the financial sector and Better Finance focuses on the interests of consumers, individual investors and shareholders, savers and other end users in the financial sector.
TOPIC : Financial Services -
Former Equities Trader Sentenced for Insider Dealing
06/13/2016
Mr. Damian Clarke, a former equities trader at Schroders Investment Management, was sentenced to two years imprisonment having pleaded guilty to nine counts of insider dealing. Over a nine-year period between October 2003 and November 2012, Mr. Clarke received inside information about price sensitive events, mainly to anticipate public announcements of mergers and acquisitions, which he used to place trades using accounts in his own name and those of close family members. In total, Mr. Clarke's profits amounted to at least £155,161.98. The FCA confirmed that confiscation proceedings will also be pursued against Mr. Clarke.
View the FCA press release.TOPIC : Enforcement -
US Office of Inspector General to Audit Federal Reserve Board's Oversight of Cybersecurity Threats
06/10/2016
As part of its Work Plan for the fourth quarter, the Federal Reserve Board’s Office of Inspector General announced that it will audit the Federal Reserve Board’s oversight of cybersecurity threats to financial institutions. According to the OIG, the growing sophistication and volume of cybersecurity threats presents a serious risk to all financial institutions. The OIG will focus its review on how the Federal Reserve System’s examination process has evolved and whether it is providing adequate oversight of financial institutions’ information security controls and cybersecurity threats.
View OIG Work Plan.TOPIC : Cyber Security -
EU Regulation on Notifications under the Market Abuse Regulation
06/10/2016
A Commission Delegated Regulation supplementing the Market Abuse Regulation was published in the Official Journal of the European Union. The Regulation lays down Regulatory Technical Standards for the content of notifications to be submitted to regulators and the compilation, publication and maintenance of the list of notifications.
The Markets in Financial Instruments Regulation requires on-going submissions of reference data for financial instruments admitted to trading. By contrast, the MAR requires trading venues to notify regulators only once of details of financial instruments which are the subject of a request for admission to trading, admitted to trading or traded and where a financial instrument ceases to be traded or admitted to trading. The Regulatory Technical Standards require that notifications of financial instruments pursuant to the reporting obligations in MAR include all of the data set out in table 2 annexed to the Regulatory Technical Standards, such as the instrument identification code, instrument full name and trading venue.
Read more. -
US Board of Governors of the Federal Reserve System and US Federal Deposit Insurance Corporation Permit Reduced Resolution Plan Submissions for Certain Foreign Banking Organizations
06/10/2016
The Federal Reserve Board and the FDIC announced that they are permitting certain foreign banking organizations with limited US operations to file “reduced content” resolution plans for their next three resolution plans. All of the 84 firms that are permitted to file the reduced content plans have less than $50 billion in total US assets and have submitted prior plans that provide the agencies with an understanding of their US operations. The agencies noted that the decision is intended to create more certainty around future filling requirements. The ability for these firms to file such plans over the next three years is contingent on their maintaining less than $50 billion in US assets, and not experiencing any material events. The agencies said the reduced content plans should focus on changes the firms have made to their prior resolution plans, actions taken to improve the effectiveness of those plans and actions to ensure any subsidiary insured depository institution is adequately protected from the risks of nonbank subsidiaries of the institution, where applicable. The first round of reduced content plan submissions is due by December 31, 2016.
View the press release.TOPIC : Recovery & Resolution -
US Commodity Futures Trading Commission Extends No-Action Relief to SEFs and DCMs from Certain CFTC Regulations for Correction of Errors
06/10/2016
The US Commodity Futures Trading Commission issued a no-action letter extending the relief provided in CFTC Letter No. 15-24, which expires on June 15, 2016. That no-action letter provides relief to swap execution facilities (SEFs) and designated contract markets (DCMs) to correct clerical or operational errors that caused a swap to be rejected for clearing and thus become void, as well as errors discovered after a swap has been cleared.
Specifically, if, within one hour after a trade has been rejected for clearing, the SEF or DCM corrects an error by permitting a new, pre-arranged trade with terms and conditions that match the terms and conditions of the original trade, other than any such error and time of execution, the trade will be permitted. Moreover, if an error is discovered after a trade has been cleared, the SEF or DCM is permitted to enter into a pre-arranged trade between the original parties that offsets the swaps carried on the derivative clearing organization’s books. The SEF or DCM may also permit the original or intended counterparties to enter into a pre-arranged transaction that reflects the correct terms to which the parties agreed.
The no-action letter extends relief to the earlier of June 15, 2017 or the effective date of revised CFTC regulations that establish a permanent solution to addressing clerical or operational errors.
View the press release.TOPIC : Derivatives -
EU Regulatory Technical Standards on Accepted Market Practices under the Market Abuse Regulation
06/10/2016
A Commission Delegated Regulation supplementing the Market Abuse Regulation was published in the Official Journal of the European Union. The Regulation lays down Regulatory Technical Standards on the criteria, procedures and requirements for regulators when establishing an accepted market practice and the requirements for maintaining it, terminating it or modifying the conditions for its acceptance. The RTS are made pursuant to MAR, which exempted the application of the prohibition of market manipulation to certain activities, provided that, amongst other things, the person's behavior confirms with an accepted market practice established by a regulator, in compliance with RTS.
Read more. -
Joint Industry Response to Basel Committee Consultation on Pillar 3 Disclosure Requirements
06/10/2016
The Institute of International Finance, the International Swaps and Derivatives Association and the Global Financial Markets Associations jointly issued an open letter to the Basel Committee on Banking Supervision. The letter outlines the collective views of the Associations on the Basel Committee's Consultative Document on Pillar 3 Disclosure Requirements which was published on March 11, 2016. The consultation was a second phase review of the proposed consolidated and enhanced framework for Pillar 3 disclosures under Basel III. -
EU Implementing Technical Standards on Disclosure of Group Financial Support Agreements
06/09/2016
A Commission Implementing Regulation laying down Implementing Technical Standards on the form and content of the description of group financial support agreements in accordance with the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The BRRD sets rules for agreements under which financial support is provided among an EU parent firm and its subsidiaries in other Member States or third countries that are firms covered by the consolidated supervision of the parent undertaking. The entity receiving the support must meet certain conditions for early intervention. Under the implementing technical standards, firms party to the group financial support agreement are required to disclose certain terms on their website in a form that ensures accessibility to the public, in the same form as established for non-quantitative information included in the firm's financial statements. Minimum terms to be disclosed include the form the support may take, the principles for calculation of the consideration for the provision of the support, a general description of the seniority, maturity profile and the maximum term of loans provided as support.
The implementing regulation will enter into force June 30, 2016.
View the implementing Regulation.TOPIC : Recovery & Resolution -
Two Banned from UK Financial Services Industry
06/09/2016
The Financial Conduct Authority published two final notices banning Mr. Mark Kelly and Mr. Patrick Gray from working in the UK financial services industry, effective March 1, 2016. Mr. Kelly traded under the name PCD Wealth and Pensions Management and Mr. Gray acted as an adviser on behalf of PCD. PCD advised over 350 customers and invested nearly £24 million in potentially unsuitable investments between 2008 and 2010.
Mr. Kelly’s conduct during the relevant period included investing customers’ pension funds in Portfolio Bonds, Unregulated Collective Investment Schemes and other investments without customers’ knowledge or consent by a process designed to prevent customers from discovering that their funds had been so invested and investing customers' pension funds without regard to the suitability of the investments for the customers. Mr. Kelly also falsely certified copies of customers' passports as showing true likeness of the customers without having met them.
Read more.TOPIC : Enforcement -
European Securities and Markets Authority Draft Technical Standards for European Long-Term Investment Funds
06/08/2016
The European Securities and Markets Authority published a final report containing draft regulatory technical standards supplementing the Regulation on European Long-Term Investment Funds. The draft RTS set out the criteria to establish the circumstances in which the use of financial derivative instruments solely serves hedging purposes. The criteria are based on those set out in the CESR guidelines on Risk Management and the Calculation of Global Exposure and Counterparty Credit Risk for Undertakings in Collective Transferable Securities on risk measurements. The draft RTS also outlines the circumstances in which the life of an ELTIF is considered sufficient in length. The “life” should be determined with reference to the individual asset within the ELTIF portfolio which has the longest investment horizon. Additionally, the draft RTS provides criteria for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets, costs disclosure and outlines the facilities available to investors. ESMA has submitted the additional final draft RTS to the European Commission for endorsement.
View the draft RTS.TOPIC : Funds -
European Parliament Supports MiFID II Implementation Extension
06/08/2016
The European Parliament adopted at first reading the European Commission’s proposals for a new Directive and Regulation to extend the implementation of MiFID II by one year to January 3, 2018. In addition, the provisional text of the Directive adopted by the European Parliament clarifies the exemption for persons dealing on own account with respect to market makers. An expanded exemption would apply for direct electronic access and own account dealing activities, when this is done for hedging or treasury management purposes. The provisional text of the Regulation adopted by the European Parliament excludes securities financing transactions from transparency requirements for trading venues, systematic internalisers and investment firms trading OTC, specifies the circumstances in which pre-trade transparency requirements do not apply to certain package transactions and amends the Market Abuse Regulation and the Central Securities Depositories Regulation. The proposed Directive and Regulation will now be put forward to European Council under the normal legislative procedure.
View the provisional text of the Directive.
TOPIC : MiFID II -
EU Technical Standards on Data to be Published by Execution Venues on Execution Standards Adopted by the European Commission
06/08/2016
A Commission Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions was adopted by the European Commission. MiFID II requires that, for financial instruments subject to the trading obligation, each trading venue and systematic internaliser (and for other financial instruments, each execution venue) make data available to the public relating to the quality of execution of transactions on that venue on at least an annual basis. The adopted Regulation specifies the content, format and periodicity of data relating to quality of the execution to be published by execution venues.
Read more.TOPIC : MiFID II -
European Securities and Markets Authority Seeks Views on Distributed Ledger Technology
06/08/2016
The European Securities and Markets Authority published a discussion paper on how distributed ledger technology (including, for example, "blockchains") applies to the securities markets. ESMA is assessing the risks posed by DLT as well as the benefits and key challenges of DLT for securities markets. ESMA’s paper provides an analysis of the applicable EU regulatory framework, focusing on legislation for post-trading activities, which include the European Market Infrastructure Regulation, the Settlement Finality Directive, and the Central Securities Depositories Regulation. Responses to the discussion paper are invited by September 2, 2016. ESMA will assess the feedback to develop its position on the use of DLT in the securities markets and to assess the need for a regulatory response.
View the discussion paper.TOPIC : FinTech -
US Board of Governors of the Federal Reserve System and US Federal Deposit Insurance Corporation Grant Extension to Four Foreign Banking Organizations for Submission of their US Resolution Plans
06/08/2016
The Federal Reserve Board and the FDIC announced that they are giving four foreign banking organizations a one-year extension for the submission of their next US resolution plans. Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS AG will be required to submit their next plan on July 1, 2017, with the 2016 annual resolution filing requirement being satisfied by submission of the 2017 plans. The agencies’ press release indicates that the extension was granted in light of the fact that these firms are undergoing significant restructuring to come into compliance with the intermediate holding company requirement by July 1, 2016. The agencies also stated that they expect to provide feedback to the four foreign banking organizations in respect of their 2015 plans, as well as provide additional guidance to the firms for their 2017 plans.
View the press release.TOPIC : Recovery & Resolution -
US Securities and Exchange Commission Adopts Final Rule Regarding Trade Acknowledgments
06/08/2016
The US Securities and Exchange Commission adopted a final rule requiring security-based swap dealers and major security-based swap participants to provide trade acknowledgments for security-based swap transactions. The trade acknowledgment must contain all the terms of the transaction and be provided to the transaction counterparty no later than the end of the first business day after the transaction is executed, as well as promptly verify or dispute the terms of any trade acknowledgment it receives as a counterparty. Covered entities are also required to establish, maintain and enforce written policies and procedures that are reasonably designed to obtain prompt verification of the terms of all trade acknowledgments that they provide. The final rule provides exemptions for certain transactions that are processed through a registered clearing agency or executed on a security-based swap execution facility or national securities exchange. There is also an exemption from the requirements of Exchange Act Rule 10b-10 for broker dealers that satisfy the trade acknowledgment and verification requirements of the final rule. The final rule is effective 60 days after it is published in the Federal Register.
View the final rule.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Issues Guidance for Assessing Risk Management at Institutions with Less Than $50 Billion in Assets
06/08/2016
The Federal Reserve Board issued supervisory guidance for supervised institutions with total consolidated assets of less than $50 billion for assessing risk management. The guidance notes that sound risk management principles should apply to all risks facing an institution, including, but not limited to, credit, market, liquidity, operational, compliance and legal risk. The guidance states that in evaluating an institution’s risk management framework, examiners should evaluate four key areas: board and senior management oversight of risk management, policies, procedures and limits, risk monitoring and management information systems and internal controls. The guidance provides additional considerations that examiners should look for in connection with each of these areas, but notes that the considerations listed therein are not a checklist. The guidance explicitly recognizes that risk management processes and control functions for the US operations of foreign banking organizations may be implemented domestically or outside of the United States. However, in cases where the functions are performed outside of the United States, the guidance states that the oversight function, policies and procedures, and information systems need to be sufficiently transparent to allow US supervisors to assess their adequacy.
View the guidance. -
EU Legislation Extends Central Counterparty Authorization Period
06/08/2016
A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation was published in the Official Journal of the European Union. The authorization process for existing CCPs established in the European Union is on-going but will not be completed by the June 15, 2016 deadline. There are still two CCPs established in the Union that await authorization. The implementing Regulation extends the transitional period by an additional six months to December 15, 2016.
The implementing Regulation entered into force on June 11, 2016.
View the Regulation.TOPIC : Financial Market Infrastructure -
US Federal Financial Institutions Examination Council Issues Statement on Cybersecurity of Interbank Messaging and Wholesale Payment Networks
06/07/2016
The US Federal Financial Institutions Examination Council issued a statement to remind financial institutions to actively manage risks associated with interbank messaging and wholesale payments networks in light of recent terror attacks. The statement does not contain new regulatory expectations related to IT risk management, but rather, alerts financial institutions as to specific risk mitigation techniques to prevent such attacks. The statement encourages financial institutions to review their risk management practices and controls, including authentication, authorization, fraud detection, and response management systems and processes.
View the statement.TOPIC : Cyber Security -
US House Financial Services Committee Chairman Outlines Proposal to Replace the Dodd-Frank Act
06/07/2016US House Financial Services Committee Chairman Jeb Hensarling provided remarks regarding proposed legislation to replace the Dodd-Frank Act. The Executive Summary and additional details were subsequently released, and the full bill is expected to be released later this month. Under the proposal, banks that maintain a leverage ratio of at least 10 percent and a composite CAMELS rating of 1 or 2 would be deemed well-capitalized and able to elect able to opt out of many regulatory requirements, including capital and liquidity requirements and limits on capital distributions and mergers or acquisitions. The proposal would also repeal Title II of the Dodd-Frank Act (the orderly liquidation authority) and replace it with a new subchapter of the US Bankruptcy Code, remove the authority of the Financial Stability Oversight Council, to designate firms as systemically important and certain payments and clearing organizations as systemically important financial market utilities, and reform the Securities and Exchange Commission and Consumer Financial Protection Bureau.
View the Executive Summary of the Financial Choice Act and Representative Hensarling’s speech. -
UK Legislation Implements Provisions of The Bank of England and Financial Services Act 2016
06/07/2016
The Bank of England and Financial Services Act 2016 (Commencement No. 3) Regulations 2016 were made. The Regulations bring a majority of the provisions in The Bank of England and Financial Services Act 2016 into force. Such provisions cover topics such as financial stability strategy, Financial Policy Committee: status and membership, Monetary Policy Committee: membership and procedure, audit, activities indemnified by Treasury, appointment of Financial Conduct Authority chief executive, Treasury recommendations to the Financial Conduct Authority, administration of senior managers regime, rules of conduct, decisions causing a financial institution to fail: meaning of insolvency, enforceability of agreements relating to credit, illegal money lending and banks authorized to issue banknotes in Scotland and Northern Ireland.
The provisions will enter into force on July 6, 2016.
View the Regulations. -
US Commodity Futures Trading Commission Announces Memorandum of Understanding with the European Securities and Markets Authority Regarding Recognized Central Counterparties
06/06/2016
The US Commodity Futures Trading Commission announced the signing of a Memorandum of Understanding with the European Securities and Markets Authority regarding cooperation with respect to recognized central counterparties. Pursuant to the MOU, derivatives clearing organizations established in the United States may apply to ESMA for recognition as central counterparties, known as “Recognized CCPs.”
View the text of the MOU. -
European Commission Adopts Technical Standards on Access to Information on Benchmarks under MiFID II
06/02/2016
The European Commission adopted a Delegated Regulation on RTS setting out the standards for non-discriminatory access for central counterparties and trading venues to licenses of, and information relating to, benchmarks. The Markets in Financial Instruments Regulation provides for such access so as to allow for the determination by a CCP or trading venue of the value of certain financial instruments for trading and clearing purposes. The adopted RTS provide the list of information to be provided by a benchmark owner to a trading venue or CCP requesting access. The information requested must be necessary for the CCP or trading venue to perform its clearing or trading function. The adopted RTS provide that, for trading venues, those functions are, at least: (i) an initial assessment of the characteristic of the benchmark, (ii) the marketing of the relevant product and (iii) the support of the price information process for contracts admitted or being admitted to trading. For CCPs, the relevant functions are (i) risk management of relevant open positions in exchange-traded derivatives, including netting, and (ii) compliance with the requirements under the European Market Infrastructure Regulation. The adopted RTS also set out the price and data feed information to be provided as well as the composition, methodology and pricing information required to allow a CCP or trading venue to understand how each benchmark value is created and the actual benchmark values.
Read more.TOPIC : MiFID II -
European Commission Consults on Cross-border Distribution of Funds and Capital Markets Union
06/02/2016
The European Commission published a consultation paper on how the cross-border distribution of funds could be improved in the context of the Capital Markets Union. The CMU is intended to mobilize capital in Europe and channel it to companies and infrastructure projects to create jobs and economic expansion. The Commission believes that cross-border investment funds have an important role to play in achieving this aim. The consultation is aimed at stakeholders such as fund managers, investors and consumer representatives; the Commission also welcomes comments from investors to build a fuller picture of the barriers to distribution.
The Commission welcomes specific examples of barriers and quantitative and financial evidence on the financial impact of the barriers, including the impact of marketing rules, administrative arrangements imposed by host countries and distribution networks. This includes online platforms, regulatory fees and notification procedures and the most pertinent features of the tax environment. Eliminating unjustified barriers would support fund managers to engage in cross-border marketing of their funds, increase competition and choice and reduce costs for investors. The Commission will use information gathered in its assessment to address the barriers, supporting the development of the CMU and increasing choice.
Responses to the consultation are due by October 2, 2016.
View the Consultation Paper.
TOPIC : Funds -
US Consumer Financial Protection Bureau Proposes Rule Regulating “Pay Day Loan” Industry
06/02/2016
The US Consumer Financial Protection Bureau issued a lengthy proposed rule to regulate so-called “pay day loans.” Specifically, the proposed rule would impose restrictions on “covered loans,” defined as (i) loans with a term of 45 days or less and (ii) loans with a term greater than 45 days that (a) have an all-in annual percentage rate greater than 36% and (b) are either repaid directly from the consumer’s account or income or are secured by the consumer’s vehicle. For these covered loans, the proposed rules would deem it an abusive and unfair practice for a lender to make such a loan without “reasonably determining that the consumer has the ability to repay the loan.” In addition, the proposal would restrict lenders of covered loans from making such loans when a consumer has, or recently has had, certain outstanding loans (in general, certain loans that the consumer has had difficulty repaying).TOPIC : Consumer Protection -
European Banking Authority Decision on Data for Supervisory Benchmarking
06/02/2016
The European Banking Authority published a decision, dated May 31, 2016, on data for supervisory benchmarking under the Capital Requirements Directive. The CRD requires that regulators monitor the range of risk-weighted exposure amounts or own funds requirements, as applicable, except for operation risk, for the exposures or those relating to transactions in benchmark portfolios resulting from the internal approaches adopted by firms. Regulators are also required to assess, at least annually, the quality of the relevant approaches adopted by institutions. In performing this function, regulators receive benchmarking information and data in accordance with the Benchmarking Implementation Regulation. The EBA is required under the CRD to assist regulators in their assessment with regard to supervisory benchmarking. The Decision follows publication of the amended technical standards on benchmarking of internal approaches and requires regulators to submit data for the 2016 benchmarking. Following delay in the EU’s adoption of the Benchmarking Implementation Regulation, the EBA has repealed its previous decision on the topic and replaced it with this decision. -
US Board of Governors of the Federal Reserve System Announces Date of Release for Results of Supervisory Stress Tests and the Comprehensive Capital Analysis and Review
06/02/2016
The Federal Reserve Board announced that it would release results from the latest supervisory stress tests on Thursday, June 23, 2016. Results from the Comprehensive Capital Analysis and Review will be released on Wednesday, June 29, 2016. The stress tests, conducted pursuant to requirements in the Dodd-Frank Act, and the CCAR exercises aim to help large bank holding companies assess the sufficiency of their capital and capital planning processes, taking into account the unique risks of the institutions and the companies’ risk measurement and risk management procedures.
View the Federal Reserve Board’s press release regarding the stress testing and CCAR results.
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European Commission Adopts Technical Standards on Disaggregation of Pre- and Post-Trade Transparency Data under MiFID II
06/02/2016
The European Commission adopted a Delegated Regulation on RTS which set out the requirements for trading venues to provide pre- and post-trade transparency data. MiFIR requires data to be publicly available in an unbundled format. The adopted RTS set out the level of disaggregation by which trading venues should offer data - by asset class, by country of issue, by the currency in which the financial instrument is traded and whether the data comes from scheduled daily auctions or continuous trading. Market operators and investment firms operating a trading venue should also offer any combination of disaggregation on a reasonable commercial basis on request and may offer bundles of data. Where it is not possible to determine the asset class to which an instrument belongs unambiguously, market operators and investment firms operating a trading venue should determine which criteria the relevant financial instrument meets.
TOPIC : MiFID II -
European Commission Adopts Technical Standards on Requirements for Data Reporting Services Providers under MiFID II
06/02/2016
The European Commission adopted a Delegated Regulation on Regulatory Technical Standards on the authorization and organizational requirements for, and publication of transactions by, Data Reporting Services Providers. The revised Markets in Financial Instruments Directive will introduce requirements for DRSPs to be authorized and supervised for their data reporting services, including the operation of Approved Publication Arrangements, Consolidated Tapes and Approved Reporting Mechanisms. The adopted RTS set out the requirements for authorization and ongoing supervision of DRSPs, including the provision of information to be provided to a national regulator when a DRSP is applying for authorization under MiFID II and the organizational requirements covering, amongst others, conflicts of interest, outsourcing, business continuity, IT security and connectivity. The adopted RTS also provide for the publication arrangements that a DRSP must have in place relating to machine readability, scope of data to be provided, non-discrimination and non-duplication.TOPIC : MiFID II -
UK Treasury Committee Requests Regulators to Consider Risks and Opportunities of Crowdfunding
06/01/2016
The Treasury Committee of the UK Parliament announced that Andrew Tyrie MP, Chairman of the Treasury Committee, had written to Financial Conduct Authority and the Prudential Regulation Authority requesting further information about the risks and opportunities presented by crowdfunding (also known as peer-to-peer lending). The letter to the FCA focuses on conduct risk and consumer protection and the letter to the PRA requests information about the resilience of crowdfunding platforms to economic stress.
View the letter to the FCA.
View the letter to the PRA.TOPIC : Consumer Protection -
Final EU Legislation on Exclusion on the Application of Write-down or Conversion Powers under the Bank Recovery and Resolution Directive
06/01/2016
A Commission Delegated Regulation further specifying the circumstances in which exclusion from the application of write-down or conversion powers is necessary under the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. Under the BRRD, the bail-in tool may be applied to all liabilities unless they fall within the list of liabilities explicitly excluded. The new Regulation provides that regulators may only exclude a liability if the obstacles invoked for such exercise do not allow for it to take place within a reasonable time. The BRRD only allows regulators to exclude a liability from bail-in, if it considers that it is not possible to bail-in the liability within a “reasonable time,” which is determined by assessing when the write-down amount ultimately has to be determined; and then assessing, the time by which all tasks needed to bail-in those liabilities would need to be performed in order to meet the resolution objectives. The new Regulation specifies that regulators may exclude liabilities on the basis of it being necessary and proportionate to preserve critical functions and core business lines under the BRRD. The Regulation will apply from June 21, 2016.
View the delegated regulation. -
Corrections to EU Regulatory Technical Standards under the Capital Requirements Directive and Capital Requirements Regulation Published in Official Journal
06/01/2016
A Commission Delegated Regulation was published in the Official Journal of the European Union correcting two Commission Delegated Regulations under the Capital Requirements Regulation and Capital Requirements Directive. The Regulation corrects a previous Commission Delegated Regulation supplementing the CRR with regard to the Regulatory Technical Standards for non-delta risk of options in the standardized market risk approach. Under the CRR, the EBA is empowered to develop a range of methods to reflect non-delta risks in the own funds requirements of firms in a manner proportionate to the scale and complexity of firms’ activities in options and warrants. One approach to measure non-delta risks of options and warrants is the “simplified approach”. The EBA developed draft RTS accordingly, under which institutions that exclusively purchased options and warrants were obliged to use the simplified approach and did not prevent other institutions from using this approach. The correction states that only institutions that exclusively purchase options and warrants may use the simplified approach, which removes the obligation on such firms to only use the simplified approach and prevents other firms from using it.
Read more. -
US Board of Governors of the Federal Reserve System Finalizes Regulatory Reporting Requirements for Intermediate Holding Companies of Foreign Banking Organizations
06/01/2016
The US Board of Governors of the Federal Reserve System adopted a proposal to extend various regulatory reporting requirements to US intermediate holding company (IHC) subsidiaries of foreign banking organizations. The final reporting requirements are generally the same as the proposal, with a few adjustments and clarifications. Under the final requirements, the Federal Reserve noted that it will consider requests to modify the financial data for previous years that an IHC would be required to report, or extend the time period by which an IHC would have to report the historical data on the applicable Form FR Y-14. The FR Y-14 series of reports generally collects data for stress-testing purposes. The Federal Reserve Board also clarified that it is not requiring at this time that the FR Y-14 attestation requirement apply to IHC subsidiaries of US bank holding companies subject to the Large Institution Supervision Coordinating Committee. The Federal Reserve Board also extends the IHC’s first filing date of the FR Y-15 form to December 5, 2016 to allow institutions time to facilitate accurate reporting.
View the Final Rule. -
US Securities and Exchange Commission Adopts Amendments to Form 10-K
06/01/2016
The US Securities and Exchange Commission approved a final rule, implementing a provision of the Fixing America’s Surface Transportation Act, amending Form 10-K disclosure requirements. The interim final rule allows Form 10-K filers to provide a summary of business and financial information contained in the annual report, provided that the summary also contains hyperlinks to the more detailed disclosure in the form.
The SEC also requested comment on whether the interim rule should provide more guidance on the form and content of the summary as well as the applicability of the amended rule to other annual reporting forms.
Comments on the interim final rule must be received on or before 30 days after publication in the Federal Register.
View the full text of the interim final rule.
TOPIC : Financial Services -
European Securities and Markets Authority Opines on MiFID II Ancillary Business Criteria
05/30/2016
The European Securities and Markets Authority published an Opinion specifying the criteria for establishing, under the revised Markets in Financial Instruments Directive, when the activity of a firm is to be considered “ancillary” to the main business of the firm at a group level. Under the current MiFID, eligible firms trading commodity derivatives can rely on exemptions, for ancillary activities, avoiding the need to become regulated as an investment firm. MiFID II narrows the ancillary activity exemption considerably. ESMA is required to develop RTS to specify the criteria which must be taken into account for the revised exemption. They have specified at least the following two elements: (i) the need for ancillary activities to constitute a minority of activities at a group level; and (ii) the size of their ancillary trading activity compared to the overall market trading activity in that asset class. ESMA submitted draft RTS to the Commission on September 28, 2015. On March 14, 2016, the Commission indicated its intention to endorse the draft RTS, subject to a number of changes. In particular, the Commission requested that ESMA include, when proportionate and appropriate, a capital-based test for groups that have undertaken significant capital investments, relative to their size, in the creation of infrastructure, transportation or production facilities or groups that undertake activities or investments which cannot be hedged in financial instruments. The Opinion published is in response to the Commission’s request.TOPIC : MiFID II -
European Securities and Markets Authority Consults on Draft Technical Advice for the Benchmarks Regulation
05/27/2016
The European Securities and Markets Authority launched a consultation on its proposed technical advice to the European Commission on delegated acts due under the EU Benchmarks Regulation. ESMA consulted in February this year on its initial approach to the technical advice and the draft technical standards that it is required to prepare. The consultation on draft technical standards will be held separately in the second half of 2016. ESMA’s advice will cover: (i) certain definitions, including the definition of benchmarks and “use”; (ii) criteria for the identification of critical benchmarks; (iii) endorsement of a benchmark or family of benchmarks provided in a third country; (iv) the measurement of the use of critical and significant benchmarks; and (v) transitional provisions.
Read more.TOPIC : Financial Services -
Financial Conduct Authority Appoints Permanent Director of Supervision
05/27/2016
On May 27, 2016, the Financial Conduct Authority announced that Megan Butler had been appointed to the role of Director of Supervision for the Investment, Wholesale and Specialists team. Ms. Butler has been on secondment at the FCA from the Prudential Regulation Authority as Temporary Head of Supervision. Ms. Butler was previously Executive Director of the International Banks Directive at the PRA and has also worked at the Financial Services Authority and the London Stock Exchange.
View the FCA announcement.
TOPIC : People -
US Financial Crimes Enforcement Network Identifies the Democratic People’s Republic of Korea as a Jurisdiction of Primary Money Laundering Concern
05/27/2016
The US Financial Crimes Enforcement Network, pursuant to authority contained in the USA PATRIOT ACT, found “reasonable grounds” to conclude that the Democratic People’s Republic of Korea is a jurisdiction of primary money laundering concern. In its notice, FinCEN cited several factors that contributed to this conclusion, including evidence that organized criminal groups, international terrorists or entities involved in the proliferation of weapons of mass destruction have transacted business in North Korea, evidence that North Korea has been found to have repeatedly failed to address the deficiencies in its AML regime and the extent to which North Korea has demonstrated high levels of institutional and official corruption.
Read more. -
European Commission Consults on EU Implementation of the Net Stable Funding Ratio
05/26/2016
The European Commission published a consultation paper on the implementation of the NSFR at European Union level. The Net Stable Funding Ratio measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. The CRR introduced reporting requirements for the NSFR without setting any more detailed requirements. The EBA published a report in December 2015 on whether, and how, it would be appropriate to ensure that institutions use stable sources of funding, supporting the Basel Committee NSFR at a European level but with some specificities regarding its calibration. To supplement the Commission’s analysis of the EBA’s report and Call for Evidence published in September 2015, the Commission is calling for a more nuanced treatment of specific business models and some transactions. The consultation seeks views on the treatment of specific aspects of the NSFR, derivative and short-term transactions (less than six months) with financial institutions and the application of the proportionality principle, in particular, the appropriate level of NSFR application and the criteria for defining institutions with a “low liquidity risk profile”.
Responses to the consultation are due by June 24, 2016.
View the consultation on implementation of NSFR.
View the EBA report on NSFR.
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UK Finalizes its Systemic Risk Buffer Framework
05/26/2016
The Financial Policy Committee published the final UK framework for the Systemic Rick Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk. -
UK Regulator Publishes Paper on Issues and Contributions of Market-Based Finance
05/26/2016
The Financial Conduct Authority published an Occasional Paper on the emerging issues and market contributions associated with market-based finance. The paper focuses on the more comprehensive concept of market-based finance, emphasizing the roles of markets and market-making mechanisms in the modern banking system. The FCA published the paper to better understand the impacts of market-based finance on the stability of the financial system as a whole. The FCA’s findings are based on a substantial review of existing literature on market-based finance, trade press and various web sources and discussions with internal and external stakeholders.TOPIC : Shadow Banking -
First Phase of Global FX Code Released
05/26/2016
The Bank for International Settlements published the Phase 1 materials for a global Code for the FX market. The Code is a set of principles providing common guidelines to promote the integrity and effectiveness of the global wholesale FX markets and has been prepared as a result of the recent spate of misconduct cases in the FX markets. The Code covers governance, risk management and compliance, ethics, information sharing, execution and confirmation and settlement processes. The final Code is expected to be published in May 2017. In the meantime, the authors hope that market participants will begin to embed the Code into their day-to-day activities. The Code does not impose any legal or regulatory obligations on market participants and is intended to supplement local laws, rules and regulations by identifying global good practices and processes.
View the Code.
View the update on adherence to the Code.TOPIC : Financial Services -
European Commission Adopts Further Technical Standards Under MiFID II
05/26/2016
The European Commission adopted two Delegated Regulations with Regulatory Technical Standards which will supplement the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The first RTS, relevant to MiFIR, set out the criteria that the European Securities and Markets Authority must use to assess whether derivatives that have been declared subject to the clearing obligation (under the European Market Infrastructure Regulation) have sufficient third-party buying and selling interest to be considered sufficiently liquid for the trading obligation to apply. MiFIR will introduce a trading obligation, whereby standardized volumes of sufficiently liquid non-equity instruments must be traded on a regulated market, multilateral trading facility, organised trading facility or equivalent third country platform (and not OTC).
Read more.TOPIC : MiFID II -
Level Two Legislation Under MiFID II on Information to be Provided by MTFs and OTFs
05/26/2016
A Commission Implementing Regulation containing Implementing Technical Standards on the information to be provided to national regulators by investment firm and market operators of multilateral trading facilities and organized trading facilities was published in the Official Journal of the European Union. The ITS supplements the revised Markets in Financial Instruments Directive, setting out the information that the operator of a MTF or OTF will need to provide to its national regulator on the specific functionality of the trading system so that its national regulator can assess whether the system fits within the definition of an MTF or OTF and also assess compliance with the requirements under MIFID II for an MTF or OTF. The information to be provided includes, amongst other things, the asset classes of financial instruments traded on the platform, the rules and procedures that ensure non-discriminatory access to the platform, arrangements for market making and rules on suspension or removal from trading of a financial instrument. MTFs or OTFs will also need to notify their regulators of any material changes to the information previously submitted. The RTS also sets out the format for the provision of this information. An OTF is a new category of trading platform that the MiFID II Directive and Markets in Financial Instruments Regulation will introduce. The ITS will apply from the date that the MiFID II Directive applies from.
View the ITS.TOPIC : MiFID II -
European Commission Consults on Revisions to Capital Requirements Framework and EU Implementation of CRR
05/26/2016
The European Commission published a consultation paper on proposed options for implementing principles of proportionality in the upcoming capital requirements framework, to review the Original Exposure Method and replace the current standardized approached for counterparty credit risk with a new standardized approach. The consultation looks at the potential introduction of new standards for market risks in the prudential framework as it provides an opportunity to reassess the issue of proportionality for smaller or simpler financial institutions. The current risk framework contained in the CRR establishes some principles of proportionality but there is no derogation for small trading book businesses which would allow firms with non-significant trading activities to use a simplified prudential framework to calculate requirements for their trading exposures. The proposed Basel Committee for Banking Supervision standardized approach would bring significant modifications to the current approach in the CRR, making it more risk sensitive and better suited for complex financial instruments. The Commission is considering whether to implement a simplified version of the new standardized approach or to keep the current standardized approach. -
US Commodity Futures Trading Commission Issues Supplement Modifying Position Limits Proposal
05/26/2016
The CFTC issued for public comment a supplement to the CFTC’s December 2013 position limits proposal. The supplement would permit exchanges to recognize, subject to CFTC review, certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from federal position limits certain spread positions.
In a statement issued concurrently with the proposed rule, CFTC Chairman Timothy Massad noted that the proposed supplemental rule was a critical piece of the CFTC’s effort to finalize rules on position limits in 2016.
CFTC Commissioner Christopher Giancarlo also voiced support for the proposal in a separate statement, stating his belief that the proposal reflects practical realities by recognizing that most exchanges do not have access to sufficient swap position information to effectively monitor swap position limits.
If adopted, the proposed supplement would relieve designated contract markets and swap execution facilities from setting and monitoring exchange limits on swaps until DCMs and SEFs have access to data that would enable them to do so.
View the full text of the proposed supplemental rule.TOPIC : Derivatives -
Financial Stability Board Publishes Thematic Review on Policy Implementation and Shadow Banking
05/25/2016
The Financial Stability Board published its thematic review on the implementation of the FSB Framework for Shadow Banking Entities. The objective of the review was to evaluate the progress made by FSB jurisdictions in implementing the FSB’s Policy Framework, in particular, evaluating efforts by entities based on economic functions and participation in the FSB information-sharing exercise. The FSB found that, despite progress having been made, the peer review findings indicated that implementation remains at a relatively early stage. The FSB concluded that more work is required to ensure that application of the Framework is sufficiently rigorous and that jurisdictions are able comprehensively to assess and respond to risks potentially posed by non-bank financial entities.
Read more.TOPIC : Shadow Banking -
Amendments to EU Technical Standards on Disclosure for Identification of G-SIIs
05/25/2016
A Commission Implementing Regulation which amends the Implementing Technical Standards on uniform formats and dates for the disclosure of values used to identify global systemically important institutions under the CRR was published in the Official Journal of the European Union. The ITS supplement CRR provisions that require regulators to identify G-SIIs, based upon the templates issued by the Basel Committee on Banking Supervision. The amended ITS take into account revisions proposed by the European Banking Authority in January 2016. G-SIIs are now required to report the information used to identify G-SIIs (such as indicators, ancillary data and memorandum items) to the regulator in electronic format, using a template annexed to amending ITS. The amended ITS provides that G-SIIs publicly disclose the values of the indicators used for determining the score of G-SIIs in accordance with the Commission Delegated Regulation on the methodology for the identification of G-SIIs. Information required in the template includes general information such as bank name and reporting dates. The template will also include monetary values on indicators such as payments made in the reporting year, assets under custody and underwritten transaction in debt and equity markets. The amending ITS entered into force on May 26, 2016.
View the amending ITS. -
European Banking Authority Publishes Guidelines on Stress Tests of Deposits Guarantee Schemes
05/24/2016
The European Banking Authority published guidelines for upcoming stress tests of deposit guarantee schemes under the Deposit Guarantee Schemes Directive. The Directive introduced a number of measures to improve the resilience of deposit guarantee schemes in Europe and the EBA is required to perform stress tests every three years; the first is to take place by July 3, 2017. The purpose of the stress test is to verify whether the operation and funding capabilities of the DGS are sufficient to ensure deposit protection, within the conditions of the Directive, during times of increased pressure. The EBA has decided to produce guidelines for consistency across the European Union and to ensure that the stress test is a credible assessment tool.
Read more. -
US Commodity Futures Trading Commission Issues Final Cross-Border Margin Rule
05/24/2016
The US Commodity Futures Trading Commission issued a rule implementing a cross-border approach to the CFTC’s margin requirements for uncleared swaps. The CFTC’s margin rule applies to CFTC-registered swap dealers and major swap participants for which there is no prudential regulator (collectively, Covered Swap Entities or CSEs) but these rules are closely aligned with the cross-border margin requirements already adopted by the prudential regulators.
Read more.TOPIC : Derivatives -
EU Technical Standards on the Removal or Suspension of Financial Instruments from Trading
05/24/2016
A Commission Delegated Regulation outlining the Regulatory Technical Standards on when financial instruments should be removed or suspended from trading was adopted by the European Commission. The adopted RTS will supplement the revised Markets in Financial Instruments Directive, which requires a market operator of a regulated market, multilateral trading facility or organized trading platform to suspend or remove from trading financial instruments which no longer comply with the rules of the trading platform.
Read more.TOPIC : MiFID II -
EU Technical Standards on Admission of Financial Instruments to Trading
05/24/2016
A Commission Delegated Regulation outlining the Regulatory Technical Standards for the admission of financial instruments to trading on regulated markets was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive which requires a regulated market to have clear and transparent rules regarding the admission of financial instruments to trading. Such rules must ensure that any instruments admitted to trading are capable of being traded in a fair, orderly and efficient manner (and in the case of transferable securities, are freely negotiable).
TOPIC : MiFID II -
EU Technical Standards on Minimum Requirement for Own Funds and Eligible Liabilities Adopted by the European Commission
05/23/2016
The European Commission adopted Regulatory Technical Standards on criteria relating to the methodology for setting the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL is the European equivalent of US TLAC. There are some differences between the adopted RTS and the final draft RTS submitted by the European Banking Authority with its Opinion published in February 2016 which expressed disagreement with certain of the European Commission's proposed amendments to the final draft RTS submitted in July 2015.TOPIC : Recovery & Resolution -
US Federal Deposit Insurance Corporation Vice Chairman Hoenig Objects to Proposed Revisions to the Basel III Leverage Ratio Framework
05/23/2016
As part of his remarks at a global economic symposium in Paris, US Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig stated his objections to the Basel Committee on Banking Supervision’s recently proposed revisions to the Basel III leverage ratio framework. In his speech, Hoenig noted that the banking industry has begun to lobby for special treatment or exemptions from capital requirements for a host of assets included in the leverage ratio calculation. Hoenig argued that if accepted, the effect of such proposed revisions would be to again lower acceptable industry capital standards.
Read more. -
UK Legislation Implementing Regulatory Powers for HM Treasury on Financial Collateral Arrangements
05/23/2016
An Order was published implementing provisions in the Banking Act 2009, providing powers to HM Treasury to make regulations about financial collateral arrangements. The relevant provisions come into force on May 25, 2016. Financial collateral arrangements are arrangements under which financial collateral is used as security in respect of a loan or other liability, such as cash and securities. The scope of regulation HM Treasury can make is not restricted purely to provisions required in order to implement the Financial Collateral Directive. This is presumably a prelude to restating the Financial Collateral Arrangements (No. 2) Regulations 2003 in light of recent Supreme Court decision, The United States of America v Nolan, expressing doubt as to its enforceability owing to such regulations arguably going beyond EU laws in some respect and therefore not being made validly under the European Communities Act 1972. The relevant provisions of the Banking Act provide that HM Treasury can make any provision it deems necessary or desirable for the purpose of enabling financial collateral arrangements, whether or not with an international element, to be commercially useful and effective. The regulations may in particular make provision for the enforcement of financial collateral arrangements, and includes matters relating to the rule of law about formalities or evidence, insolvency, administration and receivership.
View the Order.
View the Supreme Court Decision.
TOPIC : Financial Services -
EU Technical Standards on the Valuation of Derivatives for Bail-in Adopted by the European Commission
05/23/2016
The European Commission adopted Regulatory Technical Standards on the valuation of derivatives for the purpose of bailing-in derivative liabilities. The Bank Recovery and Resolution Directive provides that a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions, including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine the value of those derivative liabilities at the moment of exercise of the resolution power. The adopted RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives. The Commission has adopted the final draft RTS submitted by the European Banking Authority without any substantive amendments. The adopted RTS will now be considered by the European Parliament and Council of the European Union.
View the adopted RTS.TOPIC : Recovery & Resolution -
US Federal Deposit Insurance Corporation Extends Comment Period on Deposit Account Recordkeeping Proposal
05/20/2016
The FDIC extended the comment period for proposed recordkeeping requirements for FDIC-insured institutions with at least 2 million deposit accounts. The purpose of the proposed recordkeeping requirements is to facilitate rapid payment of insured deposits to customers if large institutions were to fail. The proposed requirements would not apply to smaller institutions, including community banks.
Read more. -
EU Guidelines on Business Reorganization Plans Following a Bail-In
05/20/2016
The European Banking Authority published translations of its Guidelines on business reorganization plans following a bail-in. The Bank Recovery and Resolution Directive requires a firm that has been recapitalized through a bail-in to produce a reorganization plan that sets out how the firm will be restored to long-term viability and to submit progress reports twice annually throughout the reorganization period. The EBA's Guidelines provide the minimum criteria that the business reorganization plan must fulfil for approval by a resolution authority and set out how national regulators and resolution authorities should assess whether the business reorganization plan is credible, realistic and consistent with other business plans prepared by the firm in parallel. The Guidelines will apply to resolution authorities and national regulators from August 20, 2016.
View the Guidelines.
TOPIC : Recovery & Resolution -
EU Regulation Supplementing Bank Recovery and Resolution Directive Published
05/20/2016
Commission Delegated Regulation on deferral of extraordinary ex post contributions to a resolution financing arrangement and the criteria for determining critical functions was published in the Official Journal of the European Union. The Regulation sets out the assessment that a resolution authority should undertake of a firm's application for deferral from the obligation to contribute to extraordinary ex post contributions to a resolution financing arrangement, including an assessment of the impact on the firm's financial position. The Regulation also provides the criteria for determining whether a function is a critical function. The BRRD requires firms to identify all of the critical functions within the firm or its group in the firm's recovery plan to aid the assessment of how a critical function could be continued when the firm is under financial stress. The Regulation applies from June 9, 2016.
View the Regulation.
TOPIC : Recovery & Resolution -
UK Regulator Consults on UCITS, SFTR and consequential Changes to the Handbook
05/20/2016
The Financial Conduct Authority published a consultation paper outlining proposed changes to the rules and guidance in the Client Assets sourcebook and the Collective Investment Schemes sourcebook (COLL), following the adoption of the UCITS V (the Undertakings for Collective Investment in Transferable Securities V Level 2 Regulation). The consultation paper also proposes minor changes to the Senior Management Arrangements Systems and Controls sourcebook (SYSC) and consequential amendments in COLL and the Investment Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions Regulation. The UCITS V Level 2 Regulation sets out additional, detailed requirements for UCITS management companies and depositaries and will apply to UCITS management firms from October 13, 2016. Requirements include, for example, minimum terms in the contract between a management company and depositary, detailed oversight, cash monitoring and safe-keeping requirements for depositories, and requirements for independence between management companies and the depositaries.
Read more.TOPIC : Funds -
US Office of the Comptroller of the Currency Issues Bulletin Regarding Compliance with Compliance with Securities and Exchange Commission Money Market Fund Rules
05/19/2016
The Office of the Comptroller of the Currency issued a bulletin to highlight actions that national banks and federal savings associations should take and factors that banks should consider based on the US Securities and Exchange Commission's revised money market fund rules. Although these rules directly apply only to MMFs, the rules indirectly affect: (i) banks that make MMFs available to their customers through their fiduciary and custody activities; (ii) bank programs that automatically sweep funds between deposit accounts and MMFs; and (iii) banks that invest in MMFs. The MMF rules were revised in 2010 and again in 2014, and the 2014 rules are currently being phased in with a final compliance date of October 14, 2016.
The bulletin describes how the SEC's MMF rules are likely to affect banks and addresses the product and process changes that affected banks should consider. The bulletin also highlights how banks that are involved in any of these activities will likely be affected by compliance, liquidity, operational and strategic risks related to the SEC's revised rules.
View the OCC bulletin.TOPIC : Financial Services -
UK Payment Systems Regulator Consults on Application of Interchange Fee Regulation in the UK
05/19/2016
The UK Payment Systems Regulator published a consultation paper on the application of provisions in the Interchange Fee Regulation, which take effect in the UK from June 9, 2016. The Regulation sets a limit on interchange fees on debit and credit card transactions where both the issuer and acquirer are located in the European Economic Area and outlines a number of business rule provisions that require affected parties to amend their business practices. The consultation paper is Phase II of the PSR’s consultation on the Regulation; the previous Phase I paper outlined the PSR’s powers and procedures as the designated regulator for monitoring and compliance of the Regulation. The Regulation came into effect on December 9, 2015. This consultation concerns the PSR’s approach to the remaining provisions which will come into effect on June 9, 2016, focusing on three areas: (i) business rules; (ii) monitoring and enforcement of the business rules; and (iii) amendments to the Phase I Guidance.
Responses to the consultation were due by July 8, 2016.
View the consultation paper.
View further information on Phase I guidance.TOPIC : Payment Services -
UK Regulator Provides Feedback on Recovery Plans
05/19/2016
The Financial Conduct Authority published initial feedback on the recovery plans submitted by investment firms regulated by it. Recovery plans are required to be submitted by banks and certain investment firms to national regulators under the EU Bank Recovery and Resolution Directive. The FCA regulates those investment firms in the UK that are not designated by the Prudential Regulation Authority. The FCA identifies key areas for improvement in recovery plans, including identifying and analyzing internal and external interconnectedness, identifying and calibrating recovery plan indicators, demonstrating that recovery plan options are comprehensive and credible, capturing the minimum range of scenarios or properly explaining why certain scenarios are not applicable, correctly defining core business lines and critical functions and designing appropriate communication strategies for crisis management.
Read more.TOPIC : Recovery & Resolution -
US Consumer Financial Protection Bureau Issues Rulemaking Agenda; Delays Issuance of Prepaid Card Rule
05/18/2016
The Consumer Financial Protection Bureau issued a semiannual update of its rulemaking agenda which provides an overview of the agency’s major current initiatives. Among other initiatives, the CFPB notes that it expects to issue a final rule this summer to create a comprehensive set of consumer protections for prepaid financial products, such as general purpose reloadable cards and other similar products. The CFPB issued a proposed rule in November 2014 to bring prepaid products expressly within the realm of the Electronic Fund Transfer Act and its implementing Regulation E as prepaid accounts and to create new provisions specific to such accounts. The agency also proposed to amend Regulation E and Regulation Z (which implements the Truth in Lending Act) to regulate prepaid accounts with overdraft services or credit features. The CFPB had previously announced Spring 2016 for the release of the final prepaid account rule, but the current rulemaking agenda now lists July 2016.
View the CFPB's Spring rule making agenda.
View the proposed rule.TOPIC : Consumer Protection -
US Financial Regulators Issue Guidance on How Banks Handle Consumer Deposit Account Discrepancies
05/18/2016
The US Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the OCC and the Consumer Financial Protection Bureau issued interagency guidance regarding supervisory expectations on how financial institutions should handle consumer deposit discrepancies. In some instances, when a consumer makes a deposit, the sum the bank credits to the account may be different from the total amount deposited. These deposit discrepancies can occur if the amount written on a deposit slip does not match the cash transferred into the bank or as a result of encoding errors or a poor image capture by the bank when it scans or reads a deposit slip. The interagency guidance calls on banks to avoid or reconcile, or resolve deposit discrepancies and to adopt policies that treat consumers fairly when they make deposits and do not violate laws and regulations that apply to deposit discrepancy practices. If a financial institution fails to comply with applicable laws and regulations, including prohibitions against unfair, deceptive and abusive practices, it could open itself up to liability and possible action by an agency.
View the interagency guidance.TOPIC : Consumer Protection -
EU Legislation Amends Technical Standards for Ratio of Unexecuted Orders to Transactions
05/18/2016
A Commission Delegated Regulation, outlining the Regulatory Technical Standards on ratios of unexecuted orders to transactions, was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive on algorithmic trading for both investments firms and trading venues.
Read more.TOPIC : MiFID II -
UK Payment Systems Regulator Policy Statement and Guidance on Alternative Arrangements for Switching Accounts
05/17/2016
The UK Payment Systems Regulator published a Policy Statement and final Guidance on the application of the Payment Accounts Regulations 2015 in respect of alternative arrangements for switching accounts. The final guidance sets out the approach under the PSR to designating alternative switching schemes and is relevant to operators of alternative switching schemes, payment service providers, consumers and regulators.
TOPIC : Payment Services -
European Banking Authority Decision on Unsolicited Credit Assessments
05/17/2016
The European Banking Authority published a Decision permitting the use of unsolicited credit assessments of certain External Credit Assessment Institutions for calculating firm capital requirements. The Decision aims to harmonize regulation related to the use of solicited and unsolicited credit assessments across the European Union. -
UK Competition and Markets Authority Consults on Proposals to Reform Retail Banking
05/17/2016
The Competition and Markets Authority published a provisional decision on market issues regarding personal current accounts and retail banking services for small-and medium-sized enterprises. The decision is part of the CMA’s retail banking investigation which commenced on June 19, 2013. The decision outlines proposals to combat issues hindering competition in personal current accounts and in banking services for SMEs. The CMA considers that competitive pressures in retail banking are weak and that diversification of the banking sector is not the most efficient and accurate way to increase competition. Instead, the CMA is proposing a package of remedies, focused on innovation and the provision of information to customers, coupled with technological development.
Read more.TOPIC : Competition -
Technical Standards on Market Soundings under the Market Abuse Regulation
05/17/2016
The European Commission adopted Regulatory Technical Standards on the arrangements, systems and procedures for market participants disclosing inside information while conducting market soundings. The Market Abuse Regulation, which will apply from July 3, 2016 across the EU, provides that when a disclosing market participant discloses inside information during a market sounding, that disclosure will be deemed to be made in the normal course of the exercise of the person's employment, profession or duty provided that certain conditions are met. Such disclosure would not therefore constitute market abuse. The adopted RTS require disclosing market participants to establish procedures which describe the way in which market soundings are conducted, to provide certain information to the person receiving the market sounding, including, where possible, an estimate as to when the information will cease to be inside information, and to keep records of the persons who have received market soundings. -
US Financial Crimes Enforcement Network Deputy Director El-Hindi Addresses New Customer Due Diligence Rule and Beneficial Ownership Proposal
05/16/2016
As part of his remarks at the Institute of International Bankers Annual Anti-Money Laundering Seminar, US Financial Crimes Enforcement Network Deputy Director Jamal El-Hindi discussed certain US Department of Treasury efforts that have been rolled out in the last several months, including: (i) the final customer due diligence (CDD) rule; (ii) draft legislation requiring legal entities to provide beneficial ownership information at the company formation stage; and (iii) the use of FinCEN’s geographic targeting orders. The CDD final rule amends existing Bank Secrecy Act regulations to clarify and strengthen obligations of covered financial institutions, specifically banks, brokers or dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities. The final rule also adds a new requirement that these financial institutions know and verify the identities of the natural persons who own, control and profit from the legal entities the financial institutions service. Finally, the rule harmonizes BSA program rules and makes explicit several components of customer due diligence that have long been expected under existing regulations. El-Hindi noted how FinCEN relied on significant engagement with industry in finalizing this rule.
Read more. -
Federal Reserve Bank of New York Report Assesses Impact of Supervisory Guidance on Leveraged Lending
05/16/2016
The Federal Reserve Bank of New York published a post on its Liberty Street Economics blog assessing the impact of interagency guidance intended to curtail leveraged lending issued by the Office of the Comptroller of the Currency, Federal Reserve Board and the FDIC in March of 2013. The post shows that banks, in particular the largest institutions, cut leveraged lending while nonbanks increased such lending after the guidance. During the same period of time, nonbanks increased their borrowing from banks, possibly to finance their growing leveraged lending activity. The post notes that this evidence highlights an important challenge of macroprudential policies. Since those policies reach beyond individual banks and target risk in the entire banking system, they are more likely to trigger significant responses that may have unintended consequences.
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Chief Information Officer of US Federal Deposit Insurance Corporation Testifies before the US House of Representatives on Information Security
05/12/2016
Chief Information Officer and Chief Privacy Officer of the US Federal Deposit Insurance Corporation, Lawrence Gross, testified before the Committee on Science, Space, and Technology of the U.S. House of Representatives’ Subcommittee on Oversight. He discussed the FDIC’s information security program and its ability to identify, analyze, report and remediate data security incidents. Gross noted that employees and contractors receive annual training to ensure they will report incidents when they have access to sensitive information. The FDIC also has a security incident response and escalation plan in place to ensure the systematic gathering and analysis of facts relevant to the incident, and an interdisciplinary team responsible for determining the appropriate course of action if there is an elevated risk of harm. After all facts have been gathered, the FDIC takes steps to mitigate the risk of harm and undertake appropriate reporting and notifications commensurate to the severity of the incident. Gross also detailed several remedial steps the FDIC is currently taking to further lower the risk of sensitive information being exposed.TOPIC : Cyber Security -
European Supervisory Authorities Reject Proposed Amendments to Technical Standards on ECAIs Credit Assessments
05/12/2016
The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published an Opinion on the European Commission's proposed amendments to the ESA's final draft Implementing Technical Standards on the mapping of credit assessments to the risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation and Solvency II Directive. The ESA's submitted their final draft ITS to the European Commission in November 2015. The Commission notified the ESAs on March 30, 2016 that it intended to adopt the ITS with amendments by relaxing the ESA's approach to the mapping of ECAIs. The ESA's do not agree with the proposed amendments for several reasons including the fact that the Commission's approach favors promoting competition over financial stability risk concerns.
View the Opinion. -
EU Regulation on Conditions for Derogation from the Liquidity Coverage Requirement
05/12/2016
A Commission Delegated Regulation containing Regulatory Technical Standards specifying the conditions for the application of derogations, concerning currencies with constraints on the availability of liquid assets, under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR sets out a Liquidity Coverage Requirement which requires firms to hold liquid assets to maintain adequate levels of liquidity buffers to cope with any possible imbalances between liquidity inflows and outflows. Firms may derogate from the LCR where the requirement exceeds the availability of those assets in a particular currency.
Read more. -
UK Prudential Regulation Authority Consults on Pillar 2 Liquidity Risk Requirements
05/12/2016
The Prudential Regulation Authority published a consultation paper on its proposed approach to Pillar 2 liquidity requirements for intraday risk, debt buyback and non-margined derivatives, including a proposed policy statement. The Capital Requirements Directive gives national regulators discretion to set Pillar 2 liquidity requirements, in addition to the standard Pillar 1 Liquidity Coverage Ratio which applies to all firms. The PRA is proposing that: (i) the level of application for setting Pillar 2 requirements should be aligned to the Pillar 1 approach; (ii) there should be no specific disclosure requirements under Pillar 2, other than the disclosure of the high quality liquid assets required to cover Pillar 2 risks which are part of the LCR disclosure requirements; (iii) it will use supervisory discretion, guided by a firm's outstanding debt or exposures, to assess liquidity risk linked with debt buyback and non-margined derivatives; and (iv) the assessment of intraday liquidity risk will be based on a firm’s maximum net debits, stress testing framework and key characteristics, as well as the markets in which it operates.
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New Board at the International Organization of Securities Commissions
05/12/2016
The International Organization of Securities Commissions announced that Mr. Ashley Alder had been appointed as the new Chair of the IOSCO board. Mr. Adler replaces Mr. Greg Medcraft, who has been chair for three years. Mr. Jean-Paul Servais will succeed Mr. Alder in his current position of Vice Chair. Mr. Alder is also the Chief Executive Officer of the Securities and Futures Commission (SFC) Hong Kong.
View the announcement.TOPIC : People -
European Banking Authority Argues for Powers to Update Benchmarking Portfolios for Annual Benchmarking Exercise
05/12/2016
The European Banking Authority published an Opinion on the European Commission’s proposed amendments to the EBA's final draft Implementing Technical Standards on benchmarking of internal approaches to regulatory capital. The Capital Requirements Directive sets out a framework for supervisory benchmarking of the internal approaches that EU firms use to calculate own-funds requirements for credit and market risk exposures. The final draft ITS, submitted by the EBA to the Commission in March 2015, include the benchmarking portfolios, templates, definitions and IT solutions for usage in that exercise. On April 16, 2016, the European Commission informed the EBA that it intended to adopt the final draft ITS with amendments.
Read more. -
US Office of the Comptroller of the Currency Releases Mid-Cycle Status Report
05/11/2016
The US Office of the Comptroller of the Currency released a mid-cycle status report on key actions that it has taken to date pursuant to its Committee on Bank Supervision’s annual operating plan for the fiscal year that commenced on October 1, 2015. The plan sets forth the agency’s broad supervision priorities and objectives and is used to develop individual bank supervisory strategies and make related resource allocation decisions. Key actions completed in the first half of fiscal year 2016 include issuing various supervisory communications, including 557 reports of examination, conducting workshops, issuing guidance and reports surveying best practices, and ongoing outreach meetings and presentations to industry members. The OCC’s supervisory priorities for the duration of the 2016 fiscal year include compliance, operational resiliency, credit risk management, stress testing, strategic planning and execution, corporate governance, and interest rate risk.
View the OCC’s mid-cycle status report.
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US Office of Financial Policy and Research Renamed
05/11/2016
The US Board of Governors of the Federal Reserve System announced that the Office of Financial Policy and Research has been renamed as the Division of Financial Stability and designated as a division of the Federal Reserve. Federal Reserve economist Nellie Liang, who was appointed to establish the office in November 2010 will stay on as director. The Division of Financial Stability is responsible for the Federal Reserve’s work on financial stability, including coordinating its interagency and international work, and its role as a member of the Financial Stability Oversight Council and the Financial Stability Board. According to the press release, the change reflects the growth in responsibilities and staffing of the Division.
View the press release. -
Bank of England Paper on Legal Framework for Central Counterparty Default Management Process
05/11/2016
The Bank of England published a Financial Stability Paper on legal certainty for central counterparty default management processes. In the context of legal certainty, the paper focuses on the ability of CCPs effectively to manage a large member default. The paper provides analysis of the three key stages in the process of managing a default at a clearing house: (i) declaration of default; (ii) returning to a matched book; and (iii) managing collateral to absorb the losses caused by the default.
The paper examines the rules governing CCP default management and the extent to which they provide legal certainty. The current legal framework provides certainty around many aspects of financial markets which has been created through the interaction of contract and legislation at both UK and EU levels. Legislation such as the UK Companies Act 1989, European Market Infrastructure Regulation, Settlement Finality Regulation and the Financial Collateral Arrangements (No. 2) Regulation all provide protections but apply in different situations resulting in a patchwork of partial safe harbors. The Bank of England highlights various steps that could be taken to make this legislative framework more robust and coherent.
View the Financial Stability Paper.
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European Banking Authority Consults on LCR Disclosure and Disclosure of Liquidity Risk Management
05/11/2016
The European Banking Authority published a consultation paper on draft guidelines on liquidity coverage ratio disclosures, to complement the disclosure requirements of liquidity risk management under the Capital Requirements Regulation. The CRR provides general disclosure framework for firms for each category of risk where liquidity risk should be considered. Disclosure of ratios and figures to regulators is required under the CRR, in particular, ratios and figures that provide external stakeholders with a comprehensive view of the firm’s management of risk. In January 2015 the Liquidity Coverage Ratio Delegated Act was published, specifying the LCR for credit institutions. The ratio targets ensure that credit institutions maintain an adequate level of liquidity buffer to cover net liquidity outflows in the context of stressed conditions over a period of thirty days. The EBA proposes these draft guidelines to harmonize and specify disclosures required under the general principles in the CRR on liquidity and LCR. -
European Banking Authority Sets Timeline for Provision of Advice to the European Commission on Review of EU Capital Requirements
05/11/2016
The European Banking Authority published a letter from it to the European Commission relating to the Calls for Advice on various aspects of the revised international regulatory capital requirements. The Commission has requested advice from the EBA on the revision of the own funds requirements for market risk, counterparty credit risk, exposures to CCPs, large exposures and the net stable funding requirement.
Read more. -
US Deputy Attorney General Sally Yates Discusses Individual Accountability and Yates Memo
05/10/2016
US Deputy Attorney General Sally Yates discussed the history and implementation of the so-called “Yates Memo,” a September 2015 policy statement issued by the US Department of Justice entitled “Individual Accountability for Corporate Wrongdoing.” Yates stressed that the prosecution of individual employees and executives has always been a priority of the DOJ, and is essential to having a substantial impact on corporate culture. She highlighted the application of the policy to corporate actors in the financial services sector. However, determining which individuals are actually responsible for corporate misdeeds can be challenging in light of blurred authority lines and large amounts of documents that may be subject to privacy protection laws. Accordingly, Yates shared that the DOJ convened a group of Department lawyers to focus on ways the DOJ could overcome these challenges, and their discussions culminated in the issuance of the Yates Memo.TOPIC : Enforcement -
US Commodity and Futures Trading Commission Commissioner Addresses Regulatory Issues Associated with Distributed Ledger Technology
05/10/2016
US Commodity and Futures Trading Commission Commissioner Christopher Giancarlo discussed the potential of distributed ledger technology, which he called "the biggest technological innovation in the financial services industry and financial market regulation in a generation or more." He noted the potential for distributed ledger technology to reduce dependence on third parties, mitigate centralized systemic risk, and perform margin payments in the event of a counterparty default. In addition to the operational and transactional advantages that distributed ledger technology could bring to firms, Giancarlo suggested that it could also help financial market regulators in overseeing the broader financial market. As he has done in prior speeches, Giancarlo emphasized that in order for this technology to flourish, regulators must take a “do no harm” approach. He noted that regulations regarding distributed ledger technology are likely years away but suggested five steps for regulators to take to ensure that they “do no harm” to allow for distributed ledger technology innovation. Specifically, he recommended that the CFTC and other regulators designate teams to work collaboratively with FinTech companies, foster a regulatory environment that spurs innovation, participate directly in proof of concepts to ensure they understand the technology, work with innovators to determine how rules and regulations should be adopted, and collaborate globally.
View Commissioner Giancarlo’s speech.TOPIC : FinTech -
EU Technical Standards on Contents of a Business Reorganization Plan and Reporting on Implementation
05/10/2016
The European Commission adopted a Delegated Regulation outlining the regulatory technical standards on the elements of a business reorganization plan and the minimum contents for reporting progress in the implementation of the plan. The adopted Delegated Regulation will supplement the requirements set out in the Bank Recovery and Resolution Directive which requires a firm that has been bailed in to submit a plan to the resolution authority on how the firm, or parts of it, might be restored to long-term viability within a reasonable timescale.
The adopted RTS require a business reorganization plan to set out the firm's strategy for restoring viability, the projected financial performance of the firm and how it meet its prudential regulatory requirements on a going-forward basis and quarterly implementation milestones and performance indicators. The business reorganization plan must be also include information that will allow the national regulator and resolution authority to conduct a viability assessment of the proposed strategy for restoration.
Read more.TOPIC : Recovery & Resolution -
European Central Bank Announces Assessment of Four Banks in 2016
05/10/2016
The Banking Supervision division of the European Central Bank announced that it is currently undertaking comprehensive assessments of four European Banks. The banks being assessed are Abanka d.d. (Slovenia), Akciju sabiedrība "Rietumu Banka" (Latvia), Banca Mediolanum S.p.A. (Italy) and Citibank Europe Plc (Ireland). The assessments are being undertaken separately to the European Banking Authority stress test. The assessments commenced in March 2016 and the ECB expects results to be published in November 2016.
View the announcement. -
Industry Associations Publish Principles on International Cyber Security, Data and Technology
05/10/2016
Several industry associations jointly published a paper titled International Cybersecurity, Data and Technology Principles and urged the Financial Stability Board and the International Organization of Securities Commissions to take the Principles into account when developing policy and standards on cyber security, data and technology. The industry associations believe that cyber security for global financial institutions can only be addressed at an international level and are concerned that the rules of individual jurisdictions may lead to technology systems of global businesses becoming disintegrated, resulting in harm to competition, innovation and investors. The industry associations recommend that the Principles should be taken into account when any country creates laws, regulations, rules or standards on cyber security that could affect the framework of financial services firms that operate on a global basis. The industry associations are the European Banking Federation, the Global Financial Markets Association and the International Swaps and Derivatives Association.
View the Principles.TOPIC : Cyber Security -
UK Senior Manager Misconduct Provisions Come Into Force
05/10/2016
Two pieces of secondary legislation brought the revised provisions published on May 5th in the Bank of England and Financial Services Act 2016 on senior manager misconduct into force. The revised provisions replace the presumption of responsibility for a senior manager when a breach of regulatory provisions occurs in the area that he is responsible for (originally brought in by the Financial Services (Banking Reform) Act 2013), with a duty of responsibility. For a senior manager to be found guilty of misconduct by one of the UK regulators, the Prudential Regulation Authority and/or Financial Conduct Authority will need to prove that a senior manager did not take reasonable steps to prevent the contravention by his firm from occurring or continuing.
View the Order.
View the Regulations. -
International Organization of Securities Commissions Recommends the Development of Guidelines to Combat Issues Arising from the Impact of Storage and Delivery Infrastructure on Commodity Derivatives Market Pricing
05/09/2016
The International Organization of Securities Commissions published its final report on the impact of storage infrastructures on the integrity of the price formation process of physically-delivered commodity derivatives contracts traded on regulated exchanges. The report sets out findings and conclusions following research, an industry survey and a public roundtable. IOSCO concludes that the IOSCO Principles for the Regulation and Supervision of Commodity Derivatives Markets provide an adequate framework for implementing effective oversight, governance and operational controls of storage infrastructure. IOSCO does not recommend the creation of additional principles or revision of the existing principles. However, it does consider that it is necessary to develop good practice guidelines and enhance current accepted practices.
Read more.TOPIC : Financial Market Infrastructure -
Two Convicted of Insider Dealing in High-Profile UK Prosecution
05/09/2016
Mr. Martyn Dodgson and Mr. Andrew Hind were found guilty of conspiring to commit insider dealing between November 2006 and March 2010 following a three-month trial in a case brought by the Financial Conduct Authority. During the relevant period, Mr. Dodgson was employed by Morgan Stanley, Lehman Brothers and Deutsche Bank. Mr. Hind was a businessman, property developer and a qualified Chartered Accountant. Mr. Dodgson utilized his employment to secure information, both on transactions he personally worked on and through transaction in which his colleagues were involved. Mr. Hind acted as a "middle man" receiving information from Mr. Dodgson then dealing on behalf of Mr. Dodgson and himself. Mr. Dodgson and Mr. Hind used various strategies to conceal their activities, including using unregistered mobile phones, encrypted records and safety deposit boxes. Three other defendants, Andrew Harrison, Ben Anderson and Iraj Parvizi, who were accused of being party to the conspiracy, were acquitted. Sentencing will take place on a future date. The FCA confirmed that confiscation proceedings will also be pursued against the convicted individuals.
The convictions are a result of the FCA's largest insider dealing investigation, dubbed Operation Tabernula, which has also resulted in the conviction of Paul Milsom, Graeme Shelley and Julian Rifat.
View the FCA press release.
View the Shearman & Sterling client note on the case.TOPIC : Enforcement -
US Treasury Announces Measures to Enhance Anti-Money Laundering, Bank Secrecy Act Compliance and Tax Evasion Rule Compliance
05/06/2016
The US Treasury Department put forth several measures to combat money laundering, corruption and tax evasion, in the wake of the so-called “Panama Papers” document leak. First, the US Treasury issued a final Customer Due Diligence Rule that for the first time requires all financial institutions to collect and verify the personal information of the individuals who own, control, and profit from companies (i.e., the beneficial owners)when those companies open accounts.
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Resolution Stay Jurisdictional Modular Protocol Launched
05/05/2016
The International Swaps and Derivatives Association launched the Resolution Stay Jurisdictional Modular Protocol and the UK (PRA Rule) Jurisdictional Module. Certain jurisdictions require banks and investment firms to include clauses in certain contracts with non-EU counterparties by which the counterparty agrees to recognize the powers of the firm’s national regulator to impose a temporary stay on the exercise of early termination rights. The new protocol seeks to help banks comply with new requirements. Many jurisdictions have implemented national regimes on the recovery and resolution of banks and investment firms. However, whether the actions of a national regulator in relation to a failing or failed firm would be recognized by regulators, authorities and courts in other jurisdictions is uncertain and may require contractual support in some countries. Without a global statutory framework in place, the Financial Stability Board recommends jurisdictions to implement laws to ensure that their powers will be recognized on a contractual basis. The UK (PRA Rule) Jurisdictional Module is intended to assist compliance with the UK’s requirements on recognition of temporary stays.
View the Resolution Stay Jurisdictional Modular Protocol and the UK (PRA Rule) Jurisdictional Module.
View ISDA’s press announcement.TOPIC : Recovery & Resolution -
Ex-Financial Adviser Fined for Insider Dealing and Banned from Industry
05/05/2016
The Financial Conduct Authority issued a final notice fining Mr. Mark Samuel Taylor for insider dealing and banning him from the UK financial services industry. On March 12, 2015, Mr. Taylor bought 5,582 shares in Ashcourt Rowan Plc for £15,012. Mr. Taylor’s purchase was based on inside information he received through an email circulated in error by his employer, Towry Limited, where Mr. Taylor was employed as an experienced financial adviser. Mr. Taylor bought the shares using funds from his self-invested pension whilst aware he had acted on insider information. On the same day as Mr. Taylor’s purchase, Towry Limited subsequently made a public announcement of its intention to acquire Ashcourt Rowan Plc with a revised offer. The announcement resulted in the share price of Ashcourt Rowan Plc rising by 26%, generating a profit of £3,498 for Mr. Taylor. The FCA considered that Mr. Taylor’s conduct demonstrated a lack of honesty and integrity, and on that basis, found him to be in breach of the fit and proper person requirement to engage in any regulated activity in the UK financial services industry. Mr. Taylor’s fine was initially £78,819. It was however reduced as a result of evidence that he was experiencing financial hardship and was further discounted given his cooperation in initially admitting to engaging in market abuse and voluntarily agreeing to settle in the early stages of the FCA’s investigation.
View the final notice.TOPIC : Enforcement -
European Banking Authority Seeks Feedback on Risks and Benefits of Modern Use of Consumer Data by Financial Institutions
05/04/2016
The European Banking Authority published a discussion paper on innovative uses of consumer data by financial institutions. The focus of the paper is the risks and benefits to consumers and financial institutions arising from the use of commercially available data. Recent innovations include financial institutions combining consumer data they hold internally with data sourced externally from private and public companies and social media. Financial institutions are able to use consumer data, such as buyer behavior, to provide incentives such as shopping discounts to increase consumer consumption of financial services. Benefits for consumers of such innovative usage may include cost reductions and improved quality in products and services offered as financial institutions can more accurately cater to customer needs. Financial institutions can benefit through the creation of new sources of revenue, achieved through better product and service development and sharing consumer data with third parties.
Read more. -
European Securities and Markets Authority Proposes Amended MiFIR List of Reportable Transactions
05/04/2016
The European Securities and Markets Authority published a Final Report on the revised draft Regulatory Technical Standard on transaction reporting under the Markets in Financial Instruments Regulation. ESMA is proposing amendments to the final draft RTS submitted to the European Commission on September 28, 2015. ESMA’s final draft RTS included a non-definitive list of example transactions which would not attract the reporting obligation under MiFIR, but that list that was silent on acquisitions or disposals that were solely the result of a transfer of collateral. The amendment updates the list to include collateral transfers as a type of “transaction” that should not be reported under MiFID II. The definition of transaction in the RTS is based on the concepts of “acquisition” or “disposal” of a financial instrument. ESMA concluded that including transfers of collateral, as a reportable transaction, would lead to a significant increase in reported data that is not susceptible to market abuse which would serve only to burden the market. Details of collateral are already reported under EMIR and will be reported under the Securities Financing Transaction Regulation for some transactions. ESMA has submitted the Final Report to the Commission with the intention of having it taken into account in the context of the Commission’s endorsement of the final draft RTS.
View the update and final report.TOPIC : MiFID II -
US Federal Reserve Bank of New York Executive Vice President Discusses Importance of Liquidity Regulations
05/04/2016
Executive Vice President of the US Federal Reserve Bank of New York Simon Potter discussed steps the US Board of Governors of the Federal Reserve System has taken to improve the US monetary policy framework following the financial crisis in line with its principles of returning to normalization. He discussed the importance of creating a framework that can provide liquidity for monetary policy implementation and transmission. However, Potter noted that there are important tradeoffs to consider, in that financial market participants may anticipate that central banks, like the Federal Reserve, will make liquidity abundant during times of stress and manage their own liquidity conservatively. He suggested that the Basel III liquidity regulations, namely the liquidity coverage ratio which the US has adopted and the net stable funding ratio which the Federal Reserve has recently proposed, help to mitigate the risk that banks would rely too much on the central bank for liquidity. Potter also noted the importance of the US monetary policy framework being transparent in order to enable market participants to make better-informed decisions. Specifically, drawing parallels to the financial crisis, he observed that a central bank can help foster the contribution of liquidity to the financial system by market participants by committing itself to maintain liquidity.
View Potter’s speech. -
UK Senior Manager and Certification Regime Amendments and Extension Final
05/04/2016
The Bank of England and Financial Services Act 2016 was passed by the UK Parliament. The Act includes amendments to the Senior Manager and Certification Regime and extends the SM&CR to all UK authorized firms. The amendments include removing the presumption of responsibility for a senior manager when a breach of regulatory provisions occurs in the area that he is responsible for, replacing it with a duty of responsibility. In addition, the UK regulators are granted specific powers to take enforcement action against all non-executive directors of firms for their misconduct. The extension of the SM&CR follows from the recommendations of the Fair and Effective Markets Review, published in June 2015, that the regime should be extended to wholesale participants in the fixed income, currency and commodity markets.
Certain provisions of the Act came into effect immediately. The provisions on senior management will come into effect once HM Treasury adopts regulations providing for the effective date. It is not yet known when the extension to all UK authorized firms will occur but the UK regulators have mentioned 2018 in the past.
View the Act.
View HM Treasury’s press release.
View the Bank of England’s press release.
You might like to view our client note. -
US Securities and Exchange Commission Adopts Amendments to Implement Provisions of the Jumpstart Our Business Startups Act and Fixing America’s Surface Transportation Act that Revise Exchange Act Registration Requirements
05/03/2016
The SEC approved amendments to revise the rules related to the thresholds for registration, termination of registration and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. These amendments implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act (FAST Act).
To implement the JOBS Act, the SEC proposed amendments to Exchange Act Rules 12g-1 through 4 and 12h-3 to reflect the new thresholds. The SEC also proposed to establish thresholds for savings and loan holding companies consistent with those for bank holding companies, as well as to revise the definition of “held of record” in Exchange Act Rule 12g5-1.
Subsequent to the SEC’s proposed amendments, the FAST Act revised the thresholds for savings and loan holding companies and the statutory changes were effective upon enactment of the Act. The final rules will become effective 30 days after publication in the Federal Register.
View the SEC press release.
View the final rule.
TOPIC : Financial Services -
US Federal Reserve Bank of New York Executive Vice President Discusses Resilience of Financial Market Infrastructures
05/03/2016
Executive Vice President and Head of the Wholesale Product Office at the US Federal Reserve Bank of New York, Richard Dzina, discussed the importance of improving the cyber resiliency of financial market infrastructures (FMIs) in light of escalating cyber threats with systemic consequences. Dzina cited the recent consultative report by the Committee on Payment and Market Infrastructures and the Board of the International Organization of Securities Commissions which provides guidance on cyber resilience for FMIs, including the expectation that their critical operations resume within a two-hour period following disruption. Heralding joint industry efforts as well as those taken by individual institutions, Dzina highlighted backup site (so-called "third site") capacity as a lynchpin to improving the resiliency of FMIs. Specifically, he recommended that FMIs invest in technologically diverse off-network third site solutions as a backstop to the measures they have in place to prevent against cyber-attacks. He stressed the importance of FMIs, particularly those at the epicenter of the financial system, continuously investing in improvements to resiliency and cybersecurity.
View Dzina’s speech. -
US Board of Governors of the Federal Reserve System, US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Release Notice of Proposed Net Stable Funding Ratio Rulemaking
05/03/2016
The US Board of Governors of the Federal Reserve System approved a joint notice of proposed rulemaking to establish a net stable funding ratio in the US, in line with the framework previously established by the Basel Committee on Banking Supervision. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation previously approved the rule on April 26, 2016. The net stable funding ratio would require covered institutions to maintain stable sources of funding, including capital and long-term debt, over a one-year horizon. Specifically, a covered company’s ratio of (i) “available stable funding,” a measure of the stability of its equity and liabilities over a one-year time horizon to (ii) “required stable funding,” a calculation made based upon the liquidity characteristics of the institution’s assets, derivative exposures and commitments over the same one-year horizon, must be at least 1.0. With respect to assets that qualify as “available stable funding,” asset categories are assigned an “available stable funding” (ASF) weight, with Tier 1 regulatory capital and Tier 2 capital instruments with a maturity of over one year receiving a 100% ASF weight, and trade date payables, certain short-term funding and certain short-term retail brokered deposits receiving a 0% ASF weight. The rule is aimed at reducing liquidity risk by ensuring that a covered institution retains sufficient liquid assets in the event of funding disruptions or a liquidity run in order to remain viable.
Read more. -
European Commission To Promote Crowdfunding under Capital Markets Union
05/03/2016
The European Commission announced that it would not, at this stage, be proposing legislation to regulate crowdfunding. The Commission pledged to report on whether crowdfunding should become regulated at EU-level as part of its Capital Markets Union Action Plan. The CMU aims, amongst other things, to broaden funding sources for small and medium sized enterprises as crowdfunding has become an important source for such funding. The European Commission has assessed national regimes and best practice across the EU and found that the crowdfunding sector is currently fairly small and is concentrated locally. Some Member States have implemented local rules to regulate the sector. However, the European Commission found that the outcomes are generally aligned and that national regimes aim to protect investors whilst allowing the development of this source of funding. However, the Commission noted that the sector is changing rapidly so it will continue to monitor the sector and assess whether regulation is required in the future to harmonize the approaches taken across the EU and ensure investor protection.
View the Commission’s press release.
View the Commission’s report.TOPIC : Financial Services -
European Securities and Markets Authority Makes Recommendations after First EU-Wide Stress Test of Central Counterparties
05/03/2016
The European Securities and Markets Authority published the results of its first EU-wide stress test for central counterparties, including recommendations for improving CCPs’ internal methodologies. ESMA must perform an annual stress test of all EU CCPs under the European Market Infrastructure Regulation. The exercise tested 17 European CCPs which held over €150 billion worth of default resources with more than 900 clearing members across the EU. The purpose of the stress test is to test the resilience and safety of the European CCP sector and identify any possible vulnerabilities, focusing on CCP credit risk when faced with multiple clearing member defaults and simultaneous price shocks. The results indicate that CCP resources are generally sufficient to cover losses resulting from the default of two EU-wide clearing member groups combined with historical and hypothetical market stress scenarios. However, under more severe stress scenarios, CCPs were faced with sector-wide residual uncovered losses varying from €0.1 billion to €4 billion. ESMA recommends that CCP internal methodologies can be improved by CCPs incorporating into their creditworthiness assessments of clearing members, the potential exposures their clearing members may face due to their membership in other CCPs and that regulators should ensure that CCPs revise the price shocks used in their internal stress test methodologies where the stress price shocks applied by CCPs were identified as not being as conservative as the minimum price shocks or as extreme as the most severe historical shocks.
View the update.
View the Q&A on ESMA’s stress test.TOPIC : Financial Market Infrastructure -
European Banking Authority Revised Technical Standards on Additional Collateral Outflows under the Capital Requirements Regulation
05/03/2016
The European Banking Authority published an Opinion on the European Commission's intention not to endorse final draft Regulatory Technical Standards on additional collateral outflows, prepared under the Capital Requirements Regulation. The final draft RTS, submitted to the Commission in March 2014, set out the materiality and the measurement of additional collateral outflows resulting from the impact of an adverse market scenario on a firm's derivatives transactions, financing transactions and other contracts. The technical standards are also a component of the liquidity coverage ratio for which the final standards came into force at the end of 2015. The EBA's final draft RTS include a historical look-back approach (known as HLBA) method for calculating additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on a firm's derivatives transactions, financing transactions and other contracts that was more conservative than that adopted by the Basel Committee on Banking Supervision in April 2014. The European Commission, which delayed the assessment of the final draft RTS pending the adoption of the LCR RTS, requested the EBA to amend its final draft RTS on additional collateral outflows to align with the HBLA approach adopted by the Basel Committee on the basis that the liquidity outflows under the EBA's HBLA approach would be much higher for major players in the derivatives markets and that netting could be allowed as most collateral received by banks is in the form of cash or sovereign debt. The EBA agrees with the European Commission and has submitted revised final RTS to the Commission for endorsement.
View the Opinion and revised final draft RTS. -
US Federal Reserve Board Proposes Rule on Close-Out of Qualified Financial Contracts Involving Large, Complex Financial Firms
05/03/2016
The US Federal Reserve Board proposed a rule to support US financial stability by enhancing the resolvability of large, complex financial firms. The proposed rule would require US global systemically important banking institutions and the US operations of foreign GSIBs to amend certain bilateral, uncleared qualified financial contracts, including derivatives, repurchase agreements, reverse repurchase agreements and securities lending and borrowing agreements, to prohibit the immediate cancellation of such contracts and the exercise of certain other default rights by counterparties if the firm enters bankruptcy or a resolution proceeding. Under the proposal, GSIBs may comply by using QFCs that are modified by the International Swaps and Derivatives Association 2015 Resolution Stay Protocol.
TOPIC : Recovery & Resolution -
European Securities and Markets Authority Proposes Amended MiFID II Standards on Non-Equity Transparency and Position Limits
05/02/2016
The European Securities and Markets Authority published two Opinions proposing amendments to two of its draft Regulatory Technical Standards under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. In September 2015, ESMA submitted the two final draft RTS to the European Commission for endorsement. In April 2016, the Commission requested ESMA to amend each of the final draft RTSs. ESMA’s opinions are in response to the Commission’s request.
Read more.TOPIC : MiFID II -
US Commodity Futures Trading Commission Approves Final Rule on Amendments to the Swap Portfolio Reconciliation Requirement
05/02/2016
The Commodity Futures Trading Commission approved a final rule to amend a requirement found in CFTC Regulation 23.500(i) that swap dealers and major swap participants exchange the terms of swaps with their counterparties for portfolio reconciliation so that SDs and MSPs need only exchange the “material terms” of swaps. The final rule also amends the definition of “material terms” in CFTC Regulation 23.500(g). The final rule benefits SDs, MSPs, and their counterparties by allowing them to focus on reconciling data fields that impact swap valuation and counterparty obligations, without impairing the CFTC’s ability to oversee and regulate the swaps markets.
View the CFTC press release.
View the final rule.TOPIC : Derivatives -
Federal Reserve Bank of New York President Proposes Providing Securities Firms with Access to Discount Window
05/01/2016
Federal Reserve Bank of New York President William Dudley delivered remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, focusing on the connection between liquidity and financial stability. Dudley first addressed market liquidity, noting that evidence that market liquidity has diminished is mixed. Turning to funding liquidity, Dudley emphasized the link between funding liquidity and capital requirements and asked whether more should be done to support funding liquidity. Dudley noted the importance of the availability of a lender-of-last resort, and remediating any gaps in the lender-of-last-resort function. As an example, Dudley noted the limited ability of the Federal Reserve Board to provide funding to a securities firm, even on a fully collateralized basis, and suggested that providing such firms with access to the Discount Window “might be worth exploring.” Dudley also noted that the Bank for International Settlement's Committee on the Global Financial System is engaged in a project to determine what lender-of-last-resort gaps currently exist, focusing, in particular, on those that may create vulnerability in terms of financial stability. One area that he anticipates will receive considerable attention is whether there are any gaps with respect to the activities of globally systemic firms that operate on a cross-border basis. He also noted that greater attention needs to be paid to the appropriate role for the home- versus host-country supervisor and that the regulatory and supervisory responses for large, systemically-important firms that operate on a cross-border basis need to be closely coordinated, especially during times of stress. Dudley stressed that expectations about who will be the lender-of-last-resort need to be well understood in both the home and host countries.
View the speech. -
UK Regulator Consults on Reporting of Financial Statements and Forecast Capital Data
04/29/2016
The Prudential Regulation Authority published a consultation paper on regulatory reporting of financial statements, forecast capital data and IFRS 9 requirements, setting out the PRA’s proposals on future reporting of balance sheet, statement of profit and loss and forecast capital data. The consultation paper is relevant to PRA-authorized banks, building societies and designated investment firms. It also outlines proposals for reporting of P&L data by non-EEA banks that are authorized to accept deposits through a branch in the United Kingdom. The proposals are part of the PRA’s execution of its strategy for the collection of valid, accurate and meaningful information, including a review of reporting requirements to assist the PRA in gaining the information required to engage in judgement-based supervision. Balance sheet and P&L data assist the PRA in its macro-prudential and monetary policy analysis. Responses to the consultation are due by July 29, 2016.
View the consultation paper. -
UK Regulator Publishes Final Rules Implementing the Market Abuse Regulation
04/28/2016
The Financial Conduct Authority published a Policy Statement, including final rules on changes to the FCA Handbook required to implement the Market Abuse Regulation. MAR will apply directly across the EU from July 3, 2016, replacing the current Market Abuse Directive. Some of the changes to the FCA rules reflect MAR’s direct application in the UK. In contrast, the Market Abuse Directive will need to be transposed into national law, including the FCA Handbook. The FCA rules need to be amended to either refer directly to MAR (e.g. for definitions) or to reflect the position under MAR. For example, MAR requires, amongst other things, issuers to provide an explanation for a delay in the disclosure of inside information under certain circumstances. The FCA's rules will require such notification to be made in writing when requested.
The new FCA rules will apply from July 3, 2016. However, the FCA does note that some changes may be required depending on the final version of the EU technical standards due under MAR.
View the Policy Statement. -
UK Regulator Proposes Improvements to UK’s Wholesale Debt Listing Regime
04/27/2016
The Financial Conduct Authority, in its capacity as securities listing authority, published a report on proposed changes to improve the UK’s wholesale debt listing regime. The report comes following an initiative launched by the FCA, the UK Debt Market Forum, where a series of meetings were held stakeholder groups of the UK primary debt capital markets. The purpose of the Forum was to seek expert feedback to assist the FCA in developing practical measures to increase the effectiveness of the UK’s primary listed debt markets without negatively impacting current standards. The report outlines proposed measures that the FCA has implemented following the feedback received. The FCA has proposed an extension of its “Wholesale Debt Approach”.
TOPIC : Financial Services -
European Securities and Markets Authority Update on CRA Reporting
04/27/2016
The European Securities and Markets Authority published an update on reporting obligations in relation to information on structured finance instruments which ESMA receives under the Credit Rating Agency Regulation. The CRA Regulation was originally based on the Code of Conduct Fundamentals for CRAs published by the International Organization of Securities Commissions. ESMA is required under the CRA Regulation to set up a website where information on SFIs can be published to enable reporting entities – originators, issuers and sponsor entities - to submit data files containing the relevant information in accordance with their reporting requirements. EMSA is required to issue technical instructions by July 1, 2016, to assist with the reporting obligations that will apply from July 1, 2017. ESMA has reported that it will not be in a position to receive information on SFIs from reporting entities by January 1, 2017, as it is currently unable to set up a website or issue the technical instructions. This is because there is no legal basis for funding the website. ESMA expects the new securitization legislation currently being finalized to provide clarity on the future obligations regarding reporting on SFIs.
View the update.TOPIC : Credit Ratings -
US Securities and Exchange Commission Seeks Public Comment on Plan to Establish Consolidated Audit Trail
04/27/2016
The SEC released a plan for a proposed national market system that would create a single database, the Consolidated Audit Trail, to track all US activity in the equity and options markets. The establishment of the CAT will allow regulators to be better positioned to identify and investigate market misconduct, and will increase the effectiveness of market research and monitoring. The CAT would be conducted through a Delaware limited liability company that the self-regulatory organizations would own jointly, and participating self-regulatory organizations and the SEC would have access to the data in the CAT for regulatory and oversight purposes. The plan sets out the record keeping and reporting information that SROs and broker-dealers would be required to submit at various stages in the lifecycle of an order or transaction. Public comments on the plan are due within 60 days of the plan’s publication in the Federal Register.
TOPIC : Financial Services -
US Office of the Comptroller of the Currency Issues Guidance on Banks' Maintenance and Retention of Records and Examiner Access
04/27/2016
The OCC issued a bulletin reminding all OCC-supervised banks of their obligations to maintain and retain their records and the OCC’s authority to obtain prompt and complete access to each bank’s books and records and communicate freely with its employees, officers and directors. The guidance is being issued in response to the OCC’s discovery that certain communications technology being made available to banks contains data deletion and encryption features which could inhibit the OCC’s ability to access bank data and records. The guidance notes that the permanent deletion of internal communications is in conflict with the OCC’s expectations for sound governance, compliance, risk management and safety and soundness principles. -
Financial Crimes Enforcement Network Director to Step Down
04/26/2016
Jennifer Shasky Calvery announced that she will step down as Director of the US Treasury Department’s Financial Crimes Enforcement Network at the end of May. She has served as FinCEN Director since September 2012. FinCEN has not announced her successor.TOPIC : People -
US Federal Deposit Insurance Corporation Adopts Final Rule to Amend How Small Banks are Assessed for Deposit Insurance
04/26/2016
The FDIC approved a final rule that amends how banks with less than $10 billion in assets that have been insured for a minimum of five years are assessed for deposit insurance. The rule updates the data and revises the methodology that the FDIC uses to determine the risk-based assessments for such institutions. FDIC Chairman Martin J. Gruenberg anticipates that more than 93% of small banks will pay lower rates under the revised framework. The final rule will be used for rate determinations once the FDIC’s insurance fund reaches 1.15%, but not before the third quarter of 2016.
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EU Technical Standards on Requirements for Investment Firms under MiFID II Adopted by the European Commission
04/25/2016
The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to organizational requirements and operating conditions for investment firms. The adopted Delegated Regulation outlines specific organizational requirements for investment firms performing investment services and ancillary services. In particular, the adopted Delegated Regulation provides procedures for compliance, risk management, complaints handling, personal transactions, outsourcing and conflicts of interest as well as the additional organizational requirements for underwriting and placing services and the production and dissemination of investment research. The adopted Delegated Regulation outlines the operating conditions for investment firms. It also specifies the rules which an investment firm must comply when providing services or ancillary services to clients. For example, it requires information to be provided to clients and potential clients on the costs and charges associated with investment services and financial instruments. The adopted Delegated Regulation further specifies that information, which is to include an explanation of the risks arising from the insolvency of the issuer and related events, such as a bail in, must also be provided.TOPIC : MiFID II -
European Banking Authority Consults on Regulatory Technical Standards for Disclosure of Encumbered and Unencumbered Assets
04/25/2016
The European Banking Authority published a consultation paper on draft regulatory technical standards under the Capital Requirements Regulation on the disclosure of encumbered and unencumbered assets. The CRR requires the EBA to develop draft RTS to specify institutions’ disclosure of balance sheet value per exposure class broken down by asset quality and the total amount of the balance sheet value that is unencumbered. The draft RTS sets out the data required to be disclosed on encumbered and unencumbered assets, the format, and the timing of the publication. The EBA has developed the draft RTS to take into account the European Systematic Risk Board recommendations, which stated that the EBA and regulators should monitor the level, evolution and types of asset encumbrance. The EBA published its first report analyzing asset encumbrance in September 2015. The report revealed that there had been no increase in levels of asset encumbrance over the past four years. The ESRB further recommended that the EBA issue guidelines and harmonized templates and definitions on transparency requirements for credit institutions on asset encumbrance. -
US Government Accountability Office Issues Report on Resolution Plan Review Process by US Regulators
04/25/2016
The US Government Accountability Office issued a report on the resolution plan review processes developed by the US Federal Deposit Insurance Corporation and the US Board of Governors of the Federal Reserve System. The report found that, although the resolution plan rule has improved the resolvability of large systemically important financial companies in the United States, the lack of transparency by US regulators regarding how the regulators assess and review plans could undermine public and market confidence in resolution plans.
Along with these findings, the GAO report issued a series of recommendations to improve the resolution review process. Among other recommendations, the GAO report encouraged the FDIC and Federal Reserve to publicly disclose information about their respective processes for assessing the credibility of resolution plans and revising the resolution plan rule’s filing requirements in order to provide companies with more time to respond to feedback and guidance from the regulators on their resolution plans.
View the GAO report. -
European Banking Authority Publishes First List of Other Systemically Important Institutions
04/25/2016
The European Banking Authority published the first list of Other Systemically Important Institutions in the European Union. O-SIIs are institutions which have been deemed by national regulators to be systemically relevant in addition to the Global Systemically Important Institutions that have already been identified. The EBA has compiled the list based on the findings of the relevant national regulators across the EU. National regulators relied on the EBA Guidelines on the identification of O-SIIs, which included recommended uniform criteria, including size, importance (substitutability or financial system infrastructure), complexity (or cross-border activities) and interconnectedness of such institutions. The EBA’s guidelines on the identification of O-SIIs were developed in accordance with the Capital Requirements Directive and on the basis of internationally agreed frameworks established by the Financial Stability Board and the Basel Committee for Banking Supervision. The EBA will publish an updated list of O-SIIs annually along with a revised definition of any CET1 capital buffer requirements set by national regulators.
View the list of O-SIIs.
View the EBA’s guidelines. -
European Commission Assesses Progress on Capital Markets Union
04/25/2016
The European Commission published a status report on progress made since the adoption of the Capital Markets Union Action Plan. The European Commission's Action Plan, published in September 2015, set out the steps for the medium and long term in five priority areas: (i) providing more funding choices to EU businesses; (ii) ensuring an appropriate regulatory framework for long term investment and financing of Europe's infrastructure; (iii) increasing investment and choices for retail and institutional investors; (iv) improving bank lending capacity; and (v) removing cross-border barriers and developing more harmonized capital markets for all Member States. The Commission's Status Report details the actions taken to date, the key steps planned for the rest of 2016 and measures that will be delivered in 2017-18.
View the Status Report.
View the Action Plan.
TOPIC : Financial Services -
Erratum to Consultation on Basel III Leverage Ratio Framework Published
04/25/2016
The Basel Committee on Banking Supervision published an erratum to its April 2016 consultation paper on proposed revisions to the Basel III leverage ratio framework. The proposals contained in the consultation paper include amendments to: (i) the measurement of derivative exposures by adopting a modified version of the standardized approach for measuring counterparty credit risk exposures; (ii) treatment of regular-way purchases and sales of financial assets so as to achieve consistency across accounting standards; (iii) treatments of provisions; and (iv) credit conversion factors for off-balance sheet items, by aligning them with the standardized approach to credit risk. In addition, the Basel Committee proposes to impose additional requirements on global systemically important banks, setting out various options, including whether the additional requirement should apply uniformly to all G-SIBs or be tailored and whether the form should be a higher minimum requirement or a buffer requirement. Responses to the consultation are still required by July 6, 2016. The Basel Committee intends to finalize the revised leverage ratio requirement in 2016 so as to allow time for its implementation by January 1, 2018.
View the erratum.
View the amended consultation paper. -
European Commission under MiFID II Requests Amendments to Draft Technical Standards
04/22/2016
The European Commission published three separate letters rejecting European Securities and Markets Authority draft technical standards and requesting amendments in accordance with the Markets in Financial Instruments Directive II. The first letter concerns draft regulatory technical standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives. The draft RTS submitted by ESMA lays down the criteria for whether bonds and structured finance products are considered to be liquid and further sets out the parameters and methods for the calculation of those thresholds above which waivers or deferrals may be granted. The Commission largely agreed with the approach taken by ESMA in drafting the standards, however, it stated that the definition of liquidity and the factors for determining the waiver threshold should be reviewed with a more cautious approach. The Commission concluded that it would not endorse the draft RTS until the approach to defining a liquid market for bonds is further aligned with the approach for all other non-equity instruments.
TOPIC : MiFID II -
European Commission Requests European Banking Authority to Assist in its Review of EU Capital Requirements Regulation
04/22/2016
Two letters from Olivier Guersent DG FISMA of the European Commission to Andrea Enria, Chairperson of the European Banking Authority, on issues associated with its review of the Capital Requirements Regulation were published. The first letter, dated April 12, 2016, was in response to the EBAs report on net stable funding requirements under the CCR. The EBA report concluded that NSFR standards developed by the Basel Committee on Banking Supervision fit well with the European banking framework but also flagged some European specificities. By the end of 2016, the Commission, if it deems appropriate, should submit a legislative proposal on the NSFR to the European Parliament and Council relying on the EBA Report when assessing the provisions of the Basel NSFR standard to ensure that a possible NSFR proposal does not hinder the financing of the real economy. The purpose of the letter is to request additional guidance on two areas of the EBA Report. First, with regards to the treatment of derivatives in the NSFR, the Commission is of the view that more specific analysis is required. The Commission expressed concern that the 20% required stable funding factor applied to gross derivatives liabilities and the recognition of margin received as compared to margin posts have not been comprehensively analyzed or subjected to the necessary extensive public consultation. Furthermore, the EBA should provide a complementary assessment on the impact of the provisions and an analysis of the impact on the treatment and calibration of derivatives. -
UK Financial Conduct Authority Consults on Changes to Implement the Market Abuse Regulation
04/22/2016
The Financial Conduct Authority published its proposed changes to the Decision Procedure and Penalties Manual and the Enforcement Guide for implementation of the Market Abuse Regulation. The MAR will apply directly across the EU from July 3, 2016. The FCA must amend and update its rules and guidance to bring them in line with MAR. The FCA's proposals are based on draft secondary legislation which HM Treasury is expected to lay before Parliament in the coming weeks. The draft secondary legislation will, amongst other things, amend the scope of the FCA's powers to impose financial penalties and public censure as well as giving the FCA additional powers to impose sanctions for breaches of MAR or any of its underlying legislation. The new powers include the power to prohibit an individual from carrying out a management function or dealing in financial instruments on their account. The FCA has already consulted on amendments to its Handbook, including the Market Conduct handbook and the disclosure and transparency rules. Policy statements on those proposals are expected soon. The current consultation closes on May 22, 2016. The FCA intends to publish the policy statement in June 2016.
View the consultation paper. -
UK Regulator Consults on Regulation of Secondary Annuity Market
04/21/2016
The Financial Conduct Authority published a consultation paper on its proposed rules and guidance for the secondary annuity market due to start in April 2017. The consultation is aimed at parties interested in pensions and retirement issues, including providers and distributors of annuities, retirement income and planning products, sponsors of occupational Defined Benefit and Defined Contribution Schemes and firms providing advice in this area. The consultation discusses how consumers will be able to sell their annuity incomes on the secondary market. The changes proposed will primarily affect consumers who hold or will hold annuities in their name and contingent beneficiaries with an interest in such annuities. -
US Federal Deposit Insurance Corporation Chairman Gruenberg Discusses Resolution of Systemically Important Financial Institutions
04/21/2016
FDIC Chairman Martin Gruenberg discussed improvements in cross-border cooperation with respect to the resolution of systemically important financial institutions. He highlighted ongoing conversations among leading financial jurisdictions at an FDIC-hosted high-level meeting of the heads of the finance ministries, central banks and leading financial regulatory bodies in the United States and the UK. Gruenberg also discussed the close working relationship between the FDIC and the EU’s Single Resolution Board as well as the regular meetings of the joint working group maintained by the FDIC and EC focused on resolution and deposit insurance issues. In addition to meetings with other regulatory authorities, he cited the importance of the cross-border crisis management groups for each of the global systemically important financial institutions. Significantly, he noted that in his opinion, should a systemically important financial institution in the United States experience severe financial distress today, it would be able to be resolved in an orderly manner under either the Orderly Liquidation Authority under Dodd-Frank Act, or under traditional bankruptcy law. Gruenberg concluded by noting the value of having a single agency, the FDIC, be responsible for both deposit insurance and resolution authority in the United States.
View Chairman Gruenberg’s speech.TOPIC : Recovery & Resolution -
UK Government Action Plan for Anti-Money Laundering and Counter-Terrorist Finance
04/21/2016
The UK Government published an Action Plan for anti-money laundering and counter terrorism financing. The Government is aiming to overhaul the UK approach to AML and CTF by giving new capabilities and legal powers to law enforcement agencies, improving the effectiveness of the supervisory regime and addressing inconsistencies in the regime, improving information sharing between the public and private sectors and increasing the international reach of the UK law enforcement agencies and enhancing international information sharing. The Government published a Call for Information on the system of appointing supervisors for AML and CTF and the powers of supervisors to incentivize compliance and adoption of the risk-based approach. An annex to the Action Plan includes proposed legislative changes. The Action Plan includes a list of deliverables which includes the involvement of the Home Office, the National Crime Agency, HM Treasury and the British Bankers' Association. The shorter term deliverables include running the pilot Joint Money Laundering Intelligence Taskforce, which provides for information sharing between banks and the NCA, on a permanent basis, creating a register of banks' specialisms, exploring new powers to tackle money laundering and completing the review of the supervisory regime. Responses to the Call for Information and the consultation on legislative proposals should be submitted by June 2, 2016.
View the Action Plan.
View the Call for Information on the AML Supervisory Regime.
View the Consultation Paper on Legislative Proposals. -
Basel Committee on Banking Supervision Publishes Pre-announced Jurisdiction Buffer Decisions
04/21/2016
The Basel Committee on Banking Supervision published a list of jurisdiction specific pre-announced buffer decisions. In December, 2010, the Basel Committee published Basel III: a global regulatory framework for more resilient banks and banking systems. As required under Basel III, this document outlines details of global regulatory standards on bank capital adequacy and liquidity, including a countercyclical buffer. The countercyclical buffer regime will be phased-in in accordance with the capital conservation buffer between January 1, 2016, and December 31, 2018 becoming fully effective on January 1, 2019. To assist in bank compliance, jurisdictions can pre-announce buffer levels when raising the countercyclical buffer up to 12 months in advance. A jurisdiction may also announce a decrease in the requisite countercyclical buffer, the effect of which is immediate. The list includes all Basel Committee member jurisdictions, their pre-announced buffer decisions, and the current buffers in place. Jurisdictions include Argentina, China, France, India, Indonesia and the United Kingdom. The updated list also includes buffer information on the non-member jurisdiction Norway.
View the update. -
EU Legislation Amends Margin Period of Risk for Client Accounts
04/21/2016
A Commission Delegated Regulation, which amends Regulatory Technical Standards on the time horizons for liquidation of different classes of financial instruments, was adopted by the European Commission. Under the European Markets Infrastructure Regulation, central counterparties are required to call and collect adequate initial margins to cover the risk stemming from a cleared contract. The proposed delegated regulation amends the margin period of risk for clients for EU CCPs from a two-day period for clients’ accounts (as under the original RTS) to a one-day gross basis. EU CCPs will therefore be able to offer both a two-day net margin model and a one–day gross margin model. The delegated regulation will come into force twenty days following publication in the Official Journal of the European Union.
View the delegation regulation.
You might like to view our client note.TOPIC : Derivatives -
HM Treasury Consults on Legislation for Secondary Annuities Market
04/21/2016
HM Treasury published a consultation paper on the UK Government’s proposed secondary market due to be introduced in April 2017. The market would extend the recently introduced pension freedoms and flexibilities to individuals, who retired prior to April 2015. In December 2015, the Government announced that tax changes would come into effect from April 2017 which would allow individuals to receive all of the proceeds following the sale of an annuity as a taxable lump sum, arrange for the buyer to pay all of the proceeds into a flexi-access drawdown fund, or arrange for the proceeds to be used to buy a new ‘flexible’ annuity. The consultation invites comment on the draft secondary legislation which creates (i) new specified activities for firms intending to purchase annuities or act as intermediaries in the secondary market; and (ii) a new specified activity for annuity providers who are intending to buy back annuities that have been issued. The consultation also discusses proposed amendments to the Appointed Representative Regulations which would exempt appointed representatives, acting under the responsibility of an authorized principal, from needing regulatory authorization to act as intermediaries in the secondary market and to buy back annuities. The consultation also proposes amendments to the By Way of Business Order to make clear that those buying rights to annuity income streams will be subject to the requirements to be authorized or exempt under the Financial Services and Markets Act 2000 and the Regulated Activities Order. HM Treasury stated that regulation of the specified secondary market activities will enhance the Financial Conduct Authority’s supervisory oversight in this area. Responses to the consultation are due by June 2, 2016.
View the consultation paper.TOPIC : Financial Services -
US Federal Agencies Issue Proposed Rule to Implement Incentive-Based Compensation Restrictions
04/21/2016
The National Credit Union Administration re-proposed a rule that would establish incentive-based compensation restrictions on certain financial institutions. The OCC, the FDIC and the Federal Housing Finance Agency followed with their own versions of the proposed rule on April 26, 2016, and the Federal Reserve Board approved its version of the rule on May 2, 2016. The OCC, FDIC, FHFA and Federal Reserve Board proposed rules are substantially similar to the NCUA proposal. The proposed rule, issued pursuant to Section 956 of the Dodd-Frank Act, will ultimately take the form of a joint rulemaking among these agencies and the Securities and Exchange Commission, and replaces an earlier proposal issued in 2011.TOPIC : Compensation -
US Federal Reserve Board Names Matthew Eichner Director of Reserve Bank Operations and Payment Systems
04/21/2016
The Federal Reserve Board named Matthew J. Eichner as the director of its Division of Reserve Bank Operations and Payment Systems, effective May 1, 2016. Eichner has served as deputy director of the division since January 2015.TOPIC : People -
US Commodity Futures Trading Commission Signs Memorandum of Understanding with Canadian Provinces on Cross-Border Supervision
04/20/2016
CFTC Chairman Timothy Massad and authorities for three Canadian provinces signed a March 2014 Memorandum of Understanding regarding (i) cooperation and coordination between the jurisdictions in respect of derivatives and securities markets and (ii) the exchange of information with respect to the supervision and oversight of regulated entities that operate on a cross-border basis in the United States and in Canada. Chairman Massad executed counterparts to the MOU along with the chairs of regulatory authorities of the provinces of New Brunswick, Saskatchewan and Nova Scotia. The MOU covers markets and organized trading platforms, central counterparties, trade repositories, and intermediaries, dealers and other market participants. Specifically, the MOU is intended to protect investors and customers, foster the integrity of financial markets and reduce systemic risk. The MOU previously only covered coordination between the CFTC and Alberta, British Columbia, Ontario and Quebec.
View the CFTC press release.
View the Memorandum of Understanding.TOPIC : Derivatives -
EU Guidelines on Disclosure of Confidential Information under the Bank Recovery & Resolution Directive Finalized
04/19/2016
The European Banking Authority published a report, including final Guidelines, on how confidential information collected under the EU Bank Recovery and Resolution Directive should be disclosed. The BRRD restricts the disclosure of confidential information by recipients of such information in the course of their professional activities unless certain conditions are met. One of these conditions is that the information is in summary or collective form such that the relevant entity cannot be identified. The EBA's Guidelines stipulate that confidential information should be provided either in a brief statement or on an aggregate basis, in anonymized form, taking into account the number of institutions, specific patterns and the context of the disclosure. Regulators of EU member states have six months from when the translated versions are published by the EBA to implement the Guidelines.
View the report and Guidelines.TOPIC : Recovery & Resolution -
EU Legislation Imposing Clearing Obligation for Credit Default Swaps Published
04/19/2016
A Commission Delegated Regulation on central clearing for credit default swaps supplementing the European Markets Infrastructure Regulation was published in the Official Journal of the European Union. Under the Regulation, two classes of credit default over-the-counter derivatives are subject to the clearing obligation under EMIR: iTraxx Europe Main and iTraxx Europe Crossover.
Read more. -
US Treasury Secretary Addresses Potential Risks from Asset Management Products and Activities at Financial Stability Oversight Council Meeting
04/18/2016
US Treasury Secretary and chairman of the Financial Stability Oversight Council, Jacob Lew, provided remarks at a meeting of the FSOC regarding the release of the FSOC’s review of the asset management industry. The statement released by the FSOC is not a rulemaking but rather, reflects the assessment of the FSOC on key areas of focus and risk in the asset management industry. Lew highlighted two key findings that are the focus of the statement—liquidity and leverage risk. With respect to liquidity, the FSOC found that financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, including mutual funds in particular. The statement includes a number of policy recommendations for mitigating such risks, including the implementation of robust liquidity management practices and disclosures for mutual funds, and clearer guidelines that would limit a fund’s ability to hold assets having limited liquidity. With respect to leverage, Lew’s statement notes that while leverage does not generally appear high in all hedge funds, risk may still be present in these funds. He stated that regulators need to better understand the risks being taken by such funds and to engage in further analysis and information sharing in order to reach conclusions as to whether the use of leverage by private funds presents significant financial stability risk.
TOPIC : Funds -
Federal Reserve Bank of New York President Discusses Challenges of Cross-Border Regulation
04/18/2016
New York Fed President William Dudley discussed the importance to the global economy of economic growth and prosperity in the United States and the European Union. He applauded progress that has been made to date towards strengthening global banking systems, including increased capital and liquidity standards for international banks. However, he noted that more needs to be done in order to solve the so-called “too big to fail” problem. Specifically, Dudley stated that impediments to an orderly cross-border resolution need to be fully identified and dismantled, and cross-border regulatory cooperation needs to be further enhanced, including through greater exchange of confidential supervisory information. Moreover, he noted the importance of establishing a level playing field across jurisdictions in respect of cross-border resolution, so that the regulatory focus would be on safety and soundness rather than “trying to protect, favor, or shield national champions.”TOPIC : Financial Market Infrastructure -
US Securities and Exchange Commission Adopts Final Rules Implementing Business Conduct Standards for Security-Based Swap Deals and Major Security-Based Swap Participants
04/15/2016
The US Securities and Exchange Commission, in its ongoing effort to regulate the over-the-counter security-based swap markets, adopted final rules under Title VII of the Dodd-Frank Act implementing comprehensive business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants (collectively, security-based swap entities). As a general matter, the SEC’s final rules impose upon security-based swap entities (i) an obligation to facilitate informed customer decision-making, (ii) requirements to enhance transparency with customers and (iii) supervision and chief compliance officer requirements, among other enhanced professional standards of conduct. The rules also address their cross-border application and the availability of substituted compliance.
The final rules become effective 60 days after publication in the Federal Register. The compliance date for the customer protection rules will be based on the compliance date of the registration rules for security-based swap dealers and major security-based swap participants.
View the SEC final rules.TOPIC : Derivatives -
Financial Conduct Authority Publishes Results of Assessment of Behaviour of High Frequency Traders
04/15/2016
The Financial Conduct Authority published an Occasional Paper which assesses whether high frequency traders, on a systematic basis, foresee when trading orders are going to arrive at different trading venues and trade in advance of other traders by using their speed to their advantage. The FCA used a novel dataset with full order-book data on 120 stocks traded on lit venues in the UK in 2013. The results show that HFTs cannot systematically trade ahead of other market participants at a millisecond frequency but that HFTs are able to anticipate order flow over longer time periods (seconds and tens of seconds). However, it is uncertain whether HFTs are able to react quicker to new information due to their lower latency, or are able to better anticipate order flow (because, for example, other market participants are predictable when placing orders).
View the Occasional Paper.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Holds Meeting of the Systemic Resolution Advisory Committee
04/14/2016
The US Federal Deposit Insurance Corporation’s Systemic Resolution Advisory Committee held a meeting to discuss the latest updates and advice on issues related to the resolution of systemically important financial companies pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. At the meeting, the committee covered topics including, the “living will” updates, orderly liquidation updates, and developments in resolution planning in the European Union.
View the agenda for the Systemic Resolution Advisory Committee meeting. -
US Court of Appeals for the Ninth Circuit Upholds CFPB Director’s Authority to Sue
04/14/2016
A divided US Court of Appeals for the Ninth Circuit ruled that the Director of the US Consumer Financial Protection Bureau had the authority and standing to bring a civil enforcement claim against a California attorney and provider of home loan modification services. The decision addressed the issue of whether Director Cordray was authorized to act during the period following his recess appointment as director of the CFPB, but prior to the Senate’s confirmation of his appointment. In the majority opinion, the court stated that Director Cordray was empowered to bring actions in federal court to enforce certain consumer protection statutes and regulations notwithstanding any deficiency in Director Cordray’s appointment process, and further, that the subsequent ratification of Director Cordray’s appointment by the Senate cured any such deficiencies.
View the Ninth Circuit opinion.TOPIC : Consumer Protection -
Governor of the US Board of Governors of the Federal Reserve System Addresses Challenges of Distributed Ledger Technologies
04/14/2016
Federal Reserve Board Governor Lael Brainard, in a speech given at the Institute of International Finance Blockchain Roundtable, discussed the key challenges involved in the use of distributed ledger technologies in payment, clearing and settlement. In her comments, Governor Brainard discussed some key concerns inherent in distributed ledger technologies, including the challenge of balancing confidentiality and security of firm and client records with the effort to effectively manage access to transaction records for faster and more efficient clearance and settlement, and stressed the importance of fully understanding how different distributed ledger technologies interoperate with each other and with legacy systems.
View the full text of Governor Brainard’s speech. -
UK Regulators Proposals to Enhance Their Enforcement Decision-Making Processes
04/14/2016
The Financial Conduct Authority and Prudential Regulation Authority published a joint consultation paper on proposals to implement certain aspects of the recommendations set out in HM Treasury's Review of Enforcement Decision-making at the Financial Services Regulators (known as the Enforcement Review), published in December 2014, and the report by Andrew Green QC in the enforcement actions following the failure of HBOS (known as the Green Report), published in November 2015.
TOPIC : Enforcement -
UK Regulator Bans Former LIBOR Trader from UK Financial Services Industry
04/14/2016
The Financial Conduct Authority published a decision notice banning Mr Arif Hussein from the UK financial services industry. The FCA found Mr Hussein not to be a fit and proper person to carry out the functions of a trader or of any regulated financial activity. The finding was based on the actions of Mr Hussein during his employment as a derivatives trader at UBS in regard to submissions made to the London Interbank Offered Rate market. LIBOR is a benchmark rate and the FCA views LIBOR as fundamental to the operation of both the UK and international financial markets in interest rate derivatives contracts. Between January 28 and March 19, 2009, Mr Hussein requested GBP Trader-Submitters to make LIBOR submissions to benefit the Trading Position of UBS. The FCA considered these actions to be reckless. The FCA noted that Mr Hussein knew that he should not make LIBOR submissions for the benefit of trading-positions. The FCA found that Mr Hussein’s conduct threatened confidence in the integrity of the UK financial system and could have caused significant hardship to other market participants.
TOPIC : Enforcement -
Consultation on Guidelines for Prudential Treatment of Problem Assets
04/14/2016
The Basel Committee on Banking Supervision published a consultation document on guidelines for the prudential treatment of problem assets focusing on credit categorization definitions. In the context of the financial crisis, the Basel Committee noted that credit categorization terms used by firms were not always clear and made it difficult to compare financial information. This contributed to increased uncertainty at the height of the crisis and undermined investor ability to assess bank performance and risk. Credit risk categorization is a tool used by banks when assessing the solvency and riskiness of banks’ credit risk exposures. -
European Securities and Markets Authority Announce First EU-wide Stress Tests for EU CCPs
04/14/2016
The European Securities and Markets Authority announced it will publish its first EU-wide stress tests for EU Central Counterparties. Under the European Markets Infrastructure Regulation ESMA is mandated to conduct stress tests for CCPs. The stress test will evaluate the resilience and safety of the European CCP sector and identify any vulnerabilities. The focus of the exercise is to test counterparty credit risk that CCPs would face in the event of multiple clearing member default combined with simultaneous market price shocks. The results of the stress test will be published on an anonymized and aggregated basis on April 29, 2016.
View the announcement.TOPIC : Financial Market Infrastructure -
US Treasury Department’s Office of Financial Research Releases Brief Regarding Global Systemically Important Banks
04/13/2016
The US Treasury Department’s Office of Financial Research published a paper analyzing data on global systemically important banks, based on data released in 2013 and 2014 by the Basel Committee on Banking Supervision. The OFR research report analyzed data regarding 30 banks across the world identified by the Basel Committee as G-SIBs, including eight US bank holding companies. The analysis found, among other things, an increase in the systemic importance scores by Chinese banks, while the systemic importance scores of US G-SIBs generally reflected little change and continued to be among the highest amongst global banks.
View the full text of the OFR report.
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European Securities and Markets Authority Opines on Exemptions from the Clearing Obligation for Pension Schemes
04/13/2016
The European Securities and Markets Authority published Opinions, dated April 7, 2016, on certain Denmark-based pension schemes that are to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinions were requested by Finanstilsynet and relate to three different kinds of pension schemes, Life insurer occupational schemes, Labour market related life insurer and Multi employer pension fund. Transitional exemptions from the clearing obligation can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must seek an Opinion from ESMA before making a final exemption decision. ESMA, in turn, must consult with the European Insurance and Occupational Pensions Authority before issuing its Opinion. This follows the extension of the transitional exemption period for pension funds from the clearing obligation to August 16, 2017 which is the revised date by which pension funds must comply with the EU clearing obligation under EMIR.
View ESMA's Opinions.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation Jointly Determine that Five US Global Systemically Important Banking Organization Resolution Plans are Not Credible
04/13/2016
The US Federal Reserve Board and Federal Deposit Insurance Corporation jointly determined that the 2015 resolution plans of the following five US domestic global systemically important banking organizations are not credible: Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street and Wells Fargo. The agencies also jointly identified weaknesses in the resolution plans of Goldman Sachs and Morgan Stanley, but did not make joint determinations as to the plans and their deficiencies. Neither agency found that Citigroup’s resolution plan was not credible, although the agencies did identify certain shortcomings that Citigroup must address.
Under Section 165(d) of the Dodd-Frank Act, bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the FSOC for supervision by the Federal Reserve Board must periodically submit resolution plans to the Federal Reserve Board and the FDIC. The five firms receiving a joint notice of deficiencies must remediate those deficiencies by October 1, 2016, to avoid imposition of more stringent prudential requirements on the firm until it remediates the deficiencies. Such prudential requirements could include more stringent capital, leverage or liquidity requirements, as well as restrictions on growth, activities or operations of the firm, or its subsidiaries.
The Federal Reserve Board is releasing the feedback letters issued to each firm. The agencies are also issuing “Resolution Plan Assessment Framework and Firm Determinations (2016),” which provides further information on the determinations and the agencies’ processes for reviewing the plans. Additionally, the agencies are releasing new guidance for the July 2017 submissions for all covered companies. The deadline for the next full plan submission for the eight US GSIBs is July 1, 2017.
View the Federal Reserve Board press release.TOPIC : Recovery & Resolution -
Interim Report on Investment and Corporate Banking Market Study Published by Financial Conduct Authority
04/13/2016
The Financial Conduct Authority published its interim report on the investment and corporate banking market study, which includes proposed remedies to the deficiencies identified. The FCA proposals include removing the practice of banks using contractual clauses to restrict client choice, reducing barriers to entry for non-universal banks without undermining the efficiency benefits of cross-selling and improving the credibility of league tables for investment and corporate banking. The FCA also intends to investigate further whether individual banks whether there are any issues in conflicts management in the allocation of Initial Public Offerings. -
International Swaps and Derivatives Association Publishes Updated Asset Classification Letter
04/13/2016
The International Swaps and Derivatives Association published an updated ISDA European Markets Infrastructure Regulation Classification Letter. The purpose of the Classification Letter is to assist market participants in their management of regulatory obligations under the EMIR. The obligations imposed by EMIR differ depending on the counterparties to each transaction. The Classification Letter sets out a number of questions that derivative counterparties can reply to and send to their counterparty in order to allow their counterparty to determine their status under EMIR taxonomy. The letter not only provides a means by which entities can make known their own classification, but also gain access to other entities’ classifications according to the EMIR taxonomy. The letter has been updated to take into account the forthcoming clearing obligation for interest rate swaps which will be phased in from September 1, 2016, and the credit default swaps clearing obligation which comes into force on April 19, 2016, and is subject to approval by the European Parliament and Council of the European Union.
View the Classification Letter.
View the Explanatory Memorandum.TOPIC : Derivatives -
Industry Associations Publish Format for Information Statement Under EU Securities Financing Transactions Regulation
04/13/2016
A form of information statement for usage by collateral takers was jointly published by five industry associations. This is aimed at facilitating compliance with disclosure requirements under the European Union's Securities Financing Transaction Regulation. The relevant industry associations are the Association for Financial Markets in Europe, the International Capital Market Association, the International Swaps and Derivatives Association and the International Securities Lending Association. The SFTR will affect all existing and future title transfer and security collateral arrangements from July 13, 2016 and require disclosure to collateral providers where a collateral taker uses title transfer or has a right of use, with respect to a security financing transaction, such as a repo or margin loan. The purpose of the statement is to outline the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding title transfer arrangements.
View the information statement. -
Bank of England to Take Up Benchmark Administrator Role
04/13/2016
The Bank of England announced that effective April 25, 2016, it would become the administrator of the Sterling Overnight Index Average interest rate benchmark. SONIA provides bank and building societies’ overnight funding rates in the sterling unsecured market. It is designated as a specified benchmark under UK legislation. The Wholesale Market Brokers’ Association is currently the administrator of SONIA and is regulated by the Financial Conduct Authority. Under the new arrangements, the WMBA will be the calculation and publication agent for the SONIA benchmark, with the Bank of England assuming overall responsibility and providing governance and oversight. The Bank of England has been working to reform SONIA since March 2015 and intends to broaden the range of transactions supporting SONIA to include bilaterally negotiated and brokered transactions. The Bank of England's new money market data collection, announced in July 2015, will be used as the data source once it is properly established. The full transition is expected to be completed by Q2 2017.
View the Bank of England's announcement. -
Tracey McDermott to Leave the Financial Conduct Authority
04/13/2016
The Financial Conduct Authority announced that acting Chief Executive Officer, Tracey McDermott, would leave the regulator on July 1, 2016. Andrew Bailey, currently Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive Officer of the Prudential Regulation Authority, will take up the position of CEO of the FCA from July 1, 2016.
View the FCA's announcement.TOPIC : People -
European Banking Authority Reports on Supervisory Best Practices for Securitization
04/12/2016
The European Banking Authority published a report on supervisory measures taken by national regulators in 2014 on compliance by credit institutions and investments firms with securitization risk retention, due diligence and disclosure requirements under the Capital Requirements Regulation. The EBA is required to assess regulators' measures to ensure compliance. The report notes that firms are generally undertaking actions to comply with the requirements. Since the introduction of the requirements under the Capital Requirements Directive II in 2011, ten firms have been deemed non-compliant, with one firm receiving a sanction of an additional risk weight. The report provides analysis of how the EBA's recommendations on regulation of risk retention rules, due diligence and disclosure in the EU, as specified in a 2014 EBA report, have been taken on board in the legislative proposals for the new securitization framework issued by the European Commission as part of its Capital Markets Union initiative.
Read more. -
European Banking Authority Opinion on Customer Due Diligence for Asylum Seekers
04/12/2016
The European Banking Authority published an Opinion on the application of customer due diligence measures to customers who are asylum seekers from higher-risk third countries or territories. The Opinion, addressed to national EU regulators, outlines the EBA’s view on the application of customer due diligence measures by credit and financing institutions when entering into a business relationship with customers who are asylum seekers from higher-risk third countries. Firms are required under the EU's anti money laundering legislation (to be transposed into national law by June 27, 2017) to prevent financial systems being exploited for the purpose of money laundering or terrorist financing.
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US Federal Deposit Insurance Corporation Vice Chairman Issues Global Capital Index Update
04/12/2016
The US Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig issued the semi-annual update of the Global Capital Index, an index showing the capital ratios for global systemically important banks. Upon release of the update, Vice Chairman Hoenig noted that the loss-absorbing tangible capital levels of the largest US banks are increasing relative to their foreign counterparts. Vice Chairman Hoenig emphasized however that, although the update indicated the overall health of US banks, compared to foreign banks, progress must still continue to a point where banks maintain sufficient levels of tangible capital to effectively move the cost of downside risk from the public to the firms.
View the updated Global Capital Index. -
US Office of the Comptroller of the Currency Releases Risk Appetite Statement
04/12/2016
The US Office of the Comptroller of the Currency released its Risk Appetite Statement, which documents the OCC’s overall conservative risk appetite in carrying out its supervisory mission. The Risk Appetite Statement provides that the OCC will accept more risk in some areas in order to adapt to the changing needs of supervised national banks and federal savings associations. OCC management and employees will use the statement to evaluate their decisions in overseeing national banks and federal savings associations as well as the execution of agency management functions, such as human resources, procurement and information technology.
Comptroller of the Currency Thomas J. Curry noted that by clearly articulating acceptable levels of risks within the OCC’s operations, agency personnel have “clearer signposts by which to guide their decisions and external stakeholders can better understand OCC actions in the context of the risks facing the agency.” The OCC plans to update its Risk Appetite Statement periodically as the federal banking system and its supervision evolve.
View the OCC’s Risk Appetite Statement. -
Former LIBOR Trader Banned and Censured by UK Conduct Regulator
04/12/2016
The Financial Conduct Authority announced that it had banned former LIBOR trader Paul White from performing any financial regulated activity and publicly censured him. The FCA found that Mr. White was "knowingly concerned" in RBS's breach of the principle requiring firms to observe proper standards of market conduct and that he lacked the requisite fitness and propriety required of a person responsible for benchmark submissions. Mr. White was the Japanese Yen and Swiss Franc LIBOR submitter at the Royal Bank of Scotland between March 8, 2007 and November 24, 2010. During that time Mr. White received requests from RBS JPY and CHF derivatives traders and external JPY derivatives traders requesting submissions that would benefit their trading positions and took those requests into account when submitting the RBS JPY and CHF LIBOR rates to the British Bankers Association (the former administrator of LIBOR). The FCA issued a warning notice to Mr. White in 2014 but its proceedings were suspended pending the Serious Fraud Office's criminal investigation into individuals who had formerly been employed at RBS. The SFO announced in early March this year that it was closing its FX LIBOR investigation on the basis that there was insufficient evidence to bring a prosecution.
View the FCA's Final Notice.TOPIC : Enforcement -
European Securities and Markets Authority Opines on Principles for Loan Origination by Funds
04/11/2016
The European Securities and Markets Authority published an Opinion setting out key principles for a European framework on loan origination by funds. The Opinion is in response to the European Commission's request that ESMA assist in developing points for its forthcoming consultation on an European framework. The potential framework is part of the Commission's Capital Markets Union Action Plan.
Read more.TOPIC : Funds -
UK Government Announces Steps to Support UK FinTech Growth
04/11/2016
The Economic Secretary to the UK Treasury, Harriett Baldwin, gave a speech at the 2016 Innovate Finance Global Summit in London. The Economic Secretary announced certain policies that the UK Government had adopted to support the FinTech sector, including establishing a FinTech panel, the delivery of a support function to set an overarching UK FinTech strategy and establishing ‘FinTech Bridges’ to work with priority global markets to assist UK FinTechs to grow internationally.
View HM Treasury's press release.TOPIC : FinTech -
UK Government Consults on Draft Innovation Plan for Financial Services
04/10/2016
The UK Government launched a consultation on a draft innovation plan for financial services. The innovation plan covers the work of each of the financial services regulators – the Financial Conduct Authority, the Payment Systems Regulator, the Prudential Regulation Authority and the Bank of England – setting out the steps that each regulator has taken or intends to take to adapt to new technologies and disruptive business models to encourage competition and growth and to better utilize technologies to reduce burdens on business and create efficiency savings. The consultation seeks feedback on the UK's regulatory environment for financial services supporting innovation, whether the regulators understand innovation and where new technologies might emerge, if there are any gaps that the regulators should focus on and if there are ways that the regulators could better utilize technologies. Responses are requested by May 6, 2016. -
Corrigendum to Technical Standards on Supervisory Reporting of Institutions of Liquidity Coverage Arrangements
04/09/2016
A corrigendum relating to the format and frequency of the reporting of liquidity requirements under the Capital Requirements Regulation was published in the Official Journal of the European Union. The corrigendum corrects numerical references to Annexes contained in Commission Implementing Regulation (EU) 2016/322 relating to types of information to be reported and the instructions for reporting.
View the corrigendum. -
US Financial Stability Oversight Council Files Appeal to Metlife Decision
04/08/2016
The US Financial Stability Oversight Council filed its appeal to the DC District Court opinion overturning the FSOC’s designation of insurer MetLife as a systemically important financial institution. In the March 30, 2016 judicial opinion that was unsealed last week, US District Court Judge Rosemary Collyer called the FSOC’s determination process “fatally flawed” and “arbitrary and capricious,” ruling that the FSOC did not follow its own guidelines before deciding on the Metlife designation. US Treasury Secretary Jacob J. Lew has criticized the court’s ruling, arguing that by overturning the conclusions of experienced financial regulators, “the court imposed new requirements that Congress never enacted, and contradicted key policy lessons from the financial crisis.”
View the US District Court opinion.
View the statement from Treasury Secretary Jacob J. Lew. -
Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority Appointed
04/08/2016
Sam Woods was appointed Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority. Mr. Woods will succeed Andrew Bailey on July 1, 2016. Mr. Bailey will move to the Financial Conduct Authority as Chief Executive when Mr. Woods takes on the role of Deputy Governor. Mr. Woods, who previously worked for HM Treasury and in the private sector for Diageo and McKinsey & Company, will take up a renewable term of five years as Deputy Governor.
View the press release.TOPIC : People -
Draft EU Rules on Investor Protection under MiFID II Adopted by the European Commission
04/07/2016
The European Commission adopted a Delegated Directive on aspects of the revised Markets in Financial Instruments Directive covering rules for the safeguarding of client financial instruments and funds, product governance requirements and inducements.
Read more.TOPIC : MiFID II -
US Comptroller of the Currency Discusses Innovation in the Financial Services Industry
04/07/2016
At the American Banker Retail Banking Conference, US Comptroller of the Currency Thomas J. Curry discussed innovation in the financial services industry and its impact on retail bankers, consumers of banking services and regulatory agencies. Comptroller Curry noted that if banks are to remain relevant in a changing world, they have to be able to adapt quickly to changes in technology and business practices. He also noted the importance of regulators being open to such changes but cautioned that regulators do so in a responsible way that does not threaten the safety of the system or the financial well-being of bank customers. The Comptroller also spoke about the OCC’s principles for implementing a regulatory framework to support responsible innovation in the federal banking system.
View Comptroller Curry’s remarks.TOPIC : FinTech -
US Consumer Financial Protection Bureau Director Richard Cordray Presents Agency's Semi-Annual Report to Congress
04/07/2016
US Consumer Financial Protection Bureau Director Richard Cordray presented the CFPB’s Semi‑Annual Report at a hearing before the Senate Committee on Banking, Housing and Urban Affairs. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is required to provide to Congress an update on the CFPB’s mission, activities, accomplishments and publications since the last Semi-Annual Report, as well as certain additional information required by the Dodd-Frank Act.
As part of the hearing, Cordray also responded to questions from the Committee, including what standards FinTech companies will be held to since they are not depository institutions. Cordray noted that “it would not be appropriate for new FinTech startups to be getting an advantage in the marketplace because they are arbitraging the regulatory system, they are not complying, they’re not taking seriously what the banks and regulated institutions have to do.” While many FinTech firms hold “a lot of promise,” Cordray added that innovation isn’t always a net positive, and cited subprime mortgages as an example of what was once thought of as an innovative product.
At the hearing, Cordray also fielded questions on payday loans, arbitration agreements, prepaid cards and small-business lending. The most contentious interactions involved indirect auto lending and regulation by enforcement.
View Cordray's written testimony.
View additional coverage of the hearing.TOPIC : Consumer Protection -
US Board of Governors of the Federal Reserve System Proposes Technical Amendments to Risk-Based Capital Surcharge for Global Systemically Important Bank Holding Companies
04/07/2016
The US Board of Governors of the Federal Reserve System proposed technical amendments to its rule requiring a risk-based capital surcharge for global systemically important bank holding companies. The rule, finalized by the Federal Reserve Board in July 2015, establishes the criteria for identifying a GSIB and the methodology a GSIB is required to use to determine its risk-based capital surcharge, which corresponds to the systemic risk of that firm.
The proposed amendments would not materially change the underlying final rule but rather clarify that GSIBs must continue to calculate their surcharges using year-end data, while their related surcharge data will be reported on a quarterly basis. The proposal explains that bank holding companies subject to the rule are required to compute their method 2 surcharge scores using systemic indicator amounts expressed in billions of dollars even though the data is reported in millions of dollars. The amendments also provide additional information on how GSIBs should calculate their short-term wholesale funding scores, which help to determine their surcharges, during the rule’s transition period.
Comments on the proposal are due by May 13, 2016.
View the Federal Reserve Board press release.
View the proposal. -
European Securities and Markets Authority Discussion on Classes of Undertakings for Collective Investments in Transferable Securities
04/07/2016
The European Securities and Markets Authority published a discussion paper on the recognition of the different share classes offered by Undertakings for Collective Investments in Transferable Securities funds in different EU jurisdictions. ESMA identified in 2014 diverging national practices as to the types of share class permitted under the UCITS Directive. ESMA is seeking stakeholder's views on its proposed framework for UCITS share classes throughout the European Union. In particular, whether and how share classes work under the ESMA principles. The paper describes the nature of the different share classes and establishes common principles which could form the basis of a regulatory framework for all share classes.
TOPIC : Funds -
European Securities and Markets Authority Reviews Approach to Supervision of Suitability Requirements under MiFID
04/07/2016
The European Securities and Markets Authority published a peer review report on compliance with the suitability requirements under the existing Markets in Financial Instruments Directive. The review assessed during the period January 1, 2013, to December 31, 2014 how national regulators approach supervision of firms to ensure compliance with the MiFID suitability requirements when investment advice is given to retail clients. The MiFID suitability requirements aim to ensure that firms only recommend suitable investment products to investors taking into account the client's profile. ESMA found, amongst other things, that only some regulators provide information on the tools they use to monitor compliance with the suitability requirements, many regulators do not undertake targeted supervision projects relating to suitability and enforcement action is rare as most regulators consider that their supervisory approach is sufficient to address any issues. ESMA will analyze the findings and determine areas where further convergence between the approaches taken by national regulators is needed.
View the review report.TOPIC : MiFID II -
UK Payment Systems Regulator Will Not Introduce New Access and Governance Requirements for Card Payment Schemes
04/07/2016
The UK Payment Systems Regulator announced that after consideration, it had decided that it would not be imposing any new access or governance requirements on card payment schemes. The PSR introduced governance requirements for interbank payment systems in 2015. The PSR has considered the information it has gathered as well as the improvements made in the area through EU legislation, in particular, the Payment Services Regulations 2009. The PSR will continue to assess whether any changes are necessary.
View the announcement.TOPIC : Payment Services -
European Supervisory Authorities Report on Risks and Vulnerabilities in the EU Financial System
04/07/2016
The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published a report identifying three main areas of risk and vulnerability affecting the stability of the EU financial system. The ESAs noted that investment funds had experienced markedly lower returns during the second half of 2015. The ESAs observed that the low interest rate environment coupled with high non-performing loans ratios in some countries, has contributed to the subdued profitability of banks in the EU. The report concludes that a proactive stance is required to address the high level of non-performing loans at some banks. The report highlighted the trend of increasing interconnectivity of bank and non-bank entities. The ESAs noted that interconnectedness could act as a potential channel for the propagation of shocks and thereby contribute to negative systematic events. The ESA recommends that the regulators should implement enhanced supervisory monitoring of concentration risks, cross-border exposures and regulatory arbitrage. The ESAs also highlights the risks associated with a potential contagion stemming from China and other emerging markets. Following a decade of strong contributions to global economic growth from emerging economies and China, the recent economic slowdown in these economies could have substantial effects on the EU in future. To forecast the risk in market exposure to these economies, the ESAs suggest that these markets should be covered in risk analysis exercises such as stress test exercises. Supervisors are also asked by the ESAs to carefully evaluate any optimistic assumptions relating to returns on cross border activity.
View ESA report. -
US Federal Deposit Insurance Corporation Chairman Gruenberg Remarks on Banking Industry Consolidation and the Prospect of De Novo Banks
04/06/2016
US Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg discussed the consolidation of community banks, noting that while many of the smallest (with assets less than $100 million) have either consolidated or ceased operations, the number of larger community banks (with assets of between $1 billion and $10 billion) has actually increased over the past 30 years. He further noted that approximately 93 percent of FDIC-insured institutions are considered “community banks” and play an important role in providing small loans to farms and businesses and deposit services to communities across the US. However, Gruenberg observed that community banks face many challenges including a decline in net interest margins.
Read more. -
US Department of Labor Finalizes Rules to Impose Fiduciary Duty on Financial Advisors Who Provide Retirement Advice to Retail Customers
04/06/2016
The US Department of Labor announced final rules that will, for the first time, subject investment advice to IRA and other non-ERISA plan clients to ERISA’s fiduciary standards and remedies. Currently, brokers and dealers and other advisers to retail retirement clients are required to adhere to a “suitability” standard with respect to their investment advice. Under the new rule and related prohibited transaction exemptions, which will be applicable beginning in April 2017, these financial professionals must act in the “best interests” of their client in order to continue receiving common forms of compensation (such as commissions, third party payments and other forms of variable remuneration). In eliminating certain compliance requirements, the final rule is less stringent than the proposed rule issued in April 2015, but it still represents a major departure from the status quo.
View Shearman & Sterling's client memorandum discussing the new rule and related exemptions.
View the final rule.
View the fact sheet released by the White House.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Vice Chairman Hoenig Discusses a Framework for Tailored Supervision
04/06/2016
US Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the decline of traditional community banks over the last thirty years and the resulting concentration of the US financial system in a few large financial firms. Hoenig outlined his recommendation of a model of regulatory relief that would provide greater flexibility to banks operating in the United States. Notably, Hoenig’s framework would abandon references to size thresholds, but would instead grant regulatory relief to banks that: (i) hold no trading assets or liabilities; (ii) hold no derivatives positions other than interest rate and foreign exchange derivatives; (iii) have a total notional value of all their derivatives exposures (including cleared and non-cleared derivatives) of less than $8 billion; and (iv) maintain a ratio of GAAP tangible equity-to-assets of at least 10 percent. He suggested that such banks should potentially be exempt from Basel capital standards, stress testing requirements, and certain reporting requirements.
View Vice Chairman Hoenig’s speech. -
US Treasury Deputy Assistant Secretary Discusses Strengthening of US Anti-Money Laundering and Combating the Financing of Terrorism
04/06/2016
At the SIFMA Anti-Money Laundering and Financial Crimes Conference, Jennifer Fowler, Deputy Assistant Secretary of the US Treasury, spoke regarding progress that the US has made in strengthening its framework for anti-money laundering and combatting the financing of terrorism. Fowler noted that the Financial Action Task Force is currently undergoing a mandatory assessment of its AML/CFT framework, focusing not only on technical compliance with the FATF standards, but more importantly, how effectively those standards are implemented. Fowler also addressed ways the US can improve in combating illicit finance, specifically, among other things, by: (i) seeking to clarify and strengthen customer due diligence requirements for financial institutions; and (ii) ensuring that companies know and disclose their ultimate, or beneficial, owners to the government at the time of company formation.
View Fowler’s speech. -
US Board of Governors of the Federal Reserve System Issues Guidance on Basel Committee Consultation on Operational Risk Measurement
04/06/2016
The US Board of Governors of the Federal Reserve System's Division of Banking Supervision and Regulation and Basel Coordination Committee issued a bulletin that provides supervisory guidance with respect to the issuance of the Basel Committee on Banking Supervision’s second consultative paper published on March 4, 2016, “Standardised Measurement Approach for Operational Risk.”
The BCBS paper proposes certain revisions applicable to large, internationally active banking organizations, including a non-model-based method for calculating operational risk-weighted assets and a withdrawal of the advanced measurement approaches (AMA) for operational risk from the Basel capital framework. In its bulletin, the Federal Reserve Board states that it will consider the BCBS proposals in connection with the US advanced approaches risk-based capital rule in a manner consistent with the US notice and comment process, during which time the existing AMA capital requirements will remain in effect.
View the Federal Reserve Board guidance. -
European Banking Authority Consults on Amendments to Approaches for Determining Proxy Spreads and Market Loss
04/06/2016
The European Banking Authority published a consultation paper proposing amendments to the regulatory technical standards for determining proxy spread and the specification of a limited number of smaller portfolios for credit valuation adjustment risk under the Capital Requirements Regulation. On February 25, 2015, the EBA published a report on the relevance of the RTS provisions. In particular, the EBA focused on a CVA data collection exercise of 32 banks from 11 jurisdictions. The EBA concluded, based on the collection exercise, that there were difficulties in determining appropriate proxy spreads and market loss given default for a large number of counterparties because spreads may never be observed on markets. The amending RTS provides alternative approaches for the purpose of identifying appropriate proxy spread and market loss given default, in response to the issues outlined in the previous EBA report. The consultation invites responses on whether the amendments address the issues raised in the previous EBA report and whether the amendments are needed. Responses to the consultation are due by July 6, 2016.
View the EBA consultation. -
Proposed Revisions to the Basel III Leverage Ratio Framework Published
04/06/2016
The Basel Committee on Banking Supervision published proposals to revise the existing leverage ratio framework. The proposals include amendments to the : (i) measurement of derivative exposures by adopting a modified version of the standardized approach for measuring counterparty credit risk exposures; (ii) treatment of regular-way purchases and sales of financial assets so as to achieve consistency across accounting standards; (iii) treatment of provisions; and (iv) credit conversion factors for off-balance sheet items by aligning them with the standardized approach to credit risk. In addition, the Basel Committee proposes to impose additional requirements on global systemically important banks, setting out options, including whether the additional requirement should apply uniformly to all G-SIBs or be tailored and whether the form should be a higher minimum requirement or a buffer requirement. Responses to the consultation are due by July 6, 2016. The Basel Committee intends to finalize the revised leverage ratio requirement in 2016 so as to allow time for its implementation by January 1, 2018.
View the consultation paper.
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Financial Conduct Authority Publishes Thematic Review on Investor Expectation Satisfaction
04/06/2016
The Financial Conduct Authority published its thematic review on how firms in the fund management sector meet investors' expectations. The FCA considered whether UK authorized investment funds and segregated mandates were operated in line with investors' expectations as outlined in market material, disclosure material and investment mandates. A sample of 23 funds was reviewed, which were all Undertakings for Collective Instruments in Transferable Securities (UCITS) schemes sold to retail investors. The FCA found that generally fund management firms had taken the right steps to meet investors' expectations and comply with their responsibilities to investors and that firms generally provided adequate information about funds' strategies, characteristics and inherent risks. This provides customers and financial advisers with better opportunities to make informed investment decisions. The review highlights the need for investors to be provided with accessible information on the risks associated with investing; the FCA found that most firms disclosed the key risks associated with their funds. The FCA will be writing to all the firms involved the review to provide individual feedback. Firms that were deemed not to have effectively managed their risks are required by the FCA to make the associated improvements. The FCA noted that it will follow up on the results of the review through its routine supervision.
View the review.TOPIC : Funds -
International Report on Cyber Security in Securities Markets
04/06/2016
The International Organization of Securities Commissions published a report on cyber security in securities markets from an international perspective. The purpose of the report is to assist IOSCO members and market participants to enhance their cyber security in securities markets. The report outlines from an international perspective the various approaches adopted by market participants and the initiatives implemented by different regulators. The report focuses on the main regulatory challenges associated with cyber security issues across reporting issuers, trading venues, market intermediaries, asset managers and financial market infrastructures. The report states that regulators could cooperate to improve cyber security through the exchange of information on threats, security vulnerabilities and previous cyber-attacks that could ultimately be relevant for other regulated entities and market participants. Specifically, information on methods used by cyber criminals, exploited vulnerabilities they are aware of, ways of preventing similar attacks previously committed and emerging cyber risk trends. IOSCO concludes that the fluid nature of securities markets requires market participants and regulators to constantly evolve their responses to cyber security issues.
View the report.TOPIC : Cyber Security -
EU Regulation and Template on Public Disclosure of Managers Transactions
04/05/2016
A Commission Delegated Regulation and Commission Implementing Regulation supplementing the Market Abuse Regulation were published in the Official Journal of the European Union. The Delegated Regulation extends the exemption to certain public bodies and central banks of third countries from the obligations set out in MAR, including amongst others, the Reserve Bank of Australia, Central Bank of Brazil, Bank of Canada and the People's Bank of China.
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One-Day Margin Period of Risk for EU Central Counterparty Client Accounts Proposed by European Securities and Market Authority
04/05/2016
The European Securities and Market Authority published its final report and amending regulatory technical standards on the margin period for Central Counterparty client accounts. The amending RTS change the time horizons for the liquidation period for gross omnibus accounts and individual segregated accounts for exchange traded derivatives and securities. ESMA considers that a CCP, in a liquidation period, should be able to either transfer or liquidate the position of the defaulting clearing member and furthermore, have sufficient margin to cover exposures arising from such transfer or liquidation.
Read More. -
European Securities and Markets Authority Proposals to Improve Access by Regulators to Trade Repository Data
04/05/2016
The European Securities and Market Authority published its final report containing final draft amending regulatory technical standards regarding requirements for regulator access to Trade Repositories data and the subsequent aggregation and comparison of that data. The European Market Infrastructure Regulation requires ESMA to develop draft technical standards specifying the frequency and the details of the information to be made available to regulators by TRs. TRs are to provide regulators with access as required. ESMA has amended the RTS, first published in 2013, to provide regulators with better access to data and to improve their ability to compare and aggregate data. For the exchange of data between TRs and regulators, ESMA has proposed an XML template based on ISO 20022 methodology. ISO 20022 is a universal message scheme for the financial services industry. This methodology can be used to facilitate aggregation and comparison of data across repositories. The amended RTS also defines the minimum operational standards to allow direct and immediate access to TR data and the aggregation and comparison of data across TRs. The amended RTS sets out definitive timelines for the provision of data to regulators. ESMA expects this will enable regulators to better plan and schedule their internal processes for gathering and analysis of TR data. The RTS provides minimum standards for secure machine to machine connection and data exchange between TRs and regulators. In particular, ESMA has proposed enhanced procedures for data security, including the use of electronic signatures and data encryption protocols when providing regulators access to TR data. ESMA's proposed amendments to operation standards on data access also require TRs to validate in a timely manner requests from regulators. ESMA has submitted the additional final draft RTS to the European Commission for endorsement.
View the final report. -
US Commodity Futures Trading Commission and US Securities and Exchange Commission Jointly Propose Guidance on Certain Natural Gas and Electric Power Contracts
04/04/2016
The US Commodity Futures Trading Commission and the Securities and Exchange Commission jointly proposed guidance relating to the treatment of certain electric power and natural gas contracts. Specifically, the guidance proposes that certain capacity contracts in electric power markets and certain natural gas contracts known as peaking supply contracts should not be considered "swaps" under the Commodity Exchange Act, because such contracts are examples of customary commercial arrangements as described in the final rule defining what constitutes a "swap". The proposed guidance will be open for comment for 30 days after it is published in the Federal Register.
View the proposed Guidance.TOPIC : Derivatives -
US Internal Revenue Service and US Treasury Department Issue Anti-Inversion Regulations
04/04/2016
The US Internal Revenue Service issued a proposal under Section 385 of the Internal Revenue Code with respect to the treatment of instruments issued by corporations in related-party transactions as debt or equity for federal tax purposes. On the same day, the US Treasury Department also took action to limit US corporate “inversions” and to restrict earnings stripping aspects of such transactions.
Specifically, the US Treasury regulations would, among other things, limit corporate inversions by disregarding foreign parent stock attributable to certain prior inversions or acquisitions of US companies. Additionally, debt issued by a US subsidiary to its foreign parent would be treated as equity under certain circumstances. The proposals have raised concerns with respect to the impact on US subsidiaries of foreign banking organizations, specifically intermediate holding companies subject to the Federal Reserve Board’s total loss absorbing capacity (TLAC) requirements. These new proposals add further complexity regarding the tax treatment of TLAC debt.
View the IRS proposed regulations.
View the Treasury Department press release.TOPIC : Financial Services -
Federal Reserve Bank of Boston President Offers Perspectives on Economic and Cyber Risks
04/04/2016
While speaking at the Federal Reserve Bank of Boston’s 2016 Cybersecurity Conference, Boston Fed President Eric Rosengren addressed risks in the cyber realm, noting that such risks are not abating. In Rosengren’s view, banking organizations need to continue to evolve as these risks morph, and as new innovations and expectations of convenience introduce new challenges to security. Rosengren stated, “cyber risks make it imperative that we all work together to ensure that resiliency, monitoring, detection, and recovery capabilities are operational in the financial system.”
View Rosengren’s remarks.TOPIC : Cyber Security -
US Board of Governors of the Federal Reserve System Proposes New Data Items for Regulatory Reporting by Foreign Banking Organizations
04/04/2016
The US Board of Governors of the Federal Reserve System proposed changes to various reporting forms, including FR Y-7N, FR Y‑7NS and FR Y-7Q, requiring collection of fourteen new data items to monitor compliance with enhanced prudential standards for foreign banking organizations. The new data items, adopted pursuant to Subparts N and O of Regulation YY, would be used to determine whether an FBO with total consolidated assets of $50 billion or more meets capital adequacy standards at the consolidated parent company level that are consistent with the Basel capital framework.
The proposed revisions would be effective September 30, 2016, and, for certain items, March 31, 2018. Comments to the Federal Reserve Board proposal are due by June 3, 2016.
View the proposal. -
US Board of Governors of the Federal Reserve System Finalizes Rules Allowing Certain Municipal Securities to be Counted as High-Quality Liquid Assets
04/01/2016
The US Board of Governors of the Federal Reserve System released a final rule that would permit certain US general obligation state and municipal securities to count towards the high-quality liquid assets (HQLA) that large banking organizations may use to satisfy the liquidity coverage ratio (LCR) requirement. The LCR, as adopted by the federal banking agencies in September 2014, requires large banking organizations to hold a minimum amount of HQLA no less than their total net cash outflow amount over a 30-day forward-looking period of significant financial stress. Specifically, the final rule allows certain investment-grade, US general obligation state and municipal securities to qualify as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. Although the LCR rule did not initially allow US municipal securities to be treated as HQLA, the Federal Reserve noted that subsequent analysis suggested that certain US municipal securities should qualify as HQLA because they have liquidity characteristics similar to other classes of HQLA, including corporate debt securities, and thus should receive similar treatment. The rule goes into effect on July 1, 2016. While the US LCR rule was an interagency rulemaking with substantively identical rules implemented by the Federal Reserve, the US Federal Deposit Insurance Corporation, and the US Office of the Comptroller of the Currency, neither the OCC nor the FDIC issued a similar rule with respect to the treatment of municipal securities as HQLA.
View the Final Rule. -
Federal Reserve Bank of New York Releases Report on Organization of Global Banks
04/01/2016
In early April, the Federal Reserve Bank of New York released a staff report entitled “Organizational Complexity and Balance Sheet Management in Global Banks,” which analyzes the evolution of banks from standalone institutions to being subsidiaries of complex financial conglomerates. The paper suggests the organizational complexity of the family of a bank is a fundamental driver of the business model of the bank itself, as reflected in the management of the bank’s own balance sheet. Based on microdata on global banks with branch operations in the United States, the report shows that branches of conglomerates in more complex families have a markedly lower lending sensitivity to funding shocks. The balance sheet management strategies of banks are very much determined by the structure of the organizations the banks belong to and the complexity of the conglomerate can change the scale of the lending channel for a large global bank by more than 30 percent.
View the New York Fed staff report. -
US Board of Governors of the Federal Reserve System Staff Working Paper Concludes Both Capital and Liquidity Need to be Regulated
04/01/2016
In early April, the Board of Governors of the Federal Reserve System's Divisions of Research and Statistics and Monetary Affairs released a staff working paper entitled “Bank Regulation under Fire Sale Externalities,” addressing the optimal design of, and interaction between, capital and liquidity regulations in a model characterized by fire sale externalities. In particular, the authors analyze whether it suffices to introduce capital regulations alone and let banks freely choose their liquidity ratios or whether liquidity also needs to be regulated. The results of the study indicate that the pre-Basel III regulatory framework, with its reliance only on capital requirements, was inefficient and ineffective in addressing systemic instability caused by fire sales. The paper notes that capital requirements can lead to less severe fire sales by forcing banks to reduce risky assets, however, it also shows that banks respond to stricter capital requirements by decreasing their liquidity ratios. Anticipating this response, the regulator preemptively sets capital ratios at high levels and ultimately, this interplay between banks and the regulator leads to inefficiently low levels of risky assets and liquidity. The paper concludes that macroprudential liquidity requirements that complement capital regulations, as in Basel III, restore constrained efficiency, improve financial stability and allow for a higher level of investment in risky assets.
View the Federal Reserve Board staff working paper. -
Basel Committee on Banking Supervision Second Report on Risk-weighted Assets
04/01/2016
The Basel Committee on Banking Supervision published a second report on banking book risk-weighted asset valuation. The report forms part of the Regulatory Consistency Assessment Programme with the aim of effecting full implementation of the Basel III framework. The Committee's first report in 2013 focused on probability of default and loss-given-estimates for sovereign, bank and corporate exposures. This second report examines the variability of RWA in banks that use internal models to calculate their risk regulatory capital requirements.
Read more. -
US Office of the Comptroller of the Currency Releases White Paper on Financial Innovation; Comptroller Curry Discusses the Paper and the OCC's Approach to Innovation
03/31/2016
The US Office of the Comptroller of the Currency published a white paper on its vision for responsible innovation in the federal banking system and the eight principles that it will follow in developing a framework to evaluate new financial products and services, including formal outreach to the industry and collaboration with other regulators. The OCC also solicited feedback on how the OCC can facilitate responsible innovation, including what additional tools and resources could assist national banks and federal savings associations with regard to innovation. Comptroller Thomas J. Curry discussed the paper and the OCC's general approach to financial innovation in remarks he gave at Harvard. He discussed the challenges that financial technology companies pose to traditional banks, and how these challenges encourage banks to evolve and improve the products and services they offer to businesses and consumers, but cautioned that banks must do so in a responsible way that is consistent with sound risk management practices. Curry mentioned the possibility of creating a new office dedicated to innovation, and noted the OCC’s commitment to work with banks to identify and understand new technology and help banks manage associated risks and comply with consumer safeguards. Comments on the white paper are due by May 31, 2016. The OCC will host a forum on June 23, 2016, to discuss comments on the white paper and lead a discussion on financial services innovation.
View the OCC's White Paper.
View Comptroller Curry’s speech.TOPIC : FinTech -
European Securities and Markets Authority Joins European Banking Authority in Call for Legislative Changes on Application of Remuneration Requirements
03/31/2016
The European Securities and Markets Authority published its final report on Guidelines on the sound remuneration policies under the Units in Collective Undertakings Directive and the Alternative Investment Fund Managers Directive, including the final Remuneration Guidelines under UCITS V and revised Remuneration Guidelines under the AIFMD. ESMA also published a letter addressed to the European Commission, the European Parliament and the Council of the European Union in which ESMA recommends that legislation is required to provide clarity on the application of the proportionality principle to the remuneration requirements under EU laws.
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UK Treasury Committee Commissions Maxwellisation Review
03/31/2016
The UK House of Commons Treasury Committee wrote to the Chancellor of the Exchequer informing him that it had commissioned a report into the Maxwellisation process. Maxwellisation allows those who are going to be criticized in a public report an opportunity to respond to such criticisms and comment on relevant texts prior to their publication. The Treasury Committee's view is that one of the reasons for the delay in the publication of the UK regulators report into the collapse of HBOS was that Maxwellisation was applied, which took some 14 months. The HBOS report was published in December 2015 - seven years after HBOS failed. The Treasury Committee has asked Andrew Green QC to prepare a report on the legal requirements for, the issues that arise in the application of, Maxwellisation and to make recommendations on how Maxwellisation can be applied in a fair and proportionate manner in future public financial enquiries. The report will focus on the financial services sector only.
View the Treasury Committee's letter.
View the Terms of Reference of the Maxwellisation Review.TOPIC : Financial Services -
US Federal Reserve Bank of New York President Discusses the Role of the Federal Reserve
03/31/2016
US Federal Reserve Bank of New York President William Dudley addressed the role of the US Board of Governors of the Federal Reserve System and its structure and governance. He provided a detailed overview of the history of the creation and evolution of the Federal Reserve through the 20th century. He defended the Federal Reserve's actions during the financial crisis, noting that critiques of regulators should focus on shortcomings that led to the economic and financial instability of the crisis and not the Federal Reserve's intervening actions to mitigate the consequences. Dudley discussed the significant changes the Federal Reserve has taken since the financial crisis, including establishing the Large Institution Supervision Coordination Committee to look at the largest institutions and the Office of Financial Stability Policy Research to focus on the financial system at a holistic level. He also noted that the Federal Reserve has taken steps to improve transparency, including more speeches by FOMC members, regular testimony, press conferences and public notices after FOMC meetings. He cautioned against making changes to the structure of the Federal Reserve and the implementation of a formal rule for the Federal Reserve to adhere to in setting monetary policy.
View President Dudley's speech.TOPIC : Financial Services -
US Deputy Treasury Secretary Sarah Bloom Raskin Provides Remarks on Cyber Security
03/31/2016
US Deputy Treasury Secretary Sarah Bloom Raskin discussed the steps financial sector participants should take to respond and recover from a cyber attack. She noted that the key to an effective response and recovery involves preparation, coordination and practice, especially given that in a widespread cyber attack on the financial system, time would be of the essence. While the financial system has not yet experienced such an attack, Raskin warned that recent interconnected cyber attacks, including large-scale Distributed Denial of Service (DDoS) attacks, theft and misuse of customer data and destruction of systems and data, suggest that coordination is imperative in the face of such large-scale attacks. Moreover, Raskin discussed the government’s, and specifically, the US Treasury’s role in responding to, and helping the financial sector recover from, such an attack. Specifically, she mentioned the Treasury’s role in coordinating with federal and state financial and banking regulators, as well as other government agencies to effectively communicate information and to enhance incident response preparation, including response playbooks and cybersecurity table-top exercises. Raskin encouraged the private sector to create robust cyber incident playbooks which identify key players, actions and timelines to be employed in the event of a cyber attack.
View Deputy Treasury Secretary Raskin’s speech.TOPIC : Cyber Security -
US Securities and Exchange Commission Chair Mary Jo White Discusses Technology Developments and Governance Challenges in Financial Markets
03/31/2016
US Securities and Exchange Commission Chair Mary Jo White discussed the importance of strong governance and investor protection in the wake of developments and innovation in technology and financial markets. Specifically, Chair White discussed the importance of pre-IPO companies making accurate disclosures, and in particular the implications and potential consequences of the increase in so-called "unicorns" which are private start-up firms with valuations that exceed $1 billion. White also remarked on the need to protect investors that are investing under new SEC rules for capital raising under the JOBS Act -Regulation D, Regulation A+ and Regulation Crowdfunding - all of which are designed to allow smaller companies to access the capital markets. White noted that implicit in improving investor protection are strong financial controls and corporate governance, topics which are particularly important for private pre-IPO companies particularly as they go public and grow, often exponentially. Tools such as ensuring relevant expertise on boards and implementing investor protections while pre-IPO companies are private can help mitigate against the risks faced by rapidly growing start-ups. Finally, White noted that the SEC is closely monitoring developments and related investor protection issues in digital finance or fintech, namely blockchain technology, automated investment advice (robo-advisors) and online marketplace lending platforms.
View Chair White’s speech. -
EU Technical Standards on Leverage Ratio Reporting
03/31/2016
A Commission Implementing Regulation which amends implementing technical standards on supervisory reporting of institutions as regards the reporting of the leverage ratio, was published in the Official Journal of the European Union. The ITS amends the requirement to report the leverage ratio to regulators under the Capital Requirements Regulation. The amending ITS updates prescribed notional values for institutions and derivatives traded to which certain reporting requirements are attached. The amending ITS provides updated leverage reporting ratio templates and instructions for completing the templates. The amending ITS enters into force on April 20, 2016. The regulation shall apply from the first reporting reference date six months from the date of publication in the Official Journal of the European Union.
View the ITS. -
UK Regulator Publishes Policy Statement and Supervisory Statement on Board Responsibilities
03/31/2016
The Prudential Regulation Authority published a Policy Statement and Supervisory Statement on board responsibilities. The Policy is relevant to all PRA-regulated firms - banks, insurers, designated investment firms, building societies, friendly societies and credit unions. The Supervisory Statement provides PRA guidance on aspects of corporate governance to which the PRA attaches particular importance and to which the PRA may devote particular attention in the course of its supervision. The list, which is not definitive, includes firm strategy, culture, risk appetite and management, board composition, roles of executive and non-executive directors, board time and resources, management information and transparency, succession planning, remuneration, subsidiary boards and board sub-committees. The Supervisory Statement notes that specific accountabilities of individual directors established by the Senior Managers Regime are additional and complementary to the collective responsibility shared by directors as members of the board.
View the policy statement.
View the supervisory statement.
TOPIC : Corporate Governance -
UK Government Body on Financial Sanction Implementation Established
03/31/2016
A new “Office of Financial Sanctions Implementation” (OFSI) was established within Her Majesty’s Treasury, with responsibility for ensuring that sanctions are “properly understood, implemented and enforced in the UK”. Despite an expansion in the number of sanctions programmes in the EU in recent years, as well as increasingly complex rules, there have not been any significant enforcement actions in the UK, a situation which contrasts with the enthusiastic enforcement practices of US sanctions enforcement agencies. OFSI is expected to work closely with other regulatory authorities, such as the FCA, to apply a more effective sanctions enforcement regime than has previously been the case. To this end, the government is also legislating to ensure that suitable remedies are available for sanctions enforcement. Provisions in the Policing and Crime Bill outline new administrative penalties, monetary penalties and an increase in the maximum custodial sentence for breaching financial sanctions to seven years on conviction on indictment (or six months imprisonment on summary conviction).
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European Securities and Markets Authority Fines Trade Repository for Lack of Access to Trade Repository Data
03/31/2016
The European Securities and Markets Authority published a decision of its board of supervisors that it had fined the trade repository DTCC Derivatives Repository Ltd EUR 64,000 for failing to provide regulators with access to derivatives trading data.
Read more.TOPIC : Enforcement -
Financial Stability Board to Consult on Addressing Risks Posed by Asset Management Activities
03/31/2016
The Financial Stability Board announced that it would publish proposed policy recommendations to address structural vulnerabilities in asset management activities. The recommendations will aim to address several risks that such activities present: funds' liquidity mismatch, leverage within funds, operational risk and challenges in transferring investment mandates in a stressed situation and securities lending activities of asset managers and funds. The FSB intends to finalize the recommendations by the end of 2016. The announcement was included in a press release which summarizes the outcomes of the FSB's recent meeting in Tokyo. The FSB will also be focusing on CCP resolution this year and intends to publish guidance on CCP resolution by September and consult on standards or guidance on issues relating to CCP resolution before the end of the year.
View the FSB announcement.TOPIC : Financial Services -
US Secretary of the Treasury Lew Provides Remarks on the Evolution of Sanctions Regulation
03/30/2016
US Treasury Secretary Jack Lew addressed the Carnegie Endowment for International Peace, commenting on the evolution of economic sanctions programs as a tool for US foreign policy. He emphasized the importance of using sanctions, but also cautioned against overusing sanctions and using sanctions where they may have a negligible impact. Critically, Lew noted that economic sanctions are meant to be forward-looking and to change future behavior, rather than to be punitive for past bad actions. Focusing on three key lessons that apply to the appropriate use of sanctions, Lew noted the importance of: (i) working with US allies to have broad, international support for economic sanctions; (ii) recognizing the appropriate time to provide relief from sanctions in order to preserve US credibility and the ability to use sanctions programs to motivate behavior changes; and (iii) investing in infrastructure to help implement and support targeted sanctions programs. Secretary Lew remarked on the high costs of sanctions programs, and the potential for overuse to result in negative externalities, including driving business and financial transactions outside of the US.
View Treasury Secretary Lew’s speech. -
European Securities and Markets Authority Consults on Proposed Guidelines on Information Regarding Commodity Derivatives and Spot Markets
03/30/2016
The European Securities and Markets Authority launched a consultation on proposed guidelines on information expected or required to be disclosed on commodity derivatives markets or related spot markets under the Market Abuse Regulation. MAR will replace the current Market Abuse Directive and its implementing legislation from July 3, 2016. One of the changes that MAR will introduce is the expansion of the definition of inside information relating to commodity derivatives to cover price sensitive information relevant to the related spot commodity contracts as well as the derivative. This means that transactions in commodity derivatives based on inside information relating to underlying spot transactions will be expressly prohibited. In addition, the market manipulation prohibitions will include transactions in derivatives markets that manipulate the related spot commodity transaction and transactions in spot commodity markets that manipulate the related derivative. The definition of inside information for commodity derivatives includes information which is "reasonably expected to be disclosed or is required to be disclosed in accordance with legal or regulatory provisions at the Union or national level, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets". ESMA's proposed guidelines aim to set out the types of information that would be considered inside information for commodity derivatives or spot transactions by establishing a non-exhaustive indicative list of information that would be reasonably expected or required to be so disclosed. The consultation closes on May 20, 2016 and ESMA aims to publish its final report by late Q3 2016.
View the consultation paper. -
European Banking Authority Reports on Implications of the EU Compensation Requirements and Bonus Cap
03/30/2016
The European Banking Authority published its Benchmarking of Remuneration and High-Earners 2014 report. Under the Capital Requirements Directive, as amended, banks are subject to compensation requirements for staff who have a material impact on the bank's risk profile, and there is a cap on the ratio of variable to fixed compensation for identified staff – known as the bonus cap. The EBA is required to benchmark EU compensation trends and to publish aggregated data on high earners who earn EUR1 million or more per financial year. The EBA's report analyzes information for the year 2014 and compares it to 2013 data. The analysis shows, amongst other things, that: (i) the number of high earners has increased by 21.6%, mostly due to changes in the exchange rate between the euro and pound sterling; (ii) differences in national implementation remain, in particular the application of deferral and pay-out in instruments; (iii) the number of identified staff has increased by 84.34% following the application of the technical standards on criteria to identify staff who have a material impact on a firm's risk profile (introduced in June 2014); and (iv) the ratio between variable and fixed remuneration for identified staff dropped to 65.48% from 104.27% in 2013. The European Commission will take the report into account in its review of the compensation provisions under the CRR.
View the EBA's report.TOPIC : Compensation -
US Commodity Futures Trading Commission Commissioner Giancarlo Discusses Blockchain Regulatory Framework
03/29/2016
US Commodity Futures Trading Commission Commissioner Christopher Giancarlo discussed distributed ledger technology, commonly known as DLT or blockchain and its potential to "revolutionize the world of finance." He noted some of the potential uses of blockchain technology, including increasing settlement efficiency and speed, linking recordkeeping networks, reducing transaction costs and increasing market access. Giancarlo also noted potential opportunities in payments, banking, securities settlement, title recording, cyber security and trade reporting and analysis. Citing the collapse of Lehman Brothers, Giancarlo emphasized that blockchain technology could provide regulators better visibility into trading portfolios between counterparties, allowing them to react sooner in the face of financial deterioration. Analogizing the development of blockchain to the inception of the internet, Commissioner Giancarlo called on US regulators to let the private sector lead and to avoid impeding innovation and investment as the technology develops. He advocated for a principles-based approach developed in coordination between US and foreign regulators. Finally, he noted that regulators should revisit existing rules and recordkeeping requirements to be sure that they do not inhibit innovation. With respect to the CFTC specifically, he said his agency will revisit Rule 1.31 - a recordkeeping rule that requires all books and records to be kept in their original form or native file format.
View Commissioner Giancarlo’s speech. -
UK Regulator Proposes Standards for Underwriting Buy-to-Let Mortgages
03/29/2016
The Prudential Regulation Authority published proposals on minimum standards for firms when underwriting buy-to-let contracts. The proposals would apply to all PRA-regulated firms undertaking buy-to-let lending that are not subject to regulation by the Financial Conduct Authority. The PRA is proposing that such firms be required to use an affordability test when assessing a buy-to-let mortgage contract as an interest coverage ratio test and/or an income affordability test. In addition, a standard set of variables would be established that would need to be shown in the tests.
In addition, the PRA has proposed clarification on the application of the small and medium-sized enterprise supporting factor on buy-to-let mortgages which would apply to all firms subject to the Capital Requirements Regulation. Under the CRR, the SME supporting factor is used to reduce the capital requirements on loans to SMEs on qualifying retail, corporate and real estate exposures. The PRA's view is that buy-to-let borrowing is not included in that reduction and the PRA expects firms to consider the purpose of a loan before applying the SME supporting factor. The consultation closes on June 29, 2016.
View the consultation paper. -
UK 2016 Banking Stress Test Launched
03/29/2016
The Bank of England released details of the UK 2016 banking stress test, the first to be designed under the new approach to stress testing published in October 2015. The 2016 stress test will cover seven UK banks and building societies: Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, Nationwide Building Society, The Royal Bank of Scotland Group plc, Santander UK plc and Standard Chartered plc. These are the same firms that participated in the 2015 stress test. The stress test will consist of a macroeconomic stress scenario, a traded-risk stress scenario, a misconduct costs stress and an annual cyclical scenario. The results of the stress test will be published in Q4 2016.
View details of the UK 2016 stress test. -
UK Countercyclical Buffer Rate Increased from 2017
03/29/2016
The Financial Policy Committee of the Bank of England published a Statement from its policy meeting on March 23, 2016. The Statement summarizes the conclusions reached by the FPC. The FPC has decided to increase the UK countercyclical buffer rate from 0% of risk-weighted assets to 0.5% with effect from March 29, 2017. The current overlapping aspects of Pillar 2 supervisory capital buffers will be reduced at the same time as a one-off adjustment. The UK CCyB rate will apply to all UK banks and building societies as well as investment firms not exempted by the Financial Conduct Authority. According to the rules of the European Systemic Risk Board, this buffer will also apply to EU banks lending into the UK either on a cross-border basis or through a local branch. The Prudential Regulation Authority has published a Statement clarifying its approach to adjustments to firms' buffers as the CCyB, systemic and conservation buffers are implemented up to 2019. The PRA intends to ensure that the supervisory buffers will be reduced as soon as practicable after the CCyB rate comes into effect which will depend on the timing of a firm's supervisory review and evaluation process. The adjustments aim to ensure that the transition to the new capital framework avoids double counting in capital buffers covering the same risk and give firms time to transition to the requisite capital buffers by the end of 2019.
The FPC will also assess the implementation and design of internationally-agreed post-crisis regulations to determine whether liquidity could be enhanced. The outcome of that assessment is expected later in 2016.
View the FPC Statement.
View the PRA Statement. -
Basel Committee on Banking Supervision Proposes Amendments to the Internal Rating Based Approach
03/24/2016
The Basel Committee on Banking Supervision launched a consultation on changes to the advanced internal ratings based approach and the foundation IRB approach so as to reduce variation in capital requirements for credit risk. The Basel Committee is proposing to: (i) remove the IRB approaches for certain portfolios which will then be subject to the standardized approach to credit risk; (ii) remove the option to use the advanced IRB approach for exposures to corporates that are part of consolidated groups that have annual revenues of more than EUR 200m; (iii) remove the IRB approaches for specialized lending that use banks' estimates of model parameters; and (iv) introduce a floor to the internal model method for counterparty credit risk based on a percentage of the applicable standardized approach. The consultation closes on June 24, 2016. The Basel Committee has committed to finalizing all the proposed changes to the IRB approaches by the end of 2016.
View the consultation paper. -
Final EU Legislation on Obligations of Depositaries Under UCITS V
03/24/2016
Commission Delegated Regulation with regard to obligations of depositaries was published in the Official Journal of the European Union. The Undertakings for Collective Investment in Transferable Securities (UCITS V) Directive outlines requirements regarding depositaries' duties, delegation arrangements and the liability regime for UCITS assets under custody. The Regulation supplements the obligations set out in UCITS V. It specifies definitions and details of written contracts for the appointment of a depositary including, amongst other things, that the written contract should comprise all necessary details for the appropriate safe-keeping of all UCITS assets by the depositary or a third party delegated with safekeeping functions and for the depositary to properly fulfil its oversight and control functions. The written contract must also provide sufficient detail on the categories of financial instruments in which the UCITS may invest and cover the geographical regions in which the UCITS plans to invest.
View more.TOPIC : Funds -
UK Payment Systems Regulator Final Guidance on Application of EU Interchange Fee Regulation
03/24/2016
The UK Payment Systems Regulator published its final Guidance on the application of the EU Interchange Fee Regulation. The IFR, which is directly applicable across the EU, applies to payment card schemes, issuing and acquiring payment service providers, processing entities, other technical service providers and, in certain circumstances, merchants. The IFR applies to the following payment card schemes: MasterCard, Visa Europe, American Express, Diners Club International, JCB International and Union Pay International. The PSR's Guidance covers: (i) the classification of schemes for IFR purposes; (ii) interchange fee caps and the possible exemption from those caps for some three-party schemes; (iii) the PSR's powers and procedures, including penalties for non-compliance; and (iv) the business rules.
TOPIC : Payment Services -
UK Prudential Regulation Authority Consults on Implementing Aspects of MiFID II
03/24/2016
The Prudential Regulation Authority published its proposals for transposing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA's proposals relate to the passporting regime and algorithmic trading only – the PRA will consult on other aspects related to MiFID II in due course.
View more.TOPIC : MiFID II -
European Central Bank Regulation Harmonizes Options and Discretions Applicable to Large Eurozone Banks
03/24/2016
The European Central Bank Regulation on the exercise of options and discretions relating to the prudential requirements for credit institutions was published in the Official Journal of the European Union. The prudential treatment of options and discretions by regulators is outlined in the Capital Requirements Directive and the Capital Requirements Regulation, known collectively as CRD IV. The ECB is the prudential regulator for Eurozone banks and directly supervises the large Eurozone banks under the Single Supervisory Mechanism, designated as "significant credit institutions". The ECB Regulation sets out the waivers, options and discretions that the ECB has decided to apply to significant credit institutions in its capacity as the prudential regulator of these firms, and which will replace those adapted by the national regulators. The waivers and discretion cover own funds, capital requirements, liquidity and large exposures. The ECB Regulation will apply, subject to limited exceptions, from October 1, 2016, although transitional provisions have been included so that existing national provisions will apply until the ECB sets a common approach for those waivers and discretions not covered in this Regulation. The ECB also published its Guide to harmonizing the exercise of options and discretions regarding the prudential supervision of credit institutions.
View the ECB Regulation.
View the ECB Guide. -
European Banking Authority Reports on the Small and Medium-sized Enterprise Supporting Factor
03/23/2016
The European Banking Authority published a report on the Small and Medium-sized Enterprise Supporting Factor. The SME SF was introduced by the Capital Requirements Regulation to counterbalance the rise in capital requirements resulting from the Capital Conservative Buffer whilst providing an adequate flow of credit to SMEs. The report provides: (i) analysis of the lending trends and conditions for SMEs; (ii) analysis of the effective riskiness of EU SMEs over a full economic cycle; and (iii) the consistency of funds requirements laid down in the CRR for credit risk to SME's. The EBA has concluded that there is currently not enough evidence to suggest that the SME SF has provided additional stimulus for lending to SMEs as compared to larger corporate entities. However, the EBA has also recognised that it may be too early to make strong conclusions based on the current analysis. The EBA makes four recommendations: (i) continued monitoring and a reassessment of the SME SF so as to understand its impact on lending; (ii) a more comprehensive approach for the review of risk weights; (iii) review of the amount owed limit criterion and in the application of the SME SF to understand its purpose and costs of application; and (iv) harmonisation of the SME definition in the CRR.
View the EBA's Report. -
European Commission Seeks Views on Harmonizing EU Insolvency Regimes Under its Capital Markets Union Action Plan
03/23/2016
The European Commission launched a consultation seeking views on key insolvency principles and standards which could ensure that national insolvency frameworks work in a cross-border context. The consultation is part of the Commission's Capital Markets Union Action Plan which aims to remove barriers to the free flow of capital. Responses will be used to identify which aspects could be included in a legislative initiative or other related actions. It takes the form of various multiple choice questions and one open question, which seem to be aimed at initial framing of how this initiative should be taken forwards. The consultation is open until June 14, 2016.
View the consultation website.TOPIC : Financial Services -
European Banking Authority Consultation on Reporting Financial Information Using GAAP
03/23/2016
The European Banking Authority launched a consultation on reporting financial information across EU jurisdictions using national Financial Supervisory Reporting Generally Accepted Accounting Practices (GAAP). The EBA reported that institutions across the EU have identified issues with current templates. The consultation has been decentralised so that all questions and feedback on the draft template are provided to jurisdiction specific Regulators and not through the EBA. The EBA believes it will benefit from the expertise of authorities from different jurisdictions given their knowledge of the local GAAP. The consultation follows from a previous consultation in December, 2015, on proposed changes to the FINREP based on the IFRS 9 requirements. Responses to the consultation are due by April 15, 2016. The EBA stated that it will release a subsequent updated version of the FINREP.
View the EBA press release.
View the draft FINREP GAAP template. -
Regulatory Technical Standards for Recovery and Resolution of Institutions
03/23/2016
A Commission Delegated Regulation, in the form of Regulatory Technical Standards, was published specifying procedural and content related requirements for the recovery and resolution of banks and certain investment firms under the EU Bank Recovery and Resolution Directive. In particular, the RTS set out the requirements for: the content of recovery plans, the criteria for the assessment of recovery plans, content of resolution plans and assessment criteria for resolvability, conditions for group financial support and the circumstances in which a person is independent from both the resolution authority and the institution or entity in recovery or resolution. The RTS also provides for: recognition of write-down and conversion powers, procedure and content of notifications to a regulator when a firm is assessed as failing or likely to fail and rules specifying the operational functioning of resolution colleges. The RTS must still be approved by the European Parliament and the Council of the European Union and be published in the Official Journal before they can enter into force.
View the Delegated Regulation.TOPIC : Recovery & Resolution -
EU Extension of Exemption for Commodity Dealers Confirmed
03/23/2016
The European Council announced that it had agreed to extend an exemption for commodity dealers under the Capital Requirements Regulation, until December 31, 2020. The CRR currently exempts commodity dealers from large exposures requirements and own fund requirements until December 31, 2017. That date was set on the basis that the Commission would have conducted a review of the prudential regime applicable to commodity dealers and to investment firms by the end of 2015 and, if appropriate, proposed a legislative regime adapted for the risk profile of commodity dealers and investment firms. The Commissions' review is still in progress. The European Commission published its proposed legislative amendments to the CRR in December 2015 on the basis that the extension will avoid the need for relevant firms to temporarily comply with the full CRR requirements in 2018 before being subsequently moved to a tailored regime within two to three years. -
Final Guidelines on Product Oversight and Governance Arrangements for Retail Banking Products Translated Into Official EU Languages
03/22/2016
The European Banking Authority published translations of its final guidelines on product oversight and governance arrangements for retail banking products. The retail banking products included are mortgages, personal loans, deposits, payment accounts, payment services and electronic money. The guidelines are addressed to EU national regulators and financial institutions and require the establishment of product oversight and governance arrangements for the design, bringing to market and review of retail banking products over their lifecycle. The guidelines will apply from January 3, 2017, to all products brought to market after that date as well as to existing products that are significantly changed after that (the EBA has not provided clarification on the meaning of "significantly changed").
View the Translated Guidelines.TOPIC : Financial Services -
European Banking Authority Consults on Changes to Calculation of Interest Rate Risk on Capital Requirements
03/22/2016
The European Banking Authority published a consultation paper on standardised methods to compute capital requirements for general interest rate risk under the Capital Requirements Regulation. The CRR provides for two standardised methods, the so-called Maturity-Based calculation for general interest risk and the Duration-Based calculation of general risk. The Duration-Based calculation uses the concept of Modified Duration which is valid only for instruments not subject to repayment risk. Modified Duration is used to measure the sensitivity in price for a unit change in its internal rate of return of any financial asset that consists of fixed cash flows. A correction to the duration is necessary to reflect the repayment risk. The CRR provides the mandate for the EBA to issue guidelines on how the Modified Duration for debt instruments which are subject to repayment risk should be corrected. The EBA proposes two approaches to correct the Modified Duration calculation: (i) treat the debt instrument with repayment risk as if it was a combination of a plain vanilla bond and an embedded bond; or (ii) calculate directly the change in value of the whole instrument subject to repayment risk resulting from a 100 basis point movement in Interest Rates. Submissions to the consultation are due by June 22, 2016.
View the Consultation Paper. -
EU Guidelines on Assessing Knowledge and Competence Under MIFID II
03/22/2016
The European Securities and Markets Authority published translations of its guidelines on the assessment of the knowledge and competence of individuals providing investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of investment firms. Under the revised Markets in Financial Instruments Directive, an investment firm is required to ensure that individuals giving investment advice or providing information about financial instruments, investment services or ancillary services to clients have the necessary knowledge and competence to do so and satisfy the firm's obligations on suitability, appropriateness and reporting and provision of information to clients. Where requested by its national regulator, an investment firm may be requested to demonstrate that these requirements have been met. National regulators must publish the criteria that will be used to assess such knowledge and competence. ESMA's guidelines, which apply to national regulators and investment firms, specify criteria for the assessment of knowledge and competence, establishing the minimum standards that staff providing the relevant services should meet. The guidelines will come into effect on January 3, 2017.
TOPIC : MiFID II -
UK Payment Systems Regulator Publishes Guidance on Super Complaints
03/22/2016
The UK Payments Systems Regulator published its final Guidance for designated representative bodies making so-called "super complaints" under the Financial Services (Banking Reform) Act 2013. The representatives can issue complaints to the Payments Systems Regulator when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. Super complaints are complaints made on behalf or as a result of issues affecting a large number of users. The list of designated representative bodies published by HM Treasury in February will become effective on April 1, 2016. The first designated representative bodies are: (i) the National Association of Citizens Advice Bureaux; (ii) the General Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK.
TOPIC : Payment Services -
US Federal Financial Institution Regulatory Agencies Release Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Cards
03/21/2016
The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, National Credit Union Administration, Office of the Comptroller of the Currency and Financial Crimes Enforcement Network issued guidance for certain banks, savings associations, credit unions and US branches and agencies of foreign banks (collectively, “banks”) clarifying the applicability of the customer identification program (CIP) regulations implementing Section 326 of the USA PATRIOT Act to prepaid cards.According to the guidance, a bank’s CIP should apply to the holders of certain prepaid cards issued by the institution as well as to holders of such cards purchased from third-party program managers that design, manage and operate prepaid card programs on the bank’s behalf. The guidance clarifies when, under the CIP rule, the bank should obtain information in order to verify the identity of the cardholder, including obtaining the name, date of birth, address and identification number (e.g., the Taxpayer Identification Number) of the cardholder.
Since prepaid cards have become mainstream financial products, US regulators have emphasized the implementation of strong and effective controls to mitigate money laundering and other financial crime risks associated with the issuance of prepaid cards and the processing of prepaid card transactions. Some controls have already been put in place, including limits on card value and the frequency and number of transfers permitted, as well as due diligence on third parties and cardholders.
View the interagency guidance. -
US Federal Reserve Board Approves Application by Goldman Sachs Bank USA to Acquire Deposits
03/21/2016
The US Board of Governors of the Federal Reserve System approved the application by Goldman Sachs Bank USA under the Bank Merger Act to assume substantially all (approximately $17 billion) of the deposit liabilities and certain assets of GE Capital Bank, a subsidiary of General Electric Corporation, including assets GE Bank uses to manage its online deposit-taking platform. The acquisition was announced in August 2015, and the Federal Reserve Board extended processing of GS Bank’s application in light of numerous public comments that challenged the transaction on various grounds, including that GS is already too big to fail. In approving the transaction, among other findings, the Federal Reserve Board concluded that the transaction would have a negligible impact on the systemic footprint of GS (which has approximately $860 billion in total assets) and would improve the stability of funding available to GS Bank by diversifying its sources of funding.
View the Federal Reserve Board order. -
European Securities and Markets Authority Drafting an Opinion on Proposed Amendments to Technical Standards Under MiFID II
03/21/2016
The European Securities and Markets Authority published three letters from it to the European Commission concerning certain Regulatory Technical Standards under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. The Commission wrote to ESMA on March 14, 2016, notifying ESMA that amendments are required to the RTS on position limits for commodity derivatives, non-equity transparency requirements and on the exemption from licence requirements under MiFID II for commodity trading firms (the ancillary activities exemption). ESMA has confirmed that it will act swiftly in preparing its Opinions on the proposed amendments. It is as yet unknown whether the other RTS produced by ESMA last year have been accepted by the European Commission.
View the letters.TOPIC : MiFID II -
European Banking Authority Publishes Formula for Creditors to Calculate Rates Under Mortgage Credit Directive
03/21/2016
The European Banking Authority published a final Decision setting out the formula to be used by creditors when calculating the benchmark rate under the Mortgage Credit Directive. The MCD requires creditors to provide consumers with certain pre-contractual personalized information, including calculated illustrations of the annual percentage rate of charge and of the maximum instalment amount based on the highest value of any external reference rate used in calculating the borrowing rate, or, where the creditor does not use an external reference rate, the highest value of a benchmark rate as specified by a national regulator or the EBA. The EBA has therefore developed a formula for creditors to use to calculate such a rate which uses the underlying rate of the European Central Bank for Eurozone countries, or the Member State's central bank rate for non-Eurozone countries. The Decision will come into effect once it is published in the Official Journal of the European Union.
View the Decision.TOPIC : Consumer Protection -
US Comptroller of the Currency Delivers Speech Regarding Innovation in Banking
03/18/2016
US Comptroller of the Currency Thomas J. Curry delivered remarks before the National Community Reinvestment Coalition, where he addressed how banks are adapting to financial technology changes and the Office of the Comptroller of the Currency’s role in supporting responsible bank innovation. Among other things, Comptroller Curry noted that the OCC will soon publish a paper outlining its views on financial services innovation that will enable the agency to “evaluate innovative products, services, or processes that require regulatory approval and identify potential risks associated with adoption.”
View the Comptroller’s speech.TOPIC : FinTech -
European Commission Adopts Regulation on Classes of Arrangements to be Protected in a Partial Property Transfer
03/18/2016
The European Commission adopted a Delegated Regulation on the classes of arrangements to be protected in a partial property transfer or where a contract is forcibly modified by a resolution authority. The EU Bank Recovery and Resolution Directive provides for certain types of arrangements to be protected during the partial transfer of assets, rights and liabilities of a bank under resolution as well as when a resolution authority requires a contract to which the bank is a party to be modified. The objective is to prevent assets, rights and liabilities that are linked to each other from being split. The Delegated Regulation sets out in detail the conditions that security, set-off, netting and structured finance arrangements (including securitizations and investments used for hedging) must meet to benefit from the protection.The Delegated Regulation reminds creditors that they will need to review and modify the terms of their credit exposures to EU banks and investment firms so as to ensure that they maximize their rights to determine a net exposure to that entity and avoid their credit exposure increasing if assets and liabilities are not transferred together. The Delegated Regulation must still be approved by the European Parliament and the Council of the European Union. When it enters into force, it will apply directly in all member states across the EU.
View the Delegated Regulation.TOPIC : Recovery & Resolution -
Senior Officials of US Bank Regulatory Agencies Deliver Remarks Regarding Bank Supervisory Process
03/18/2016
As part of the Federal Reserve Bank of New York’s Conference on Bank Supervision, senior officials of several US bank regulatory agencies delivered remarks regarding the effectiveness of bank supervision and key components of the bank supervisory process. In the conference’s opening remarks, NY Fed President William Dudley noted the importance of distinguishing between effective and ineffective supervision, particularly given the confidential nature of the bank supervisory process. Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig subsequently noted several critical features of successful oversight of financial institutions including: (i) subjecting commercial banks of all sizes to full-scope examinations, (ii) having regulators require that the largest banks disclose important supervisory findings to allow the public to better understand their financial condition and (iii) recognition by supervisors of their limits and emphasizing that banks hold sufficient capital to backstop management mistakes and bad luck.
View President Dudley’s speech.
View Vice Chairman Hoenig’s speech. -
Financial Stability Board Reports on Progress on Implementation of Bank Resolution Regimes
03/18/2016
The Financial Stability Board published its second Thematic Review on Resolution Regimes. The report considers the range and nature of resolution powers in FSB member jurisdiction for resolution authorities in the banking sector. The FSB has found that: (i) not all jurisdictions have implemented a bank resolution regime with a comprehensive set of powers which aligns with the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions and that those jurisdictions that do are primarily the home jurisdictions of global systemically important banks; (ii) the powers that are most often not included in regimes are those relating to bail-in, the imposition of temporary stays on the exercise of early termination rights and the power to ensure continuity of essential services during a bank resolution; and (iii) more progress has been made in implementing processes for recovery planning than for resolution planning and resolvability assessments. The FSB is recommending that the identified gaps in powers are addressed. FSB member countries must report to the FSB by December 2016 on the actions that they have taken or intend to take to address the issues for their bank resolution regime.
View the FSB's report.TOPIC : Recovery & Resolution -
Thomas Baxter to Retire from the New York Fed
03/17/2016
Thomas C. Baxter, general counsel and executive vice president of the Federal Reserve Bank of New York, announced his decision to retire from the New York Fed in September, 2016, after 36 years of service. Mr. Baxter also serves on the New York Fed’s Management Committee and as deputy general counsel for the Federal Open Market Committee. Mr. Baxter will step down in June, but will continue to advise the New York Fed president and assist in the legal group’s transition until September. The New York Fed will immediately begin the search for Mr. Baxter’s successor.
View the New York Fed press release.TOPIC : People -
US Office of the Comptroller of the Currency Announces New Senior Executives
03/17/2016
Comptroller of the Currency Thomas J. Curry announced the appointment of Grace Dailey as Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner. Comptroller Curry also announced that Grovetta Gardineer will fill the newly created position of Senior Deputy Comptroller for Compliance and Community Affairs. Ms. Dailey will succeed Jennifer Kelly, who is retiring at the end of April after 37 years of service to the OCC. Ms. Gardineer assumes her new title and responsibilities immediately.
View the OCC press release.TOPIC : People -
EU Technical Standards on Reporting of Trade Activity by Trading Venues to Regulators Published
03/17/2016
Commission Implementing Regulation on implementing technical standards on the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with Market Abuse Regulations trading venues are required to notify regulators daily with information relating to the trade of financial instruments. The ITS required trading venues to report to their national regulators on the financial instruments which were subject to a request for admission to trading or admitted to trading or traded on the trading venue and set out, in accordance with the MAR, the required format and details of trading activity that must be provided. The information required for example, for the trade of Derivatives, includes the expiry date, price multiplier and underlying issuer. The full list of requirements are contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.
View the ITS. -
EU Technical Standards on Reporting of Trade Activity by Trading Venues to Regulators Published
03/17/2016
Commission Implementing Regulation on the implementation of technical standards regarding the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with the Market Abuse Regulation, trading venues are required to notify national regulators daily with certain transaction information. The ITS sets out the required format and details of trading activity that must be provided. With regards to derivatives trading, for example, information relating to the expiry date, price multiplier, and underlying issuer must be disclosed. The full list of requirements is contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.
View the ITS.
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Two Acquitted of Money Laundering
03/17/2016
James Campbell Sutherland and Jack William Flader were found not guilty of money laundering by a jury at Southwark Crown Court. The nine week trial was the last in a series of three "boiler room fraud" trials. The trial opened on January 14, 2016, following an investigation which commenced in 2007. The prosecution alleged throughout the series of trials that Mr. Sutherland, Mr. Flader, both based in Hong Kong, and others received or assisted in the transfer of proceeds of fraud from accounts held by numerous entities, between 2003 and 2008. Nine convictions were obtained with regard to the others in related trials between 2013 and 2014. Mr. Sutherland and Mr. Flader's charges related to the alleged laundering of the fraudulently obtained funds associated with the earlier trials.
View SFO press release.TOPIC : Enforcement -
US Commodity Futures Trading Commission Approves Final Rule to Amend the Trade Option Exemption
03/16/2016
The Commodity Futures Trading Commission approved a final rule that removes certain reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs), such as commercial end-users that transact in trade options in connection with their businesses. The final rule became effective on March 21, 2016.The final rule eliminates the Form TO annual notice reporting requirement for otherwise unreported trade options in CFTC regulation 32.3(b). Furthermore, Non-SD/MSPs will not be subject to part 45 reporting requirements in connection with their trade options. The CFTC did not impose a proposed reporting requirement that a commercial participant would need to provide notice to the CFTC of its trade options activities if such activities had a value of more than $1 billion in any calendar year.
The final rule also eliminates the swap-related recordkeeping requirements for Non-SD/MSPs in connection with their trade option activities. However, Non-SD/MSPs transacting in trade options with SDs or MSPs must obtain a legal entity identifier and provide it to their SD/MSP counterparties.
CFTC No-Action Letter 13-08, which has provided conditional relief for Non-SD/MSPs from certain swap-related reporting and recordkeeping requirements, has been withdrawn. Also, given the elimination of the Form TO reporting requirement, CFTC staff is of the view that a trade option counterparty that is a Non-SD/MSP is not required to report its otherwise unreported trade options for calendar year 2015 on Form TO.
The final rule will become effective upon publication in the Federal Register.
View the final rule.
TOPIC : Derivatives -
UK Legislation on Unregulated and Regulated Activities
03/16/2016
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 was made. The Order amends legislation relating to the regulation of activities connected with lending, primarily the Financial Services Act and Markets Act (2000). The Order extends the scope of regulated activities for certain types of activities which previously did not qualify as a regulated activity, for the purpose of the FSMA, are now deemed a regulated activity. For example, it provides amendments to the regulated activity of operating electronic systems in relation to lending. The amend states that the activity is regulated whether the operation collects interest or not under the lending agreement, and where a person carrying on that activity, facilitating another person transferring their rights under an agreement to a third party, is a regulated activity. The Order also serves partly to implement the Mortgage Credit Directive Order. For example, the Order extends the scope of the regulated activities of arranging and advising on regulated mortgage contracts so that mortgages entered into before October 31, 2004 (which are regulated as consumer credit agreements before March 21, 2016) are included within the activities from that date. The Order came into force on March 17, 2016.
View the Order.
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EU and US Authorities Adopt Determinations on Supervision of EU and US CCPs
03/16/2016
An equivalence Decision on the derivatives regulatory regimes for derivatives clearing organisations in the United States was published in the Official Journal of the European Union. The Decision follows the announcement by the European Commission and the Commodity Futures Trading Commission of a common approach on the supervision of CCPs operating in the US and EU. The Decision declares that the legal and supervisory arrangements of the CFTC for DCOs that have been declared systemically important derivatives clearing organisations by the Financial Stability Oversight Council or DCOs that have opted into additional standards similar to the SIDCO regime (so-called “Subpart C DCOs”) are equivalent to the EU requirements under EMIR, provided that the DCO’s internal rules and procedures meet the following requirements: (i) for derivatives contracts executed on regulated markets, a minimum liquidation period of two days for initial margin is applied to clearing members’ proprietary positions; (ii) for all derivative contracts, measures are in place to limit procyclicality which are equivalent to the options under EMIR; and (iii) the DCO has sufficient pre-funded available resources enabling it to withstand the default of at least two clearing members to which it has the largest exposures under extreme conditions.
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US Commodity Futures Trading Commission Announces Volcker Rule CEO Attestation Delivery Method
03/15/2016
The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight announced that certain banking entities subject to Appendix B of Part 75 of the CFTC’s regulations, which implements section 619 of the Dodd-Frank Act known as the “Volcker Rule,” should submit their CEO attestations through the following email address: VolckerAttestation@cftc.gov. Appendix B includes requirements that a CEO attestation be submitted to the CFTC regarding the banking entity’s Volcker Rule compliance program.
View the CFTC press release.TOPIC : Bank Structural Reform -
US Federal Deposit Insurance Corporation Approves Rule to Increase Deposit Insurance Fund to Required Minimum Level
03/15/2016
The Federal Deposit Insurance Corporation adopted a final rule to increase the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. Subject to certain minor changes, the rule largely mirrors the proposed rule, which was published for comment in November.The primary purposes of the DIF are to protect the depositors of insured banks and to resolve failed banks. The Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15 percent to 1.35 percent and required that the ratio reach that level by September 30, 2020. The reserve ratio at the end of 2015 was 1.11 percent, with a DIF balance of $72.6 billion.
The DIF is funded mainly through quarterly assessments on insured banks. Pursuant to a 2011 FDIC rule, regular assessment rates for all banks will decrease when the reserve ratio reaches 1.15 percent, which the FDIC anticipates will occur in the first half of 2016. Banks with total assets of less than $10 billion will have substantially lower assessment rates under the 2011 rule. The final rule will impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The FDIC expects the reserve ratio will likely reach 1.35 percent after approximately two years of payments of the surcharges.
The final rule will become effective on July 1. If the reserve ratio reaches 1.15 percent before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent.
View the final rule. -
Dodd-Frank Act Criticized at American Bankers' Association Conference
03/15/2016
At an American Bankers’ Association Conference in Washington, DC, US Senate Banking Committee Chairman Richard Shelby and US House of Representatives Financial Services Committee Chairman Jeb Hensarling both raised concerns regarding the current regulatory regime and certain requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, Chairman Shelby addressed the costs and burdens of financial regulation under the Dodd-Frank Act, specifically criticizing the $50 billion threshold for identifying systemically important financial institutions, and noted plans to continue to push his regulatory relief bill, The Financial Regulatory Improvement Act of 2015, through the Senate. Chairman Hensarling also outlined proposed legislation that would reform the Dodd-Frank Act, including eliminating certain Dodd-Frank Act and Basel III requirements for banks that hold higher levels of capital.
View Chairman Shelby’s remarks.
View coverage of Chairman Hensarling’s remarks. -
UK's Serious Fraud Office Closes Foreign Exchange Investigation
03/15/2016
The Serious Fraud Office announced that it had closed its investigation relating to allegations of fraudulent conduct in the foreign exchange market. The SFO has concluded there was insufficient evidence for a realistic prospect of conviction, based on the information and material from the Financial Conduct Authority. The SFO stated that there were reasonable grounds to suspect fraud had been committed. However, the available evidence was considered not to satisfy the evidential tests for prosecution under English law. The SFO considers that the evidential deficiency could not be remedied by extending the investigation.
View the SFO press release. -
UK Payment Systems Regulator Consults on Account Regulations
03/15/2016
The Payment Systems Regulator published a consultation paper on the application of the Payment Account Regulations 2015 to alternative arrangements for switching accounts, including draft guidance on its approach to designating alternative switching schemes and monitoring of the PSR's compliance under the PAR. The EU Payment Accounts Directive was transposed into UK law through the PARs. The Payment Accounts Directive outlines the mandatory regulatory standards for EU Member States for matters such as facilitating current account switching and ensuring access to bank accounts with basic features. Provisions in the PAR relating to the role of the PSR will come into effect on September 18, 2016. The PSR's proposed guidance explains how to apply for designation as an "alternative arrangement" for switching, how the PSR will assess applications for designation, and how the PSR will monitor and enforce compliance of alternative arrangements for switching. Comments on the proposals are required by April 12, 2016.
View the PSR consultation paper.
View the PSR draft guidance.TOPIC : Payment Services -
Former Equities Trader Pleads Guilty to Insider Dealing
03/15/2016
Damien Clarke pleaded guilty to two counts of insider trading at Southwark Crown Court, having previously pleaded guilty to seven counts of insider trading on July 24, 2015. Mr. Clarke is a former equities trader who, through his employment, allegedly received inside information about price sensitive events, mainly anticipated public announcements of mergers and acquisitions. Mr. Clarke admitted that he profited from this information by placing trades using various accounts, in his own name and relatives. In total, Mr. Clarke's profits amounted to at least £155,161.98. Mr. Clarke will be sentenced on June 13, 2016.
View the FCA press release.TOPIC : Enforcement -
Prudential Regulation Authority Proposes Amendments to Rules on Contractual Recognition of Bail-in
03/15/2016
The Prudential Regulation Authority published proposals to amend its rules on contractual recognition of bail-in. Under the EU Bank Recovery and Resolution Directive, EU banks and large investment firms are required to include clauses in certain contracts with non-EU counterparties by which the creditor agrees to recognise that the liability may be bailed in by the national resolution authority. In November 2015, the PRA issued a Modification by Consent which disapplies the requirement for unsecured liabilities that are not debt securities (known as "phase 2 liabilities") where compliance would be impracticable. The Modification by Consent expires on June 30, 2016. The aim of the PRA's amendment is to make permanent the Modification by Consent.
Read more.TOPIC : Recovery & Resolution -
US Office of the Comptroller of the Currency Proposes Reducing Regulatory Burden
03/14/2016
The US Office of the Comptroller of the Currency issued a notice of proposed rulemaking that would remove outdated or unnecessary provisions of certain OCC rules to reduce the regulatory burden on national banks and federal savings associations subject to the rules. The proposed rulemaking is part of the OCC’s review of its rules required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) every ten years. The proposed rule was developed following outreach to the industry conducted by the OCC individually and in connection with other US banking regulators. The proposed rule would make the following changes to OCC rules, among others: remove notice and approval requirements for certain changes in permanent capital involving national banks; remove certain financial disclosure requirements for national banks and remove certain unnecessary regulatory reporting, accounting and management policy requirements for federal savings associations. The proposed rule is open for comment for 60 days.
View proposed rule. -
US Commodity Futures Trading Commission Staff Provides Relief in Connection with Swap Trade Confirmations
03/14/2016
The Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter extending the time period for relief from the requirement in CFTC Regulation 37.6 that a SEF obtain documents incorporated by reference in a trade confirmation issued by the SEF prior to issuing the confirmation. SEFs are also relieved from the requirement in CFTC Regulations 37.1000, 37.1001 and 45.2(a) to maintain such documents as records. Finally, the no-action letter states that SEFs are relieved from the requirement in CFTC Regulation 45.3(a) to report confirmation data contained in the documents incorporated by reference in a confirmation.The letter extends the relief previously provided in CFTC Staff Letter 15-25, which expires on March 31, 2016. The letter extends relief to the earlier of: (i) 11:59 pm (Eastern Time) March 31, 2017 or (ii) the effective date of revised CFTC regulations that establish a permanent solution to the confirmation matters raised by the current regulations. The relief is subject to terms and conditions in the letter.
A SEF must continue to report all swap data that the SEF is reporting as of the time of the issuance of the letter, as required by part 45 of the CFTC’s regulations, even if such data is contained in the documents that the SEF incorporates by reference in a confirmation.
View the CFTC press release.
View the CFTC Staff Letter 16-25.
View the CFTC Staff Letter 15-25.TOPIC : Derivatives -
US Financial Industry Regulatory Authority Evaluates Membership Application Rules
03/11/2016
The US Financial Industry Regulatory Authority released a report evaluating the NASD Rule 1010 Series which rules govern FINRA’s Membership Application Program (MAP). The MAP rules are used by FINRA to evaluate the proposed business activities of member firms, including the applicant’s financial, operational, supervisory and compliance systems. FINRA staff conducted a comprehensive assessment of the rules, including seeking input from, and conducting a survey of, firms that are subject to the rules and non-member firms that assist in MAP submissions. FINRA staff concluded that the rules are generally effective in achieving their objectives of protecting investors. The report notes areas for improvement or clarification that FINRA will consider addressing through a combination of guidance, proposed rule modifications, process and administrative changes and technological updates to enhance the effectiveness and efficiency of the rules.
View press release.
View report.TOPIC : Financial Services -
European Securities and Markets Authority Sets Out its Proposed Approach to the Reporting Obligation under the Securities Financing Transactions Regulation
03/11/2016
The European Securities and Markets Authority published a discussion paper on its approach to developing technical standards required under the Securities Financing Transactions Regulation. The SFTR mostly came into effect on January 12, 2016. One exception is a new reporting obligation which is being phased in according to counterparty type. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buy-sell back or sell-buy back transactions and margin lending transactions. The new regulations are thought to help reduce the likelihood of such activities moving to the shadow banking sector.
Read More.TOPIC : Shadow Banking -
Final EU Legislation on New Requirements for Insider Lists
03/11/2016
Commission Implementing Regulation on implementing technical standards on the precise format of insider lists under the EU Market Abuse Regulation was published in the Official Journal of the European Union. The ITS set out the requirements for issuers, emission allowance market participants, auction platforms, auctioneers and auction monitors, or any person acting on their behalf, to create and maintain insider lists. MAR extends the scope of the requirements on insider lists to impose the obligation on a wider range of persons as well as in relation to a wider scope of financial instruments. The ITS include template insider lists which aim to ensure the harmonization of information being collated in insider lists across the EU and require a greater amount of detail on insiders so that regulators may easily identify them if they need to. The ITS will apply from July 3, 2016, the same date that MAR will come into effect.
View the ITS. -
Basel Committee on Banking Supervision Launches Proposals for a Revised Pillar 3 Disclosure Framework
03/11/2016
The Basel Committee on Banking Supervision launched a proposed consolidated and enhanced framework for Pillar 3 disclosures under Basel III. The Basel Committee announced in June 2014 that it was undertaking a review of Pillar 3. In January, it issued its revised Pillar 3 disclosure requirements, completing the first phase of the review.
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US Board of Governors of the Federal Reserve System Governor Brainard Remarks on US Economic Outlook, Market Liquidity and Financial Resilience
03/10/2016
US Board of Governors of the Federal Reserve System Governor Lael Brainard provided an outlook on US economic conditions, an overview of the importance of financial market liquidity and the resilience and resolvability of large interconnected banks. With respect to liquidity, Brainard noted that day-to-day liquidity has not declined notably but that there have been changes to the characteristics of liquidity, including increased segmentation. She also noted the importance of recent proposals by the Commodity Futures Trading Commission and the Securities and Exchange Commission to understand the use of algorithmic trading and its impact on trading markets. With respect to improving the resilience and resolvability of systemic banking organizations, she noted that as a result of capital and liquidity regulations and stress tests, US banking organizations are now holding $800 billion more in high-quality liquid assets than they were in 2011. She noted the capital surcharge for global systemically important banks and that she would hope to see it eventually integrated into the Federal Reserve’s Comprehensive Capital Analysis and Review. Governor Brainard noted that the Federal Reserve will be reviewing comments to its proposed rule on total loss-absorbing capacity, and that the long-term debt requirement in the proposed rule is a critical component of ending “too big to fail.”
View speech.TOPIC : Financial Services -
UK Payment Systems Regulator Publishes Interim Outcome of Review into the Supply of Indirect Access to Payment Systems
03/10/2016The UK Payment Systems Regulator published its interim report relating to its market review into the supply of indirect access to payment systems. The PSR considers that competition in the supply of indirect access is going in the right direction for indirect payment services providers. However, the regulator has concerns about choice, service quality and the ability of indirect payment services providers to switch providers. Responses to financial crime regulation is limiting the provision of indirect access. The PSR does not intend to take regulatory action at this stage but will monitor developments in the industry to assess whether its concerns are addressed. The PSR is seeking feedback on its interim findings and its approach and comments are due by May 5, 2016.
View the PSR's interim report. -
EU Standards on Supervisory Reporting Requirements for the Liquidity Coverage Ratio Published
03/10/2016
Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for significant changes to the existing Liquidity Coverage Ratio reporting requirements under the Capital Requirements Regulation. The amending ITS introduce the templates and a large number of new data items necessary following the LCR requirements being implemented for credit institutions in January 2015. The European Banking Authority published its final draft amending ITS in June 2015. The changes include new templates and instructions for banks on capturing and reporting all necessary LCR items. The new templates cover liquid assets, outflows, inflows, collateral swaps and calculation of the LCR. The new instructions will only apply to banks; investment firms will continue to use current instructions and templates, at least for now. The amended ITS on supervisory reporting will apply from September 10, 2016.
View the amending ITS. -
European Commission Adopts Secondary Legislation under the EU Market Abuse Regulation
03/09/2016
The European Commission has adopted regulatory technical standards under the Market Abuse Regulation on: (i) arrangements, systems and procedures for preventing, detecting and reporting abusive practices or suspicious orders or transactions; (ii) conditions for buy-back programs and stabilization measures; and (iii) investment recommendations. The RTS on preventing market abuse and reporting suspicious transactions impose requirements on operators of trading venues and persons professionally arranging or executing transactions for monitoring for and reporting on insider dealing or market manipulation and include a requirement to provide adequate training for their staff involved in such activities. The RTS on buy-backs and stabilization set out the criteria which must be met for trades to become exempt from the market abuse ban, including requiring certain disclosure and reporting, conditions for trading and trading restrictions. The RTS on investment recommendations set out disclosure and distribution requirements for investment recommendations. All of the adopted RTS are subject to approval by the European Parliament and Council of the European Union, following which they will be published and come into force. The adopted version shows that it is intended that they will apply from July 3, 2016 when MAR comes into effect.
View the RTS on preventing market abuse.
View the RTS on buy-backs and stabilization. -
UK Regulator Consults on Client Money Rules and the Special Administration Regime
03/09/2016
The Financial Conduct Authority issued a discussion paper on client money rules (CASS 7) and the Special Administration Regime Review. The discussion paper is relevant to all regulated firms that hold client assets or money for investment business. Client money rules govern how client assets are to be distributed by an insolvency practitioner managing a failed investment firm. The discussion paper is in response to the recommendations made in the Bloxham Final Report which aims to improve the speed of return of client assets and minimize the market impact of a failed firm's entry into special administration.
Read More. -
US Office of Financial Research Publishes Working Paper on the Impact of Counterpart Defaults on the Banking System
03/08/2016
The US Office of Financial Research (OFR) published a working paper using data on the credit default swap (CDS) market to assess the impact of a counterparty default on banks and the financial system as a whole. Using data from the Depository Trust & Clearing Corporation, the paper applies the supervisory scenarios of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) to CDS markets as a proxy for banks’ trading books. The working paper finds that the indirect effects of the default of a bank’s largest counterparty on the bank’s other counterparties are more significant than the impact on the bank itself. Moreover, the paper finds that, when looking at the financial system as a whole, banks may realize greater losses from the failure of a counterparty shared by the industry when compared to losses from the failure of the individual bank’s largest counterparty. The report concludes that CCAR does not take into account the losses that occur to other counterparties of a banking organization as a result of the default of its largest counterparty, nor does it take into account the large counterparty exposures that exist for the core financial system as a whole.
View working paper. -
Financial Conduct Authority Bans Former Trader from UK Financial Services Industry
03/08/2016
The Financial Conduct Authority published a final notice that it had banned Gary Harold Arthur Fincher from the UK financial services industry. Mr. Fincher was convicted on, September 25, 2014 and April 9, 2015 of a total of 28 counts relating to criminal offenses of dishonesty and financial crime. Mr. Fincher was sentenced to 24 months' imprisonment and 18 months' respectively. The FCA found that, in respect of his criminal convictions, Mr. Fincher had breached the 'Fit and Proper' requirements set out in its Handbook because he lacked honesty, integrity and reputation. The ban, which took effect on March 8, 2016, prohibits Mr. Fincher from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.TOPIC : Enforcement -
Financial Conduct Authority Bans Peter Charles Bottomley from UK Financial Services Industry
03/08/2016
The Financial Conduct Authority published a final notice that it had banned Peter Charles Bottomley from the UK financial services industry. Mr. Bottomley was convicted on July 9, 2015 of eight counts of dishonesty and financial crime offenses and sentenced to 72 months' imprisonment. Mr. Bottomley's conviction comprised five counts of dishonestly making false representations to make gain for self or another or cause loss to another or expose others to risk; one count of false accounting; one count of making or supplying articles used in fraud, and one count of theft. The FCA found that, in respect of his criminal convictions, Mr. Bottomley had breached the Fit and Proper requirements set out in its Handbook because he lacked honesty, integrity and reputation. The ban, which took effect on March 8, 2016, prohibits Mr. Bottomley from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.TOPIC : Enforcement -
UK Banking Standards Board Publishes First Annual Review Report
03/08/2016
The Banking Standards Board published its first annual review report. The BSB was launched in April 2015 to help raise standards of behavior and competence in the banking sector. The report discusses the assessment exercise that the BSB ran during 2015 with 10 banks on how each firm was performing against its objectives on behavior, competence and culture. The BSB aims to gather information collected from the assessment and create an evidence based picture of concerns and developments at industry and individual firm level. It is intended that the 2016 exercise will be more comprehensive and will be scaled up to include a wider number of member firms.The 2016 assessment will also include quantitative factors to help firms benchmark themselves against their peer firms.
View the report.TOPIC : Conduct & Culture -
Final Regulatory Technical Standards on Margin for Uncleared Derivatives
03/08/2016
The European Supervisory Authorities published final draft regulatory technical standards on risk-mitigation techniques, including details on specific operational procedures, for OTC-derivative contracts not cleared by a Central Counterparty. Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk. These draft RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated.
Read more.TOPIC : Derivatives -
European Banking Authority Proposes Amendments to the EU Standards on Supervisory Reporting
03/08/2016
The European Banking Authority published final draft Implementing Technical Standards to amend the ITS on supervisory reporting under the Capital Requirements Regulation. The amending ITS make changes to the reporting templates and instructions in Annexes I to VII and IX of the ITS on supervisory reporting which cover financial reporting, solvency (own funds requirements), large exposures and losses resulting from lending collateralized by immovable property. Given the scope of the changes, the EBA is proposing to replace entirely the affected annexes. The EBA considers that the amendments are necessary to align the ITS with the answers in the Single Rulebook Q&As, to correct legal references and a few clerical errors. There has been no public consultation on the proposed changes. The amending ITS will need to be approved by the European Commission, European Parliament and Council of the European Union before they can come into effect. The EBA expects that the amendments will be applicable from the December 31, 2016 reporting reference date.
View the amending ITS.
View the revised annexes and the annexes in tracked changes. -
Director of Research at the Federal Reserve Bank of New York Announces Retirement
03/07/2016
James J. McAndrews, executive vice president of the Research and Statistics Group and Director of Research of the Federal Reserve Bank of New York, announced that he will be retiring from the FRBNY in June after 28 years at the Federal Reserve System. The FRBNY noted that it will immediately begin the search for McAndrew’s successor.TOPIC : People -
US Federal Deposit Insurance Corporation Chairman Addresses Supervisory Challenges and Cross-Border Resolution of Systemically Important Financial Institutions
03/07/2016US Federal Deposit Insurance Corporation Chairman Martin Gruenberg discussed the improved financial condition of US banks, supervisory challenges that the FDIC is focused on, and developments in cross-border cooperation with respect to the resolution of systemically important financial institutions. Chairman Gruenberg noted the overall increase in FDIC-insured institutions’ earnings in 2015 and that 2015 saw the fewest bank failures since before the financial crisis. Supervisory challenges that the FDIC and other banking supervisors are focused on for 2016 include interest rate risk, credit risk, including lending in higher risk categories and exposure to energy producers, and cybersecurity. With respect to resolution plans, Chairman Gruenberg noted that the 2015 plans submitted by the wave 1 filers in July 2015 are currently under review by the FDIC and the Board of Governors of the Federal Reserve System. Moreover, he noted that the FDIC has worked closely with other major financial jurisdictions including the UK, EU, Switzerland and Japan, to understand how cross-border resolution of a large systemically important financial institution would unfold. Specifically, the FDIC is working with the new Single Resolution Board and is part of a joint working group with the European Commission that works bilaterally to focus on resolution and deposit insurance issues. Additionally, cross-border crisis management groups have been formed for each of the global systemically important financial institutions. Finally, Chairman Gruenberg noted the revised ISDA resolution stay protocol and the total loss absorbing capacity standards issued by the Financial Stability Board and proposed by the Federal Reserve as examples of how cross-border cooperation is improving resolution capabilities.
View speech.TOPIC : Recovery & Resolution -
US Comptroller of the Currency Discusses Cross-Border Cooperation and De-Risking
03/07/2016
US Comptroller of the Currency Thomas Curry discussed the importance of international cooperation and comprehensive cross-agency, cross-border approaches to cybersecurity and the fight to prevent money laundering. Comptroller Curry also addressed the issue of risk re-evaluation, commonly known as de-risking, which involves banks evaluating the BSA/AML risks posed by their customers and foreign correspondent banks. He noted that while these relationships may pose legitimate risks, there may be important reasons to preserve such relationships, a decision that the OCC does not dictate but leaves to the banks. Comptroller Curry noted that the OCC is in the process of gathering information through the supervisory process as to how banks conduct re-evaluation, including how they implement policies and procedures for evaluating customer risks, whether banks have policies on risk re-evaluation and how decisions to terminate such relationships are made and reviewed. He noted that the OCC may issue guidance upon completing this review.
View speech.TOPIC : Cyber Security -
Bank of England on EU Membership and its Statutory Objectives
03/07/2016
An open letter from Mark Carney, Governor, Bank of England, to Andrew Tyrie, Chairman, Treasury Select Committee, on the effect of UK's EU membership on the Bank of England's statutory objectives was published. The letter was in response to the Committee's request for comment on the recent settlement agreement between the UK and the EU. The letter summarizes the findings that were made in a BoE report and the possible future impact of the settlement agreement. The BoE's primary objectives are monetary and financial stability. The three main areas in which the BoE's objectives are currently effected by EU membership are: (i) it provides dynamism in the UK economy through increased economic and financial openness; (ii) it increases the UK’s exposure to economic and financial shocks from other nations, in particular the EU; and (iii) the BoE is required to implement EU law, regulations and directives in its regulations and policy instruments. Mr Carney concludes that the settlement agreement provides a number of protections and additional tools that would protect the BoE's ability to achieve its statutory objectives. Implementation of the settlement agreement, through changes to various EU regulations and directives, is proposed to take place only if the outcome of the UK referendum on EU membership (so called "Brexit") is a vote to remain. The referendum is scheduled for June 23, 2016.
View the letter.
View the settlement agreement.
View the report. -
UK Competition and Markets Authority Proposes Further Remedies in Retail Banking Market Investigation
03/05/2016
The Competition and Markets Authority has extended the timetable for its investigation into the retail banking market to August 12, 2016 and published for consultation revised proposals to remedy the adverse effects on competition identified in its provisional report. The CMA's report was originally scheduled for publication in February 2016. The provisional report, published in October 2015, identified several competition issues in the Personal Current Accounts and Small and Medium-sized Enterprises banking market, including: (i) a lack of transparency making comparison of different providers difficult; (ii) due to (i) and the perception that it is burdensome / the lack of confidence in switching services, small numbers of customers switching to different bank accounts; (iii) new banks and new products not attracting new customers, leading to the established banks having incumbency advantages; and (iv) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA also noted the general disadvantage faced by SMEs in terms of limited choice compared to larger customers. Following that report, the CMA proposed certain remedies, including (i) requiring banks to prompt customers to review the service they receive by receiving individual messages at certain "trigger points"; (ii) encouraging consumers and businesses to compare bank products by using Midata, an industry online tool, that allows consumers to easily access their banking data and compare it with other services; and (iii) creating a price comparison service for SMEs. Feedback to the initial consultation on the proposed remedies was that they would not sufficiently redress the adverse effects on competition. The revised remedy proposals seek to address those weaknesses. Feedback on the revised proposals are due by March 21, 2016.
View the revised remedy proposals.
View the revised timetable.TOPIC : Compensation -
Amendments to EU Technical Standards on Supervisory Reporting Published
03/05/2016
Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for additional monitoring metrics for liquidity reporting. Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements. To increase effective liquidity supervision, the amended ITS provide for additional monitoring metrics to enhance regulator's view of a bank's liquidity position, proportionate to the nature, scale and complexity of the bank's activities. Additional monitoring metrics to be reported now include those metrics based on the concentration of funding by counterparty and product type and metrics based on the concentration of counterbalancing capacity by issuer or counterparty. In addition, the frequency of reporting can be reduced, depending on the nature of the bank. The amended ITS enters into force on March 25, 2016.
View the Regulation. -
US Banking Agencies Issue Volcker Rule FAQ to Clarify Capital Treatment of Qualifying TruPS CDO
03/04/2016
The US Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Securities and Exchange Commission and Commodity Futures Trading Commission (VR Agencies) issued a Frequently Asked Question (FAQ) to clarify the capital treatment of certain collateralized debt obligations backed by trust preferred securities (TruPS CDOs). Specifically, the FAQ clarified that a banking entity is not required to deduct from its tier 1 capital a qualifying TruPS CDO that is retained under section 248.16(a) of the January 2014 interim final rule published by the VR Agencies. The January 2014 interim final rule provides an exemption that would permit a banking entity to retain an interest in, or act as sponsor of, a covered fund that issues TruPS CDOs subject to certain requirements, including that the issuer must have been established prior to May 19, 2010, and the banking entity’s interest must have been acquired on or before December 10, 2013. However, a banking entity would be required to deduct from tier 1 capital its interests in qualifying TruPS CDOs when it acts as a market maker for the interests of such TruPS CDOs and investments in TruPS CDOs that are covered funds but are otherwise not qualifying TruPS CDOs.
View the FAQ. -
US Board of Governors of the Federal Reserve Sytem Re-Proposes Single Counterparty Credit Limits for Large US Bank Holding Companies and Foreign Banking Organizations
03/04/2016
The US Board of Governors of the Federal Reserve System re-proposed rules that would establish single counterparty credit limits for domestic and foreign bank holding companies, as well as US intermediate holding companies, with $50 billion or more in total consolidated assets. The Federal Reserve also released a quantitative impact study that sets out the conceptual and quantitative foundations for the tighter limits on exposures between systemically important financial institutions. The proposed rule implements section 165(e) of the Dodd-Frank Act which authorizes the Federal Reserve to establish limits on the amount of credit exposure that large domestic banking organizations, foreign banking organizations and US intermediate holding companies (covered institutions) can have to a single unaffiliated counterparty in order to limit the risks in the event of a failure at any such individual firm. The proposed rule builds on earlier proposals for single counterparty credit limits for domestic and foreign banking organizations issued by the Federal Reserve in December 2011 and December 2012 and the Basel Committee on Banking Supervision’s 2014 large exposures framework. Comments on the proposed rule are due by June 3, 2016.
View proposed rule.
View quantitative impact study. -
UK Regulators Finalize Approach to Ring-fencing Transfer Schemes
03/04/2016
The Prudential Regulation Authority published its Policy Statement on feedback to its consultation on the PRA's approach to ring-fencing transfer schemes together with the PRA's final Statement of Policy. The Financial Services (Banking Reform) Act 2013 introduced requirements for UK banking groups that have more than £25 billion of core deposits to ring-fence the entity/ies that accept deposits – called ring-fenced bodies. To assist firms subject to the ring-fencing requirements and restructure their business, provisions were made for transfer of businesses by a RFTS. The PRA's Policy Statement sets out the regulator's responses to questions raised during the consultation, including on the certificate as to financial resources of the transferee, new bank authorizations, alternative group arrangements and immunity of the skilled person. The PRA's Statement of Policy sets out its approach to RFTS, noting that the PRA expects firms to nominate a skilled person to prepare the scheme report which nomination would be subject to the PRA's approval. The Financial Conduct Authority published finalized guidance on its approach to the implementation of the ring-fencing requirements and RFTS. The ring-fencing regime is due to come into effect on January 1, 2019.
View the PRA Policy Statement.
View the PRA Statement of Policy.
View the FCA Guidance.TOPIC : Bank Structural Reform -
European Banking Authority Consults on Proposed Amendments to Technical Standards on Supervisory Reporting
03/04/2016
The European Banking Authority launched a consultation on proposed amendments to the Implementing Technical Standards on supervisory reporting to incorporate the new requirements for prudent valuation reporting and supplementary requirements for reporting of credit risk information. Under the Capital Requirements Regulation, firms are subject to requirements on prudent valuation adjustments of fair-valued positions. The Regulatory Technical Standards on prudent valuation came into force on February 16, 2016 and cover the methodology for calculating Additional Valuation Adjustments, consideration to be given to available market data and the simplified and core approaches for the determination of AVA. According to the EBA, the entry into force of the RTS justifies more detailed reporting requirements for prudent valuation than have been required to date. In addition, the EBA is proposing that firms report credit risk on a total level as well as on a country level only. Responses to the consultation are due by March 30, 2016.
View the EBA consultation paper.
View the ITS on supervisory reporting.
View the RTS on prudent valuation. -
Upper Tribunal Decision Published on Whether a Third Party was Identified in a UK Regulator's Notice
03/04/2016
A decision of Upper Tribunal Tax and Chancery Chamber on whether a Decision Notice issued by the Financial Conduct Authority prejudicially identified a third party was published. On April 23, 2015, the FCA issued Deutsche Bank AG with a Decision Notice (preceded by a Warning Notice and then subsequently a Final Notice) notifying the bank of the FCA's decision to impose on it a financial penalty of £226,000 as a result of serious misconduct. The finding of misconduct related to attempted manipulation of two benchmark interest rates. The Applicant, Mr. Vogt, was employed by the bank as a money market trader during the time of the alleged misconduct. The Applicant argued that the contents of the Decision Notice (and other relevant notices) prejudicially identified him. As the Applicant had not seen the Decision Notice he based his complaint on the contents of the Final Notice, assuming it was materially the same as the Decision Notice. The Applicant maintained that, in breach of its obligations under the Financial Services Markets Act, the FCA had failed to provide him with a copy of the Decision Notice at the time of issuance and prior to its publication. FSMA provides certain rights to third parties in relation to Warning and Decision Notices given to another person by the FCA. The FCA took the view that the Applicant was not identifiable from the Final Notice. In dismissing the application and deciding that the Applica had not been prejudicially identified in the Final Notice, the Upper Tribunal found that the contents of the Final Notice and other material would not lead a person professionally acquainted with Applicant to conclude that Mr Vogt was the third party identified in the Final Notice. This follows the Upper Tribunal's recent decisions in Christopher Ashton v FCA; Christian Bittar v FCA; and the Court of Appeal's judgment in Achilles Macris v FCA.
View the Upper Tribunal's decision.TOPIC : Enforcement -
Basel Committee on Banking Supervision Proposes New Approach to Operational Risk
03/04/2016
The Basel Committee on Banking Supervision published proposals to revise the standards for operational risk for internationally active banks. The Basel Committee consulted in 2014 on a revised Standardized Approach to operational risk and simultaneously undertook a review of the Advanced Measurement Approach for operational risk. The Basel Committee is proposing to replace the AMA from the Basel framework as well as the three existing Standardized Approaches with a Standardized Measurement Approach. The new SMA is not based on any modelling and would set a standardized approach for measuring operational risk for regulatory capital purposes which would include risk sensitivity by using a bank's financial statement information and its internal loss experience. The Basel Committee introduced the AMA for operational risk in 2006 as part of the Basel II framework. The AMA allows regulatory capital to be estimated using a range of internal modelling practices subject to approval by the bank's regulator. Comments on the proposals are due by June 3, 2016. The Basel Committee intends to provide further details on the timeline for withdrawal of the AMA and implementation of the SMA during the course of 2016.
View th consultation paper. -
Regulatory Technical Standards Amending the EU Prospectus Regime
03/04/2016
A Delegated Regulation on regulatory technical standards for publication of prospectuses and the dissemination of advertisements was published in the Official Journal of the European Union. The RTS stipulates amendments to the EU Prospectus Regime, including: (i) arrangements for approval of prospectus by a regulator; (ii) arrangements for publication of a prospectus; (iii) the dissemination of advertisements relating to a public offering of securities or an admission to trading on a regulated market; and (iv) requirements regarding the consistency between information disclosed about an offer to the public, or admission to trading on a regulated market, and the information contained in the relevant prospectus. The RTS enter into force on the March 24, 2016.
View the Delegated Regulation.TOPIC : Financial Services -
UK Regulator Issues Consultation Paper on Risk-Based Levies for the Financial Services Compensation Scheme Deposit Class
03/04/2016
The Prudential Regulation Authority published a consultation paper proposing amendments to the Depositor Protection Part of the PRA Rulebook and a new Statement of Policy in relation to the Financial Services Compensation Scheme and the calculation of firm contributions to the Scheme. The consultation is relevant to UK banks, building societies, credit unions, overseas firms with PRA deposit-taking permission, and the FSCS (UK's administrator of its Deposit Guarantee Scheme). Current PRA rules require the FSCS to calculate firm levies on the basis of covered deposits. The recast Deposit Guarantee Schemes Directive provides that contributions to a deposit guarantee scheme should also be adjusted relative to the risk incurred by each member of the scheme. The European Banking Authority issued Guidelines detailing methods for calculating contributions to schemes. In response to the EBA Guidelines the PRA has set out, in appendices to the consultation paper, the methodology for calculating risk-based levies and their application to the repayment of current and future compensations costs incurred by the FSCS. The methodology uses different calculations depending on the category of firm: Capital Requirements Regulated firm, Credit Unions and Non-European Economic Area branches. The consultation closes on June 3, 2016.
View the consultation paper.
View the EBA Guidelines. -
President Obama Nominates Two Commissioners for the US Commodity Futures Trading Commission
03/03/2016
President Obama sent nominations to the US Senate to fill the two vacant Commissioner seats at the US Commodity Futures Trading Commission. The nominees are Brian Quintenz, founder and managing principal of Saeculum Capital Management LLC and a former aide to Representative Deborah Pryce (R-OH), and Christopher Brummer, a professor at Georgetown University Law Center.TOPIC : People -
UK Regulators Remove Certain Rules under Senior Manager and Certification Regimes
03/02/2016
The Prudential Regulation Authority and the Financial Conduct Authority published final rules removing certain requirements under the Senior Manager and Certification Regimes. The regulators consulted earlier this year on the proposed amendments which are necessary as a result of the proposed changes to the regime that have been proposed by the UK Government, including extending the regime to all financial services firms, removing the obligation on a firm to notify the PRA or FCA when it knows or suspects that a senior manager or certified person has failed to comply with the conduct rules and replacing the presumption of responsibility with a duty of responsibility. It remains to be seen whether Parliament will approve the equivalent changes that have been proposed by the Government to legislation. An amending Order, published in December 2015, stops the above-mentioned notification requirement and the presumption of responsibility from coming into force on March 7, 2016 – the date when the remainder of the new Regime will come into effect. The regulators' rules and forms have been amended to reflect this position. The PRA has also made changes to the definition of 'significant risk taker' which sets the parameters of its Certification Regime. The amendment aims to align the definition of SRT with a 'material risk taker' under the Remuneration rules.
View the FCA Policy Statement and final rules.
View the PRA Policy Statement and final rules. -
UK Regulator Consults on Proposed Changes to Payment Accounts Regulation
03/02/2016
The Financial Conduct Authority published a consultation paper on proposed changes to the FCA Handbook following the implementation of the EU Payment Accounts Regulation. The consultation is aimed at entities that provide payment account services in the UK, such as banks and building societies. The EU Payments Directive was implemented in the UK through the UK Payment Accounts Regulations which come into effect on September 18, 2016. The FCA is obliged, under the PAR, to submit data to HM Treasury relating to payment accounts. The consultation outlines the draft changes that the FCA has proposed to enable it to carry out its obligations under the PAR. Proposals include: (i) issuance of guidance on the definition of a 'payment account' within the context of PAR; (ii) issuance of guidance on the implementation of the provisions on packaged accounts; (iii) the introduction of new regulatory requirements in relation to switching and payment accounts with basic features; and (iv) minor changes to the FCA Handbook to reflect the new PAR provisions regarding packaged accounts and switching of payment accounts. Responses to the consultation are due by May 3, 2016. The FCA aims to publish final guidance and changes to the FCA Handbook by the end of August 2016.
View the consultation paper.
View the response form.TOPIC : Financial Services -
US Banking Agencies Issue Interagency Guidance on Funds Transfer Pricing Related to Funding and Contingent Liquidity Risks
03/01/2016
The US Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued interagency guidance on funds transfer pricing (FTP) practices related to funding risk and contingent liquidity risk for large financial institutions (i.e., domestic institutions with $250 billion or more in assets and foreign institutions with $250 billion or more in US assets). The interagency guidance describes four overarching principles that banks should use to develop, implement and maintain an effective FTP framework: (i) allocate FTP costs and benefits on funding risk and contingent liquidity risk; (ii) have a consistent and transparent FTP framework for identifying and allocating FTP costs and benefits on a timely basis and at a sufficiently granular level, commensurate with the firm’s size, complexity, business activities and overall risk profile; (iii) have a robust FTP governance structure including the production of a report on FTP and oversight from a senior management group and central management function; and (iv) align business incentives with risk management and strategic objectives by incorporating FTP costs and benefits into product pricing, business metrics and new product approval. The guidance notes that an institution’s FTP framework should be adequately tailored to its size, complexity, business activities and overall risk profile.
View interagency guidance. -
UK Banking Standards Board Announces New Appointment to its Board
03/01/2016
The Banking Standards Board announced that Sir Brendan Barber had been appointed as its Deputy Chairman. The Banking Standards Board was established in April 2015 as an industry initiative. It aims to promote higher standards of behavior and competence in banks and building societies operating in the UK.
View the press release.TOPIC : People -
European Commission Adopts Legislation for Mandatory Clearing Obligation for Credit Derivatives
03/01/2016
The European Commission announced that it had adopted a Delegated Regulation on the clearing obligation for credit derivatives. Under the European Market Infrastructure Regulation, the European Securities and Market Authority is required to develop draft Regulatory Technical Standards setting out the categories of OTC derivatives that should be subject to the clearing obligation, the date/s from which the obligation should apply and the minimum remaining maturity of OTC derivatives. ESMA provided its final draft RTS for the mandatory clearing of CDS to the European Commission in February 2015. The Delegated Regulation, which does not substantively change the ESMA RTS, provides for untranched iTraxx Index CDS (Main, EUR,5Y) and untranched iTraxx Index CDS (Crossover, EUR,5Y) derivatives to be subject to the clearing obligation. The obligation will be phased in according to counterparty type to allow market participants time to determine whether the obligation applies to them and set up procedures to ensure compliance, in a similar way as was done for interest rate swaps. Counterparty classifications are established for these purposes, which are also the same as those set for the clearing obligation for interest rate swaps. The exact dates for when the clearing obligation will come into effect will be determined by the date of publication of the Delegated Regulation in the Official Journal of the European Union.
View the Delegated Regulation.
View the annex to the Delegated Regulation.
You may like to view our client note on interest rate swap clearing obligation.TOPIC : Derivatives -
European Banking Authority Publishes Annual Assessment of EU Supervisory Colleges
03/01/2016
The European Banking Authority published its report on the functioning of supervisory colleges in 2015. The report sets out the EBA's annual assessment of how well the supervisory colleges have met the action plan for 2015. The EU supervisory colleges make joint decisions on capital, liquidity and recovery plans for EU cross-border banking groups. The EBA considers that, generally, there were significant improvements, particularly when it came to the reorganization of supervisory colleges following the introduction of the Single Supervisory Mechanism in 2014, the frequency of interaction and the quality of supervisory colleges. However, the EBA notes that some areas still require work, such as the joint decision processes, quality of joint decision documents and requests for individual recovery plans outside the joint decision process. The report also includes the EBA's action plan for supervisory colleges in 2016. The plan sets out the focus areas for supervisory colleges which are: on going balance sheet cleaning, reduction of non-performing loans for legacy portfolios, the sustainability of banks' business models, conduct risk and IT risk.
View the EBA's Report. -
European Securities and Markets Authority Final Report on Possible Systematic Risk and Cost Implications of CCP Interoperability Arrangements
03/01/2016
The European Securities and Markets Authority published a final report setting out possible systematic risk and cost implications of interoperability arrangements between central counterparties. The report focuses on the complexities of interoperable arrangements and the adequacy of risk management systems and models of CCPs. Interoperability arrangements, as defined in the European Markets Infrastructure Regulation, are arrangements between two or more CCPs which involve a cross-system execution of transactions. The Report details the general EU regulatory framework applicable to interoperability arrangements, as set out in the European Market Infrastructure Regulation, and related Guidelines and recommendations. The report provides a summary of interoperability arrangements for different products between EU CCP's, in relation to products such as EU equities, EU government bonds and EU Exchange Traded Derivatives. The report identifies the main new risk as that arising between the two CCPs which are interoperating, but notes that some EU CCPs have set up mechanisms to mitigate the risks of under-collateralisation, including when reuse of collateral is permitted. The Report is to be submitted to the European Commission and European Parliament. It will contribute to the report that the European Commission is responsible for submitting on the potential risks of interoperability.
View the press release and report.TOPIC : Derivatives -
Regulatory Technical Standards for the Submission and Content of Notifications to EU Regulators Published
03/01/2016
The European Commission adopted a Delegated Regulation, in the form of Regulatory Technical Standards, detailing the content of the financial instrument reference data that must be supplied to regulators. The adopted RTS will be made under the Markets Abuse Regulation and Markets in Financial Instruments Regulation. They establish requirements for regulated entities to provide instrument reference data to regulators, which are then transmitted by regulators to the European Securities and Markets Association. The adopted RTS details which financial instruments are to be included as part of the reported instrument reference data. The adopted RTS also outlines ESMA's responsibility to review, assess, consolidate and publish the data on its website using automated processes. This adopted RTS will apply from July 3, 2016.
View the adopted RTS.
View the Annex. -
Financial Conduct Authority Bans Trader for LIBOR-Related Misconduct Based on US Criminal Conviction
02/29/2016
The Financial Conduct Authority issued a final notice against Michael Rose Curtler prohibiting him from performing any function in relation to any regulated activity carried on by a UK authorized firm. This final notice arose as a result of Mr Curtler’s conduct in allegedly manipulating or attempting to manipulate the USD London Interbank Offer Rate. When assessing an approved person's fitness and propriety to carry out a controlled function in a regulated firm, the FCA has regard to a person's honesty and integrity. On October 8, 2015, Mr Curtler pleaded guilty before the United States District Court for the Southern District of New York to a single count of conspiracy to commit wire fraud and bank fraud. The FCA deemed that Mr Curtler's criminal conviction demonstrated a lack of integrity and a level of dishonesty which was further worsened by the fact that he knew what he was doing was wrong.
View the final notice.TOPIC : Enforcement -
US Federal Banking Agencies Jointly Issue Interim Final Rules to Expand Exam Cycle for Smaller Banks and Branches
02/29/2016
The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve System and the US Federal Deposit Insurance Corporation jointly issued and requested public comment on interim final rules to implement section 83001 of the Fixing America’s Surface Transportation Act, or FAST Act, which permitted the agencies to expand the on-site examination schedule for qualifying insured depository institutions with less than $1 billion in total assets to once every 18 months from once every 12 months. The interim final rules make parallel changes to the regulations of the federal agencies regarding on-site examination cycles for US branches and agencies of foreign banks with total assets of less than $1 billion. Under the interim final rules, the number of institutions that may qualify for an expanded 18-month examination cycle increased by 617, to close to 5,000 banks and savings associations. In addition, the number of US branches and agencies of foreign banks that may qualify for the 18-month examination cycle increased by 26 branches and agencies to a 89 branches and agencies. The interim final rules are effective on February 29, 2016. Comments on the rules must be received by April 29, 2016.
View the full text of the rules.
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US Office of the Comptroller of the Currency Issues Revised Process for Administrative Enforcement Actions of Bank Secrecy Act and Anti-Money Laundering Requirements
02/29/2016
The US Office of the Comptroller of the Currency published a bulletin summarizing its process for initiating and proceeding with any enforcement action for noncompliance with Bank Secrecy Act compliance program requirements or repeated or uncorrected BSA compliance problems. The OCC bulletin supplements the “Interagency Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements” and rescinds OCC Bulletin 2005-45, “Process for Taking Administrative Enforcement Actions Against Banks Based on BSA Violations,” dated December 23, 2005. The revised OCC bulletin describes the OCC’s process for conducting administrative enforcement actions based on BSAcompliance issues, which, in each case, begins with a cease-and-desist order issued by the OCC. Pursuant to the OCC bulletin, the enforcement action process now includes a provision which requires the OCC to give any bank investigated by the OCC for noncompliance with BSA or anti-money laundering requirements an opportunity to respond before the
decision to issue a cease-and-desist order is finalized. In each case, the OCC will notify the Financial Crimes Enforcement Network of all formal and informal enforcement actions.
View the OCC bulletin.
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UK Regulators Will Not Apply Bonus Cap Requirements to Smaller Firms
02/29/2016
The Prudential Regulation Authority and Financial Conduct Authority jointly announced that they will comply with all aspects of the European Banking Authority's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm's size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.
View the EBA's Guidelines on Sound Remuneration Policies.
View the PRA and FCA's joint statement. -
UK Regulator Publishes Good Practices for Liquidity Management for Investment Management Firms
02/29/2016
The Financial Conduct Authority published good practices for liquidity management for investment management firms. The good practices are an outcome of the FCA's work with the Bank of England to assess the risks of open-ended investment funds investing in the fixed income sector, culminating in a collation of practices which the regulator has seen being used by investment firms to manage liquidity. The FCA hopes that by publishing the good practices, all investment management firms can improve their liquidity management. The good practices cover four areas: (i) good disclosure of liquidity risks to investors; (ii) good processes and tools for liquidity risk management, including continuous re-assessment and updating to keep track with market conditions; (iii) good practices for managing redemptions and costs relating to redemptions, including disclosing those practices to investors; and (iv) thorough preparation for implementation of exceptional liquidity tools and measures such as maintaining a procedure manual for implementation of each tool and testing implementation of tools to ensure that the measures work in practice.
View the good practices.TOPIC : Funds -
Financial Stability Board Publishes its 2016 Priorities
02/27/2016
The Financial Stability Board published its letter, dated February 22, 2016, to the G20 Finance Ministers and Central Bank Governors in advance of the G20 meeting in Shanghai. The letter sets out the FSB's priorities for 2016 which are: (i) to support the full and consistent implementation of the agreed regulatory reforms by reporting on progress and assessing whether reforms result in their intended outcomes; (ii) analyzing structural vulnerabilities in asset management activities, including developing policy responses on liquidity mismatch in funds, leverage within funds, operational risks in transferring investment mandates and securities lending activities of funds and asset managers; (iii) to publish a peer review on the implementation of the shadow banking framework; (iv) reducing misconduct risk, in particular, the role of incentives in preventing misconduct; (v) addressing the decline in correspondent banking (about which the FSB published a four-point plan in 2015); (vi) disclosure of climate-related financial risks; (vii) CCP resilience and recovery; (viii) assessing macro-prudential policy frameworks and tools; (ix) completing the regulatory capital framework for banks; (x) assessing implementation of resolution reforms including the total loss absorbing capacity (TLAC) framework published at the end of 2015; (xi) removing legal and regulatory barriers to reporting of derivatives trades; and (xii) assessing the implications of financial technology for financial stability. The G20 published a Communiqué following the Shanghai meeting which refers to the FSB's work and notes the progress made on implementing financial regulatory reforms.
View the FSB letter.
View the G20 Communique. -
US Office of the Comptroller of the Currency Issues Revised Policies on Civil Money Penalties
02/26/2016The US Office of the Comptroller of the Currency published revisions to its policy for assessing civil money penalties as set forth in its Policies and Procedures Manual. The revised PPM, titled “Civil Money Penalties,” replaces the PPM of the same title issued in June 1993. The revised PPM sets forth the OCC’s policies and procedures when assessing civil money penalties against entities such as institution-affiliated parties, national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers.
View the full text of the OCC PPM.
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Prudential Regulation Authority Finalizes Rules on Internal Governance for Third Country Branches
02/26/2016
The Prudential Regulation Authority published a final Policy Statement, Supervisory Statement and Rules for the internal governance of branches of non-EEA banks and PRA-designated investment firms. The PRA consulted in 2015 on its proposed changes, which centre around creating a separate PRA Rulebook. These changes follow the split of the Financial Services Authority into the PRA and the FCA, after which the PRA inherited materials from the FSA to create a Rulebook which contains only PRA rules. The new Rules and Supervisory Statement set out how third country branches should comply with PRA requirements for internal governance of third country branches and cover general organizational requirements, responsibility of personnel, skills, knowledge and expertise of individuals, risk control, outsourcing and record keeping. The PRA has also aligned the final Rules and Supervisory Statement with the requirements for third country branches under the Senior Manager and Certification Regimes. The Rules on internal governance of third country firms will apply from March 7, 2016, the same date from which the SM&CR applies for all firms.
View the PRA's Policy Statement.
View the PRA's Supervisory Statement. -
Second Review of Implementation of the International Principles for Financial Benchmarks
02/26/2016
The International Organization of Securities Commissions published its Second Review of the Implementation of IOSCO's Principles for Financial Benchmarks by Administrators of the Euro Inter-Bank Offer Rate, the London Inter-Bank Offer Rate and the Tokyo Inter-Bank Offer Rate. The IOSCO Principles were first published in 2013 to enhance the reliability of benchmark determinations. The first review on the implementation of the Principles was published in 2014 and included remedial recommendations for the administrators of EURIBOR, LIBOR and TIBOR. The Second Review reports on progress made in implementing the recommendations set out in the 2014 review report. IOSCO found that the three administrators – European Money Markets Institute, ICE Benchmark Administration and JBA TIBOR Administration – have all taken steps to implement the recommendations and that most of the recommendations have already been implemented or steps taken to implement them.
Read more. -
UK Payment Systems Regulator Report into Banks and UK Payment Infrastructure
02/25/2016
The Payment Systems Regulator published an interim report following its market review into bank ownership and payment infrastructure competitiveness in the UK. The PSR's motivation to conduct the review stems from its statutory objective to promote competition and innovation in the market for payment systems and the services that the systems provide. The Report outlines the PSR's provisional finding that there is no effective competition in the central payment infrastructure market.
Read More. -
UK Regulator Issues Final Notice Against F J Autos Limited For Failure To Co-Operate
02/25/2016
The Financial Conduct Authority issued a Final Notice cancelling F J Autos Limited's permission to carry out consumer credit activities. The FCA was of the opinion that FJAL did not conduct its affairs in a sound and prudent manner. The FCA deemed that FJAL's conduct was in breach of Principle 11 of the FCA Handbook in that it failed to disclose information relating to the firm which the FCA had requested in an open and cooperative way. The FCA issued a warning notice that FJAL had failed to cooperate by not responding to repeated requests from the FCA to discuss concerns relating to its conduct as a credit broker. FJAL did not refer the matter to the Upper Tribunal (Tax and Chancery) within the prescribed 28 day statutory period and consequently the FCA's decision to cancel FJAL's permission to carry out the regulated activity of a consumer credit business, has come into effect.
View the FCA's final notice.TOPIC : Enforcement -
UK Government Implements Provisions of Undertakings for Collective Investment in Transferable Securities Directive V
02/25/2016
HM Treasury published the Undertakings for Collective Investment in Transferable Securities Regulations 2016 together with an explanatory memorandum. The Regulations implement the provisions of the European UCITS V Directive and relate to depositaries, remuneration as well as sanctions for breaching the Directive. The Regulations also set out certain requirements for the Financial Conduct Authority relating to information that is provided and reported to the European Securities and Markets Authority. The Regulations include: (i) amendments to the Financial Services and Markets Act 2000, which allows for the disciplinary powers that may be taken under FSMA against authorised persons, approved persons and senior managers, also being exercisable in the case of contravention of these Regulations; (ii) provisions enabling the FCA to exercise powers to cancel an authorised person’s permission to carry on regulated activities in cases where there have been serious breaches of the requirements imposed by the Regulations; and (iii) provisions requiring the FCA to establish procedures for receiving and following up on reports on infringements under the Directive and providing ESMA with aggregated information on all penalties and measures that have been imposed under the Directive, on an annual basis. The Regulations enter into force on March 18, 2016.
View the Regulations.
View the Explanatory Memorandum.TOPIC : Funds -
US House of Representatives Financial Services Committee Holds Hearing on Volcker-Related Legislation
02/24/2016
The US House of Representatives’ Financial Services Committee’s Capital Markets Subcommittee held a hearing on legislation that would clarify the name-sharing provision of the Volcker Rule. Specifically, the Financial Services Committee discussed provisions of H.R. 4096, the Investor Clarity and Bank Parity Act, which would “correct a statutory error” in the Volcker Rule which restricts the ability of a banking entity to sponsor a covered fund, specifically by prohibiting name-sharing between a banking entity’s affiliates and a covered fund. The bill would permit investment adviser affiliates to share a name with a covered fund if the investment adviser is not (or does not control) an insured depository institution or is not treated as a bank holding company under Section 8 of the International Banking Act of 1978. The Financial Services Committee will consider a markup of the bill in a hearing scheduled on March 2, 2016.
View the full text of the markup.
TOPIC : Bank Structural Reform -
International Swaps and Derivatives Association Publishes Principles for US/EU Trading Platform Recognition
02/24/2016
The International Swaps and Derivatives Association published a paper which analyzes the regulatory frameworks in the US and EU for the supervision and oversight of trading platforms and aims to provide principles for the recognition of EU trading platforms by the US Commodity Futures Trading Commission. Both the US and the EU have introduced rules which require certain derivatives to be traded on trading platforms. The US rules, which came into force in October 2013, provide that US persons may only trade the relevant derivatives on platforms that have registered as a Swap Execution Facility and that are subject to the oversight of the CFTC. The EU Markets in Financial Instruments Regulation, which is currently due to come into force on January 3, 2017 unless proposed legislation is passed to delay it for a year, requires certain derivatives to be traded on EU trading venues. ISDA considers that the CFTC should be able to make comparability decisions, deeming EU trading platforms comparable with those in the US, by focusing on the outcomes and core objectives of the EU regime, thereby recognizing EU trading platforms as SEFs. This would allow US persons to trade on an EU trading venue in compliance with the US trade execution rules.
View ISDA's paper. -
Financial Action Task Force Risk-Based Approach on Money or Value Transfer Services
02/24/2016
The Financial Action Task Force published final Guidance on a Risk-Based Approach for Money or Value Transfer Services. This non-binding guidance is applicable to the entire MVTS sector but is primarily aimed at non-banking MVTS providers. The purpose of the guidance is to assist MVTS providers and associated banks, financial institutions and competent authorities in the development of a common understanding of a risk-based approach to anti money laundering and combating the financing of terrorism. The risk-based approach assists in the implementation of the revised FATF International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation published in 2012. The Guidance outlines key elements in the application of a risk-based approach to AML and counter-terrorist financing in the context of MVTS.
View the FATF Guidance.
View the FATF Recommendations. -
European Banking Authority Launches EU-Wide Stress Test
02/24/2016
The European Banking Authority has launched the next round of EU-wide bank stress tests and released the associated methodology and macroeconomic scenarios for its application. The test will involve a sample of 51 EU banks, covering 70% of the region's banking sector. The purpose of the test is to provide a common analytical framework for supervisors, banks and other market participants to assess and compare the stress of EU banks when faced with economic shocks. The common methodology of the test is to assess solvency and the main types of risk faced by EU banks: credit and securitization, market, sovereign, funding and operational and conduct risk. The adverse scenario posed by the test highlights the most material threats to the stability of the EU banking sector: (i) sudden increased risk compounded by a reduction in secondary market liquidity; (ii) weak profitability prospects; (iii) low nominal growth and rising debt sustainability concerns; and (iv) stress in the growing shadow banking sector fueled by liquidity risk. An EU-wide asset quality review will not be conducted before the 2016 test, as was the case in 2014. National regulators regularly assess asset quality as part of their supervisory work. The EBA has not set a single capital threshold. The EBA expects the results of the stress test to be published in the third quarter of 2016. The results will be used to assist the Supervisory Review and Evaluation Processes when determining appropriate capital resources. National regulators will review the results and determine whether any supervisory measure is necessary to address any capital shortfall.
View the EBA press release and related documents. -
US Federal Deposit Insurance Corporation Issues Report Summarizing Fourth Quarter Financial Results for FDIC-Insured Institutions
02/23/2016
The US Federal Deposit Insurance Corporation issued the “Quarterly Banking Profile” which summarized financial results for the fourth quarter of 2015 for commercial banks and savings institutions insured by the FDIC. As a general matter, FDIC-insured institutions reported aggregated net income of $40.8 billion in the fourth quarter of 2015, an increase of 11.9% (or $4.4 billion) from the previous year. In a statement, FDIC Chairman Martin J. Gruenberg noted that the banking industry improved on both revenue and income from the previous year, but noted that banks should remain vigilant to continued interest-rate risk, credit risk and evolving market conditions.
View more information on the FDIC Quarterly Banking Profile.
View the full text of Chairman Gruenberg’s statement.
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Financial Stability Board Proposes Additional Standards for Securities Financing Data Collection
02/23/2016
The Financial Stability Board published proposals for the identification of data elements for monitoring non-cash collateral re-use and for the development of a measure of non-cash collateral re-use. The proposals are part of the FSB's global securities financing data collection initiative, the Standards for which were published in November 2015. The Standards identify a data element on collateral re-use eligibility to be collected for collateral received or posted for securities financing transactions by national regulators for provision to the FSB. The FSB is proposing to add possible measures of non-cash collateral re-use and related data elements into the Standards to help evaluate global trends on collateral re-use and to assess financial stability risks. Comments on the FSB's proposals are requested by April 22, 2016. The FSB intends to develop recommendations by the end of 2016.
View the FSB proposals.
View the FSB Standards for securities financing data collection.TOPIC : Shadow Banking -
List of Designated Representatives Enabled as Complainants for UK Payment Systems Providers
02/23/2016
HM Treasury published the Financial Services (Banking Reform) Act 2013 (Designated Representative Bodies) Order 2016 together with an explanatory memorandum. Under the Financial Services (Banking Reform) Act 2013, representatives designated by the Treasury can issue complaints to the Payments Systems Regulator (which was itself established under the Act) when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. The Order is the first to designate representatives that are able to issue complaints under the Act and aims to ensure that misconduct or market failure in the payment system sector is brought to the attention of the PSR and investigated. The Order designates five representatives: (i) the National Association of Citizens Advice Bureaux; (ii) the Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK. The Order comes into force on April 1, 2016.
View the Order.
View the Explanatory Memorandum.TOPIC : Payment Services -
UK Regulator Fines W H Ireland Limited for Market Abuse Failings
02/22/2016
The Financial Conduct Authority found that W H Ireland Ltd had failed to adequately install systems and controls for the prevention of market abuse or detection. The FCA fined WHI £1.2 million and imposed a restriction preventing WHI for 72 days from taking on new clients in its corporate broking division. The restriction was imposed because WHI had failed to address issues identified in a FCA-appointed Skilled Person report dated August 2013. The FCA found that WHI had failed to take precautions against market abuse during the period between January 1 and June 19, 2013. During this period WHI had approximately £2.5 billion of assets under management, around 9,000 private wealth clients and 87 corporate broking clients. WHI's failings were deemed to be in breach of Principle 3 of the FCA’s Handbook as WHI had failed to take reasonable care to organise and control its affairs responsibly and failed to maintain adequate risk management systems. Some of the failings included inadequate controls to prevent inside private information from leaking into the public component of the firm, insufficient rules for employees on dealing with personal accounts and inadequate conflicts of interest policies. The range of services provided by WHI meant that it was exposed to the possibility of market abuse risks and therefore the FCA considered WHI's failings to be extremely serious. WHI's exposure was compounded as it was in regular receipt of client inside information which, if mishandled, would have had an adverse impact on the market, potentially affecting a large number of market participants. WHI benefited from a 20% Stage 2 settlement discount which reduced the fine and restriction period from £1.5 million and 90 days respectively.
View the FCA's Final Notice.TOPIC : Enforcement -
Single Resolution Board Begins Data Collection for MREL Determination
02/22/2016
The Single Resolution Board announced that it had started to collect data for the purposes of resolution planning and the determination of the Minimum Requirement for Own Funds and Eligible Liabilities (known as MREL) for banking groups within its remit. 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 Banking Union). The Single Resolution Mechanism Regulation requires the SRB to set the MREL during 2016. The SRB published a Liability Data Template for firms to provide it with the required information, prioritizing the minimum data required by EU legislation and requesting that other data be provided on a priority or best efforts basis in 2016.
View the SRB announcement.TOPIC : Recovery & Resolution -
William C. Dudley Reappointed President of the Federal Reserve Bank of New York; Michael Strine Reappointed First Vice President
02/19/2016
The Federal Reserve Bank of New York announced the reappointment of William C. Dudley and Michael Strine as president and first vice president of the New York Fed, respectively. Eligible members of the New York Fed’s board of directors voted unanimously to reappoint Mr. Dudley and Mr. Strine, and the Federal Reserve Board approved that decision. Their new five-year terms begin March 1, 2016.
View the New York Fed press release.TOPIC : People -
US Securities and Exchange Commission Chairwoman's Speech Notes Risk-Taking Essential to Macroeconomic Growth
02/19/2016
US Securities and Exchange Commission Chairwoman Mary Jo White addressed the annual “SEC Speaks” program, noting the critical role capital markets play in the US economy and the importance of risk-taking as part this process. White argued that regulators should not seek to eliminate risk altogether but rather safeguard the investment and capital raising process from unacceptable risks that dilute, distort or disable the fair playing field that is integral to robust free financial markets.
View the speech.TOPIC : Financial Services -
US Federal Banking Agencies Issue Interim Final Rules Allowing More Banks and Savings Associations to Qualify for 18-Month Examination Cycle
02/19/2016
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly issued interim final rules that will allow certain well-capitalized and well‑managed insured depository institutions with less than $1 billion in total assets to qualify for an 18-month examination cycle, rather than a 12-month cycle. Institutions are considered to be well-capitalized and well-managed if they have a composite examination rating of 1 or 2—the top ratings in the five-point scale indicating the safety and soundness of a bank or savings association.
The rules are estimated to increase the number of institutions that may qualify for an 18-month examination cycle by approximately 617, to nearly 5,000 insured depository institutions. In addition, the rules increase the number of US branches and agencies of foreign banks that may qualify for an 18-month examination cycle by 26 branches and agencies, to a total of 89. The changes are intended to reduce regulatory compliance costs for smaller institutions, while still maintaining safety and soundness protections. Comments to the rules will be accepted for 60 days from publication in the Federal Register.
View the interim final rules and request for comments.
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Prudential Regulation Authority Publishes Approach to Identifying Other Systematically Important Institutions
02/19/2016
The Prudential Regulation Authority published policy statement outlining approach to identifying other systematically important institutions (i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system). The PRA is required to identify O-SIIs pursuant to the Capital Requirements Directive which implements the framework for domestic systemically important institutions developed by the Basel Committee for Banking Supervision.
Read More. -
Sweett Group Convicted for Failing to Prevent Bribery
02/19/2016
The Serious Fraud Office announced that Sweett Group Plc had been convicted and sentenced for failing to prevent bribery by an associated person under section 7 of the Bribery Act 2010. It is the first conviction of the section 7 corporate offence since the Bribery Act came into force on 2011 and it follows an investigation by the SFO into the activities of the Sweett Group in the UAE between December 1, 2012 and December 1, 2015. The investigation uncovered that Sweett Group Plc’s subsidiary company, Cyril Sweett International Limited had made corrupt payments to the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of AAAI to secure the award of a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi. Sweett Group, who pleaded guilty to the charges in December 2015, were ordered to pay £2.35 million, made up of a fine of £1.4 million, £851,152 in confiscation and approximately £95,000 in costs. The amount due under the confiscation order must be paid within three months. Half the fine is due by February 19, 2017, with the remainder due in February 2018. The SFO's related investigation into individuals continues. The judgment provides guidance as to the circumstances in which a subsidiary, including a foreign subsidiary, may be considered to be an "associated person" of its parent. In this case, the Court considered that Cyril Sweett International, despite being a separate and distinct legal entity from its parent company, Sweett Group, was not independently run. The court found that the Sweett Group had treated and run Cyril Sweett International as an extension of its Middle East operations. The SFO's related investigation into individuals continues.
View the SFO press release.TOPIC : Enforcement -
UK Regulator Publishes Proposed Guidance on Enforcing Security and Default Notices under the Consumer Credit Act
02/19/2016
The Financial Conduct Authority published proposed guidance on the FCA's updated view on enforcing security under the Consumer Credit Act and when a default notice is required to be issued. The guidance is aimed at firms that provide consumer credit services and products. The proposed guidance invites comment on "what is enforcement" in the context of when a firm could breach the CCA. The proposed guidance relates to the requirement under the CCA to serve a default notice, following the breach of a regulated agreement, before taking certain enforcement actions. In a previous feedback statement published in September 2015, the FCA stated that a default notice was not required when taking or demanding payment from guarantors following a default because this was deemed to be enforcement of a security. This guidance provides the updated view that this statement made in the feedback statement was incorrect. The guidance provides specific circumstances where a default notice would be required in the context of guarantor loans. One such circumstance is where a creditor wishes to request or take payment from a guarantor following non-payment by a debtor. The FCA has taken the view that a creditor cannot take payment from the guarantor where it has failed to serve a valid default notice. Comments on the consultation may be submitted until March 18, 2016.
View the Proposed Guidance. -
European Central Bank Proposes Guide for Recognition of Institutional Protection Schemes
02/19/2016
The European Central Bank launched a consultation on its proposed guide to the recognition of institutional protection schemes for prudential purposes. Under the Capital Requirements Regulation an IPS is a contractual or statutory liability arrangement of a group of banks which protects member institutions, in particular, by ensuring their liquidity and solvency. Certain waivers or relaxation of capital requirements are available for IPS member institutions under CRR. In particular, CRR provides that the ECB may, subject to certain exceptions, allow credit institutions to apply a 0% risk weight to exposures to other counterparties whichare members of the same IPS. The ECB directly supervises the largest Eurozone banks for prudential purposes and overseas the prudential supervision by national regulators of the smaller Eurozone banks. The ECB's proposed guidelines set out how it intends to assess compliance of an IPS and its members with the requirements set out in the CRR. Responses to the consultation should be submitted by April 15, 2016. Once finalized, the final guidelines will be incorporated into the ECB Guide on options and discretions available in Union law (which is currently being finalized).
View the proposed guide.
View the ECB's consultation webpage. -
Financial Conduct Authority Publishes Review Report on Assessing Suitability
02/19/2016
The Financial Conduct Authority published the findings of its review into the research and due diligence processes that firms undertake on the products and services they recommend to retail clients. The FCA assessed 13 advisory firms and also visited seven external research and due diligence consultancy firms. Key findings that emerged from the thematic review were that most firms seek to achieve positive outcomes for their clients when undertaking research and due diligence and that there is some evidence of good practice. However, many firms do not demonstrate good practice consistently across all products and services. The FCA found that a corporate culture of challenge was a key driver of good research and due diligence. Those firms that did not have a corporate culture of challenge: (i) did not try to understand or challenge their own inappropriate bias towards products, services or providers; and (ii) inadequately managed conflicts of interest. The FCA has taken steps to address the issues found, instructing three firms to improve their research and due diligence process. The FCA has also asked one firm to complete a past business review. The FCA intends to provide firms with further communications that set out its expectations in this area in greater detail. In addition, the FCA's second consultation paper on implementing the Markets in Financial Instruments Directive, due to be published later this year, will cover requirements for research on products.
View the FCA's review report. -
US Commodity Futures Trading Commission Provides Time-Limited No-Action Relief for End Users from the Form TO Filing Requirement
02/18/2016
The US Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter providing time-limited relief for end users from the Form TO filing requirement under CFTC Regulation 32.3(b)(2), which the CFTC has proposed to amend. The regulation currently requires counterparties to trade options that are not required to be reported to a swap data repository to submit a Form TO filing by March 1 following the end of any calendar year during which they entered into one or more unreported trade options. While the CFTC is considering the proposed amendment to the Trade Options Rule, DMO will not recommend that the CFTC take enforcement action against a market participant that is neither a swap dealer nor a major swap participant for failing to report its otherwise unreported trade options entered into during 2015 on Form TO by April 1, 2016.
View the CFTC press release.
View CFTC Staff Letter 16-10.
View the CFTC regulation.TOPIC : Derivatives -
US Commodity Futures Trading Commission Extends Comment Period on Draft Technical Specifications for Certain Swap Data Elements
02/18/2016
The US Commodity Futures Trading Commission’s Division of Market Oversight and Office of Data and Technology staff extended the comment period on the draft technical specifications for certain prioritized swap data elements and associated questions to March 7, 2016. The draft technical specifications include certain swap data elements that are reportable under Part 45 and related provisions of the CFTC’s regulations, as well as certain swap data elements that are not currently reportable under the CFTC’s regulations, but which have been identified as data elements that may assist the CFTC in fulfilling its regulatory mandates. Specifically, the request for comment seeks public input on 80 questions addressing 120 data elements for various swap data reporting topics including counterparty-related elements, price, clearing, product, periodic reporting, orders, package transactions, options, additional fixed payments, notional amount, events, rates and foreign exchange.
View the CFTC press release.
View the draft technical specifications.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Approves Reappointment of Reserve Bank Presidents and First Vice Presidents
02/18/2016
The US Board of Governors of the Federal Reserve System approved the reappointment of 10 Federal Reserve Bank presidents and 10 first vice presidents by their respective boards of directors. Each individual has been approved to serve a new five-year term beginning March 1, 2016. The recently named presidents of the Federal Reserve Banks of Minneapolis and Dallas, as well as the recently appointed first vice presidents of the Federal Reserve Banks of Philadelphia and Chicago, were approved for terms through February 28, 2021, at the time of their initial appointments.
View the list of presidents and first vice presidents, by Federal Reserve District.TOPIC : People -
US Board of Governors of the Federal Reserve System Issues Interim Final Rule Regarding Dividend Payments on Reserve Bank Capital Stock
02/18/2016
The US Board of Governors of the Federal Reserve System issued an interim final rule amending Regulation I to implement provisions of the Fixing America’s Surface Transportation Act. The FAST Act reduced the dividend rate applicable to certain Reserve Bank depository institution stockholders that have total consolidated assets of more than $10 billion to the lesser of (i) 6 percent or (ii) the most recent 10-year Treasury auction rate prior to the dividend payment. The dividend rate for other member banks remains at 6 percent. Typically, Reserve Banks pay dividends to member banks twice each year in June and December.The interim final rule also adjusts the treatment of accrued dividends when a Reserve Bank issues or cancels capital stock owned by a large member bank. Comments to the interim final rule will be accepted for 60 days from publication in the Federal Register.
View the Federal Reserve Board press release.
View the interim final rule.TOPIC : Financial Market Infrastructure -
US Consumer Financial Protection Bureau Finalizes Policy to Facilitate Consumer-Friendly Innovation
02/18/2016
The US Consumer Financial Protection Bureau finalized a policy, first proposed in October 2014, establishing a process for companies to apply for a no-action letter from CFPB staff that would reduce regulatory uncertainty for a new product or service that offers the potential for significant consumer-friendly innovation. This letter would indicate that CFPB staff reviewed the company’s application and have no present intention to recommend enforcement or supervisory action with respect to the particular aspects of the company’s product under the specifically-identified provisions and applications of statutes or regulations that are the subject of the no-action letter.
The new policy was created as part of the CFPB’s Project Catalyst initiative, which was designed to encourage consumer-friendly developments in markets for consumer financial products and services. The CFPB views this initiative as an important aspect of fulfilling its mandate under the Dodd-Frank Act to provide all consumers access to fair, transparent, effective, and innovative markets. The policy also builds on a trial disclosure waiver policy issued by the CFPB in 2013, which allows financial services providers to take advantage of new technologies in designing and testing improved alternative federal consumer disclosures.
View the CFPB press release.
View the policy.
TOPIC : Consumer Protection -
UK Regulator Calls for Input on Retained Provisions of the Consumer Credit Act
02/18/2016
The Financial Conduct Authority issued a Call for Input on the retained provisions of the Consumer Credit Act. Responsibility for regulating consumer credit markets was transferred to the FCA in April 2014. The aim of the review is to simplify the regime and provide appropriate protection for consumers without burdening firms disproportionately. The FCA is seeking input on three key areas: (i) whether any specific retained provisions should be prioritized for review; (ii) the timeline of the review; and (iii) the manner in which the review should be undertaken. Responses to the Call for Input are due by May 18, 2016. The FCA is expected to establish a stakeholder's consultative group and to finalize the scope of the review in the next few months. The regulator will publish an update on progress in the fourth quarter of 2016. The FCA is required to report its recommendations to the Treasury by April 1, 2019. The report could outline legislative change and whether repealing any of the retained provisions in the CCA could have an adverse effect on the appropriate level of consumer protection. The report must also consider whether any of the retained provisions of the CCA could be replaced by FCA rules. In making the review the FCA must have regard to the principle that a burden imposed in relation to the carrying on of an activity should be proportionate to the benefits.
View the Call for Input. -
US Board of Governors of the Federal Reserve System Notifies Firms of Enhancements to Federal Reserve Models Used to Estimate Operational Risk and Capital
02/17/2016
The US Board of Governors of the Federal Reserve System sent a letter to firms participating in the upcoming Dodd-Frank Act Stress Test (DFAST) and Comprehensive Capital Analysis Review (CCAR) notifying them of certain enhancements to aspects of its operational risk and capital models. Among the enhancements to operational risk models are losses from expenses related to put‑back mortgages, as well as potential costs form unfavorable litigation outcomes. For DFAST 2016, the Federal Reserve Board notes that it will use historically-based loss projections (with two new modifications) using an average of two models, while dropping the loss distribution approach. Changes to capital models include incorporating greater precision in the adjustments to the regulatory capital ratio denominators, as well as modifying assumptions regarding the relationship between mortgage servicing assets and associated deferred tax liabilities.
View the letter. -
US Federal Deposit Insurance Corporation Issues Proposed Rule to Facilitate Access to Deposits in Large Banking Failures
02/17/2016
The US Federal Deposit Insurance Corporation issued a proposal that would require certain insured depository institutions to maintain certain books and records in order to facilitate the payment of insured deposits to customers in the event such institutions were to fail. The proposed rule applies to insured depositary institutions with a large number of deposit accounts (more than 2 million). Based on current data, 36 insured depository institutions would be covered by the rule. The recordkeeping requirements would require the institutions covered by the rule to maintain complete and accurate data on each depositor and would require such institutions to ensure that their information technology systems have the ability to calculate the amount of insured money for each depositor within 24 hours of a failure. Comments on the proposed rule must be received within 90 days after the date of publication in the Federal Register.
View the text of the FDIC proposed rule. -
US Federal Deposit Insurance Corporation and US Securities Exchange Commission Issues Proposed Rule Regarding the Orderly Liquidation of Covered Broker-Dealers
02/17/2016
The US Federal Deposit Insurance Corporation and the US Securities and Exchange Commission jointly issued a proposed rule to implement provisions for the orderly liquidation of covered brokers and dealers as required under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act. Specifically, Title II provides for federal receivership proceedings of qualifying financial companies, including covered broker-dealers, with the FDIC serving as receiver. The proposed rule defines a covered broker or dealer as any covered financial company that is registered with the SEC as a broker or dealer and is a member of the Securities Investor Protection Corporation. A covered financial company is generally one that is in danger of default and whose failure would have serious adverse effects on US financial stability, as determined by the Secretary of the Treasury. In the case of covered broker dealer, the FDIC will serve as receiver, but the SIPC will serve as trustee.
Comments on the proposed rule must be received within 60 days after the date of publication in the Federal Register.
View the full text of the proposed rule. -
EU Equivalence Decision on Recognized Third Countries for Treatment of Exposures of Banks
02/17/2016
A Commission Implementing Decision was published in the Official Journal of the European Union, updating the list of third countries with equivalent regulatory arrangements in relation to prudential requirements for banks and investment firms for the purpose of the treatment of exposures. The Decision lists the countries whose arrangements for supervision and regulation of banks and investment firms are deemed by the European Commission to be equivalent to the standards of the EU as set out in the Capital Requirements Regulation. The assessments reviewed the supervisory and regulatory arrangements in each country for: (i) banks; (ii) investment firms; and (iii) exchanges. The following nations are now equivalent across all three categories: Australia, Brazil, China, Mexico, Saudi Arabia, Singapore, South Africa and the United States. This Decision will enter into force on March 8, 2016.
View the list of equivalent third countries and territories. -
US Government Accountability Office Releases Report on Potential Illicit Uses of Remittance Transfers
02/16/2016
The US Government Accountability Office released a report that examines the potential illicit uses of remittances and analyzes the benefits of requiring remittance senders to provide certain types of identification at a threshold below the current $3,000 level for US anti-money laundering efforts. Among other things, the report examines: (i) BSA remittance requirements for remittance providers and related challenges that remittance providers face in complying with these requirements; (ii) money laundering risks that remittances pose; and (iii) views of relevant stakeholders’ (including the Financial Crimes Enforcement Network, regulators, remittance providers, law enforcement, and industry and other associations) on the extent to which requiring remittance providers to verify identification and collect information at a lower dollar transaction amount than is currently required, or adding a requirement to verify legal immigration status, would assist US federal agencies’ AML efforts.
View the report. -
Federal Reserve Bank of Minneapolis President Delivers Speech Arguing that Banks are Still Too Big to Fail
02/16/2016
In a speech at the Brookings Institution in Washington, DC, Federal Reserve Bank of Minneapolis President Neel Kashkari argued that banks are still too big to fail and remain a significant, ongoing risk to the US economy. Kashkari noted that the Dodd-Frank Act did not go far enough and that regulators should consider breaking up large banks into smaller entities, turning them into public utilities by forcing them to hold higher levels of capital (as high as 25% of total assets), and taxing leverage throughout the financial system. According to Kashkari, the Minneapolis Fed will launch an initiative to consider transformational options through policy symposiums and policy briefs and create an actionable plan to end too big to fail that will be released by year-end for consideration by legislators, policymakers, and the public.
Kashkari’s predecessor at the Minneapolis Fed, Narayana Kocherlakota, responded to Kashkari’s proposals, noting that such measures, particularly imposing higher capital standards, would have “adverse macroeconomic consequences.”
View Kashkari’s speech.
View Kocherlakota’s response. -
European Securities and Markets Authority Second Peer Review Report on Money Market Fund Guidelines
02/16/2016
The European Securities and Markets Authority published a peer review report on the implementation by national regulators of the Committee of European Securities Regulators' Guidelines on a common definition of European Money Market Funds. The Guidelines specify a common definition of MMFs and establish a list of criteria that funds need to comply with should they wish to be categorized as a "Money Market Fund". The Guidelines aim to improve investor protection and apply both to: (i) collective investment undertakings subject to the Undertakings for the Collective Investment of Transferable Securities Directive; and (ii) non-harmonized collective investment undertakings regulated by the national laws of a Member State, which is supervised and complies with risk-spreading rules. The peer review follows the initial peer review published in April 2013 which identified that numerous regulators had at that time failed to implement the Guidelines. This second review updates the first review and covers 8 out of 30 countries which at the time of the previous review had not fully or in part implemented the guidelines. The 8 countries are Bulgaria, the Czech Republic, Hungary, Liechtenstein, Lithuania, Latvia, Malta and Portugal. The review states that the guidelines are or are about to be fully applied in all these jurisdictions apart from Hungary, where some failings have been identified.
View the Guidelines.
View the 2013 peer review report.
View the 2016 peer review report. -
European Securities and Markets Authority Discussion Paper on Proposed Benchmark Regulation
02/15/2016
The European Securities and Markets Authority published a discussion paper on the proposed EU Benchmarks Regulation and its technical implementation. ESMA is seeking views on initial proposals it intends to make in the form of draft Regulatory Technical Standards and Technical Advice. This follows on from the European Commission's mandate sent to ESMA on February 11, 2016, requesting technical advice on potential delegated acts on the Benchmark Regulation. The areas on which ESMA is seeking views include: (i) the definition of benchmarks; (ii) what constitutes administering arrangements for determining a benchmark, taking into account different existing business practices; (iii) what constitutes the issuance of a financial instrument for the purposes of defining the use of a benchmark; (iv) the measurement for the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds for a benchmark within a combination of benchmarks relating to the assessment of benchmarks; and (v) transparency requirements for benchmark methodology. The exact entry into force of the Benchmark Regulation is still unknown, though it is expected to enter into force in June 2016. ESMA has been asked to provide its technical advice four months after the Regulation enters into force. Currently, the Regulation and delegated acts are expected to apply 18 months after the Regulation enters into force. ESMA aims to analyze the responses to the discussion paper before July 2016 and to publish a consultation paper later this year. Comments on the discussion paper are due by March 31, 2016.
View the discussion paper.TOPIC : Financial Services -
Final Draft EU Technical Standards on the Mapping of Credit Assessments of External Credit Assessment Institutions for Securitization Positions Published
02/15/2016
The European Banking Authority published final draft Implementing Technical Standards on the mapping of assessments by Credit Rating Agencies for securitization positions under the Capital Requirements Regulation. The CRR establishes that the risk weights under the standardized and internal ratings based approach for securitization positions should be based, if applicable, on the credit quality of the positions. This credit quality is determined by reference to the credit ratings of CRAs. The draft ITS determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to External Credit Assessment Institutions' ratings issued on securitizations. The mapping is backed by the results of an impact analysis as well as quantitative considerations. A securitization-specific systematic mapping methodology is also being considered by the EBA and this would be based on the historical performance of securitization ratings. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions’ capital requirements.
View the final draft ITS. -
UK Regulators Joint Policy Statement on Regulatory References, Implementation of Senior Manager and Certification Regimes and Senior Insurance Managers Regime
02/15/2016
The Prudential Regulation Authority and Financial Conduct Authority jointly published a Policy Statement on the implementation of the Senior Manager and Certification Regimes, Senior Insurance Managers Regime and the requirements of the PRA on regulatory references. The Policy Statement, amongst other things, sets out a first set of PRA rules on the provision of regulatory references by firms under the SM&CR and SIMR, i.e., employment references passed between firms when an individual moves roles. These PRA rules are set out in Appendix 1 of the Policy Statement and will apply from March 7, 2016. The rules are largely a continuation of the existing requirements under the Approved Persons Regime and should be read and applied together with the FCA's equivalent requirements. The FCA's Policy Statement was published on February 4, 2016 and sets out the feedback received on the PRA and FCA's joint consultation on regulatory references. A second set of rules are expected to be published at a later date and will cover the areas on which feedback received by the PRA is still under consideration.
View the PRA and FCA's Policy Statement.
View the FCA's Policy Statement. -
Final EU Guidelines for Cooperation Agreements between Deposit Guarantee Schemes
02/15/2016
The European Banking Authority published its final Guidelines relating to cooperation agreements between Deposit Guarantee Schemes in accordance with the EU Deposit Schemes Directive. The Guidelines provide the minimum content for cooperation agreements between DGSs. The EBA has also provided a multilateral framework cooperation agreement in an attempt to minimize the need for numerous detailed bilateral agreements to be executed between multiple DGSs. The framework offers scope for DGSs to enter multilateral and bilateral agreements with more detailed terms than those provided for in the Guidelines, if necessary. The Guidelines stipulate minimum specifications to be included in cooperation agreements, including the means for: (i) repayment of depositors by the host DGS at branches of banks established in other Member States; (ii) the transfer of contributions from one DGS to another where a bank ceases to be a member of a DGS and joins another DGS; and (iii) mutual lending between DGSs. The EBA has attempted to cater for depositors in EU branches of firms headquartered in other Member States, so that they are treated in a similar fashion to depositors in home Member States by providing direction on the sequence and timing of events when the host DGS pays out depositors on behalf of the home DGS. The Guidelines will come into effect six months after their publication in all official EU languages.
View the Guidelines. -
EU Technical Standards Imposing Disclosure Requirements for Leverage Ratios on Financial Institutions Published
02/15/2016
The Commission Implementing Regulation on the disclosure of leverage ratios by financial institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The Regulation provides that firms must disclose relevant information concerning leverage ratios in the form of an approved template. Firms will be under an obligation to disclose a breakdown of the leverage ratio total exposure measure, a reconciliation of the leverage ratio for a firm's published financial statements and qualitative information on the risk of excessive leverage and the factors impacting the leverage ratio. The Regulation applies directly across the EU from February 16, 2016.
View the Regulation. -
UK Court Orders the Return of £2.9 Million to Defrauded Investors
02/12/2016
The Southwark Crown Court ordered Mr. Alex Hope and Mr. Raj Von Badlo to return around £2.9 million to investors who were defrauded by a collective scheme that Mr. Hope established and operated without regulatory authorization to do so. The Court made a confiscation order against Mr. Hope, pursuant to the Proceeds of Crime Act 2002, for an amount of £166,696. Mr. Hope's co-defendant, Mr. Von Badlo, was also subject to a confiscation order made at a hearing on December 18, 2015, in which he was ordered to pay £99,819. The Orders follow a prosecution by the Financial Conduct Authority. The scheme, which was closed down by the FCA in April 2012, had a significant impact on over 100 investors. Mr. Hope had represented himself as a talented and skilful trader however he only actually traded around 12% of the total money his investors had given him and spent the majority of his investors' funds on himself. Mr. Hope was found guilty of fraud for operating an investment scheme without authorization in September 2015. Mr. Badlo pleaded guilty in July last year to recklessly making false representations to investors and promoting a collective investment scheme without authorization. Both individuals were sentenced to seven and two years’ imprisonment respectively in January 2015. Failure by Mr. Hope or Mr. Von Badlo to comply with the Court’s orders could result in their current prison sentences being extended.
View the FCA’s press release.TOPIC : Enforcement -
US Commodity Futures Trading Commission Issues No-Action Relief to Certain Intermediaries Located Outside of the United States
02/12/2016
The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight provided no-action relief clarifying that the exemption from registration in Rule 3.10(c)(3) for persons located outside the United States who act as Introducing Brokers, Commodity Trading Advisors or Commodity Pool Operators on behalf of persons located outside of the United States is available in connection with swaps that are not submitted for clearing if such swaps are not subject to a CFTC clearing requirement.
View the CFTC no-action letter.
TOPIC : Derivatives -
US Office of the Comptroller of the Currency Publishes Certain Revised Booklets of the Comptroller’s Handbook
02/12/2016
The US Office of the Comptroller of the Currency issued two revised booklets of the Comptroller’s Handbook: the “Country Risk Management” booklet and the “Installment Lending” booklet. Each revised booklet updates and replaces the previous versions of the respective booklets. The “Installment Lending” booklet provides updated guidance to examiners regarding the administration of installment lending practices and the controls and processes necessary to manage the risks associated with those practices as well as updated guidance for assessing the quantity of risk associated with installment lending activities.
The “Country Risk Management” booklet provides updated guidance to examiners regarding country risk management, based on lessons learned from the financial crisis of 2008 as well as the European banking and debt crises. The booklet also updates descriptions of the risks associated with international activities and contains a more detailed discussion of the effects of country risk, cross-border risk and sovereign risk on the OCC’s 8 risk categories (credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation).
View the “Installment Lending” booklet.
View the “Country Risk Management” booklet.
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US-EU Financial Market Regulatory Dialogue Meeting
02/12/2016
The European Commission published a joint statement following a meeting that took place on February 3, 2016 between the participants of the US-EU Financial Market Regulatory Dialogue. The group met to discuss key regulatory topics including recent developments in bank capital and liquidity measures, bank resolution, cross-border bank supervision, CCP resolution, derivatives reforms and benchmarks reforms. Amongst other things, US and EU participants outlined the progress made on: (i) the common approach on requirements for central clearing counterparties and the equivalence of US trading platforms under the EU Markets in Financial Instruments framework; (ii) the proposed European Benchmark reform; and (iii) resolution frameworks for CCPs. The participants included representatives from the European Commission, European Central Bank, US Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and the Securities and Exchange Commission. The next meeting will be taking place in Brussels in July 2016.
View the joint statement.TOPIC : Financial Services -
US Board of Governors of the Federal Reserve System Repeals Regulation AA and Proposes Repeal of Regulation C
02/11/2016
The US Board of Governors of the Federal Reserve System announced that, as part of the transfer of certain consumer protection rulewriting authority to the US Consumer Financial Protection Bureau under the Dodd–Frank Act, the Federal Reserve Board was repealing Regulation AA (Unfair or Deceptive Acts or Practices). Among other things, Regulation AA contained the Federal Reserve Board’s “credit practices rule,” which prohibited banks from engaging in certain practices to enforce consumer credit obligations and from including these practices in consumer credit contracts. Separately, the Federal Reserve Board announced the proposal to repeal Regulation C (Home Mortgage Disclosure), which has been superseded by CFPB rules.
View the Federal Reserve Board press release.
View the text of the final rule repealing Regulation AA.
View the text of the proposed rule to repeal Regulation C.
TOPIC : Consumer Protection -
European Commission Request for Technical Advice on Proposed Benchmark Regulation
02/11/2016
The European Commission asked the European Securities and Markets Authority for technical advice on potential delegated acts due under the proposed European Benchmark Regulation. The proposed Benchmark Regulation aims to ensure that benchmarks produced and used in the EU are robust, reliable, fit for purpose and free from manipulation. The Commission's mandate requests technical advice from ESMA on matters including: (i) what constitutes administering arrangements for determining a benchmark, taking into account different existing business practices; (ii) what constitutes the issuance of a financial instrument for the purposes of defining the use of a benchmark; and (iii) the conditions under which a national regulator may decide that there is an objective reason for the provision of a benchmark or family of benchmarks in a third country. In response to the Commission's request, ESMA published a discussion paper on the Regulation and its technical implementation. The proposed Regulation is expected to enter into force in June 2016. ESMA has been asked to provide its technical advice four months after the Regulation's entry into force. Currently, the Benchmark Regulation and delegated acts are expected to apply 18 months after the Regulation enters into force.
View the Commission's request for technical advice.
View the Commission's covering letter to ESMA.
View ESMA's discussion paper. -
UK Regulators Consult on Regulators' Complaints Handling and Procedures
02/11/2016
The Bank of England, Prudential Regulation Authority and Financial Conduct Authority jointly published a consultation paper on how complaints about them are reported and responded to. The regulators operate a Complaints Scheme that investigates complaints against them. The scheme has recently been revised. The revisions require the Complaints Commissioner, which is the investigator of complaints against the regulators, to produce an annual report on such investigations and send a copy of the report to the regulators as well as the Treasury. If the Complaints Commissioner makes recommendations or criticisms about the handling of a complaint against a regulator, the regulator must respond to such recommendations or criticisms and send its response to both the Complaints Commissioner and Treasury. The Regulators are seeking views on the proposed revisions to the Complaints Scheme, following the legislative amendments. The regulators are also obliged to review the operation of the scheme after three years, which may lead to a further consultation in 2016. Responses to the consultation are due by March 8, 2016.
View the consultation paper.TOPIC : Financial Services -
US Securities and Exchange Commission Adopts Final Rules Regarding Cross-Border Security-Based Swap Dealing Activity
02/10/2016
The US Securities and Exchange Commission adopted rules applicable to non-US firms engaging in cross-border security-based swap activities. Under the final rules, a non-US company that arranges, negotiates or executes a security-based swap transaction in connection with its dealing activity using personnel located in a US branch or office must count that transaction when determining eligibility for the de minimis exception to the security-based swap dealer registration requirement. A non-US firm must include such transactions in its de minimis threshold calculation together with security-based swap transactions connected with its dealing activity where its counterparty is a US person. Compliance with the rules is not required until the latest of either 12 months following publication in the Federal Register or the “SBS Entity Counting Date,” as specified in the SEC’s SBS Entity Registration adopting release.
View the SEC press release.
View the final rules.TOPIC : Derivatives -
Chair of the US Board of Governors of the Federal Reserve System Presents Semiannual Monetary Policy Report to Congress
02/10/2016Janet Yellen, the Chair of the US Board of Governors of the Federal Reserve System submitted before Congress the Federal Reserve Board’s semiannual Monetary Policy Report. In her remarks, Chair Yellen discussed the current economic situation and outlook of the US economy since July 2015, including strong gains in the job market along with continued moderate expansion in economic activity. Chair Yellen further discussed monetary policy and emphasized that the Federal Open Market Committee continues to monitor the federal funds rate, but anticipates that economic conditions will warrant only gradual increases in the federal funds rate.
VIew Chair Yellen’s testimony.
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US Commodity Futures Trading Commission and the European Commission for Financial Stability, Financial Services and Capital Markets Union Announces Common Approach Regarding Requirements for Central Clearing Counterparties
02/10/2016
The European Commissioner for Financial Stability, Financial Services and Capital Markets Union and the US Commodity Futures Trading Commission jointly announced the adoption of a common approach regarding requirements for transatlantic central clearing counterparties. The common approach is intended to resolve an impasse that had prevented recognition of US CCPs under EMIR. Under the common approach, the European Commission is expected to determine that CFTC regulation of central counterparties is equivalent to EU requirements, subject to certain conditions. The CFTC is also expected to propose a determination of comparability with respect to certain EU requirements in order to permit EU CCPs that are or seek to be registered as derivatives clearing organizations to comply with such EU requirements in lieu of US requirements. The CFTC staff also committed to streamlining the registration process for EU CCPs wishing to register with the CFTC. In statements, CFTC Chairman Timothy Massad and Commissioner Jonathan Hill applauded the adoption of the common approach as an important step toward stable and uniform regulation of the global derivatives market.
View the Shearman & Sterling publication on the common approach.
View the statement of CFTC Chairman Timothy Massad regarding the common approach.
View the statement of Commissioner J. Christopher Giancarlo regarding the common approach.
TOPIC : Derivatives -
Vice Chairman of the US Board of Governors of the Federal Reserve System Discusses the Role of the Federal Reserve as Lender of Last Resort
02/10/2016
Stanley Fischer, the Vice Chairman of the US Board of Governors of the Federal Reserve System gave a speech at a conference sponsored by the Committee on Capital Markets Regulation discussing the function of the Federal Reserve as a lender of last resort in the United States. In his remarks, Vice Chairman Fischer noted that, despite recent developments that have placed limitations on the Federal Reserve’s actions as a lender of last resort, the Federal Reserve, when necessary and appropriate, has the authority to act as lender of last resort in several ways. Vice Chairman Fischer noted that the Federal Reserve retains the power to extend discount window loans, either to individual institutions or more generally in order to address broader financial stresses, to insured depository institutions, including commercial banks, thrift institutions, credit unions, or US branches and agencies of foreign banks. Further, the Federal Reserve is also permitted, with the approval of the Secretary of the Treasury, to lend to non-bank institutions through the use of broad-based facilities to provide liquidity to financial markets.
View the text of Vice Chairman Fischer's speech.
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European Commission and US Commodity Futures Trading Commission Reach Agreement on Regulation of Clearing Houses and Central Counterparties
02/10/2016
The European Commission and US Commodity Futures Trading Commission announced they had reached agreement on a common approach to requirements for central clearing counterparties. The Commission is expected to adopt an equivalence decision affirming that the CFTC requirements for US CCPs are equivalent to those under the European Market Infrastructure Regulation. US CCPs recognised under EMIR will be able to continue to provide services in the EU whilst complying with CFTC requirements, although this will likely be subject to US CCP compliance with certain aspects of EU rules on collateral calculations.
Read more.TOPIC : Derivatives -
European Commission Proposes One-Year Extension for Application of MiFID II
02/10/2016
The European Commission proposed a one-year extension to the effective date of the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, collectively known as MiFID II. The proposal, if approved, would mean that national regulators would have an additional year to comply with MiFID II. The new effective date would be January 3, 2018 instead of January 3, 2017.
Read more.TOPIC : MiFID II -
UK Regulator Call for Input on Existing Issues in Current Payment Services Regime
02/10/2016
The Financial Conduct Authority issued a Call for Input on its approach to the current payment services regime further to the revised Payment Services Directive (known as PSD2) which is to be transposed into national law by January 2018. PSD2 will affect the way payments services providers (such as banks, building societies and money transmission firms) are regulated. The FCA expects to revise certain sections of its Handbook in light of the revised directive and is seeking views on whether any issues exist that should be addressed when the updates are made. Responses to the Call for Input are due by March 23, 2016.
View the Call for Input.TOPIC : Payment Services -
US Federal Deposit Insurance Corporation Releases Economic Scenarios for Use in 2016 Stress Testing
02/09/2016
The Federal Deposit Insurance Corporation released the economic scenarios for use by certain covered financial institutions in the 2016 stress tests required under the Dodd-Frank Act. Generally, those financial institutions with total consolidated assets of more than $10 billion are required to conduct stress tests. The released scenarios include key variables that reflect economic activity, such as unemployment, exchange rates, prices, income, interest rates and other economic and financial factors. The FDIC coordinated with the Federal Reserve Board and the OCC, which released the scenarios in late January, in developing and distributing the scenarios.
View FDIC stress test scenarios.
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European Banking Authority Disagrees with European Commission on Criteria for MREL
02/09/2016
The European Banking Authority published its Opinion expressing its disagreement with certain of the European Commission's proposed amendments to the final draft Regulatory Technical Standards on the criteria for setting the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL is the European equivalent of US TLAC. The EBA submitted the draft RTS to the Commission in July 2015. The Commission proposed a number of amendments in December 2015. The EBA disagrees on, amongst other things: (i) the removal of the reference to a minimum contribution to loss absorption and recapitalization of 8% of total liabilities and own funds; (ii) the removal of the test for downward adjustments to the recapitalization amount and peer group reference for systemic institutions; and (iii) the removal of the upper limit (48 months) on the transitional compliance period, instead making reference to a transitional period that is "as short as possible". The EBA has resubmitted a further revision of the draft RTS to the Commission as an Annex to the Opinion.
View the Opinion.TOPIC : Recovery & Resolution -
UK Regulator Fines Former Head of JPMorgan's CIO International
02/09/2016
The Financial Conduct Authority issued JPMorgan's former head of CIO International, Mr. Achilles Macris, a Final Notice and a fine of £792,000 for failing to be open and co-operative. The FCA found that Mr. Macris was responsible for a number of portfolios, including the Synthetic Credit Portfolio, later known as the "London Whale" trades. The notice states that, between March and April 2012, Mr. Macris failed to inform the FCA's predecessor, the Financial Services Authority, about concerns related to the SCP even though Mr. Macris was also aware that the firm was subject to a "close and continuous" relationship with the FSA from October 2010, meaning that the firm had been recognized as requiring close monitoring and possibly carrying a high probability of risk. The SCP suffered increasing losses from January 2012, and the FCA found that Mr. Macris, despite having attended a meeting with the FSA in March 2012, failed to update the FSA on the full extent of those difficulties, including, according to the FCA, the SCP having by then made a $200 million loss and having experienced rebalancing problems. The FCA also found that, in April 2012,
Read more.TOPIC : Enforcement -
UK Regulator's Internal Audit Reports Scrutinized
02/08/2016
The Treasury Select Committee published three of the Financial Conduct Authority's internal audit reports dated October 2014. The Treasury Committee, on behalf of Parliament, has committed to scrutinize the FCA more rigorously since the financial crisis. In 2014, the Committee decided that its scrutiny would also extend to reviewing the FCA’s internal audit reports, to ensure that the audit reports are of a reasonable standard. The Treasury Committee published the FCA's audit reports from the first half of 2014 in October 2015. The latest audit reports are on: (i) the identification, handling and management of market sensitive information; (ii) the FCA’s incident response and crisis management capability; and (iii) the design and effectiveness of the FCA’s external communications strategy. Whilst the Treasury Committee is of the view that the FCA's processes are improving overall, it believes that there is still work to be done.
View the Treasury's February 2016 press release.
View the Treasury's October 2015 press release.TOPIC : Financial Services -
UK Regulator Publishes Final Rules on Fair, Reasonable and Non-Discriminatory Access to Regulated Benchmarks
02/08/2016
The Financial Conduct Authority published a Policy Statement on Fair, Reasonable and Non-Discriminatory access to regulated benchmarks, setting out the feedback it received to its consultation last year. The Policy Statement includes the FCA's final rules which affect the administrators of eight regulated benchmarks: the ICE London Inter Bank Offered Rate (ICE LIBOR), the Sterling Overnight Index Average (SONIA), the Repurchase Overnight Index Average (RONIA), the WM/Reuters London 4pm Closing Spot Rate, the ICE Swap Rate, the LBMA Gold Price, the LBMA Silver Price and the ICE Brent Index. The rules go beyond the general competition powers of the FCA and include specific requirements on benchmark administrators in relation to access. The FCA rules are changed from those in the initial consultation in being limited to users that are exchanges, clearing houses and multilateral trading facilities, consistent with EU regulations, in particular the Markets in Financial Instruments Regulation (which is due to apply from January 3, 2017). The FCA's final rules enter into force on April 1, 2016.
View the Policy Statement.TOPIC : Financial Market Infrastructure -
UK Regulator Must Reconsider its Decision Refusing Authorization based on "Unjustified Accusation"
02/08/2016
The Upper Tribunal published its decision directing the Financial Conduct Authority to reconsider its refusal to approve a firm for regulated activities based on the fact that its sole director, Mr. Ladele, had been charged with fraud, notwithstanding his acquittal. Mr. Ladele simultaneously applied for approval to perform certain controlled functions. In 2010, Mr. Ladele had accessed confidential customer information during his employment at HSBC. This information was used by one or more persons for fraudulent transactions. Mr. Ladele was acquitted in 2012 of the criminal offence of fraud by abuse of position relating to the fraudulent transactions. In 2014, the firm applied to the FCA for approval to carry on a range of regulated activities, including advising on pensions, arranging regulated mortgage contracts and arranging deals in investments. The FCA refused approval in 2015 on the grounds that Mr. Ladele, on the balance of probabilities, had been involved in the previous fraudulent activities, despite his acquittal. As a result, the FCA did not consider that the firm for which Mr. Ladele was sole director would satisfy the threshold conditions, in particular the suitability condition requiring the firm to be a fit and proper person. The firm referred the FCA's decision to the Tribunal. The Tribunal found that the firm had been subject to an unjust accusation and directed the FCA to reconsider its decision.
View the Tribunal's decision.TOPIC : Enforcement -
US Board of Governors of the Federal Reserve System Proposes IHC Reporting Requirements
02/05/2016
The US Board of Governors of the Federal Reserve System published a notice of proposed rulemaking to collect financial information from US intermediate holding companies of foreign banking organizations. The proposal would require all IHCs to commence reporting of the FR Y 9C (Consolidated Financial Statements for Holding Companies), FR Y 9LP (Parent Company Only Financial Statements for Large Holding Companies), FR Y 11 (Financial Statements of US Nonbank Subsidiaries of US Holding Companies), FR 2314 (Financial Statements of Foreign Subsidiaries of US Banking Organizations), FR Y 12 (Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies) and FR Y 15 (Banking Organization Systemic Risk Report) as of September 30, 2016, reporting of the FR Y 14A/M/Q (Capital Assessments and Stress Testing), FR Y 6 (Annual Report of Holding Companies) and FR Y 9ES (Financial Statements for Employee Stock Ownership Plan Holding Companies) as of December 31, 2016, and Reg Y 13 (Recordkeeping and Reporting Requirements Associated with Regulation Y (Capital Plans)) as of January 1, 2017. The notice of proposed rulemaking is open for comments until April 5, 2016.
View the final draft ITS.
TOPIC : Bank Structural Reform -
European Securities and Markets Authority Publishes 2015 Annual Report and Workplan for 2016
02/05/2016
The European Securities and Markets Authority published a report providing an overview of its 2015 supervisory work relating to Credit Rating Agencies and Trade Repositories and setting out its workplan for 2016. ESMA's focus for 2016 includes: (i) improving the quality of credit ratings; (ii) improving trade repository quality data and data access; (iii) improving CRA governance and strategy; (iv) devoting resources to its enforcement work where it is aware of facts that may be infringing regulatory requirements; and (v) enhancing international cooperation with third country supervisors.
View the report. -
European Securities and Markets Authority Publishes Guidelines for Complex Debt Instruments and Structured Deposits
02/04/2016
The European Securities and Markets Authority published translations of its Guidelines for complex debt instruments and structured deposits under the Markets in Financial Instruments Directive II. MiFID II allows investment firms, under certain circumstances only, to provide clients with investment services that consist of execution, reception and transmission of orders only (known as execution-only orders), without the investment firm having to obtain any relevant client information to assess whether the service or product provided is appropriate for a particular client. Such products must be non-complex. ESMA's Guidelines identify those complex products for which execution-only services may not be provided, setting out a non-exhaustive list of examples of such products. National regulators have two months to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
View the Guidelines.TOPIC : MiFID II -
European Banking Authority Opinion and Report on Implementation of Regulatory Review of Internal Ratings-Based Approach Models
02/04/2016
The European Banking Authority published an Opinion on the implementation of the regulatory review of the Internal Ratings-Based approach to calculating risk-weighted exposure amounts for credit risk. The Opinion sets out the general principles and timelines for implementation and aims to provide clarity for national regulators and relevant firms. The EBA has also published a report on the future of the IRB approach. Both the Opinion and Report aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms as well as identify the main drivers of variability in the implementation of IRB models. The IRB framework will be made up of Regulatory Technical Standards and Guidelines which will be introduced in 2016 and 2017 in four phases: (i) the IRB assessment methodology will be introduced in the first quarter of 2016; (ii) a definition of "default" will be introduced by mid-2016; (iii) estimation of risk parameters and treatment of defaulted assets will be introduced by mid-2017; and (iv) credit risk mitigation will be introduced by the end of 2017. The EBA expects that the effective implementation in all areas will be finalized by the end of 2020.
View the EBA's Opinion and Report. -
UK Regulator Extends the Senior Manager and Certification Regime
02/04/2016
The Financial Conduct Authority published a Policy Statement and final rules on the application of the Senior Manager and Certification Regimes to wholesale market activities, such as algorithmic and high-frequency trading. The SM&CR enters into force on March 7, 2016. The rules apply to banks, building societies, and investment firms designated by the Prudential Regulation Authority. The new rules extend the Certification regime to individuals who carry out two new significant harm functions: (i) the new "client dealing" function, which includes advising on investments other than non-investment insurance contracts and any associated dealing and arranging, acting as an investment manager or acting as a bidder's representative (this new function is subject to the FCA's new definition of "client" which aims to capture all clients including traditional retail clients); and (ii) "algorithmic trading". Under transitional rules, the Certification regime requires firms to identify the staff members that fall into the two new functions and train them on the new conduct rules by September 7, 2016. The commencement date for the requirement for firms to certify all staff that carry out significant harm functions remains March 7, 2017.
Read more. -
US Board of Governors of the Federal Reserve System Progress Report on Strategies for Improving the US Payment System
02/02/2016The US Board of Governors of the Federal Reserve System released a report providing an update on its progress in implementing efforts to improve the US Payments System as set out in its 2015 Strategies for Improving the US Payments System. The report also outlines additional steps the Federal Reserve anticipates taking going forward. Two task forces comprised of more than 500 industry participants have been formed and they have created a list of 36 criteria that describe the attributes of an enhanced payment system. Work has been done with respect to standards, directories and business to business improvements to enhance payment system efficiency. The report also notes that joint efforts with industry participants recently culminated in a plan to implement the financial messaging standard ISO 20022 for US wire transfer systems and advanced plans to implement widespread same day Automated Clearing House settlement.
View the progress report.
TOPIC : Payment Services -
European Securities and Markets Authority Opinions on Exemptions for Pension Schemes to Centrally Clear OTC Derivatives Contracts
02/02/2016
The European Securities and Markets Authority published a document comprising a set of Opinions on certain UK pension schemes that are to be exempt from centrally clearing OTC derivatives contracts under the European Market Infrastructure Regulation. The Opinions have been requested by the UK Financial Conduct Authority and relate to 16 different kinds of pension schemes. Transitional exemptions from the clearing obligation can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must seek an Opinion from ESMA before making a final exemption decision. ESMA, in turn, must consult with the European Insurance and Occupational Pensions Authority before issuing its Opinion. The FCA has now granted exemptions and ESMA will publish the list of the types of entities that have been given exemptions in the near future. This follows on from the transitional exemption period for pension funds from the clearing obligation having been extended to August 16, 2017. Pension funds must comply with the EU clearing obligation by this date under EMIR.
View ESMA's press release and Opinions.TOPIC : Derivatives -
European Securities and Markets Authority Statement on Closet Indexing
02/02/2016
The European Securities and Markets Authority issued a statement, addressed to investors and fund managers, on some European collective investment funds that may potentially be "closet index tracking funds". Closet indexing can occur when fund managers claim to manage portfolios actively, but in reality, the fund stays close to its benchmark index. Such practices can mislead investors as they may not receive the service or risk/return profile that they expect, whilst possibly paying higher fees than those usually charged for passive management. ESMA carried out research using a sample of around 2,600 funds between 2012 and 2014 and found that 5% to 15% of Undertakings for the Collective Investment of Transferable Securities equity funds could potentially be closet indexers. ESMA recommends that UCITS management companies re-evaluate whether they provide accurate information to investors on the performance objectives of relevant funds so that investors can make informed investment decisions. ESMA has stated that it will take an active role in coordinating further analysis at national level and will assess whether any further steps are necessary to ensure that market participants wholly comply with disclosure obligations.
View ESMA's statement. -
UK Regulator Publishes Final Rules on Implementing the Undertakings for Collective Investment in Transferable Securities Directive V
02/02/2016
The Financial Conduct Authority published a Policy Statement and final rules on the Implementation of the Undertakings for Collective Investment in Transferable Securities Directive V. The Policy Statement sets out final rules, guidance and changes made to the FCA Handbook that affect managers and depositaries of UCITS and Alternative Investment Funds. The Policy Statement also sets out comments on the feedback received to the FCA's Part I consultation on the implementation of UCITS V published in September 2015, including: (i) remuneration principles and requirements applicable to managers, including details on payments of proportions of variable remuneration in non-cash instruments; (ii) the applicable transparency obligations towards investors; and (iii) changes for depositaries including eligibility criteria and capital requirements for firms acting as depositaries of UCITS. The rules and guidance enter into force on March 18, 2016, the date on which the FCA is required to implement the UCITS V Directive. Certain requirements however are subject to transitional provisions. For example, UCITS managers will only have to comply with some of the remuneration requirements after the start of the first full performance period, post-March 18, 2016. Also, non-bank depositaries appointed before March 18, 2016 may continue to provide depositary services to UCITS clients until March 18, 2018, even if they have not yet met all new operational and prudential requirements applicable to them.
View the Policy Statement.
View the Consultation Paper.TOPIC : Funds -
US Federal Deposit Insurance Corporation Publishes Article Regarding Enhancing Banks' Cybersecurity Programs
02/01/2016
The US Federal Deposit Insurance Corporation published “A Framework for Cybersecurity” as part of the agency’s Winter 2015 issue of “Supervisory Insights”. The article addresses the current state of cyber threats and how financial institutions’ information security programs can be modified to meet evolving cybersecurity risks. The publication also provides a summary of actions taken by the FDIC individually and with other regulators in response to the increase in cyber threats.The latest issue of “Supervisory Insights” also includes articles on marketplace lending, recent lending conditions and risks as reported through the FDIC’s Credit and Consumer Products/Services Survey, and an overview of recently released FDIC regulations and supervisory guidance.
View the journal.TOPIC : Cyber Security -
European Securities and Markets Authority Publishes Technical Standards on Settlement Discipline
02/01/2016
The European Securities and Markets Authority published a final report setting out draft Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism, and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails such as a mechanism for cash penalties and a buy-in process. ESMA has submitted the final draft RTS to the European Commission for endorsement.
View the Final Report and RTS. -
UK Regulators Take Action against Three Firms and Five Individuals for Insurance Scheme Failures
02/01/2016
The Financial Conduct Authority banned Mr. Shay Reches from performing any function in relation to a regulated activity and fined him £1,050,000. Mr. Reches also agreed to pay £13,130,000 to three insurers, which amount, if he fails to pay to them, will be added to the FCA's penalty. Mr. Reches was found to have undertaken regulated activities as a director at Coverall Worldwide Limited without being approved by the FCA and for recklessly directing insurance premium payments to parties other than the insurers or reinsures responsible for paying claims. His conduct contributed to the failure of several insurance schemes and to three insurers going into administration.
Read more.TOPIC : Enforcement -
European Court of Auditors Publishes Report on European Securities and Markets Authority as Single Credit Rating Agencies Supervisor in the European Union
02/01/2016
The European Court of Auditors published a report on the role of the European Securities and Markets Authority as the single supervisor of Credit Rating Agencies in the European Union. The report covers the period from when ESMA took over the role of supervisor for CRAs from national regulators in July 2011 until September 2015. It aims to assess whether ESMA has effectively established itself as the CRA supervisory body for the EU. The report states that ESMA has set good foundations in a short amount of time, but that significant risks still need to be addressed in the future. The ECA recommends, amongst other things, that ESMA should: (i) document its assessment of all regulatory requirements for credit rating methodologies throughout the registration process; (ii) update its supervisory manual and handbook on a regular basis so as to take into account the knowledge and experience it has gained; (iii) contemplate developing further guidance on disclosure requirements to improve the methods of disclosure of CRAs; (iv) examine certain possible conflicts of interest in a structured manner, regarding rating analysts’ trading activities and financial transactions, so as to mitigate the risk of insider trading; and (v) enhance the traceability of the risk identification process, documenting changes to risk level as well as the prioritization of risks and following up on high-risk areas that could benefit from further supervisory attention.
View the report.TOPIC : Credit Ratings -
US Board of Governors of the Federal Reserve System Extends Comment Period for Proposed Countercyclical Capital Buffer Framework
01/29/2016
The US Board of Governors of the Federal Reserve System extended the comment period to March 21, 2016, for the proposed policy statement describing the Federal Reserve Board’s framework in setting the Countercyclical Capital Buffer. The original deadline for submission of comments was February 19, 2016. The Federal Reserve Board first announced it was soliciting public comment on the proposed policy statement on December 21, 2015. The CCyB is a macro-prudential tool that raises capital requirements on internationally active banking institutions when the risk of above-normal losses in the future is elevated. The proposed policy statement describes various financial-system vulnerabilities as well as issues for Federal Reserve Board consideration in setting the buffer.
View the proposed policy statement.
View the appendix to the proposed policy statement. -
US Board of Governors of the Federal Reserve System Extends Comment Period on "Total Loss Absorbing Capacity" Proposal
01/29/2016
The US Board of Governors of the Federal Reserve System extended the comment period to February 19, 2016, for its proposed rule to strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. The original deadline for submission of comments was February 1, 2016. The proposed rule requires US Global Systemically Important Banks and the US operations of foreign GSIBs to meet a long-term debt requirement, a “Total Loss-Absorbing Capacity” requirement and a requirement that the parent holding company of a domestic GSIB avoid entering into various financial arrangements that would create obstacles to an orderly resolution. These requirements would strengthen the ability of those banks to withstand financial stress and failure without imposing losses on taxpayers. The proposed rule also includes regulatory capital deductions for firms regulated by the Federal Reserve Board that hold unsecured debt of the parent holding companies of domestic GSIBs.
View the Federal Register notice. -
UK Competition and Markets Authority Extends Timetable for Investigation into Retail Banking Market
01/29/2016
The Competition and Markets Authority announced that it is likely to extend the timetable for its investigation into the retail banking market. A decision on the extension is expected to be taken in March 2016, when a timetable for publication of the final report will also be published. The report was originally scheduled for publication in February 2016. A provisional report, published in October 2015, identified several competition issues in the Personal Current Accounts and Small and Medium-sized Enterprises banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA states that, further to its provisional findings, a number of new suggestions have been made for achieving better outcomes for current account customers and that it wishes to ensure that there is enough time to hear from interested parties so that all of the proposals can be considered properly.
View the press release.
View the CMA's provisional report.TOPIC : Competition -
UK Prudential Regulation Authority Amends Pre-Issuance Notification Regime
01/29/2016
The Prudential Regulation Authority published final rules amending the Pre-Issuance Notification regime. The PIN regime applies to banks, building societies, insurers and PRA-designated investment firms. Under the amended rules, banks, building societies and PRA-designated investment firms will have to give the PRA one month's notice before issuing a Common Equity Tier 1 instrument and complete the CET1 Compliance Template, which may be used instead of providing a legal opinion on the quality of capital requirement. The advance notification requirement will not apply where certain capital instruments are issued on substantively similar terms to prior issued instruments. Insurers will be required to submit legal opinions for instruments issued, other than ordinary share capital, on the quality of capital requirement and must also provide the PRA with one month's notice prior to amending capital instruments. Insurers will also be subject to certain conditions in the event that they make use of the advance notification exemption for drawdowns from note issuance programs. All relevant firms will be required to submit accounting opinions when issuing Additional Tier 1 Capital instruments or Restricted Tier 1 Capital instruments, as applicable.
View the PRA's Policy Statement and final rules. -
Systemic Risk Buffer Proposals for UK Banks and Building Societies Published
01/29/2016
The Bank of England's Financial Policy Committee published its proposed framework for the UK Systemic Risk Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk.
The FPC is proposing that the SRB rate would be calibrated according to a firm's total Risk-Weighted Assets so that firms with RWA: (i) less than £175 billion will have a 0% SRB; (ii) between £175 and £320 billion will have a 1% SRB; (iii) between £320 and £465 billion will have a 1.5% SRB; (iv) between £465 and £610 billion will have a 2% SRB; (v) between £610 and £755 billion will have a 2.5% SRB; and (vi) over £755 billion will have a 3% SRB.
Firms subject to the SRB will also be subject to a 3% minimum leverage ratio requirement as well as an additional leverage ratio buffer of 35% of the applicable SRB rate. The Prudential Regulation Authority will apply the SRB to individual firms from 2019, which is when the ring-fencing rules will become applicable. Comments to the consultation are due by April 22, 2016. The FPC intends to finalize the rules by May 31, 2016.
View the FPC's consultation paper. -
Six Individuals Found Not Guilty in the UK on Charges of Manipulating LIBOR
01/29/2016
Five individuals (a former employee of Tullett Prebon Group Ltd, two former employees of ICAP Plc and two former employees of RP Martin Holdings Limited) have been found not guilty of conspiracy to defraud in the Southwark Crown Court in connection with Yen LIBOR manipulation allegations. A sixth individual, who was also a former employee of ICAP Plc, has also been found not guilty on two counts, one of which was also conspiracy to defraud. The UK Serious Fraud Office brought the charges. In particular, the SFO alleged that the individuals had conspired with another person to defraud. It was alleged that the defendants had, upon instruction from a former derivatives trader at UBS and Citigroup, agreed to influence the submissions of panel banks in the Yen LIBOR setting process. The former trader was convicted and sentenced last year for conspiracy to defraud. Further trials against other individuals relating to the manipulation of the US Dollar LIBOR and the EURIBOR are scheduled to begin in February 2016 and September 2017 respectively.
View the SFO press release.TOPIC : Enforcement -
European Securities and Markets Authority Opinion on Draft Implementing Technical Standards on Main Indices and Recognized Exchanges
01/29/2016
The European Securities and Markets Authority published its Opinion on draft Implementing Technical Standards on Main Indices and Recognized Exchanges under the Capital Requirements Regulation. The Opinion sets out proposed updates to the draft ITS further to requirements under the CRR to define main indices and recognized exchanges. The definitions are required because the terms have been used in the specification of eligible collateral which is used for the calculation of credit risk by banks and investment firms subject to the CRR. ESMA provided the final draft ITS to the Commission in January 2015 for endorsement. The Commission notified ESMA that it intended to endorse the ITS with amendments by adding the Hang Seng Composite Index and the Russell 3000 Index. In ESMA's Opinion, the Hang Seng Composite Index and the Russell 3000 Index should not be added to the list of main equity indices. Instead, ESMA suggests adding the Russell 1000 Index, the Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and the FTSE Nasdaq Dubai UAE 20 Index to that the list. ESMA also undertook a full review of the ITS and suggests replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA recommends that the European Commission consider amending the current procedure used to update the list of indices and exchanges to a less burdensome and more speedy process, as the long timeframes required to update a legislative instrument such as an ITS are not appropriate for the frequency with which indices or exchanges are created or merged.
View the Opinion. -
European Systemic Risk Board Makes Recommendations on EU Macro-Prudential Policy
01/29/2016
The European Systemic Risk Board published Recommendations and Decisions relating to setting Countercyclical Buffer Rates for exposures to third countries and the assessment of cross-border effects of and voluntary reciprocity for macro-prudential measures. The ESRB is responsible for macro-prudential oversight within the European Union. In respect of CBRs, the ESRB recommends that national designated authorities: (i) inform the ESRB as soon as a third county sets a CBR in excess of 2.5%; (ii) identify material third countries on an annual basis taking into account the ESRB Decision on the assessment of materiality of third countries for recognizing and setting CBRs; and (iii) consider and coordinate on whether a lower CBR should be set for exposures to a third country in the event that the third country authority sets a lower CBR. In respect of the assessment of cross-border effects of macro-prudential measures, the ESRB recommends that national designated authorities: (i) assess the cross-border effects, prior to adoption, of the implementation of their own macro-prudential measures on other Member States and on the Single Market, including the risk of regulatory arbitrage; (ii) reciprocate the macro-prudential measures adopted by other Member States where such reciprocation is recommended by the ESRB; and (iii) notify the ESRB of any macro-prudential measure implemented, including an assessment of the effect of the measure and whether any reciprocation by other Member States may be necessary. The ESRB has also established a website which sets out the CRB rates set by national designated authorities.
View the ESRB Recommendations and Decisions.
View the CBR rate website. -
New York State Department of Financial Services Extends Comment Period on Anti-Money Laundering Proposal
01/28/2016
The New York State Department of Financial Services announced that it is extending the comment period to March 31, 2016, for its proposed anti-terrorism and anti-money laundering regulation, known as the Transaction Monitoring and Filtering Program.
The regulation, proposed on December 1, 2015, requires maintenance by each regulated institution of: (i) a transaction monitoring program for the purpose of monitoring transactions after their execution for potential BSA/AML violations and suspicious activity reporting; and (ii) a watch list filtering program to prevent transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists and internal watch lists. The proposed regulation also includes an annual certification requirement under which senior financial executives must certify that their institutions have necessary systems in place to identify and prevent illicit transactions.
View the proposed Transaction Monitoring and Filtering Program regulation.
TOPIC : Financial Services -
US Office of the Comptroller of the Currency Releases Dodd-Frank Act Stress Test Scenarios for 2016
01/28/2016
The US Office of the Comptroller of the Currency released economic and financial market scenarios to be used by certain financial companies, including national banks and federal savings associations with total consolidated assets of more than $10 billion, to conduct upcoming stress tests. The supervisory scenarios include baseline, adverse and severely adverse scenarios, as described in the OCC’s final rules that implement annual stress test requirements under Section 165(i)(2) of the Dodd-Frank Act.
View the OCC press release.
View the 2016 scenario information. -
US Board of Governors of the Federal Reserve System Releases Supervisory Scenarios for 2016 Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Test Exercises
01/28/2016
The US Board of Governors of the Federal Reserve System released supervisory scenarios for the 2016 Comprehensive Capital Analysis and Review and Dodd-Frank Wall Street Reform and Consumer Protection Act stress test exercises. The Federal Reserve Board also issued instructions to firms participating in CCAR. CCAR assesses the capital planning processes and capital adequacy of the largest US-based bank holding companies, including the firms’ planned capital actions. The Dodd-Frank Act stress tests are a forward-looking component to help evaluate whether firms have sufficient capital. Firms are required to use the supervisory scenarios in both the stress tests conducted as part of CCAR and those required by the Dodd-Frank Act. The outcomes are measured under three scenarios: severely adverse, adverse and baseline. This year, CCAR will include 33 bank holding companies with $50 billion or more in total consolidated assets, all of which are required to submit their capital plans and stress testing results to the Federal Reserve Board on or before April 5, 2016. The Federal Reserve Board will announce the results of its supervisory stress tests by June 30, 2016, with the exact date to be announced later.
View the Federal Reserve Board press release.
View the CCAR summary instructions.
View the Dodd-Frank Act stress exercises.
View the 2016 macro scenario tables. -
UK Regulators to Investigate Former HBOS Senior Managers
01/28/2016
The Prudential Regulation Authority and the Financial Conduct Authority announced that they would be conducting an investigation into certain former senior managers of HBOS plc. This is the entity which resulted from merger of the Halifax Building Society and Bank of Scotland, which following financial failings was placed into state ownership in 2008. The decision follows the recommendations made by Andrew Green Q.C. in his final Report into the Financial Services Authority's enforcement actions following the failure of HBOS, in particular that the regulators should conduct investigations to determine whether any prohibition proceedings should be brought against the relevant individuals.
View the PRA press release.
View the report of Andrew Green Q.C. -
European Securities and Markets Authority Appoints New Vice Chair
01/28/2016
The European Securities and Markets Authority announced that it appointed Ms. Anneli Tuominen as its Vice Chair, replacing Mr. Carlos Tavares, who has completed his term.
View the press release.TOPIC : People -
European Banking Authority Letter to European Commission on Revised Deadlines for Delivery of Technical Standards
01/28/2016
The European Banking Authority published a letter dated December 18, 2015 addressed to the European Commission in which the EBA requests delays to the dates by which the EBA is required to prepare technical standards and reports under the Capital Requirements Directive, the Capital Requirements Regulation, the EU Bank Recovery and Resolution Directive, the European Market Infrastructure Regulation and the Credit Rating Agencies Regulation. The EBA states that for the most part it has not been able to deliver its mandates according to deadlines due to a persistent shortage in resources and the need to prioritize other workstreams. The EBA invites the Commission to request the EBA to fulfil its mandates within new time limits.
View the EBA's letter. -
Consultation on Proposed Guidelines under the EU Market Abuse Regulation Launched
01/28/2016
The European Securities and Markets Authority published proposed Guidelines under the Market Abuse Regulation. The consultation paper covers proposed Guidelines addressed to persons receiving a market sounding and Guidelines for issuers and emission allowance market participants on delaying disclosure of inside information. The MAR will apply directly across the EU from July 3, 2016.
Read more. -
EU Regulations on Functioning of Colleges of Supervisors Published in Official Journal of the European Union
01/28/2016
Regulatory Technical Standards and Implementing Technical Standards on the operational functioning and general conditions for the functioning of colleges of supervisors under the Capital Requirements Directive were published in the Official Journal of the European Union. Colleges bring together different national and European regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The Regulations deal with matters including: (i) the mapping of group institutions; (ii) the designation of members and observers of a college; and (iii) participation in college meetings and activities. The Regulations enter into force on February 17, 2016.
View the RTS.
View the ITS. -
EU Regulation on Joint Processes for the Application of Prudential Permissions Published in Official Journal of European Union
01/28/2016
A Regulation was published in the Official Journal of the European Union, setting out Implementing Technical Standards on the joint decision process for the application for certain prudential permissions under the Capital Requirements Regulation. The ITS deal with matters including: (i) the involvement of third country supervisory authorities in the assessment process; (ii) the steps and procedures for joint decision processes; (iii) the preparation of assessment reports and arriving at and communicating joint decisions; and (iv) resolution of disagreements and decisions taken in the absence of a joint decision. The Regulation enters into force on February 17, 2016.
View the ITS on the joint decision process for the application for certain prudential permissions. -
EU Regulations on Prudent Valuations Published in Official Journal of European Union
01/28/2016
A Regulation setting out Regulatory Technical Standards for prudent valuations under the Capital Requirements Regulation was published in the Official Journal of the European Union. The RTS relate to firms applying the CRR standards to assets measured on a fair value basis. The RTS deal with matters including: (i) the methodology for calculating Additional Valuation Adjustments; (ii) consideration to be given to available market data; and (iii) the simplified and core approaches for the determination of AVAs. The Regulation enters into force on February 17, 2016.
View the RTS for prudent valuation. -
US Office of Financial Research 2015 Annual Report to Congress Notes Increased Threats to Financial Stability
01/27/2016
The US Office of Financial Research issued its 2015 Annual Report to Congress. Among other things, the report states that threats to US financial stability have “edged higher” since last year’s report, but remain in the moderate range. According to the OFR, that assessment has not changed since the Federal Reserve Board incrementally increased short-term interest rates in December. Additional OFR findings highlighted in the report include how policymakers have taken important steps to eliminate implied taxpayer support for large, complex financial institutions whose serious distress could threaten financial stability. Furthermore, the report notes that while clearing derivatives trades through central counterparties has significant benefits in reducing the risks to counterparties of default, a CCP can also be a single point of vulnerability for failure and creates the potential for propagation of risks.
View the OFR Annual Report to Congress.
TOPIC : Financial Market Infrastructure -
US Commodity Futures Trading Commission Signs Memorandum of Understanding with German Authorities
01/27/2016
The US Commodity Futures Trading Commission announced the signing of a Memorandum of Understanding with the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and Deutsche Bundesbank (Bundesbank) regarding cooperation and the exchange of information in the supervision and oversight of clearing organizations that operate in the United States and in Germany.
The MOU signifies a willingness among the CFTC, the BaFin, and the Bundesbank to collaborate in order to fulfill their respective regulatory mandates with respect to cross-border clearing organizations in the United States and Germany. The MOU accompanies the CFTC’s decision to grant Eurex Clearing AG registration as a derivatives clearing organization.
View the MOU.
TOPIC : Derivatives -
European Supervisory Authorities Call on European Commission to Remedy Legal Discrepancies Identified in the EU Regulation of Cross-Selling of Financial Products
01/27/2016
The European Supervisory Authorities published a letter, dated January 26, 2016, from their Chairpersons to the European Commission on issues arising in the regulation and supervision of cross-selling financial products in the EU. The ESAs – the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority – are responsible for preparing guidelines on the supervision of cross-selling of financial products for each of the securities, banking and insurance sectors. However, due to discrepancies between EU primary legislation which governs such cross-selling practices across the different sectors, the ESAs are unable to provide harmonized guidelines. The primary legislation includes the Mortgage Credit Directive, the Payment Accounts Directive, the Insurance Mediation Directive and the revised Markets in Financial Instruments Directive. Differences identified relate to the formal wording of the legislation, scope, level of granularity and date of application. The ESAs consider that a more harmonized approach across the sectors would be beneficial for consumers, financial institutions engaged in cross-selling and national regulators supervising the practice. The ESAs therefore urge the Commission to consider reviewing the underlying legislation, including within the Commission's current consultations on Retail Financial Services in the Banking and Insurance Sectors and/or its Call for Evidence on the regulatory framework in financial services.
View the ESA's letter. -
UK Regulator to Consult on Application of the Senior Manager Regime to a Firm's Legal Function
01/27/2016
The Financial Conduct Authority published a statement on the application of the Senior Manager Regime to a firm's legal function. The SMR will come into effect on March 7, 2016. Firms are required, by February 8, 2016, to notify the FCA and the Prudential Regulation Authority of the individuals, currently Approved Persons, that will be transitioning to the new regime as Senior Managers. The FCA has become aware of significant uncertainty amongst firms as to whether an individual responsible for the firm's legal function would need to be approved as a Senior Manager. Where heads of legal are responsible for compliance, there is a clear need to register, but the position is less clear for heads of legal who do not hold this additional function. The FCA intends to consult further on this issue. In the interim, the FCA advises that firms that have sought to make decisions in good faith about whether an individual needs approval in their firm for this responsibility, based on the current rules and guidance, should not need to change their approach.
The PRA is encouraging firms to submit their grandfathering notifications in advance of the February 8 deadline on the basis that some firms that have already submitted the forms have had to re-submit their applications.
View the FCA statement.
View the PRA website. -
UK Payment Systems Regulator Appoints New Head of Policy
01/27/2016
The Payment Systems Regulator announced that it appointed Mr. Paul Smith as its Head of Policy from February 1, 2016.
View the press release.TOPIC : People -
European Banking Authority Impact Assessment of New International Financial Reporting Standards
01/27/2016
The European Banking Authority issued a press release announcing the launch of an impact assessment of the forthcoming implementation of the new financial instruments standard, the International Financial Reporting Standards 9, on a sample of around 50 regulated firms across the EU. The new standards supersede the reporting standards for financial instruments in force in the EU since 2005 and change the way financial instruments are accounted for. The new standards will apply to: (i) banks that are required to prepare consolidated financial statements in accordance with the IFRS; (ii) banks that are required to use the IFRS for the determination of own funds; and (iii) certain investment firms. IFRS also apply to listed issuers as a result of the Transparency Directive. The EBA will assess the impact of the new standards on regulatory own funds, the interaction between the standards and prudential requirements as well as how firms are preparing for the implementation of the new standards.
View the press release. -
UK Regulator Appoints New Chief Executive Officer
01/26/2016
The Bank of England issued a press release announcing that Mr. Andrew Bailey has been appointed as the new Chief Executive Officer of the Financial Conduct Authority. In his new role at the FCA, Mr. Bailey will be a member of the Prudential Regulation Authority Board and Financial Policy Committee. Mr Bailey will remain in his role at the PRA as CEO and Deputy Governor and will leave his role as Deputy Governor of Prudential Regulation at the BoE only once a successor has been appointed.
View the press release.TOPIC : People -
UK Regulator Appoints New Non-Executive Board Members
01/26/2016
The Financial Conduct Authority announced that it has appointed four new non-executive FCA Board members as of April 1, 2016. The new members are Mr. Bradley Fried, Ms. Ruth Kelly, Baroness Sarah Hogg and Mr. Tom Wright CBE.
View the press release for Mr. Bradley Fried.
View the press release for Ms. Ruth Kelly.
View the press release for Baroness Sarah Hogg.
View the press release for Mr. Tom Wright CBE.TOPIC : People -
Chartered Banker Professional Standards Board Press Release on Foundation Standard
01/26/2016
The Chartered Banker Professional Standards Board issued a press release stating that over the past year, over 187,000 bankers achieved the CBPSB's Foundation Standard, meeting the desired target for 2015. The CBPSB is a programme that was launched in October 2011 by eight UK banks together with the Chartered Banker Institute, aiming to encourage professionalism in banking and restore public confidence in the banking industry. The CBPSB includes a Board, consisting of senior industry leaders, as well as a Professional Standards Committee, which engages in standard-setting activities. The CBPSB's standards set out the conduct and expertise required of all professional bankers, as well as the benchmarks against which professional competence can be measured. The Foundation Standard, which is one of three professional standards (the others being the Intermediate Standard and the Advanced Standard) sets out the skill requirements and professional and technical knowledge required by all those working in the banking industry.
View the press release.
View the Foundation Standard.TOPIC : Conduct & Culture -
European Securities and Markets Authority signs Memoranda of Understanding with South African and Mexican CCP Regulators
01/26/2016
The European Securities and Markets Authority published the Memoranda of Understanding it entered into with the Financial Services Board of South Africa and the Comisión Nacional Bancaria y de Valores of Mexico. The MoUs are established further to the European Markets Infrastructure Regulation, under which ESMA is required to set out cooperation arrangements with non-EU authorities whose legal and supervisory framework for non-EU CCPs are deemed to be equivalent to European requirements. The MoUs provide ESMA with the tools to monitor the ongoing compliance of non-EU CCPs with the recognition conditions under EMIR. The MoUs are effective from November 30, 2015 and January 25, 2016 respectively.
View the South African MoU.
View the Mexican MoU.TOPIC : Derivatives -
European Commission Report on Appropriateness of Definition of Eligible Capital under the Capital Requirements Regulation
01/26/2016
The European Commission published a report on the appropriateness of the definition of "eligible capital" under the Capital Requirements Regulation. The definition of "eligible capital" is used for defining large exposures, setting large exposure limits, determining the prudential treatment of qualifying holdings outside the financial sector and setting the capital requirements for investment firms with limited investment services.
Read more. -
US Commodity Futures Trading Commission Grants Registration to 18 Swap Execution Facilities
01/22/2016
The US Commodity Futures Trading Commission granted permanent registration to 18 Swap Execution Facilities that trade interest rate swaps and credit default swaps, all of which were previously operating under temporary registration status. The SEFs approved for registration are: 360 Trading Networks Inc.; BGC Derivatives Markets, L.P.; Bloomberg SEF LLC; Chicago Mercantile Exchange Inc.; DW SEF LLC; GFI Swaps Exchange LLC; ICAP Global Derivatives Limited; ICAP SEF (US) LLC; ICE Swap Trade, LLC; Javelin SEF, LLC; LatAm SEF, LLC; MarketAxess SEF Corporation; SwapEx, LLC; Thomson Reuters (SEF) LLC; tpSEF Inc.; Tradition SEF, Inc.; trueEX LLC; and TW SEF LLC. The CFTC continues to review the registration of five remaining SEFs that are currently operating under temporary registration status.
View more information regarding the CFTC-registered SEFs.TOPIC : Derivatives -
Governor of New York Appoints New Superintendent of New York Department of Financial Services
01/21/2016
Ms. Maria T. Vullo was nominated by New York Governor Mr. Andrew M. Cuomo to serve as the Superintendent of the New York State Department of Financial Services.
View the press release.TOPIC : People -
US Commodity Futures Trading Commission Launches Whistleblower Program's Website
01/21/2016
The US Commodity Futures Trading Commission launched a new website to provide the public with information about whistleblower rights and protections, and to allow the public to submit tips about potential violations of the Commodity Exchange Act via the website. The website guides users through filing a tip and applying for an award and contains accessible information about the rules and regulations governing the CFTC’s Whistleblower Program and related updates.
View the CFTC press release.
View the program website.TOPIC : Derivatives -
US Federal Deposit Insurance Corporation Seeks Comment of How Small Banks are Assessed for Deposit Insurance
01/21/2016
The Board of Directors of the Federal Deposit Insurance Corporation released a revised notice of proposed rulemaking that would amend the manner in which banks with less than $10 billion in assets that have been insured by the FDIC for at least five years are assessed for deposit insurance. The rule reflects comments received on the initial proposed rule on small bank assessments that the FDIC released in June 2015 on topics such as calculation of asset growth and treatment of reciprocal deposits and Federal Home Loan Bank advances. Specifically, the new proposed rule, among other things: (i) uses a brokered deposit ratio as a measure in the financial ratios method for calculating assessment rates for established small banks (instead of the previously proposed core deposit ratio); (ii) removes the existing brokered deposit adjustment for established small banks; and (iii) revises the previously proposed one-year asset growth measure. The new proposed rule, like the June 2015 proposal, seeks to ascertain appropriate assessments that accurately reflect the risks taken by smaller banks. Comments may be submitted for 30 days, following the publication of the proposed amendments in the Federal Register.
View the FDIC press release.
View the notice of proposed rulemaking. -
US Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency Approve Interim Final Rule Expanding 18-Month Exam Cycle for Certain Institutions
01/21/2016
US Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg and US Comptroller of the Currency Thomas J. Curry announced interim final rules expanding the examination cycle for institutions with less than $1 billion in assets that meet certain standards, under statutory power granted by the Fixing America’s Surface Transportation Act which was enacted on December 4, 2015. Specifically, the rule will permit institutions with total assets of $200 million or greater and not exceeding $1 billion that receive a composite CAMELS or ROCA rating of “1” or “2,” and that meet other qualifying criteria, to qualify for an 18-month examination cycle. Previously, the longer, 18 month exam cycle was only available to certain insured depository institutions with less than $500 million in assets. Comments on the interim final rule may be submitted for 60 days, following the publication of the proposed amendments in the Federal Register.
View the FDIC Chairman's statement.
View the OCC press release.
View the Comptroller's statement.
View the interim final rule.
-
UK Regulator Consults on Segregation of Client Money for Loan-Based Crowdfunding Platforms
01/21/2016
The Financial Conduct Authority issued a consultation paper on loan-based crowdfunding platforms and the segregation of client money. Current FCA client money rules (CASS 7) require that investor monies held by a firm under a Peer-to-Peer agreement (i.e. money that is to be lent or received in repayments) is segregated from the firm’s own money. Money relating to unregulated Business-to-Business lending (i.e. B2B agreements) must also be segregated from investor monies held by a firm (but not from the firm's own money). The FCA's proposals would allow firms to hold client monies in relation to both P2P and B2B agreements together. This change would be less burdensome to firms, as some do not have systems in place that can distinguish between monies held for P2P and B2B agreement purposes. Firms would then be able to segregate P2P and B2B monies from the firm's money, but keep them together, without breaking the FCA rules. Responses to the consultation are due by February 11, 2016.
View the consultation paper.TOPIC : Financial Services -
International Central Bank Committees Report on Structure and Liquidity of Fixed Income Markets
01/21/2016
Two international central bank committees published reports on the structure and liquidity of fixed income markets. The Committee on the Global Financial System's report is on fixed income market liquidity whilst the Markets Committee paper is on electronic trading in fixed income markets. The CGFS report identifies liquidity conditions to be prone to disruptions, with signs of fragility, as fixed income markets are seen to be in a period of transition following the effects of ongoing regulatory, technology and market structure changes. The report states that whilst it is difficult to identify the drivers of such fragility, the changes could be due to: (i) a rise in algorithmic trading in fixed income markets; (ii) banks reducing their trading-related exposures in response to lower risk appetite; and (iii) crowded trades and one-sided risk expectations for market participants. The Markets Committee report focuses on the rise in algorithmic trading, which tends to facilitate the matching of buyers and sellers and in turn usually improves market quality, but can also result in liquidity conditions that are less resilient in times of stress.
View the CGFS report.
View the Markets Committee report.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig Provides Remarks on the Role of Debt in Bank Resiliency and Resolvability
01/20/2016
US Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig gave a speech to the Peterson Institute for International Economics, during which he challenged the Federal Reserve Board’s proposal on TLAC. While agreeing that converting debt is often part of a reorganization or recovery strategy, Hoenig discussed the risks of increased debt levels on the stability of the banking system. The proposed TLAC rule requires GSIBs to maintain sufficient long-term debt to facilitate a Single Point of Entry resolution approach, wherein only the top-tier holding company would be put into receivership and through conversion of debt to equity the operating subsidiaries would be recapitalized. Hoenig noted that the proposed rule estimates that to meet a collective $680 billion long-term debt requirement, GSIBs will need to issue approximately $100 billion in new debt. Hoenig also discussed the negative consequences of the proposal, notably the leverage that it would add to an already highly-leveraged industry, as well as the fact that it may encourage firms to adopt an SPOE resolution strategy and otherwise change their business models even where their Title I resolution plans do not currently contemplate an SPOE plan. The Vice Chairman suggested that “(t)he long-term debt requirement would place added earning demands on the banking system and could be counter-productive, especially during a period of financial stress”. Hoenig also suggested that rather than imposing a rule that facilitates only the SPOE strategy, regulators may want to adopt an approach that is tailored to the business model and resolution plan of each individual institution, even where the approach might call for varying debt and equity requirements.
View the Vice Chairman's speech. -
European Banking Authority Consults on Draft Guidelines on Implicit Support in Securitizations
01/20/2016
The European Banking Authority published proposed Guidelines on implicit support for securitization transactions (i.e. support provided by a firm where it is not contractually obliged to do so), as required by the Capital Requirements Regulation. Examples of implicit support include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR restricts the provision of implicit support, because it does not result in significant risk transfer to third parties, by requiring firms to hold a minimum of own funds against all of the securitized exposures as if they had not been securitized. A transaction is not considered to provide support if it is executed under arm's length conditions and is taken into account in the assessment of significant risk transfer. The EBA's proposed Guidelines cover what constitutes arm's length conditions and when a transaction is not structured to provide support.
Read more. -
UK Regulators Announce New Bank Start-up Unit
01/20/2016
The Prudential Regulation Authority and the Financial Conduct Authority announced the launch of their new joint initiative, the New Bank Start-up Unit, which will provide information and support to newly authorized banks and those wishing to become a new bank in the United Kingdom. This initiative will help new banks through the regulatory authorization process via the use of dedicated PRA or FCA staff members, a dedicated website, helpline and email address. Case officers will be allocated to firms during the authorization process. The PRA and FCA have also published a guide on the New Bank Start-up Unit which includes useful information for those aiming to set up a bank.
View the Guide.TOPIC : Financial Services -
US Board of Governors of the Federal Reserve System Approve the Establishment of a Representative Office by Unione di Banche Italiane, S.p.A.
01/19/2016
The US Board of Governors of the Federal Reserve System approved an application by Union di Banche Italiene, S.p.A., a foreign bank headquartered in Italy, to establish a representative office in New York under section 10(a) of the International Banking Act of 1978. UBI is organized as a joint stock corporation under Italian law and has total assets of approximately $108 billion. As part of its evaluation under the IBA and Regulation K, the Federal Reserve Board noted its previous determinations that other banks in Italy were subject to comprehensive, consolidated supervision by the Bank of Italy alone. However, UBI became subject to direct prudential supervision by the European Central Bank pursuant to the Single Supervisory Mechanism as of November 2014. This order appears to represent the first Federal Reserve Board order under the IBA since the SSM took effect, finding that a foreign bank is subject to comprehensive, consolidated supervision by the ECB and a home country supervisor (the Bank of Italy) acting through the SSM.
View the order. -
European Commission Requests Further Advice on the Extension of the EU Passport under the Alternative Investment Fund Managers Directive
01/19/2016
The European Securities and Markets Authority published a letter from the European Commission, dated December 17, 2015, on ESMA's advice and opinion on the passport under the Alternative Investment Fund Managers Directive. ESMA advised the Commission in July 2015 on the extension of the EU passport under the AIFMD to managers and funds in to Guernsey, Jersey and Switzerland but advised that due to a lack of evidence for Singapore, Hong Kong and the US, it was unable to provide assessments for those jurisdictions. In the letter, the European Commission asks ESMA to provide an assessment for the US, Hong Kong, Singapore, Japan, Canada, Isle of Man, Cayman Islands, Bermuda and Australia by June 30, 2016. In addition, the Commission requests that ESMA provide: (i) a more detailed assessment of the capacity of third country supervisory authorities and their enforcement track record; and (ii) a preliminary assessment of the expected inflow of funds by type and size into the EU from the relevant third countries. The Commission concurs that a further opinion from ESMA on the functioning of the EU passport under the AIFMD and on the operation of the National Private Placement Regime is warranted once the AIFMD has been transposed into all of the Member States. It is noted that such an opinion would be useful ahead of the review of the AIFMD planned for 2017.
View the Commission's letter.TOPIC : Funds -
UK Parliament Treasury Committee's Letter to Bank of England on Challenger Banks
01/18/2016
A letter addressing possible competition issues between established and challenger banks dated October 7, 2015 sent from the Chairman of the Treasury Committee, Mr. Andrew Tyrie, addressed to the Deputy Governor for Prudential Regulation at the Bank of England, Mr. Andrew Bailey, was published. The letter refers to the potential difficulties challenger banks may face in satisfying the conditions required to use the Internal Ratings-Based approach for calculating credit risk. Mr. Tyrie is concerned that newer banks may be at a competitive disadvantage to more established banks, given that the IRB approach leads to lower capital requirements compared to the Standardized Approach which newer smaller banks would be able to use more easily. The letter asks whether: (i) the new corporation tax regime for banks encourages competition between new and established banks; (ii) adaptations made by the Prudential Regulation Authority's to capital requirements for new banks will be effective in overcoming the competitive disadvantage that new banks may face; (iii) the PRA has plans to make further adjustments to capital or other requirements for new banks; (iv) the PRA is restricted, and if so, to what extent, from making further adjustments to newer banks' capital requirements under the Capital Requirements Directive IV or other EU legislation; and (v) there has been a reduction in requests for pre-application discussions with the PRA and Financial Conduct Authority since the new tax regime was announced in July 2015.
View the letter. -
European Systemic Risk Board Assesses Risks Posed by CCP Interoperability Arrangements
01/18/2016
The European Systemic Risk Board published a report on the systemic risk implications of CCP interoperability arrangements which are governed by the European Market Infrastructure Regulation. There are currently five interoperable links in operation in the EU, including four authorized EU CCPs, a Swiss CCP and its Norwegian branch. The ESRB considers that the EU's current regulatory framework for interoperability is sound. However, the ESRB recommends that: (i) more regulatory granularity should be included in the framework to provide clarity for supervisors and regulators, to avoid regulatory arbitrage and to ensure a harmonized EU approach; (ii) the expected proposed legislation on CCP recovery and resolution should clarify the interaction of an interoperability arrangement with the default waterfall framework as well as portability and other default management measures; (iii) further analysis of the risks involved in interoperable arrangements for derivatives should be carried out; and (iv) the ESRB should be given a consultative role on the future development of any guidelines and rules on interoperability. The European Securities and Markets Authority recommended in February 2015 that the interoperability provisions in EMIR, which are limited to transferable securities and money-market instruments, should not be extended to OTC derivatives but could be extended to Exchange-Traded Derivatives. The European Commission must take the ESRB and ESMA reports into account when it prepares its report to the European Parliament and Council on the issue.
View the ESRB report. -
US Securities and Exchange Commission Reopens Comment Period for Access to Data Obtained by Security-Based Swap Data Repositories
01/15/2016The US Securities and Exchange Commission reopened the comment period for proposed amendments to rule 13n-4 of the Securities Exchange Act of 1945. The Dodd-Frank Act added sections 13(n)(5)(G) and (H) to the Exchange Act, requiring security-based swap data repositories to make data available to certain regulators and other entities, subject to certain conditions. The SEC proposed rules to implement those data access conditions on September 14, 2015. As part of the Surface Transportation Reauthorization and Reform Act of 2015 (Public Law 114 94) signed into law on December 4, 2015, certain of those conditions were revised, including, most notably, eliminating a requirement that the recipient of such data agree to indemnify the swap data repository and SEC for expenses arising from litigation relating to the information provided. The law also clarified that the data access was limited to security-based swap data, and not all data maintained by the repository, and added “other foreign authorities” to the list of entities that the SEC may determine it is appropriate to provide access to. Comments may be submitted for 30 days, following the publication of the proposed amendments in the Federal Register.
View the proposed amendments.TOPIC : Financial Services -
US Commodity Futures Trading Commission Oversight Extends No-Action Relief Regarding Masking Certain Reportable Identifying Information
01/15/2016
The US Commodity Futures Trading Commission’s Division of Market Oversight extended no action relief originally provided in CFTC Letter 13‑41, which was issued on June 28, 2013. CFTC Letter 13-41 permits Part 45 and Part 46 reporting counterparties to mask legal entity identifiers, and certain other enumerated identifiers and identifying terms, and permits Part 20 reporting entities to mask identifying information, in required reports in light of privacy, secrecy and blocking laws in certain jurisdictions. The CFTC previously extended this relief through CFTC Letter 15-01, and is now further extending relief, subject to certain conditions, until the earlier of March 1, 2017 and the date that the reporting party no longer holds the requisite reasonable belief that privacy law bars reporting.
View the CFTC press release.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency Release Advisory on External Audits
01/15/2016
The US Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency released an advisory indicating support for the Basel Committee on Banking Supervision’s March 2014 guidance entitled “External audits of banks” for internationally active banks. The advisory notes that while the guidance is largely consistent with existing US standards and practices, there are certain differences between the principles and the expectations of US regulators. The advisory defines “internationally active banks” as insured depository institutions that have consolidated total assets of $250 billion or more, consolidated total on-balance sheet foreign exposure of $10 billion or more and US depository institution holding companies that meet, or have a subsidiary depository institution that meets, the same standards (with the calculation of consolidated total assets excluding assets held by insurance underwriting subsidiaries, in the case of bank holding companies). Key differences highlighted in the advisory include: (i) unlike the guidance, US standards and practices do not require “tendering”, i.e., putting an external audit contract out for bid, but the US banking agencies recommend that institutions consider whether such practice is appropriate; and (ii) while the US banking agencies encourage open communication between external auditors and a financial institution’s supervisor, there is no generally applicable requirement for an external auditor to report directly to the institution’s primary regulators.
View the interagency advisory statement. -
UK Regulator Bans Two Former Co-operative Bank Senior Managers
01/15/2016
The Prudential Regulation Authority published two Final Notices: one for Barry Tootell, former Chief Executive Officer of the Co-operative Bank Plc and another for Keith Alderson, former Managing Director of the bank's Corporate and Business Banking Division. The PRA has prohibited both individuals from holding significant influence functions in a PRA-authorized firm on the basis that neither is fit and proper.
Read more.TOPIC : Enforcement -
US Commodity Futures Trading Commission Issues Order Delegating Certain Responsibilities to the National Futures Association
01/14/2016
The US Commodity Futures Trading Commission issued an order under the Commodity Exchange Act delegating to the National Futures Association certain reporting and administrative responsibilities, effective March 1, 2016. The NFA will receive, review and maintain notices of swap valuation disputes in excess of $20 million USD filed by swap dealers and major swap participants pursuant to CFTC regulation 23.502(c). The NFA will also be responsible for providing summaries and periodic reports related to these notices to the CFTC. The NFA is not authorized to render “no-action” positions, exemptions or interpretations with respect to applicable disclosure, reporting, recordkeeping and registration requirements.
View the order.TOPIC : Derivatives -
Basel Committee on Banking Supervision Revises Standards on Minimum Capital Requirements for Market Risk
01/14/2016
The Basel Committee on Banking Supervision has published revised standards on minimum capital requirements for market risk, which form part of the new market risk framework as endorsed by the Group of Central Bank Governors and Heads of Supervision, known as GHOS, the Basel Committee's governing body. Improvements in the new risk framework include: (i) a revised boundary between the banking and trading books that will reduce scope for arbitrage; (ii) a revised internal models approach with more coherent and comprehensive risk capture; (iii) an enhanced model approval process and more prudent recognition of hedging and portfolio diversification; and (iv) a revised standardized approach that serves as a credible fall-back and floor to the model-based approach and facilitates more consistent and comparable reporting of market risk across banks and jurisdictions. The Basel Committee will also finalize its efforts to address the problem of excessive variability in risk-weighted assets by the end of this year. These efforts will include a proposal to remove the internal model approach for credit risk and limits on the use of internal models for credit risk (in particular, through the use of floors). The GHOS also agreed that the final design and calibration of the leverage ratio should be based on a Tier 1 definition of capital and should comprise a minimum level of 3%. The Basel Committee will finalize the calibration in 2016 to allow time for the leverage ratio to be implemented as a Pillar 1 measure by January 1, 2018.
View the revised minimum capital requirements for market risk. -
UK Regulator Consults on New Rules for Buy-Outs of Variable Remuneration
01/13/2016
The Prudential Regulation Authority published a consultation paper on proposals to introduce new rules on buy-outs of deferred variable remuneration, i.e. where a firm compensates a new employee for deferred variable remuneration not received from a previous employer due to the employee having left the former firm. The new rules would apply to PRA-regulated banks, building societies and designated investment firms and would amend the existing Remuneration Part of the PRA Rulebook (known as the PRA Remuneration Code until the PRA and Financial Conduct Authority Remuneration Codes were split). Current remuneration rules, which seek to encourage greater alignment between risk and reward as well as more effective risk management, allow employers to withhold or reduce unpaid or unvested awards (i.e. the rules of malus) or recoup paid or vested awards (i.e. the rules of clawback). The practice of buy-outs could undermine these rules as employees could potentially evade being accountable for actions they carried out in their previous employment by moving to a new employer who buys-out their cancelled deferred remuneration. The PRA proposes that buy-out terms in contracts between new employers and employees should allow for malus or clawback to be applied following a notification by the old employer if an employee is found guilty of misconduct or risk management failings in his previous employment. The PRA is proposing to allow new employers to apply for a waiver for each employee if they believe the old employer's decision to apply malus or clawback was unfair or unreasonable. Responses to the consultation are due by April 13, 2016.
View the consultation paper.TOPIC : Compensation -
European Banking Authority Publishes Revised Final Draft Technical Standards and Guidelines for the Identification of Global Systemically Important Institutions
01/13/2016
The European Banking Authority published: (i) revised final draft Implementing Technical Standards on the uniform formats and date for disclosure of values used to identify Global Systemically Important Institutions; (ii) revised final draft Regulatory Technical Standards on the specification of the methodology for the identification of G-SIIs; and (iii) draft revised Guidelines on the further specification of the indicators of global systemic importance and their disclosure under the Capital Requirements Directive IV.
Read more. -
US Securities and Exchange Commission Announces 2016 Examination Priorities
01/11/2016
The US Securities and Exchange Commission issued its Office of Compliance Inspections and Examinations’ 2016 priorities. Areas of focus for this year include liquidity controls, public pension advisers, product promotion, and two investment products – exchange-traded funds and variable annuities. The priorities also provide for continuing emphasis on protecting investors in ongoing risk areas such as cybersecurity, microcap fraud, fee selection, and reverse churning. The examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges. The priorities may be adjusted in light of market conditions, industry developments and ongoing risk assessment activities. OCIE selected the priorities in consultation with certain SEC policy divisions and regional offices, the SEC’s Investor Advocate, and other regulators.
View the SEC press release.
View the SEC examination priorities for 2016.TOPIC : Financial Services -
US Consumer Financial Protection Bureau Names David Silberman as Acting Deputy Director
01/07/2016
The Consumer Financial Protection Bureau announced that Mr. David Silberman will serve as Acting Deputy Director beginning the week of January 11, 2106, replacing Meredith Fuchs. Mr. Silberman previously served as Associate Director for Research, Markets, and Regulations. Mr. Silberman will serve as Acting Deputy Director while a search for a replacement is conducted.
View the CFPB press release.TOPIC : People -
Eurozone Supervisory Priorities for 2016 Published
01/06/2016
The European Central Bank's Banking Supervision division published its priorities for 2016. Under the Single Supervisory Mechanism Regulation, the ECB is responsible for the direct prudential supervision of the largest Eurozone banks and indirectly responsible for prudentially supervising the smaller Eurozone banks. The priorities, which aim to direct the ECB's supervision of the largest Eurozone banks, are business model and profitability risk, credit risk, capital adequacy, risk governance and data quality and liquidity. The ECB will be implementing initiatives around the priorities during 2016, including thematic reviews and holding dialogue with the banks.
View the 2016 SSM Priorities. -
UK Regulators Propose Amending Notification Rules and Forms for Senior Managers Regime
01/06/2016
The Prudential Regulation Authority and the Financial Conduct Authority published proposed changes to their notification rules and forms under the Senior Managers and Certification Regimes. The regulators are proposing the changes in light of the changes to the regime that have been proposed by the UK Government, including extending the Regime to all financial services firms, removing obligation on a firm to notify the PRA or FCA when it knows or suspects that a senior manager or certified person has failed to comply with the conduct rules and replacing the presumption of responsibility with a duty of responsibility. It remains to be seen whether Parliament will approve those changes proposed by the Government. An amending Order, published in December 2015, stops the above-mentioned notification requirement and the presumption of responsibility from coming into force on March 7, 2016 – the date when the remainder of the new Regime will come into effect. The regulators therefore intend to amend their rules and forms to reflect the position that those provisions of the Regime will not enter into force on March 7, 2016. The PRA has also published an updated Supervisory Statement to take into account the changes. The consultations close on February 8, 2016.
View the PRA consultation paper.
View the FCA consultation paper.
View the PRA's updated Supervisory Statement. -
European Commission Publishes Assessment of the Effect of the Revised International Accounting Standard 19 on Own Funds
01/06/2016
The European Commission published a report on the effect of the revised International Accounting Standard 19 on the volatility of own funds of banks and investment firms. The Capital Requirements Regulation requires the Commission to assess whether the revised IAS 19 and the requirement on firms to deduct defined-benefit pension fund assets from Common Equity Tier 1 items for the purpose of calculating own funds would impact the volatility of the firm's own funds. The Commission has concluded that the potential additional volatility of own funds introduced by the revision of IAS 19 is limited and that the impact due to initial application has been mitigated by the transitional measures included in the CRR. The Commission therefore does not intend to propose amendments to the CRR in this regard.
View the report. -
Federal Reserve Bank of New York Concludes Mortgage Operations Counterparty Pilot Program
01/06/2016
The Federal Reserve Bank of New York announced the end of its Mortgage Operations Counterparty Pilot Program on December 31, 2015. The program, first announced in August 2014, was intended to discover ways to expand the range of firms acting as counterparties in the Federal Reserve’s open market operations, and to analyze the extent to which firms beyond the primary dealer community can raise the New York Fed’s operational capacity and resiliency in its monetary policy operations. Three firms participated in the MOC pilot program and began transacting with the Open Market Trading Desk in secondary market outright operations of agency mortgage-backed securities in December 2014. The results of the pilot programs will provide useful inputs in the Desk’s ongoing evaluations of the Federal Reserve’s counterparty framework.
View the New York Fed press release.TOPIC : Financial Market Infrastructure -
US Office of the Comptroller of the Currency Terminates Mortgage Servicing-Related Consent Orders against JPMorgan Chase and EverBank and Issues Civil Money Penalties
01/05/2016
The US Office of the Comptroller of the Currency terminated mortgage servicing-related consent orders against JPMorgan Chase Bank, N.A. and EverBank, determining that the banks are now in compliance with the orders. As a result, business restrictions affecting JPMorgan and EverBank that were previously mandated by amendments to the original orders have also been lifted. The OCC also assessed a $48 million civil money penalty against JPMorgan and a $1 million civil money penalty against EverBank for previous violations of the orders. According to the OCC, JPMorgan engaged in filing practices in bankruptcy courts with respect to payment change notices that did not comply with bankruptcy rules and constituted unsafe or unsound banking practices. EverBank violated a 2011 consent order by improperly charging fees related to mortgage electronic registration system assignments, property inspections, and late fees to approximately 47,000 borrowers.
View the OCC press release.
View the termination for JPMorgan.
View the termination for EverBank.
TOPIC : Enforcement -
US Commodity Futures Trading Commission Approves Proposed Rule Offering Alternative to Fingerprinting for Foreign Natural Persons
01/04/2016
The US Commodity Futures Trading Commission proposed a rule offering an alternative to the requirement for foreign natural persons to provide fingerprints when applying for CFTC registration. The proposal provides that any such person’s registered firm may complete a criminal history background check instead of submitting fingerprints. The proposal generally codifies CFTC Staff Letters 12-49 and 13-29 and would supersede those letters, if adopted. Comments on the proposed rule are due on or before February 11, 2016.
View the CFTC press release.
View the proposed rule.TOPIC : Derivatives -
European Central Bank Recommends Insufficiently Capitalized Eurozone Banks Not To Make a Dividend Distribution
12/30/2015
A European Central Bank Recommendation on dividend distribution policies for Eurozone banks was published in the Official Journal of the European Union. The recommendation is aimed at significant supervised entities (i.e. significant banks) and significant supervised groups (each as defined in the Single Supervisory Mechanism Framework Regulation) as well as national regulators. Under the SSM Regulation, the ECB is responsible for the direct prudential supervision of significant Eurozone banks. The Recommendation states that banks must use conservative and prudent assumptions when establishing dividend policies so that any applicable capital requirements, for example minimum capital requirements or countercyclical capital and systemic buffers, are still met after any distribution. The recommendation also makes suggestions for different categories of banks paying dividends for the 2015 financial year in 2016: (i) banks that satisfy the applicable capital requirements and have reached their fully loaded (i.e. calculated without applying the transitional provisions as set out in the Capital Requirements Regulation) capital ratios as at December 31, 2015 should distribute net profits in dividends conservatively; (ii) banks that satisfy the applicable capital requirements, but have not reached their fully loaded ratios as at December 31, 2015 should distribute net profits in dividends conservatively and in principle should only pay out dividends if a linear path to the required loaded capital requirements is secured; and (iii) banks that do not satisfy the applicable capital requirements should not distribute dividends. The Recommendation also states that should a bank not be able to comply with the ECB's Recommendation due to a legal obligation to pay out dividends, it should contact its supervisory team immediately.
View the Recommendation. -
Final EU Revised Payment Services Directive Published
12/23/2015
The revised EU Payment Services Directive, known as PSD2, was published in the Official Journal of the European Union. The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. Member States must transpose PSD2 into their national laws by January 13, 2018 and apply those laws from that date, subject to certain exceptions and transitional measures. PSD2 will appeal the current Payment Services Directive with effect from January 13, 2018.
View PSD2. -
European Securities and Markets Authority Consults on Guidelines under MiFID II
12/23/2015
The European Securities and Markets Authority launched a consultation on proposed Guidelines on transaction reporting, reference data, order record keeping and clock synchronization. ESMA is required to prepare the guidelines under the Markets in Financial Instruments Regulation and the revised Markets in Financial Instruments Directive, together known as MiFID II. The proposed Guidelines are based on ESMA's final draft Regulatory Technical Standards relating to transaction reporting, reference data, order record keeping and clock synchronization which are still due to be endorsed by the European Commission. The proposed Guidelines may therefore need to be amended, depending on the adopted version of the RTS. The proposed Guidelines aim to assist investment firms, approved reporting mechanisms, trading venues and systematic internalizers in complying with the provisions of the RTS, focusing on the preparation of transaction reports and order data records for various scenarios. Responses to the consultation are due by March 23, 2016 and ESMA aims to publish the final Guidelines in the second half of 2016. MiFID II will apply directly across the EU from January 3, 2017.
View the consultation paper.TOPIC : MiFID II -
Final EU Regulation on the Reporting and Transparency of Securities Financing Transactions and of Reuse Published
12/23/2015
The EU Regulation on the Reporting and Transparency of Securities Financing Transactions and of Reuse, known as the SFTR was published in the Official Journal of the European Union. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buy-sell back or sell-buy back transactions and margin lending transactions which will help reduce the likelihood of banks seeking to avoid rules applicable to them by moving certain of their activities to the shadow banking sector. The SFTR requires: (i) all securities financing transactions, subject to certain exceptions for central banks and similar bodies, to be reported to EU recognized trade repositories; (ii) investment funds to disclose their use of SFTs to investors in regular reports and pre-investment documents; and (iii) minimum conditions to be met on the reuse of collateral, such as disclosure of risks and the need to obtain prior consent. The SFTR also makes certain amendments to the European Market Infrastructure Regulation, including inserting provisions through which equivalence decisions for third country trading venues for the purpose of OTC derivatives can be made and adding a number of authorities to the list of authorities to which trade repositories must provide trade reporting information. The SFTR will apply directly across the EU from January 12, 2016 subject to certain exceptions which will apply at a later date, including the reporting obligation (which is being phased in according to counterparty type), the transparency obligations on management companies and Alternative Investment Fund Managers, and the restrictions on rehypothecation.
View the Regulation.TOPIC : Shadow Banking -
Final EU Guidelines on Cross-Selling Practices Published
12/22/2015
The European Securities and Markets Authority published a final report and final Guidelines on cross-selling practices within the meaning of the revised Markets in Financial Instruments Directive. The Guidelines will apply from January 3, 2017 to the national regulators responsible for the conduct of business supervisory oversight of investment firms and credit institutions when providing investment services and to management companies and external Alternative Investment Fund Managers when they provide investment services under the Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities and the Alternative Investment Fund Managers Directive respectively. Initially, ESMA had consulted jointly with the European Banking Authority and European Insurance and Occupational Pensions Authority on joint guidelines for the banking and insurance sectors. However, following feedback received to that consultation, it was decided that ESMA should adopt guidelines solely on the basis of the revised MiFID. Firms should note, however, that the final Guidelines do not affect their obligations to comply with other conduct of business standards that may be applicable to them.
Read more.TOPIC : MiFID II -
International Report on Trading Venue Business Continuity Plans Published
12/22/2015
The International Organization of Securities Commissions published a report on the mechanisms for trading venues to effectively manage electronic trading risks and plans for business continuity. The report focuses on how trading venues manage technology, in particular, the potential risks that technological innovations pose to the markets. It stems from an IOSCO investigation into causes of the recent market disruptions which sought to identify steps taken by market participants and regulators to address the causes and probe whether the IOSCO High-Level Principles for Business Continuity issued in 2006 should be updated. In addition, IOSCO surveyed trading venues across more than 30 jurisdictions. The report discusses IOSCO's findings based on responses to the survey, makes recommendations to regulators and proposes sound practices for trading venues. IOSCO recommends that regulators should require trading venues to put mechanisms in place to help ensure the resiliency, reliability and integrity of critical systems and should require trading venues to establish, maintain and implement an appropriate business continuity plan.
Read more.TOPIC : Recovery & Resolution -
International Report on Market Intermediary Business Continuity and Recovery Planning Published
12/22/2015
The International Organization for Securities Commissions published a report on market intermediary business continuity and recovery planning. The report sets two standards for regulators of market intermediaries and recommends sound practices for regulators to consider in their supervision of market intermediaries. The IOSCO standards state that regulators should require market intermediaries to create and maintain written business continuity plans and to update the plans in the event of any material change to the intermediaries' operations, structure, business or location and to conduct an annual review of the plan. The IOSCO recommendations on sound practices for regulators of intermediaries cover setting the components of a market intermediary's business continuity plan and addressing the need for data protection and client privacy, in particular, against cyber-attacks. IOSCO recognizes that the sound practices are flexible and may be tailored to the size and needs of a market intermediary.
View the report.TOPIC : Recovery & Resolution -
Final Report on Sound Practices for Large Intermediaries on Credit Assessment Policies
12/22/2015
The International Organization of Securities Commissions published its final report on sound practices at large intermediaries relating to the assessment of creditworthiness and the use of external credit ratings. The report analyses responses to the survey conducted by IOSCO and proposes sound practices for regulators of large intermediary firms to consider in supervising such firms. Large intermediary firms may also find the proposed practices useful when they consider implementing their internal credit assessment policies and procedures. The report is intended to enhance the implementation of the Principles for Reducing Reliance on CRA Ratings issued by the Financial Stability Board. The proposed sound practices for regulators include requiring large intermediaries to: (i) establish an independent credit assessment function; (ii) involve senior management in implementing the credit assessment process; (iii) ensure the relevant committees have sufficient information on the credit risks posed to their firms; (iv) establish an appropriate oversight structure to ensure the credit assessment process is properly implemented; (v) avoid exposure to particular credit risks whenever the firm does not have the internal capability to independently and adequately assess the exposure; (vi) incorporate a wide variety of qualitative measures into robust credit assessment processes; and (vii) avoid mechanistically relying on external credit rating agency ratings.
View the report.TOPIC : Credit Ratings -
US Securities and Exchange Commission Issues Advanced Notice of Proposed Rulemaking Regarding Regulation of Transfer Agents
12/22/2015
The US Securities and Exchange Commission issued (i) an advanced notice of proposed rulemaking, seeking public comment for new requirements for transfer agents and (ii) a concept release on the SEC's broader review of transfer agent regulation. Among other requirements, the ANPR proposes to impose on transfer agents revised registration and annual reporting requirements, and revised requirements relating to the safeguarding of funds and securities, antifraud requirements in connection with the issuance and transfer of restricted securities, and to impose new guidelines relating to cybersecurity and information technology.
The SEC concept release addresses a broader range of other issues and it is possible that the various proposals will be acted on separately by the SEC. Issues addressed in the concept release include the processing of book entry securities, recordkeeping issues, administration of issuer plans, outsourcing, the role of transfer agents to mutual funds, and crowdfunding.Comments on both the ANPR and the concept release must be submitted within 60 days of publication in the Federal Register.
View the SEC ANPR and concept release.
TOPIC : Financial Services -
European Banking Authority Consults on Guidelines for Compensation for Sales Staff of Retail Banking Services and Products
12/22/2015
The European Banking Authority published proposed Guidelines on compensation policies and procedures related to the sale and provision of retail banking products and services. The EBA is seeking to address the issues arising out of the recent cases on misconduct and mis-selling by staff in financial institutions where poor remuneration policies and practices have been identified as a root cause. The proposed Guidelines apply to the remuneration paid to staff employed by banks, credit intermediaries, payment institutions and electronic money institutions when selling mortgages, personal loans, deposits, payment accounts, payment services and/or electronic money. The proposed Guidelines set out the design of remuneration policies and practices, including prevention of conflicts of interest, using quantitative and qualitative criteria for determining variable remuneration and how the rights and interests of consumers should be taken into account. The EBA also proposes that remuneration policies and practices should be documented, and that such documentation should be retained for five years, be accessible to staff and made available to national regulators on request. Responsibility for complying with the Guidelines would rest with the management body of a firm. The consultation closes on March 22, 2016.
View the consultation paper. -
European Banking Authority Publishes Final Guidelines on Sound Remuneration and Recommends Legislative Changes
12/21/2015
The European Banking Authority published final Guidelines on sound remuneration policies and an Opinion on the application of proportionality to the remuneration provisions in the Capital Requirements Directive. The final Guidelines are applicable to banks and investment firms and cover all staff with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines will apply from January 1, 2017, a year later than originally intended. Therefore, firms do not need to amend their existing compensation practices for the 2016 performance year. The Guidelines set out detailed requirements for remuneration policies, the related governance arrangements and processes for implementing remuneration policies, updating the guidelines on remuneration policies published by the Committee of European Banking Supervisors to take into account changes introduced by the revised CRD IV, technical standards on the identification of staff and on the instruments which can be used for variable remuneration, the EBA's opinion on the use of allowances and industry developments.
Read more.TOPIC : Compensation -
Statement on Crowdfunding Risks by the International Organization for Securities Commissions
12/21/2015
The International Organization for Securities Commissions published a statement on addressing the regulation of crowdfunding and a report on its survey conducted on how crowdfunding is regulated in twenty-three IOSCO jurisdictions. The objectives of the statement and the report are to highlight emerging trends and issues in crowdfunding and to enhance IOSCO's understanding of how jurisdictions have adopted regulations on crowdfunding. Crowdfunding provides an alternative capital raising avenue, particularly for small enterprises and start-ups, which is beneficial in supporting economic growth but which may pose risks for investor protection. IOSCO's survey found that most jurisdictions had implemented regulations to address issues on conflicts of interest, data protection and fraud. IOSCO believes that more attention is required on the risk of default or failure of start-ups, potential failure of crowdfunding platforms, illiquidity, money laundering, fraud and terrorist financing as well as the suitability of any particular platform for an investor. IOSCO urges policy makers and regulators to consider the steps taken in some jurisdictions to address the risks of crowdfunding, including the imposition of registration requirements for funding portals, setting disclosure requirements for issuers and funding portals and requiring the appointment of a third party custodian to hold investor assets. In addition, the cross-border risks involved in crowdfunding should either be addressed by restricting cross-border fundraising or implementing a coordinated approach between relevant jurisdictions.
View the statement.
View the survey.TOPIC : Consumer Protection -
European Commission Consults on Long-Term and Sustainable Investment
12/18/2015
The European Commission launched a consultation which seeks to collect information on how institutional investors, asset managers and other service providers in the investment chain take into account, for the purpose of investment decisions, sustainability information and performance of companies or assets. The consultation is linked to the Commission's Communication on Long-Term Financing of the European Economy as well as the action plan for building a Capital Markets Union. The consultation is open until March 25, 2016.
View the consultation.TOPIC : Financial Services -
European Banking Authority Consults on Proposed Guidelines on Stress Testing
12/18/2015
The European Banking Authority launched a consultation on proposed Guidelines on stress testing and supervisory stress testing. The proposed Guidelines cover: (i) internal stress testing by firms, providing detailed guidance for firms when designing and conducting a stress testing program; (ii) the assessment of firms' stress testing by national regulators with the aim of ensuring convergence in the context of the supervisory review and evaluation process; and (iii) supervisory stress testing. The proposed Guidelines provide common organizational requirements, methodologies and processes for firms performing internal stress tests as part of their risk management processes and common methodologies for national regulators when conducting supervisory stress tests but do not set methodologies for the EBA's stress testing in cooperation with national regulators. Once finalized, the Guidelines will replace the current guidelines issued by the Committee of European Banking Supervisors. The consultation is open until March 18, 2016. The EBA aims to publish the final Guidelines in Q2 2016 and expects that they will apply from Q4 2016.
View the proposed Guidelines. -
European Banking Authority Opines on Maximum Distributable Amount Under EU Regulation Capital Framework
12/18/2015
The European Banking Authority published an Opinion, dated December 16, 2015, addressed to national regulators and the European Commission on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions. The EBA considers that national regulators should ensure that the Common Equity Tier 1 capital that is used for calculation of the maximum distributable amount is limited to the amount not used to meet a firm's Pillar 1 and 2 own funds requirements. Also, national regulators should require firms to disclose MDA-relevant capital requirements. The EBA is also of the view that the Commission should review the MDA provisions of the Capital Requirements Directive, aiming to eliminate inconsistencies in the application of the provisions across the EU and should review the prohibition on distribution, in particular, as it relates to Additional Tier 1 instruments when no profits are made in a given year.
View the Opinion. -
Single Resolution Board Appoints Appeal Panel Members
12/18/2015
The Single Resolution Board announced the first members appointed to its Appeal Panel. The nominated members are: Ms Hélène Vletter Van Dort (Chair), Mr Yves Herinckx (Vice-Chair), Mr Kaarlo Jännäri, Mr Marco Lamandini, Mr Christopher Pleister. Ms Eleni Dendrinou-Louri and Mr Luis Silva Morais have been nominated as alternates to the Appeal Panel. The appointments are for a term of five years, starting on January 1, 2016. The Appeal Panel is established to hear appeals brought by individuals or legal persons, including resolution authorities, against a decision of the SRB that is either addressed, or of direct and individual concern, to that person.
View the announcement.TOPIC : People -
EU Legislation Published on Protection of Whistle Blowers under the Market Abuse Directive
12/18/2015
A Commission Implementing Directive on the procedures and requirements for protection of individuals that report an actual or potential infringement of the Market Abuse Regulation to a national regulator was published in the Official Journal of the European Union. The Implementing Directive sets out the procedures for reporting, record-keeping requirements, measures for the protection of whistle blowers that are working under a contract of employment and arrangements for the protection of personal data of whistle blowers. Member States must transpose the requirements of the Implementing Directive into their national laws by July 3, 2016 and apply the new legislation from that date. The Market Abuse Regulation sets out the EU requirements on insider dealing, the unlawful disclosure of inside information and market manipulation and will apply directly across the EU from July 3, 2016.
View the Implementing Directive. -
European Banking Authority Reports on Synthetic Securitization in Europe
12/18/2015
The European Banking Authority published a report on its analysis and market practice assessment of synthetic securitization in Europe. The report makes recommendations for the European Commission's proposed legislative amendments to the Capital Requirements Regulation and proposed securitization regulation, which provide for the preferential regulatory treatment of simple, transparent and standardized securitizations. The EBA's analysis supports the approach taken by the Commission in its proposed securitization framework, which provides for a different regulatory treatment of on-balance sheet synthetic securitization positions retained by originator banks. The EBA concurs that the proposed framework should not be extended to all synthetic securitizations applicable to all investors across asset types. The EBA recommends that certain criteria be met for eligibility of balance sheet synthetic transactions, including requirements that originator banks should meet to transfer the risk of eligible transactions to public or private investors. In particular, the EBA advises the Commission to consider amending its proposal to include transactions in which private investors provide credit protection in the form of cash. The report follows the EBA's report in July 2015 on a qualifying framework for traditional securitization.
View the report.
View the Commission's proposed securitization framework. -
European Banking Authority Recommends Net Stable Funding Requirement for EU Banks
12/17/2015
The European Banking Authority published a report, dated December 15, 2015, on the necessity for adding stable funding requirements to the EU regulatory capital requirements framework. The Capital Requirements Regulation requires the EBA to report to the Commission on whether and how it would be appropriate to ensure that banks and investment firms use stable sources of funding and to provide an assessment of the impact of a stable funding requirement on the businesses and risk profiles of firms in the EU, the financial markets, the economy and trade financing, as well as potential methodologies for determining the amount of stable funding available to and required by firms. The mandate was included in the CRR in response to the Basel Committee on Banking Supervision's publication in 2010 of a net stable funding ratio (known as the NSFR) to be put in place by 2018. The NSFR requires firms to maintain a stable funding profile in relation to their assets and off-balance-sheet activities over a period of one year.
Read more. -
Consultation on Harmonization of the Unique Product Identifier Launched
12/17/2015
The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions published proposed guidance on the Unique Product Identifier which will allow for the identification of OTC derivatives products that authorities require, or may require in the future, to be reported to trade repositories. The UPI is made up of an OTC derivatives products classification system and an associated code (i.e. how the UPI will be represented in trade reports). A separate consultation will be launched on the code at a later date. Currently, OTC derivative trades are reported to 20 trade repositories authorized for some asset classes. However, in order to properly mitigate systemic risk and protect against market abuse, it is necessary for data across trade repositories to be aggregated so that national regulators have a comprehensive view of the OTC derivatives markets and trading activity. The CPMI and IOSCO have been tasked by the Financial Stability Board with developing global guidance on the harmonization of data elements reported to trade repositories, including a Unique Transaction Identifier and a UPI. The CPMI and IOSCO are proposing principles and high-level business specifications for the UPI as well as two approaches for the granularity of the UPI classification system. In particular, feedback is sought on potential implementation challenges. The consultation closes on February 24, 2016.
View the consultation paper.TOPIC : Derivatives -
Basel Committee on Banking Supervision Consults on Addressing Step-in Risk
12/17/2015
The Basel Committee on Banking Supervision launched a consultation on the identification, assessment and measurement of step-in risk. The proposed framework would form the basis for identifying, assessing and addressing step-in risk that is potentially embedded in banks' relationships with shadow banking entities. The Basel Committee refers to step-in risk as the risk that a bank may provide financial support to an entity that is under financial stress beyond or without any contractual obligations to do so to protect itself from any adverse reputational risk that may result from its connection to the entity. The proposals only apply to unconsolidated entities (i.e. entities that are outside of the regulatory scope of consolidation). The proposed framework includes descriptions of the relationships and indicators that characterize such relationships between banks and shadow banking entities, such as capital ties, sponsorship, provision of financial facilities, decision-making and operational links. The Basel Committee proposes that any step-in risk that is identified could be addressed through prudential measures, such as through quantitative requirements or by bringing the relevant entity within regulatory consolidation. The consultation closes on March 17, 2016.
View the consultation paper.TOPIC : Shadow Banking -
International Organization for Securities Commissions Publishes Report on Liquidity Risk Management Tools for Collective Investment Schemes
12/17/2015
The International Organization for Securities Commissions published a report on the existing tools available to fund managers for liquidity management in collective investment schemes. The report, which covers the frameworks in 26 jurisdictions, provides a global view of the tools available to fund managers, particular in extreme situations, and the funds to which those tools apply, including the availability of tools in particular jurisdictions, their use and effectiveness and any system-wide implications that the tools pose. The report is part of IOSCO's work on the collection of data about asset management activity. IOSCO is considering developing guidance on liquidity risk management that would go beyond its 2013 Principles of Liquidity Risk Management for Collective Investment Schemes, which would include stress testing.
View the report.
View the IOSCO Principles.TOPIC : Funds -
UK Government Proposes Changes for Implementation of the Bank Recovery and Resolution Directive
12/17/2015
The UK Government launched a consultation on further proposals for implementing the Bank Recovery and Resolution Directive into UK law following the identification of a few changes that the Government believes will clarify and strengthen the UK's transposition of the BRRD. The proposals would amend the Banking Act 2009, the Financial Services and Markets Act 2000 and certain secondary legislation and a draft Order was published with the consultation paper.
Read more.TOPIC : Recovery & Resolution -
UK Presumption of Responsibility for Senior Managers Put on Hold
12/17/2015
An amending Order was published which stops certain provisions of the Senior Manager & Certification Regime from coming into effect on March 7, 2016, the date from which the SM&CR becomes effective for banks, building societies, credit unions and investment firms designated by the Prudential Regulation Authority. The provisions that will not come into effect on March 7, 2016 are: (i) the obligation on firms to notify the PRA or Financial Conduct Authority when it knows or suspects that a senior manager or certified person has failed to comply with the conduct rules; and (ii) the presumption of responsibility for senior managers. Certain changes to the regime have been proposed by the UK Government, including extending the regime to all financial services firms and replacing the presumption of responsibility with a duty of responsibility. It remains to be seen whether Parliament will approve those changes. In the meantime, the PRA advises firms to prepare for implementation of the regime on the basis that the above two provisions will not come into effect in March 2016.
View the Order.
View the PRA's related statement. -
Final EU Guidelines for the Assessment of Knowledge and Competence under MiFID II
12/17/2015
The European Securities and Markets Authority published a final report and final guidelines on the assessment of knowledge and competence of individuals providing investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of investment firms. Under the revised Markets in Financial Instruments Directive, an investment firm is required to ensure that individuals giving investment advice or providing information about financial instruments, investment services or ancillary services to clients on its behalf have the necessary knowledge and competence to do so and to satisfy the firm's obligations on suitability, appropriateness and reporting and provision of information to clients. An investment firm may be requested to demonstrate that the requirements are met on request by its national regulator. National regulators must publish the criteria that will be used to assess such knowledge and competence. ESMA's guidelines, which apply to national regulators and investment firms, specify the criteria for the assessment of knowledge and competence, establishing the minimum standards that staff providing the relevant services should meet. The guidelines will come into effect on January 3, 2017.
View the guidelines.TOPIC : MiFID II -
EU Final Draft Standards on the Valuation of Derivative Liabilities for Bail-in
12/17/2015
The European Banking Authority published final draft Regulatory Technical Standards on the valuation of derivatives for the purpose of bailing in derivative liabilities. Under the Bank Recovery and Resolution Directive, a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine a value of those derivative liabilities at the moment of exercise of the resolution power. The EBA's final draft RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives. The EBA has submitted the final draft RTS to the European Commission for endorsement. Member states are required to implement the bail-in tool by January 1, 2016.
View the final draft RTS.TOPIC : Recovery & Resolution -
EU Final Draft Standards and Guidelines on Business Reorganization Plans Following a Bail-in
12/17/2015
The European Banking Authority published final draft Regulatory Technical Standards and final guidelines on the business reorganization plans that a firm that has been recapitalized using the bail-in tool is required to produce. Under the Bank Recovery and Resolution Directive, a firm that has been recapitalized through a bail-in must: (i) produce a reorganization plan that sets out how the firm will be restored to long-term viability; (ii) submit progress reports twice annually throughout the reorganization period. The BRRD requires the EBA to develop RTS on the minimum content of the business reorganization plans and progress reports and to issue guidelines for national regulators and resolution authorities to assess the reorganization plan. The final draft RTS require a business plan to identify and address the cause of the firm's failure, demonstrate that the firm can operate viably in the long-term, address shortcomings in the firm's business model (even if not related to the firm's failure), include financial performance projections with relevant milestones and indicators. The progress report should report on implementation of the reorganization plan and include proposed amendments to the plan, if necessary. The EBA's guidelines provide national regulators and resolution authorities with the means to assess whether the business reorganization plan is credible and realistic and consistent with other business plans prepared by the firm in parallel. Verification by independent entities, such as auditors, should be possible, where necessary.
View the final draft RTS and guidelines.TOPIC : Recovery & Resolution -
EU Final Standards on Requirements for Firms to Hold Information on Financial Contracts
12/17/2015
The European Banking Authority published final draft Regulatory Technical Standards specifying the information on financial contracts that a firm may be required to maintain. The Bank Recovery and Resolution Directive gives resolution authorities the power temporarily to suspend the termination rights of any counterparty to a contract with a firm that is under resolution. Both national regulators and resolution authorities may require a firm to maintain detailed records of financial contracts (generally, these are securities contracts, commodities contracts, futures and forwards contracts, swap agreements, inter-bank borrowing agreements) on whether or not they include suspensory provisions. The EBA's final draft RTS set out the minimum set of information on financial contracts that should be included in the detailed records held by a firm which includes information such as whether a contract includes contractual recognition of resolution powers, information on value and valuation, collateral, termination rights, maturity and netting arrangements. The RTS also prescribe the circumstances in which the requirement to hold such records should be imposed and take a wide approach by including all firms or entities that might be subject to resolution actions. The EBA considers that firms that would be placed into an insolvency procedure need not be included but the European authority does not prohibit national regulators or resolution authorities from imposing similar requirements on such firms, or any other firms.
View the final draft RTS.TOPIC : Recovery & Resolution -
International Organization of Securities Commissions Appoints New Secretary General
12/16/2015
The International Organization of Securities Commissions announced it appointed Paul Andrews as its new Secretary General, replacing David Wright from March 2016 for a three-year term.
View the press release.TOPIC : People -
Final Draft EU Standards on the Prudential Requirements for Central Securities Depositories Published
12/16/2015
The European Banking Authority published final draft Regulatory Technical Standards which set out the prudential regime for central securities depositories under the Central Securities Depositories Regulation. A distinction is made in CSDR between CSDs that offer banking-type ancillary services and which are also authorised as credit institutions (i.e. banks) and CSDs that are not permitted to offer ancillary banking services. The final draft RTS cover: (i) the capital requirements applicable to all CSDs; (ii) the additional risk-based capital surcharge which takes into account the risks, including intra-day credit and liquidity risks, that arise from the ancillary banking services of CSDs; and (iii) the framework and tools for monitoring, measuring, managing, reporting and disclosing the above-mentioned credit and liquidity risks. CSDs that carry out ancillary banking services will also need to comply with the Capital Requirements Regulation and the final draft RTS impose stricter requirements than those in CRR in some respects. The final draft RTS have been sent to the European Commission for endorsement. The CSDR, which introduces common standards for settlements across the EU, will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities.
View the final draft RTS.TOPIC : Financial Market Infrastructure -
Third Progress Report on the Compliance by G-SIBs with Principles For Effective Risk Data Aggregation and Risk Reporting
12/16/2015
The Basel Committee on Banking Supervision published its third progress report on the adoption by banks of its Principles for effective risk data aggregation and risk reporting. The Principles must be implemented by global systemically important banks by January 1, 2016, and aim to strengthen risk data aggregation and risk reporting at banks so that risk management and decision-making practices are improved. The report details the progress that G-SIBs have made in order to comply with the Principles. The Basel Committee recommends that: (i) banks and national regulators should continue to promote understanding of the Principles; (ii) national regulators should conduct more in-depth/specialised examinations on data aggregation requirements to evaluate weaknesses; (iii) banks should clearly articulate risk data aggregation and risk reporting expectations, in line with their risk appetite in both normal and stress periods; (iv) banks should have appropriate governance arrangements in place to oversee manual processes; (v) banks should consider reducing the complexity of their systems to meet the data aggregation requirements; (vi) auditors should undertake an independent assessment of each bank's compliance with the Principles in early 2016, reporting any necessary remedial action to the bank's board; and (vii) banks that are unable to comply by the deadline should agree plans to do so with their national regulator. The Basel Committee also recommends that national regulators apply the Principles to domestic systemically important banks (known as D-SIBs) from three years after they have been identified as such.
View the report. -
European Commission Proposes Extension of Exemptions for Commodity Dealers
12/16/2015
The European Commission published a proposed Regulation which would amend the Capital Requirements Regulation with regards to exemptions for commodity dealers. The CRR currently exempts commodity dealers from large exposures requirements and own fund requirements until December 31, 2017. That date was set on the basis that the Commission would have conducted a review of the prudential regime applicable to commodity dealers and to investment firms by the end of 2015 and, if appropriate, proposed a legislative regime adapted for the risks profile of commodity dealers and investment firms. The Commissions' review is still in progress. The Commission is therefore proposing that the CRR exemptions are extended until December 31, 2020 to allow time for work in this area to be completed and to avoid the need for relevant firms to temporarily comply with the full CRR requirements in 2018 before being subsequently moved to a tailored regime within two to three years.
View the proposed Regulation. -
Senior Managers Rules for UK Branches Finalized
12/16/2015
The Prudential Regulation Authority and the Financial Conduct Authority published their Policy Statements and final rules on the application of the UK Senior Managers and Certification regimes and new Conduct Rules to UK branches of EEA and non-EEA banks and PRA-designated investment firms. The PRA also published a related updated Supervisory Statement. Both of the regulators published near-final rules in August this year, pending legislation being adopted by Parliament which would formally extend the SM&CR to UK branches of such firms. That legislation has now come into force, allowing the regulators to publish their final rules. The PRA's final rules are the same as those published in August except for some minor corrections. The FCA's final rules for UK branches of EEA firms remain unchanged. The rules for UK branches of non-EEA firms have been amended following concerns about the wide extraterritorial reach of the FCA's proposed approach. The FCA will only apply the Certification regime and the Conduct Rules to individuals who perform significant harm functions for branches to individuals who are based in the UK. UK clients will no longer automatically be within scope. The FCA intends to keep the territorial scope of its rules under review and may amend the rules in the future if it considers it necessary to meet its objectives (although not before commencement of the regime in March 2016). The FCA has also confirmed that, in line with legislation, EEA firms that accept deposits or deal in investments as principal under a passport and which have a UK branch are caught by the SM&CR even if the firm undertakes deposit-taking a services passport and other (non-deposit-taking) activities through an establishment passport (i.e. if the UK branch does not undertake deposit-taking or proprietary trading).
Read more. -
UK Government Publishes New Payment Account Regulations
12/16/2015
HM Treasury published the Payment Account Regulations together with an explanatory memorandum. The Regulations implement the Payment Accounts Directive which sets common standards for payment service providers across EU Member States. The three main policy objectives of the PAD are: (i) to improve transparency and comparability of payment account fees used on a daily basis for payment transactions (i.e. personal current accounts); (ii) to make it less burdensome for consumers to be able to move their current account from one payment service provider to another; and (iii) to ensure that EU residents have access to banking services and that a sufficient number of accounts that offer basic features are available. The new Regulations cover: (i) the obligations on payment service providers to enable consumers to make informed choices when choosing a payment account; (ii) non-discrimination in the provision of and access to payments accounts; and (iii) switching payments accounts and the facilitation of cross-border account opening for consumers. The Regulations will enter into force on September 18, 2016 except for those provisions related to the obligation of the Financial Conduct Authority to publish a list of the most representative services linked to a payment account and subject to a fee which will come into effect six months after the publication of that list.
View the Regulations. -
European Commission to Extend Exemption from Market Abuse Regulation to Certain Third Country Central Banks
12/16/2015
The European Commission published a report on the appropriateness of an extension of the exemption from the Market Abuse Regulation to certain public bodies and central banks of third countries. MAR exempts Member States, members of the European System of Central Banks, ministries and other agencies and special purpose vehicles of one or more Member States or persons acting on their behalf from the application of MAR to transactions, orders or behaviour that are undertaken in pursuit of monetary, exchange rate or public debt management policies. The Commission may extend that exemption to certain public bodies and central banks of third countries after assessing and reporting to the European Parliament and European Council on the appropriateness of such an extension. The Commission intends to extend the exemption under MAR to central banks and debt management offices of Australia, Brazil, Canada, Hong Kong SAR, India, Japan, Mexico, Singapore, South Korea, Switzerland, Turkey and the United States and to the central bank of China.
View the report. -
Buy-side Firms Commit to Central Clearing of Single-Name CDS
12/16/2015
The International Swaps and Derivatives Association, Inc., the Managed Funds Association and the Asset Management Group of the Securities Industry and Financial Markets Association announced that 25 buy-side firms had voluntarily committed to clearing their single-name credit default swap trades through central counterparties. Clearing of such trades will be the priority with existing positions being migrated over time. The firms are: AB, Anchorage Capital Group, Apollo Global Management, LLC, AQR Capital Management, LLC, BlackRock Inc., BlueMountain Capital Management, LLC, Brigade Capital Management, Citadel LLC, Claren Road Asset Management, LLC, Cyrus Capital Partners, LP, DCI, LLC., DW Partners, LP, Eaton Vance Management, Field Street Capital Management, LLC, Gracie Asset Management, Hutchin Hill Capital LP, Kingdon Capital Management, LLC, Marathon Asset Management, LP, MKP Capital Management, LLC, Och-Ziff Capital Management Group, PIMCO, Pine River Capital Management, Saba Capital Management, L.P., UBS O’Connor LLC and Zais Group, LLC.
View the announcement.TOPIC : Derivatives -
EU Regulation on Currencies with Constraints on Availability of Liquid Assets Published
12/16/2015
The Regulation setting out Implementing Technical Standards for currencies with constraints on the availability of liquid assets under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR sets out a Liquidity Coverage Requirement which requires firms to hold liquid assets to maintain adequate levels of liquidity buffers to face any possible imbalances between liquidity inflows and outflows. The CRR allows firms to apply derogations where justified needs for liquid assets exist owing to the Liquidity Coverage Requirement, which exceed the availability of those liquid assets in certain currencies. The Regulation identifies the Norwegian Krone as a currency with constraints on the availability of liquid assets. The Regulation enters into force on January 5, 2016.
View the Regulation. -
Re-appointment of Members of UK Financial Policy Committee Announced
12/15/2015
The UK Chancellor of the Exchequer, George Osborne, announced that Dame Clara Furse and Richard Sharp had been re-appointed as external members to the Financial Policy Committee at the Bank of England. Their terms of appointment will now run until March 31, 2019.
View the announcement.TOPIC : People -
Threadneedle Asset Management Limited Fined by UK Regulator
12/15/2015
The Financial Conduct Authority published a final notice issued against Threadneedle Asset Management Limited imposing a £6,038,504 fine for not having adequate controls in place for its fixed income desk, providing inaccurate information to the FCA and failing to correct its inaccurate representation for four months. Threadneedle was asked in April 2011 by the FCA's predecessor, the Financial Services Authority, to address concerns raised about the number of errors originating from its fixed income desk including its Emerging Markets Debt desk, as well as concerns about fund managers initiating, booking and executing their own trades. Threadneedle advised the FSA that it had employed individuals that had taken on responsibility for all aspects of dealing on those desks. However, the individuals had not actually taken on all the responsibilities. Shortly after Threadneedle's response, a fund manager on the Emerging Markets Debt desk initiated, executed and booked a $150 million trade at four times its market value without having the authority to make the trade. The trade was not settled as the problem was identified in time by Threadneedle's outsourced back office. The trade - had it not been identified in time, and had gone on to settle - could have caused a $110 million loss to client funds.
View the FCA's final notice.TOPIC : Enforcement -
EU Guidelines on Limiting Exposures to Shadow Banking Entities Published
12/15/2015
The European Banking Authority published final Guidelines on requirements for banks and certain investment firms to have sufficient information about, and to set limits on, their individual and aggregate exposure to shadow banking entities which carry out certain banking-like activities, such as lending, outside a regulated framework. The EBA is mandated to produce the Guidelines under the Capital Requirements Regulation which limits the exposure a firm can have to a single client or group of connected clients (more generally known as limits to large exposures). In order to prepare the Guidelines, the EBA collected data from 148 EU firms on their exposures to shadow banking entities, the results of which are published in a separate report. Both the Report and the Guidelines will help inform the European Commission's report on the appropriateness and impact of imposing such limits, which may be accompanied by a legislative proposal. The EBA Guidelines will apply from January 1, 2017.
View the Guidelines.
View the EBA's report. -
UK Regulator Consults on Implementing the Revised Markets in Financial Instruments Directive
12/15/2015
The Financial Conduct Authority published proposals for implementing certain aspects of the revised Markets in Financial Instruments Directive, which together with the Markets in Financial Instruments Regulation is known as MiFID II. The revised MiFID must be transposed into the national laws of Member States whereas MiFIR is directly applicable across the EU. MiFID II is currently due to apply from January 3, 2017 although there have been discussions between the European authorities about possibly delaying this date. On the existing timeline, Member States must transpose the revised MiFID into their national laws by July 3, 2016.
Read more.TOPIC : MiFID II -
UK Payment Systems Regulator Report on Access and Governance of Payment Systems
12/15/2015
The Payment Systems Regulator published its first annual report on access and governance of payment systems. The report sets out the progress of operators of designated payment systems in achieving more open and flexible direct access to payment systems and making the governance of payment system operators more inclusive and transparent. The report states that operators could do more to enable access for smaller banks and non-bank payment service providers and must ensure that the views of those that rely on payment systems are represented in the decision making of operators. The PSR also reports that progress has been made so far on clearer and fairer requirements for direct access, transparency of payment system operator decisions and better representation of payment systems' users' views.
View the report. -
European Banking Authority Consults on Draft Standards on Assessment Methodology for Use of Internal Models
12/14/2015
The European Banking Authority launched a consultation on proposed draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the proposed draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. The proposed draft RTS are consistent with the RTS on the conditions for assessing materiality of extensions and changes to use market internal models, adopted by the European Commission in June 2015. Comments are due by March 13, 2016.
View the consultation paper. -
European Securities and Markets Authority Appoints New Chair of Market Integrity Standing Committee
12/14/2015
The European Securities and Markets Authority appointed Mr. Giuseppe Vegas as chair of its Market Integrity Standing Committee for a period of two years, starting on December 10, 2015.
View the press release.TOPIC : People -
European Securities and Markets Authority Consults on CCP Time Horizon for Liquidation Period
12/14/2015
The European Securities and Markets Authority published a consultation paper on a review of the Regulatory Technical Standards for CCPs on the time horizons for the liquidation period for margin held by CCPs for exchange-traded derivatives. The RTS currently specify a two-day time horizon as the liquidation period used in the time horizons for margin calculations, across all CCP accounts for exchange-traded products. The original RTS use this two-day liquidation period but based on net margin models, where offsetting positions of different customers cancel one another out. A key economic difference has been noted between the US and EU regimes for CCP margins, in that the US only requires a one day liquidation period but is calculated on a gross basis across all customer positions. A degree of harmonization of the two regimes is proposed to assist the EU in adopting a long-awaited equivalence decision for US CCPs under EMIR, with proposed adoption of the alternative of a “one day gross” model for European CCP customer accounts. The two-day standard for clearing members' house accounts and the five-day liquidation period for OTC products would be retained. The consultation follows on from ESMA's discussion paper published in August 2015. Comments are due by February 1, 2016.
View the consultation paper. -
US Federal Reserve Board Finalizes Revised FR Y‑15 Reporting Requirements and Seeks Comments on Section 165‑Related Revisions to Form FR Y‑7
12/11/2015
The Federal Reserve Board published a final rule to revise certain elements of its “Banking Organization Systemic Risk Report” (Form FR Y‑15) that will become effective as of December 31, 2015. However, the new requirement to file the form on a quarterly basis has been extended until June 30, 2016, and the effective date of the new requirements for reporting short‑term wholesale funding (Schedule G) has been extended to December 31, 2016. While the preamble to the final rule notes that reporting requirements for Intermediate Holding Companies that foreign banking organizations are required to designate or establish under Dodd‑Frank Act Section 165 have not yet been proposed, under current requirements IHCs with a US bank subsidiary and $50 billion or more in total consolidated assets would be required to file the FR Y‑15 beginning with the next filing date following its establishment. Commenters requested an extension for IHCs, but the Federal Reserve Board indicated it would invite comment on this issue when reporting requirements for IHCs are proposed.
On December 2, 2015, the Federal Reserve Board proposed certain new line items to its “Annual Report of Foreign Banking Organizations” (Form FR Y‑7) to collect information from foreign banking organizations required to comply with the enhanced prudential standards for foreign banking organizations prescribed by Section 165 of the Dodd‑Frank Act.
View the The final rule for Form FR Y‑15.
View the proposed revisions to Form FR Y‑7. -
US Securities and Exchange Commission Proposes New Derivatives Rules for Registered Funds and Business Development Companies
12/11/2015
The US Securities and Exchange Commission issued a proposed rule for public comment that would limit the use of derivatives and require new risk management measures by registered investment companies, including mutual funds, exchange-traded funds, closed-end funds, and business development companies. The proposed rule would require a fund to comply with one of two portfolio limitations, that would cap the amount of leverage a fund may obtain from derivatives and other specified transactions. Specifically, the rule would limit a fund’s aggregate derivatives exposure to 150 percent of the fund’s net assets, or up to 300 percent of the fund’s net assets provided that the fund satisfies a risk-based test based on value-at-risk. A formal derivatives risk management program overseen by a designated derivatives risk manager would be required if a fund engages in more than the limited amount of derivatives transactions or if it uses complex derivatives. In addition, a fund would have to manage the risks related to their use of derivatives by segregating certain assets, generally cash and cash equivalents, in an amount sufficient to ensure that the fund meets its obligations. Funds would also be required to segregate certain assets to cover its obligations related to certain financial commitment transactions, such as reverse repurchase agreements and short sales. The proposed rule will be open for public comment for 90 days following its publication in the Federal Register.
View the SEC press release.
View the proposed rule.TOPIC : Derivatives -
European Banking Authority Consults on Draft Regulatory Technical Standards on Information Sharing Between National Regulators under Revised Payment Services Directive
12/11/2015
The European Banking Authority published a consultation paper on draft Regulatory Technical Standards on the framework for cooperation and exchange of information between national regulators for passporting under the revised Payment Services Directive (known as PSD2). The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The RTS aim to ensure that: (i) information about those entities that carry out business in EU Member States is exchanged between national regulators in a consistent way; (ii) there is clarity for payment institutions about their regulatory requirements; and (iii) the information that is to be shared between national regulators is specified. Comments are due by March 11, 2016.
View the consultation paper. -
Bank of England Consults on Minimum Requirement for Own Funds and Eligible Liabilities
12/11/2015
The Bank of England published proposals on its approach to setting a Minimum Requirement for own funds and Eligible Liabilities (known as MREL). This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the Bank Recovery and Resolution Directive and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II.
Read more.TOPIC : Recovery & Resolution -
EU Regulation on Extension of Transitional Provisions for Exposures to CCPs Published in Official Journal of the European Union
12/11/2015
The Implementing Regulation on the extension of the transitional periods for own funds requirements for exposures to CPPs as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. The Implementing Regulation extends the transitional period for regulatory capital requirements for EU banks’ exposures to CCPs from December 15, 2015 to June 15, 2016. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. This is linked to the current consultation on margin holding period for exchange-traded derivatives, published by ESMA on December 14, 2015, which should result in technical standards paving the way for recognition in the new year. The provision aims to minimize disruption to financial markets and to prevent institutions from being penalized through higher own funds requirements during the processes of authorization and recognition of existing CCPs. The Implementing Regulation comes into effect on December 12, 2015.
View the Regulation.
View ESMA's consultation on margin holding period. -
International Organization of Securities Commissions Report on Hedge Funds.
12/11/2015
The International Organization of Securities Commissions published its third survey on hedge funds. The survey gathers information received from hedge fund managers on trading activities, leverage, funding and the hedge fund market generally, capturing data from around 1,500 funds. The findings of the survey include that: (i) the hedge fund industry is mainly based in the US, is largely US dollar based and principally invested in North American assets; (ii) hedge funds across all jurisdictions with the exception of Japan use financial leverage; and (iii) a large proportion of direct investments are made by institutional investors and the remaining share is led by funds of funds. The survey also states that assets that are managed by hedge funds appear to be growing at a rate of 34% since the last survey was published in 2013 and that the Cayman Islands hold a larger number of new funds and remain the tax domicile of choice. The hedge fund survey assembles data from regulatory returns on hedge fund activities and aims to facilitate IOSCO to gain insight into the global hedge fund industry, encourage global cooperation on the risks arising in the hedge fund sector and creating a forum for the consideration of any potential regulatory requirements where necessary. The study is the only such exercise that is carried out on a global level.
View the report.TOPIC : Funds -
European Banking Authority Consults on Draft Guidelines for Collection of Information for Internal Capital Adequacy Assessment Process and Internal Liquidity Adequacy Assessment Process under the Capital Requirements Directive
12/11/2015
The European Banking Authority published a consultation paper on draft Guidelines for the collection of information for the Internal Capital Adequacy Assessment Process and the Internal Liquidity Adequacy Assessment Process under the Capital Requirements Directive. The consultation forms part of the Supervisory Review and Evaluation Process and follows on from the criteria and methodologies specified in the EBA Guidelines on common procedures and methodologies for SREP. The Guidelines aim to facilitate the assessment of ICAAP and ILAAP as well as to create a consistent approach to the ICAAP and ILAAP frameworks and to the assessment of reliability of the own capital and liquidity estimates of financial institutions. The draft Guidelines set out, amongst other things, the general criteria for national regulators for the collection of ICAAP and ILAAP information from institutions and will be finalized following the completion of the consultation. The Guidelines are expected to apply from June 30, 2016. Comments are due by March 11, 2016.
View the consultation paper. -
Regulatory Technical Standards under EU Financial Conglomerates Directive Published
12/11/2015
A Commission Delegated Regulation, in the form of Regulatory Technical Standards, was published setting out criteria for the assessment of intra-group transactions and risk concentrations under the EU Financial Conglomerates Directive. The RTS provide national regulators and coordinators with criteria for assessing whether intra-group transactions and risk concentrations are significant and provide for more harmonized reporting of information by financial conglomerates. The Financial Conglomerates Directive provides for the supplementary prudential supervision on a group-wide basis of groups including banks, insurance undertakings and investment firms which are part of a financial conglomerate which provide services and products in different sectors of the financial markets. The Directive covers, amongst other things, the solvency position and risk concentration at the level of the conglomerate, intra-group transactions, internal risk management processes at conglomerate level and regulations on the fit and proper character of the conglomerate's management.
View the Delegated Regulation. -
European Securities and Market Authority Consults on Revised Standards for Data Access under European Market Infrastructure Regulation
12/11/2015
The European Securities and Markets Authority launched a consultation on revised Regulatory Technical Standards on data access and operational standards for comparison and aggregation of data under the European Market Infrastructure Regulation. ESMA is proposing to revise the existing RTS to take into account both practical developments and international developments. It will also address certain structural deficiencies in data access which have resulted in an inability of regulators to perform adequate systemic risk assessments. Particular targets of concern are low quality data, limited capabilities for data querying and for access to large datasets, difficulties in aggregating and comparing data across trade repositories due to lack of standardization and difficulties in obtaining real direct and immediate access to trade repository data. ESMA is therefore proposing: (i) common provisions for operational standards for aggregation and comparison of data; (ii) common output formats; and (iii) common provisions for operational standards for access to data and data exchange procedures between trade repositories and national regulators. The consultation closes on February 1, 2016.
View the consultation paper.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Further Technical Standards under MiFID II
12/11/2015
The European Securities and Markets Authority published further final draft Implementing Technical Standards due under the revised Markets in Financial Instruments Directive, or MiFID II. The ITS cover: (i) cooperation arrangements between national regulators for supervision of a trading venue of substantial importance in a host and home Member State; (ii) the format and timing of the communications and the publication of the suspension and removal of financial instruments from trading on a regulated market, a multilateral trading facility or an organized trading facility; (iii) notification or provision of information for application for authorization of data reporting service providers; (iv) format of the reports of position reports by position holders; (v) format and timing of weekly position reports; (vi) cooperation between national regulators in supervisory activities, on-site verifications, and investigations and for the exchange of information; (vii) consultation of other national regulators prior to granting an authorization for certain types of investment firms; and (viii) submission of information on sanctions and measures. The final draft ITS have been sent to the European Commission for endorsement.
View the final draft ITS.TOPIC : MiFID II -
UK Prudential Regulation Authority Consults on Relationship between Regulatory Buffers and Minimum Requirement for Own Funds and Eligible Liabilities
12/11/2015
The Prudential Regulation Authority published its proposed approach setting regulatory buffers in light of a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) requirement as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. MREL is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. The proposals are relevant to PRA-regulated banks, building societies and PRA-designated investment firms. The PRA-proposed approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's approach is in line with the Financial Stability Board's TLAC standards. The proposals should be read in conjunction with the Bank of England's consultation on setting MREL. Responses to the PRA's consultation are due by March 11, 2016.
View the PRA's consultation paper.
View the BoE's consultation paper.
View the FSB's TLAC term sheet.TOPIC : Recovery & Resolution -
Bank of England Confirms Approach to Exercising its Power to Direct Firms to Address Impediments to Resolvability
12/11/2015
The Bank of England published its Statement of Policy and feedback to its consultation on its proposed approach to exercising its power to direct firms to address impediments to resolvability. As the UK resolution authority, the BoE must, in preparing the resolution plan for a firm, assess the resolvability of a firm. If any substantive impediments are identified during that assessment or otherwise, the BoE has the power to require the firm to remove any such obstacle, including requiring the amendment of a group financial support agreement, the disposal of certain assets or a change to its legal or operational structure. The BoE's power of direction applies to UK incorporated and authorized banks, building societies and PRA-designated investment firms, any UK incorporated parents of those firms that are financial holding companies and to UK incorporated and authorized subsidiaries of such firms. The final Statement of Policy sets out the BoE's approach to and process for using the power of direction and includes illustrative examples of scenarios in which the BoE may consider exercising its power of direction.
View the Statement of Policy and responses to the consultation.TOPIC : Recovery & Resolution -
UK Regulator Confirms Scope for Consultation on Ensuring Operational Continuity in Resolution
12/11/2015
The Prudential Regulation Authority published an addendum to its October 2015 consultation paper proposing the creation of a new framework that would require firms to ensure operational continuity of shared services that are considered critical to the economy in the event of failure of a firm, recovery action, resolution or post-resolution restructuring. The PRA released its initial proposals in October 2015, stating that the exact scope of firms that would be subject to the proposed rules would be set once the Bank of England had completed its calibration work for setting a Minimum Requirement for own funds and Eligible Liabilities (known as MREL, which is the European equivalent of Total Loss Absorbing Capacity or TLAC). The BoE published its MREL proposals on December 11, 2015. The PRA proposes that banks, investment firms and building societies meeting the following criteria on January 1 of any year, would be subject to the new rules on operational continuity if: (i) the firm's total assets averaged over the previous 36 months exceeds £10 billion; (ii) the total value of safe custody assets the firm holds averaged over the previous 36 months exceeds £10 billion; or (iii) the total value of sight deposits (i.e. able to be withdrawn immediately, without notice) the firm holds averaged over the previous 36 months exceeds £350 million. The consultation closes on March 11, 2016. The PRA intends to publish its Policy Statement, final rules and supervisory rules in mid-2016. The new rules would apply from January 1, 2019.
View the October consultation and Addendum consultation papers.TOPIC : Recovery & Resolution -
European Banking Authority Opinion and Report on Cooperation and Information Sharing between Regulators
12/10/2015
The European Banking Authority published an Opinion and Report on cooperation and information sharing between EU and non-EU national regulators, as required under the Capital Requirements Directive. The EBA identifies areas of improvement and proposes legislative changes to encourage better prudential supervision of international banks and investment firms. The Opinion states that there is a need for more clarity in the equivalence assessment processes of non-EU supervisory and regulatory regimes, confidentiality regimes within and outside supervisory colleges as well as in the supervision of institutions on a consolidated basis. The EBA states that the establishment of clear instructions on equivalence assessments in the CRD and Capital Requirements Regulation would facilitate coordinated and consistent equivalent assessments. The EBA also proposes, amongst other things, to align the CRD with the Bank Recovery and Resolution Directive so that specific references to the status of "observers" are provided for non-EU national regulators that participate in supervisory colleges.
View the Opinion and Report. -
Revised Standardized Approach to Credit Risk Proposed at International Level
12/10/2015
The Basel Committee on Banking Supervision published a second consultation on revisions to the Standardized Approach for credit risk. The consultation seeks to address concerns raised during the first consultation which proposed that references to external ratings for exposures to banks and corporates be removed and that those exposures should be assigned risk weights based on two risk drivers. The Basel Committee is therefore proposing that different approaches should be adopted, depending on whether a jurisdiction prohibits the use of external ratings for regulatory purposes. For exposures to banks: (i) in jurisdictions that allow the use of ratings for regulatory purposes, ratings would be the primary source to determine risk weights for rated exposures, subject to due diligence requirements; and (ii) in jurisdictions that do not allow the use of ratings for regulatory purposes and for unrated exposures in all jurisdictions, exposures would be classified into three different buckets, subject to certain criteria being met. The Basel Committee is also proposing revised approaches for exposures to corporates, secured by real estate, multilateral development banks, retail and defaulted exposures and off-balance sheet items. Responses to the consultation are due by March 11, 2016.
View the consultation. -
UK Regulator Publishes Thematic Review on Treatment of Confidential and Inside Information
12/10/2015
The Financial Conduct Authority published its thematic review on flows of confidential and inside information, presenting the results of an evaluation into how a sample of investment banks manage the confidential and inside information that they receive and generate. The review outlines good and poor practices mainly in the Debt Capital Markets and Mergers & Acquisitions departments of small to medium investment firms and is aimed at all FCA-regulated firms, to assist them in considering how efficient their procedures, systems and controls are. The review is aimed at senior managers as well as front office staff and all staff that make up the first, second and third lines of defense at UK firms that are FCA-regulated. Ultimate responsibility however remains with senior management and the FCA expects senior managers to be aware of their obligations and of the risks of handling confidential and inside information in an inappropriate way. The review states that all UK FCA-regulated firms should ensure that their arrangements are fit for purpose so that they meet the standards of the review, and make suitable improvements where necessary. These arrangements should be consistently reviewed from both a market abuse and conduct of business viewpoint, taking into account any new risks that may arise due to external factors such as market practices or macroeconomic issues.
View the review. -
European Banking Authority Appoints Members of Management Board and Alternate Chairperson
12/10/2015
The Board of Supervisors of the European Banking Authority elected its Alternate Chairperson and members of its Management Board. Mr. Pedro Duarte Neves has been elected Alternate Chairperson of the EBA Board of Supervisors and Mr. Andrzej Reich has been elected Management Board member. Both were re-elected for a second term. Mr. Édouard Fernández-Bollo and Mr. David Rozumek have been elected as new members of the EBA Management Board.
View the press release.TOPIC : People -
European Banking Authority Issues Revised List of Validation Rules for Supervisory Reporting
12/10/2015
The European Banking Authority published a revised list of validation rules for submitting supervisory reporting data. The rules detail the standards and formats that are to be used for submissions of data by national regulators under the Capital Requirements Directive IV. The revised list displays the rules that have been deactivated due to technical issues or incorrectness.
View the revised list. -
European Commission Requests Ten Countries to Implement EU Deposit Guarantee Schemes Directive
12/10/2015
The European Commission announced that it had formally requested 10 EU countries to fully implement the EU Deposit Guarantee Schemes Directive which was due to be implemented into national law by July 3, 2015. The countries - Belgium, Cyprus, Estonia, Greece, Italy, Luxembourg, Poland, Romania, Slovenia and Sweden - must implement the DGSD within two months. If any of these countries fails to do so, the Commission may refer them to the Court of Justice of the EU. In October, the European Commission referred the Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden to the Court of Justice of the EU for failing to transpose the Bank Recovery and Resolution Directive into national legislation in time.
View the press release. -
US Financial Crimes Enforcement Netwrok Director Speech on financial Intelligence Data and Cyber Threats
12/09/2015
The Director of FinCEN, Jennifer Shasky Calvery, delivered a speech regarding FinCEN’s efforts to gather financial intelligence data and mitigate cyber threats. Director Calvery discussed methods by which FinCEN gathers data through its Bank Secrecy Act reporting stream and then uses such data to combat cyber threats. She also discussed FinCEN’s recent analytical enhancements and efforts to work alongside foreign Financial Intelligence Units in order to identify information that could be helpful in preventing cyber incidents. Finally, she stressed the importance of information sharing among law enforcement, the private sector, government and international counterparts to recognize and cope with threats to the financial system.
View the speech.TOPIC : Cyber Security -
Financial Conduct Authority Still Concerned About Suitability of Retail Investment Portfolios
12/09/2015
The Financial Conduct Authority published a report on the outcomes of its thematic review of the suitability of retail investment portfolios provided by wealth management and private banking firms. The aim of the review was to assess whether the relevant firms had taken steps to address concerns that had been highlighted to them during previous thematic reviews. The FCA review concluded that: (i) some firms have taken steps to improve and demonstrate the suitability of customer investment portfolios; (ii) firms still need to make substantial improvements in gathering, recording and regularly updating customer information; (iii) firms need to take steps to ensure that the composition of the portfolios they manage reflect the investment needs and risk appetites of their customers, in particular those customers with a limited capacity for capital loss or that do not want to be exposed to such risks; and (iv) firms must ensure that their governance, monitoring and assessment frameworks meet the regulatory requirements on suitability. The FCA expects firms, in particular senior managers, to assess their own processes and practices and to take any necessary action.
View the report.TOPIC : Consumer Protection -
European Banking Authority Compares Recovery Plans Across the EU
12/09/2015
The European Banking Authority published a comparative report on recovery plan scenarios used by firms across the EU. The EBA aims to provide national regulators and firms with an overview of developments in recovery plan scenarios as well as identify best practices and areas where improvement is needed. Under the EU Bank Recovery and Resolution Directive, banks must prepare recovery plans which include a range of scenarios of severe macroeconomic and financial stress relevant to a bank's specific conditions. The recovery plan must be assessed and approved by a banks relevant national regulator. The EBA's analysis is that while some banks' recovery plans comply with the requirements of the BRRD and the secondary legislation and guidelines, other do not. The EBA identifies key areas for improvement, including: (i) recovery plans should make clear the relevance of each scenario to the individual bank; (ii) the scenario and its impacts need to be explained so that the severity of the scenario is clear; (iii) the recovery plans should depict events as a sequence, not as point-in-time, so that a complete assessment of the recovery capacity of a firm can be made; and (iv) the link between a scenario and its indicators and options must be apparent so that an assessment of the adequacy of the framework of indicators and the recovery capacity is possible.
View the report.TOPIC : Recovery & Resolution -
Financial Conduct Authority Publishes Guide to Enforcement under Senior Managers Regime
12/09/2015
The Financial Conduct Authority published its Policy Statement setting out guidance on how it intends to enforce the new individual accountability rules under the Senior Managers Regime, the Certification Regime and the new Conduct Rules. The FCA's guidance, which will apply from March 7, 2016 when the new rules come into force, amends the Enforcement Guide and the Decision Procedure and Penalties Manual. The Policy Statement includes the FCA's feedback to responses to its proposed guidance, including a confirmation that the FCA does not intend to add any additional guidance on the types of conduct it would consider as falling far below what would reasonably be expected of a senior manager when assessing whether to bring criminal proceedings against an individual alleging that his decision caused a firm to fail or to refer the matter to another prosecuting authority. The FCA considers that the FCA Handbook already contains enough guidance on the standards expected of senior managers. The FCA guidance does not include guidance on the presumption of responsibility for senior managers because the FCA intends to wait for the outcome of the Parliamentary debate on whether to approve the Government's proposal to replace the presumption of responsibility with a duty of responsibility.
View the guidance.
View our client note on the Government's proposals. -
US Commodity Futures Trading Commision Issues Extension of No-Action Relief from Certain Recordkeeping Requirements
12/08/2015
The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight and Division of Market Oversight issued a no-action letter extending relief previously issued in CFTC Staff Letter No. 14-147. CFTC Staff Letter No. 14-147, which was set to expire on December 31, 2015, provides that commodity trading advisers that are registered with the CFTC, and are members of designated contract markets or swap execution facilities, are not required to record oral communications under CFTC Rule 1.35(a). In addition, the no-action letter exempts market participants covered by Regulation 1.35 from having to link records of oral and written communications that lead to the execution of a transaction with any particular transaction. The extended relief will continue until the effective date of any CFTC action with respect to the CFTC’s pending proposal to amend Rule 1.35(a).
View CFTC Staff Letter No. 14-147.TOPIC : Derivatives -
US Federal Deposit Insurance Corporation Chairman and US Comptroller of the Currency Delivers Remarks to US House of Representatives Financial Services Committee Discussing Recent Developments by the US Financial Stability Oversight Council in Addressing Systemic Risk
12/08/2015
The Chairman of the FDIC, Martin J. Gruenberg and the Comptroller of the Currency, Thomas J. Curry, testified before the Committee on Financial Services in the US House of Representatives on the progress achieved by the US Financial Stability Oversight Council in fulfilling its mandate. Both Chairman Gruenberg and Comptroller Curry discussed the actions taken by the FSOC toward (i) identifying risks to financial stability arising from entities designated as systemically important financial institutions; and (ii) identifying and addressing systemic risk in the US financial system. On the issue of SIFI designation, both Chairman Gruenberg and Comptroller Curry noted the final rule and guidance issued by the FSOC, setting forth the formal process used by the FSOC in making such a determination. Comptroller Curry noted further the final rule and interpretive guidance issued by the FSOC for identifying and designating systemically important financial market utilities.
On the issue of identifying and addressing systemic risk, Chairman Gruenberg pointed to the FSOC Annual Reports, which provides the basis for analysis of potential emerging risks to US financial stability.
View the full text of Chairman Gruenberg’s testimony.
View the full text of Comptroller Curry’s written testimony.TOPIC : Financial Market Infrastructure -
European Banking Authority Consults on Strong Customer Authentication and Secure Communication under the Revised Payment Services Directive
12/08/2015
The European Banking Authority published a discussion paper on strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2), which is expected to enter into force in January 2016 and apply from January 2018. Under PSD2, the EBA must deliver Regulatory Technical Standards on strong customer authentication and secure communication by January 2017. The aims of these standards are to enhance consumer protection, promote innovation and improve the security of payment services across the EU. The draft RTS, once developed in conjunction with the European Central Bank, will set out: (i) the requirements for strong customer authentication; (ii) the exemptions from these requirements; (iii) measures that would protect security credentials of users; (iv) requirements for communications that are common and secure; and (v) security measures between the various types of providers in the payments sector. Comments are due by February 8, 2016.
View the consultation paper. -
UK Payment Systems Regulator Press Release on Card Schemes Subject to Domestic Interchange Fee Caps
12/08/2015
The UK Payment Systems Regulator issued a press release on the provisional determination of card schemes that are subject to domestic interchange fee caps in the UK under the EU Regulation on Interchange Fees for Card-Based Payment Transactions. The IFR introduces caps on interchange fees for debit and credit card transactions where the issuer and acquirer are both located in the EEA. The caps became applicable on December 9, 2015. The IFR applies to the following payment card schemes: MasterCard, Visa Europe, American Express, Diners Club International, JCB International and Union Pay International. Following the responses to the PSR's information request published in November 2015 on the value of UK domestic debit and credit card transactions, and the possibility of American Express potentially qualifying for an exemption from the interchange fee caps on domestic transactions, the PSR's provisional conclusion is that the market share of American Express is above the 3% threshold and American Express and any payment service providers participating in the American Express Scheme must comply with the interchange fee caps for UK domestic transactions. The PSR will issue its final guidance as well as an announcement to specify the schemes that will be exempt from the domestic interchange fee caps for the period to 31 March 2016 at an unspecified later date.
View the press release. -
UK Government Consults on Implementation of Central Securities Depositories Regulation
12/08/2015
HM Treasury published a consultation on the implementation of the Central Securities Depositories Regulation. The CSDR introduces common standards for settlements across the EU, such as the harmonization of the rules governing central securities depositories which operate the infrastructures enabling settlement, and the timing of securities settlement in the EU. The consultation seeks views on proposed changes to domestic legislation so that provisions of domestic law which overlap with the CSDR are disapplied and changes and enforcement powers are provided for. The CSDR will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities. Certain provisions will only apply from the date of entry into force of any delegated acts adopted by the Commission under the CSDR.
View the consultation.TOPIC : Financial Market Infrastructure -
European Banking Authority Draft Implementing Technical Standards Amending Regulation on Supervisory Reporting of Institutions and Financial Reporting
12/08/2015
The European Banking Authority published Draft Implementing Technical Standards amending the Implementing Regulation on the supervisory reporting of institutions with regard to financial reporting (known as FINREP). This follows on from the changes made to the International Accounting Standards that were issued in July 2014. The new standards supersede the reporting standard for financial instruments in force in the EU since 2005 and change the way that financial instruments are accounted for. The changes require significant amendments to the FINREP reporting templates and instructions. The new standards will apply to: (i) banks that are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards; (ii) banks that are required to use the IFRS for the determination of own funds; and (iii) certain investment firms. Comments are due by March 8, 2016.
View the consultation and related documents. -
UK Regulator Policy Statement on Implementation of UK Leverage Ratio Framework
12/07/2015
The Prudential Regulation Authority published a policy statement on the implementation of the UK's Leverage Ratio Framework, providing feedback to responses to its previous consultation paper. The Financial Policy Committee directed the PRA, on July 1, 2015, to implement a UK LRF applying: (i) a minimum leverage requirement of 3% to major UK banks and building societies on a consolidated basis; (ii) a supplementary Leverage Ratio Buffer of 35%; and (iii) a countercyclical LRB of 35% of a firm’s institution-specific countercyclical capital buffer rate. The PRA’s policy statement applies to PRA-regulated banks and building societies with retail deposits of £50 billion or more. The PRA is implementing the FPC's requirements as proposed, except that it is extending its proposed transition period for daily averaged leveraged ratio requirements by 12 months, ending on December 31, 2017, while maintaining the 12 month transitional period for implementing the daily averaging reporting requirement. This would allow firms additional time to improve the comparability and accuracy of averaged numbers without compromising the monitoring of the UK leverage framework. The PRA has also published supervisory statements on the UK leverage ratio, instructions for completing data items and on the capital requirements for major UK banks and building societies.
View the policy statement and supervisory statements. -
Financial Stability Board Progress Report on Principles and Recommendations for Enhancing Risk Disclosures of Banks
12/07/2015
The Financial Stability Board published a progress report from the Enhanced Disclosure Task Force on the implementation of the EDTF's recommendations for enhancing risk disclosures of banks. The report, which covers 40 global or domestic systemically important banks, includes updates based on 2014 annual reports as well as self-assessments by banks and assessments made by users of financial disclosures. The report states that the self-assessments provided by banks show disclosure of 82% of the information recommended by the EDTF. This represents an increase of 7% from the previous year. The report also states that there are still significant opportunities for banks to improve credit risk disclosures and that credit risk disclosures vary significantly across different countries, with UK banks having the highest implementation rates.
View the report. -
European Union Agency for Network and Information Security Reports on the Secure Use of Cloud Computing in the Finance Sector
12/07/2015
The European Union Agency for Network and Information Security published a report on the secure use of cloud computing in the finance sector. ENISA makes recommendations to financial institutions, national regulators as well as cloud service providers that aim to facilitate the secure adoption of cloud services in the finance sector. According to ENISA, the following are key issues that are hampering the adoption of cloud services by financial institutions: (i) financial institutions and their national regulators are unconvinced about the security benefits of cloud computing even though security is considered very important by CSPs and risk assessments have been carried out by various expert bodies, including ENISA; (ii) lack of detailed guidance on the relevance of national regulations for cloud computing; and (iii) guidance from national regulators on meeting regulatory requirements when adopting cloud computing needs to be further developed. ENISA makes several recommendations, including: (i) national regulators, financial institutions and CSPs should develop effective communication and collaboration to assist the cloud market to evolve quicker; (ii) financial institutions should develop a cloud computing strategy, adopting a risk-based approach to moving to the cloud; (iii) CSPs should work to increase the level of transparency about cloud offerings for financial institutions and their regulators; and (iv) the European Commission, European Agencies and industry bodies should work together to improve the understanding of cloud computing.
View the report.TOPIC : Cyber Security -
US Federal Reserve Board Issues Final Rule Providing Information on its Revised Capital Rules for Non-Traditonal Stock Corporations
12/04/2015
The US Board of Governors of the Federal Reserve System issued a final rule clarifying the application of the revised capital framework, originally issued in June 2013, to depository institution holding companies that are organized as non-stock entities, such as limited liability companies and partnerships. The final rule illustrates how capital instruments that are issued by firms that are not organized as traditional stock corporations may qualify as regulatory capital under the revised regulatory capital framework. The final rule, which is substantively similar to the proposed rule issued in December 2014, goes into effect January 1, 2016.
Separately, the final rule notes the Federal Reserve Board’s intention to issue separate regulatory capital rules to clarify how (i) depository institution holding companies that are employee stock ownership plans and (ii) savings and loan holding companies that are personal or family trusts, rather than business trusts, in each case, will be treated under the capital rules.
View the text of the final rule. -
European Supervisory Authorities Discussion Paper on Automation in Financial Advice
12/04/2015
The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published a discussion paper on automation in financial advice. The paper addresses the various ways in which consumers can use automated tools, mainly websites, without human intervention to receive financial guidance. The discussion paper aims to assess what regulatory or supervisory action may be required to mitigate the risks associated with automation whilst still being able to harness its potential benefits. Potential benefits of automation are a decrease in the costs of providing advice, provision of more consistent advice and potentially wider market access for consumers. However, the potential risks include consumers possibly misunderstanding advice provided to them through automated tools, consumers receiving unsuitable advice and the potential for errors in automated tools. The discussion paper seeks views on the ESAs observations on automation in financial advice across EU jurisdictions. Comments on the discussion paper are due by March 4, 2016.
View the discussion paper.TOPIC : Financial Services -
European Commission Closes Antitrust Proceedings against 13 Banks
12/04/2015
The European Commission issued a press release announcing that it has closed antitrust proceedings against all 13 investment banks it was investigating for their alleged involvement in anti-competitive behaviour in the Credit Default Swaps market. The 13 banks in question are Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland and UBS. The Commission alleged that the banks, together with Markit and the International Swaps and Derivatives Association, collectively blocked Deutsche Börse and the Chicago Mercantile Exchange from entering the CDS market to protect their revenues from OTC trading. According to the Commission's preliminary findings, the banks instructed Markit and ISDA to license Deutsche Börse and CME only for OTC trading of CDS and not for exchange trading. The Commission concluded that the evidence collected from the parties, as well as additional documents obtained through further fact-finding and a hearing that took place in May 2014, was not sufficiently conclusive to confirm its concerns. The closure of the proceedings against the banks does not impact the Commission's antitrust investigations in relation to Markit and ISDA, which are still on-going.
View the press release.TOPIC : Enforcement -
US Board of Governors of the Federal Reserve System Vice Chairman Delivers Speech Regarding Financial Stability and Shadow Banks
12/03/2015
US Federal Reserve Board Vice Chairman, Stanley Fischer, delivered remarks at the “Financial Stability: Policy Analysis and Data Needs” 2015 Financial Stability Conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. In his speech, Mr. Fischer discussed vulnerabilities of the US financial system and risks posed by shadow banking. While he praised steps taken by banking regulators to strengthen financial stability generally, including requirements for more and higher-quality capital and other loss-absorbing capacity for banks, liquidity buffers and stress testing for banks, new margin requirements for uncleared derivatives transactions, mandated clearing of certain derivatives to central counterparties, and the designation of systemically important nonbank financial institutions, Mr. Fischer still believes that regulators’ views of developments in the shadow banking sector remain incomplete. Mr. Fischer noted that the lack of data available regarding nonbank financial institutions can impair the development of regulations in this sector and thereby pose a threat to the financial system. He calls for policymakers to improve data collection efforts and focus on modeling interconnectedness between shadow banking, banks and the larger financial system in order to better understand the interdependencies between the banking system and nonbank financial institutions.
View Mr. Fischer’s speech.TOPIC : Shadow Banking -
US Office of the Comptroller of the Currency Issues Updated Guidance Regarding Risk Assessment System
12/03/2015
The US Office of the Comptroller of the Currency issued updated guidance regarding its risk assessment system. Specifically, the updated guidance (i) clarifies the relationship between the RAS and CAMELS; (ii) revises the definition of banking risk in order to apply across all risk categories, and broadens the concept of risk to include potential impacts from losses, reduced earning, and market value of equity; (iii) expands the “quality of risk management” assessment to include a new category of “insufficient” between satisfactory and weak in order to better categorize and communicate concerns; and (iv) expands the assessment of strategic and reputation risks to include both quantity of risk and quality of risk management.
View the text of the OCC press release.TOPIC : Financial Market Infrastructure -
Payment Systems Regulator Consultation on European Interchange Fee Regulation
12/02/2015
The Payment Systems Regulator published a consultation paper on the application of the Interchange Fee Regulation in the UK. The European Regulation which was published in the Official Journal of the European Union on May 19, 2015 is directly applicable in the UK. The Regulation introduces caps on interchange fees on debit and credit card transactions where the issuer and acquirer are both located in the EEA. The consultation, which will be conducted in two phases, seeks views on how the monitoring of compliance with the IFR provisions should be approached. The PSR has therefore published draft guidance alongside the consultation paper, setting out the proposed approach to the provisions of the IFR that come into force on December 9, 2015. The second phase of the consultation will follow in due course and will cover the remaining provisions that come into force on June 9, 2016. Comments on the consultation paper are due by January 29, 2016.
View the consultation paper.
View the draft guidance.TOPIC : Financial Services -
European Banking Authority Reports on Administrative Penalties Published on an Anonymous Basis
12/02/2015
The European Banking Authority published a report on the administrative penalties for breach of national law implementing the Capital Requirements Directive imposed by Member States and published on an anonymous basis. Under the CRD, Member States must publish details of any administrative penalties imposed for breach of the relevant national law except in certain circumstances where the CRD allows the publication to be anonymous. The EBA is required to report on any divergences between member states in their approach to the publication of penalties on an anonymous basis and in the duration of the publication under national law. The EBA makes the following recommendations: (i) the penalties should be published on a dedicated part of the website to enhance accessibility; (ii) the decision should also be published in English or a summary thereof; and (iii) that the grounds for deciding to publish a decision on an anonymous basis should be disclosed, where appropriate.
View the report. -
New York State Department of Financial Services Proposes New Anti-Terrorism and Anti-Money Laundering Regulation
12/01/2015
The New York State Department of Financial Services proposed a new anti-terrorism and anti-money laundering regulation, known as the Transaction Monitoring and Filtering Program regulation. The main requirements of the proposed regulation include maintenance by each regulated institution of (i) a transaction monitoring program for the purpose of monitoring transactions after their execution for potential BSA/AML violations and suspicious activity reporting and (ii) a watch list filtering program to prevent transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists. The proposed regulation sets forth additional minimum requirements for each institution’s Transaction Monitoring and Filtering Program and also includes an annual certification requirement, modeled on Sarbanes-Oxley, that senior financial executives must certify that their institutions have necessary systems in place to identify and prevent illicit transactions. The regulation will published in the New York State Register, commencing a 45-day notice and comment period.
View the press release.
View the proposed regulation.TOPIC : Financial Services -
Bank of England Identifies Main Current Risks in UK Financial System
12/01/2015
The Bank of England published its Financial Stability Report in which the Financial Policy Committee explains the key risks affecting the UK financial system. The report states that UK banks are now more resilient than they were before the global financial crisis with the result that they are now more willing to make credit available. Risks relating to Greece and its financing needs have fallen significantly since publication of the Bank of England’s Financial Stability Report in July 2015. However, risks originating from advanced economies have moved to emerging market economies and asset prices are deemed to be vulnerable to a crystallization of risks in emerging markets. The FPC states that it is not currently seeking further structural increases in capital requirements for the system as a whole and is also maintaining the UK countercyclical capital buffer rate at 0%. With regards to effective arrangements for bank resolution, the FPC deems that an effective resolution regime has been established in the UK, in part, through ring-fencing, and that new requirements for total loss-absorbing capacity for global systematically important banks will ensure that banks have liabilities that can absorb losses and are able to recapitalize banks in resolution. The report also states that cyber risk continues to be a threat to the UK financial system.
View the report. -
First EU Clearing Obligation To Apply from June 2016
12/01/2015
A Delegated Regulation which gives effect to the EU clearing obligation for Interest Rate Swaps was published in the Official Journal of the European Union. Under the Delegated Regulation, fixed-to-float IRS, known as plain vanilla IRS derivatives, float-to-float swaps, known as basis swaps, forward rate agreements and overnight index swaps denominated in euro, pounds sterling, Japanese yen or US dollars and entered into with an EU counterparty must be cleared through a CCP. The obligation will be phased in according to counterparty type to allow market participants time to determine if the obligation applies to them and set up procedures to ensure compliance: (i) from June 21, 2016: clearing members for at least one of the relevant classes of IRS of at least one CCP authorized or recognized to clear one of those classes; (ii) December 21, 2016: FCs and alternative investment funds belonging to a group whose group aggregate month end average of outstanding notional amount of non-centrally cleared derivatives for the three months following the Delegated Regulation entering into force is above €8 billion; (iii) from June 21, 2017: FCs and AIFs not in either category (i) or (ii) above; and (iii) from December 21, 2018: NFCs subject to the clearing obligation that are not in any of the above categories.
View the Regulation.
You may wish to read our updated client note which is available here.TOPIC : Derivatives -
European Supervisory Authorities Publish List of Identified Financial Conglomerates
12/01/2015
The Joint Committee of the European Supervisory Authorities published a list of identified Financial Conglomerates for 2015. The list indicates that: (i) 78 FCs' heads of group are located in a EU or EEA country; (ii) one FC head of group is located in Australia; (iii) one FC head of group is located in Switzerland; and (iv) two FCs' heads of group are located in the United States. The list is updated and published annually by the ESAs and shows figures as at 31 December 2014.
View the list.TOPIC : Financial Services -
European Supervisory Authorities' Term of Office for Chair and Executive Directors Extended
12/01/2015
The European Parliament issued a press release announcing an extension to the terms of office for the current Chairpersons of the three European Supervisory Authorities. Mr Andrea Enria will enter his second term as Chair of the European Banking Authority, as will Mr Stephen Maijoor as Chair for the European Securities and Markets Authority and Mr Gabriel Bernardino for the European Insurance and Occupational Pensions Authority. All three terms have been extended by five years. The terms of office for the current ESAs' executive directors Mr Adam Farkas and Ms Verena Ross have also been extended.
View the press release.TOPIC : People -
European Central Bank Decision on Exclusion of Staff Members from Presumption of Having a Material Impact on Risk Profile of a Supervised Bank Published in Official Journal of the European Union
12/01/2015
The Decision of the European Central Bank on the procedure to exclude staff members from the presumption of having a material impact on a supervised credit institution's risk profile was published in the Official Journal of the European Union. The Decision relates to the remuneration requirements specified in the Capital Requirements Directive IV. The Decision sets out the procedure that supervised credit institutions should follow for the notification and application to the ECB to exclude members of staff or categories of staff from the presumption of having a material impact on their risk profile. The Decision sets out: (i) the general information required and to be provided to the ECB; (ii) the documentation required to show that a business unit is not material; (iii) the documentation required to show that a staff member's professional activities have no material impact on the risk profile of a material business unit; (iv) the additional documentation required to substantiate applications for staff members awarded a total remuneration of €1,000,000 or more; (v) the period for filing notifications; and (vi) details related to the assessment process of the ECB. The decision entered into force on December 2, 2015.
View the Decision.TOPIC : Compensation -
UK Banking System Stress Test Results Published
12/01/2015
The Bank of England published the results of the 2015 UK banking system stress tests. The 2015 stress test was the BoE's second concurrent stress test of the UK banking system and covered seven major UK banks and building societies. The BoE's Financial Policy Committee will not be taking any macroprudential actions on bank capital in response to the results, considering that the banking system is sufficiently capitalised to support the real economy in a severe global stress scenario. The Prudential Regulation Authority determined that the stress test showed that five of the seven participating firms did not have any capital inadequacies (Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society and Santander UK) but that both The Royal Bank of Scotland Group and Standard Chartered had not met their individual capital requirements. However, the PRA had not required those two firms to submit revised capital plans on the basis that certain steps had already been taken by the firms. As per the BoE's Approach to Stress Testing the UK Banking System published in October 2015, the BoE will run its first annual cyclical scenario concurrent stress test in 2015, the results for which will be published in Q4 2016.
View the results. -
US Federal Reserve Board Approves Final Rule Related to Emergency Lending Procedures
11/30/2015
The US Federal Reserve Board approved a final rule detailing its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act limited the Federal Reserve Board’s emergency lending authority to programs and facilities with “broad-based eligibility” established with the approval of the US Secretary of Treasury and prohibited lending to entities that are insolvent, among other things. The final rule clarifies the Federal Reserve Board’s implementation of these and other statutory requirements. Some of the changes from the proposed rule include additional limitations to the definition of “broad-based” to support the revisions made by the Dodd-Frank Act that a program should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution. The final rule also broadens the definition of insolvency to cover situations where a company has not yet entered formal bankruptcy or resolution proceedings, but may be insolvent from an accounting or other perspective. Under the final rule, all lending programs under Section 13(3) must be approved by the Secretary of the Treasury, though the Federal Reserve Board must still find that “unusual and exigent circumstances” exist as a pre-condition to authorizing emergency credit programs.
View the press release.
View the final rule.TOPIC : Recovery & Resolution -
Financial Action Task Force Report on Money Laundering through Physical Transportation of Cash
11/30/2015
The Financial Action Task Force published a report on money laundering through physical transportation of cash. The report, dated October 2015, analyzes input received from over 60 countries which identifies methods used by criminals to transport funds across borders. The report sets out real examples illustrating such methods and identifies the challenges that national law enforcement entities face to discover money laundering via the physical transportation of cash.
View the report. -
European Securities and Markets Authority Final Report on Guidelines for Complex Debt Instruments and Structured Deposits
11/30/2015
The European Securities and Markets Authority published a final report setting out Guidelines for complex debt instruments and structured deposits under the Markets in Financial Instruments Directive II. MiFID II allows investment firms, under certain circumstances only, to provide clients with investment services that consist of execution, reception and transmission of orders only (known as execution-only orders), without the investment firm having to obtain any relevant client information to assess whether the service or product provided is appropriate for a particular client. Such products must be non-complex and ESMA has developed Guidelines to identify the complex products for which execution-only services may not be provided. The Guidelines appear in Annex V of the report and set out a non-exhaustive list of examples of such products. The final report also includes feedback received by ESMA on its earlier consultation launched in March 2015. The Guidelines will be translated into all official languages of the EU and national regulators will have two months from the date of publication of the translated versions to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
View the Guidelines.TOPIC : MiFID II -
UK Government Policy Paper on Boosting Competition in the UK
11/30/2015
HM Treasury published a policy paper on boosting competition in the UK which, amongst other things, states that the UK government aims to boost competition with the establishment of a New Bank Start-Up Unit which will make it easier for new banks to enter the market. The new unit will be launched by the Prudential Regulation Authority and Financial Conduct Authority on January, 20 2016 and will provide firms with named case officers at both regulators that will be able to assist new banks wishing to enter the market and through the early stages of authorization.
View the policy paper.TOPIC : Financial Services -
UK Serious Fraud Office Agrees First UK Deferred Prosecution Agreement for Bribery Failings
11/30/2015
The UK Serious Fraud Office announced that its application for a Deferred Prosecution Agreement with Standard Bank Plc had been approved by Lord Justice Leveson at Southwark Crown Court. This is the first time that a DPA has been used in the UK. Standard Bank was subject to an indictment for failure to prevent bribery in contravention of the UK Bribery Act 2010. Under the terms of the DPA, the indictment has been suspended and Standard Bank must pay USD25.2 million (made up of disgorgement profits and a financial penalty) to the SFO and USD7 million to the Government of Tanzania. The bank has also agreed to cooperate fully with the SFO and will be subject to an independent review of its anti-bribery and corruption policies and procedures. A separate penalty of USD4.2 million has been agreed between the US Securities and Exchange Commission for separate related conduct.
View the SFO announcement and the DPA.TOPIC : Enforcement -
Committee on Payments and Market Infrastructures and International Organization of Securities Commissions Report on Implementation of Principles for Financial Market Infrastructures
11/30/2015
The Committee on Payments and Market Infrastructures and International Organization of Securities Commissions published a report on the implementation of the Principles for Financial Market Infrastructures. The Principles are the international standards for payment, clearing and settlement systems as well as trade repositories aiming to ensure that the infrastructure supporting global financial markets is resilient enough to endure financial shock. The Principles consist of five general responsibilities for the relevant national regulators for FMIs: (i) regulation, supervision and oversight of FMIs; (ii) regulatory, supervisory and oversight powers and resources; (iii) disclosure of policies relating to FMIs; (iv) application of the Principles for FMIs; and (v) cooperation with other regulators. The report covers the implementation of the Principles in 28 participating jurisdictions and states that most jurisdictions have achieved a high level of observance of the responsibilities: 16 jurisdictions fully observed all responsibilities for all FMI types and two jurisdictions either fully or broadly observed each of the five responsibilities for all FMI types. Annex 3 of the report sets out the findings for each jurisdiction.
View the report.TOPIC : Financial Market Infrastructure -
European Commission Announces Date of Single Resolution Fund Becoming Fully Operational
11/30/2015
The Council of the European Union published a press release announcing that a sufficient number of EU Member States have ratified an Intergovernmental Agreement (known as an IGA) on the Single Resolution Fund. This means that the Single Resolution Mechanism, which aims to ensure the orderly resolution of failing banks without any recourse to taxpayers' funds, will enter into force on January 1, 2016, as envisaged. The full resolution powers of the Single Resolution Board will therefore apply as of this date and the SRF will begin to be credited with funds from national resolution funds in the euro area. The IGA sits alongside the SRM Regulation and, as a treaty, required the ratification of national parliaments by November 30, 2015.
View the press release.TOPIC : Recovery & Resolution -
European Commission Publishes Proposed Prospectus Regulation
11/30/2015
The European Commission published a proposed Prospectus Regulation as part of the EU Capital Markets Union initiative. The proposed Prospectus Regulation would replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The key changes include: (i) increasing the threshold for when a prospectus would be required for offers with a total consideration from €100,000 to €500,000; (ii) removing the option for Member States to require a prospectus below that minimum threshold; (iii) giving Member States the option to give an exemption from the prospectus requirement for capital raisings with a total consideration of between €500,000 and €10 million for domestic offers for which no passport notification to other Member States is required; (iv) aligning the definition of SMEs with that under the new Markets in Financial Instruments Directive (MiFID II) so that the SME-specific regime is also available to SMEs with an average market capitalisation of less than €200 million, (increased from €100 million) not listed on a regulated market; (v) creating a system for frequent issuers using an annual "Universal Registration Document"; (vi) providing for a simplified disclosure regime for secondary issuances by listed firms; and (vii) establishing a single access point, provided by the European Securities and Markets Authority, for all prospectuses approved within the European Economic Area, although approvals will remain the responsibility of national listing agencies.
View the Proposed Regulation.TOPIC : Securities -
Potential Delay to MiFID II Entering into Force
11/27/2015
The European Parliament issued a press release announcing that it has informed the European Commission that it is ready to accept a one-year delay to MiFID II entering into force. The European Parliament also published two letters addressed to Lord Jonathan Hill, Commissioner for Financial Stability and the Commission, on the same date. The first letter states that such a delay would be subject to two conditions. The Commission would have to: (i) finalize the implementing legislation as soon as possible, taking into account the European Parliament’s comments on content (which are set out in the European Parliament's second letter); and (ii) regularly report to the European Parliament on the progress related to MiFID II implementation, timelines and key objectives.
View the European Parliament's press release.
View the first letter to Commissioner Hill.
View the second letter to Commissioner Hill.TOPIC : MiFID II -
European Banking Authority Publishes Assessment on Pillar 3 Reports for 17 European Banks
11/27/2015
The European Banking Authority published its first annual assessment on the Pillar 3 reports of a sample of European banks for the 2014 financial year. The report evaluates the compliance of banks against the disclosure requirements set out in the Capital Requirements Regulation. The report states there has been an increase in the quality of disclosures, in particular relating to clear disclosure indices and information on risk model parameters. Areas that could be improved further include: (i) the breakdown of capital requirements by exposure classes; (ii) the breakdown of internal ratings-based risk parameters by exposures and geography; and (iii) the assessment of the status, remuneration and asset encumbrance of global systemically important institutions. The report also includes a comparison of the revised Basel Pillar 3 requirements published by the Basel Committee on Banking Supervision in January 2015 against the current disclosure requirements set out in the CRR.
View the Report. -
UK Prudential Regulator Fines Firm for Outsourcing Failures Impacting its Capital Position
11/27/2015
The Prudential Regulation Authority brought enforcement action against R. Raphael & Sons Plc for failings related to outsourcing certain functions to other group companies. Raphaels provides consumer finance facilities, offers savings accounts and owns ATMs around the UK which are available for public use. Under a joint venture agreement, two other group companies were to provide various aspects of Raphaels' finance function, including payment of third parties on behalf of Raphaels and replenishment of cash stocks in the ATMs. A written agreement on the outsourced functions was not entered into until 21 months after the provision of the outsourced services began. During the relevant time, various employees of one of the group companies improperly transferred funds without the knowledge or consent of Raphaels. The improper transfers impacted Raphaels' regulatory capital in that it had large exposures to one group company. Unaware of the improper transfers, Raphaels submitted inaccurate regulatory returns to the regulators and failed to have an accurate understanding of its capital position. The PRA fined Raphaels for breach of Principle 3 of the PRA's Principles of Business which state that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, imposing a financial penalty of £1,278,165.
View the PRA's Final Notice.TOPIC : Enforcement -
EU Regulation on Closely Correlated Currencies Published in Official Journal of the European Union
11/27/2015
The Regulation on Implementing Technical Standards for closely correlated currencies as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. Closely correlated currencies are currencies that meet specific criteria set out in the CRR, which states that firms may provide lower own funds requirements against foreign exchange risk for positions in relevant closely correlated currencies. The pairs of currencies that meet such criteria are set out in the Annex to the Regulation. The list of closely correlated currencies will be updated yearly.
View the Regulation. -
US Board of Governors of the Federal Reserve System Finalizes Rule on Capital Plan and Stress Testing
11/25/2015
The US Board of Governors of the Federal Reserve System approved a final rule to modify its capital plan and stress testing rules, which would take effect for the 2016 capital plan and stress testing cycle. Largely similar to the proposed rule, the final rule modifies the timing for certain regulatory requirements that have not yet been incorporated into the capital plan and stress testing framework. Firms subject to the supplementary leverage ratio would begin to incorporate it into their 2017 capital plan and stress testing cycle. All firms would continue to use the generally applicable risk-based capital framework for stress-testing exercises. However, firms with at least $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures would continue to be subject to the advanced approaches risk-based capital framework for their regulatory capital ratios. The common equity tier 1 capital requirement in the Federal Reserve Board’s revised regulatory capital rules will be fully phased in over the nine-quarter planning horizon of the 2016 capital plan and stress testing cycles. The final rule eliminates the requirement for firms to calculate a tier 1 common ratio.
View the press release.
View the final rule. -
UK Regulator Fines Barclays Bank for Financial Crime Failings
11/25/2015
The Financial Conduct Authority fined Barclays Bank plc £72,069,400 for failing to minimise financial crime risks appropriately. The failings of the bank relate to a transaction worth around £1.88 billion that was arranged and executed for ultra-high net worth clients that were politically exposed and should therefore have been subject to enhanced due diligence checks. The FCA found that a lower level of due diligence was undertaken by Barclays for those clients and that Barclays had not followed its own standard procedures, going to unacceptable lengths to accommodate the clients in question. Whilst the FCA did not specifically find that the transaction itself involved financial crime, this is the largest fine to be imposed by the FCA (and its predecessor, the Financial Services Authority) for failing to minimise financial crime risks.
View the FCA notice.TOPIC : Enforcement -
US Commodity Futures Trading Commission Unanimously Approves Proposed Rules on Automated Trading
11/24/2015
The US Commodity Futures Trading Commission approved proposed rules, known collectively as Regulation Automated Trading (or otherwise known as Regulation AT), that aim to implement risk controls, transparency measures, and other safeguards to enhance regulation of automated trading on US Designated Contract Markets. The proposed risk controls, including maximum order message and size parameters, standards for development, testing and monitoring of algorithmic trading systems, among other requirements, would apply to: (i) market participants using algorithmic trading systems, referred to as “AT Persons” in the proposed rules; (ii) clearing member Futures Commission Merchants with respect to their AT Person customers; and (iii) DCMs executing AT Person orders. Regulation AT would require submission of reports on risk controls, as well as maintenance of books and records regarding such risk controls and other algorithmic trading procedures, by AT Persons and clearing member FCMs for review by DCMs. The proposed rules would also require registration of persons engaged in significant proprietary algorithmic trading in key products through direct electronic access to a DCM who are not currently registered with the CFTC. Regulation AT is intended to include greater transparency around DCM trade matching platforms and promote use of self-trade prevention tools by market participants on DCMs.
View the press release.
View the proposed rulemaking.TOPIC : Derivatives -
US Federal Reserve Board Announces Implementation of Several Recommendations to Enhance Supervision of Large and Complex Banking Organizations
11/24/2015
The US Federal Reserve Board announced the implementation of several recommendations to enhance the supervision of large and complex banking organizations. These recommendations followed a comprehensive review of Reserve Bank procedures for supporting sound supervisory decisions as well for resolving differing staff opinions related to the supervision of large and complex organizations. Among other issues, the review identified inconsistencies in practices by Reserve Banks as well as in documentation generated by supervisory teams. The review also noted that a formal process for raising divergent staff views had not been established. As a result, the Operating Committee of the Large Institution Supervision Coordinating Committee (known as LISCC), which coordinates the supervision of the largest, most systemically important financial institutions in the US, will oversee the establishment of minimum operating and documentation standards for all supervisory activities. The Federal Reserve System will also work to develop policies and practices to encourage the exchange of differing staff views on all supervisory matters. Additionally, the Federal Reserve System will be developing a curriculum specifically designed for the supervision of large financial institutions for its examiner commissioning and training program.
View the press release.
View the review. -
US Federal Reserve Board Proposes Rule Requiring Large Banking Organizations to Publicly Disclose Several Measures of their Liquidity Profile
11/24/2015
The US Federal Reserve Board issued a proposed rule that would require large banking organizations to publicly disclose certain measures of their liquidity profile, including, for the first time, quantitative liquidity risk metrics. The proposed rule would require large banking organizations to disclose, on a quarterly basis, their consolidated Liquidity Coverage Ratios based on averages over the prior quarter. In addition, firms would have to disclose their consolidated High-Quality Liquid Asset amounts, organized by HQLA category, as well as their projected net cash outflow amounts, including retail inflows and outflows, derivatives inflows and outflows as well as various other measures. The required disclosures are based generally on a template approved by the Basel Committee on Banking Supervision with enhancements to reflect US implementation of LCR requirements.
View the press release.
View the proposed rule. -
European Banking Authority Publishes Results of 2015 EU-wide Transparency Exercise
11/24/2015
The European Banking Authority published a report setting out the results of its 2015 EU-wide transparency exercise. The results provide data on capital positions, risk exposure amounts and asset quality on a bank-by-bank basis for 105 banks from 21 EEA countries. The report is based on existing supervisory reporting data submitted to the EBA and shows that capital levels have strengthened through banks raising additional equity and retaining earnings. The report also shows that quality of assets and levels of profitability have improved since 2014 and that there has been a general increase in the resilience of the EU banking sector since December 2014.
View the results.TOPIC : Financial Services -
European Commission Proposal on Establishment of European Deposit Insurance Scheme
11/24/2015
The European Commission published a legislative proposal together with a press release on the establishment of a new European Deposit Insurance Scheme. The EDIS would be a euro area-wide insurance scheme for bank deposits, strengthening the EU's economic and monetary union, setting out measures to reduce risk in the banking sector and amending the Single Resolution Mechanism Regulation. The scheme would initially consist of a reinsurance scheme for participating national Deposit Guarantee Schemes in the first three years, after which co-insurance schemes would be put into place for four years, whereby contributions to the EDIS would increase. The EDIS would be funded by contributions made by banks established in the Single Supervisory Mechanism and a full European scheme would be in place by 2024. National schemes would only be able to access EDIS funds if clear conditions are met. The EDIS would encourage national schemes to manage any possible risks cautiously and would be mandatory for member states covered by the SSM. The scheme would also be open to those member states who are not covered by the SSM but who would like to join the Banking Union. National DGSs already provide protection at a national level. The EDIC would back these with a common European scheme.
View the press release.
View the legislative proposal. -
Committee on Payments and Market Infrastructures and International Organization of Securities Commissions Consultation on Cyber Resilience
11/24/2015
The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions published a consultation paper related to guidance on cyber resilience for Financial Market Infrastructures. The guidance aims to encourage FMIs to pre-empt and respond rapidly to cyber-attacks and deals with five primary risk management categories that are significant for the cyber resilience of FMIs: (i) governance; (ii) identification; (iii) protection; (iv) detection; and (v) response and recovery. The guidance states that continuous improvements to systems must be made to maximize cyber resilience, that it is imperative for FMIs to resume operations rapidly and safely after a successful cyber-attack and that senior management attention is critical to cyber resilience strategy. Comments on the consultation are due by February 23, 2016.
View the consultation.TOPIC : Cyber Security -
Federal Reserve Bank of New York Executive Vice President Musalem Delivers Remarks on Reform of Banking Culture
11/23/2015
Federal Reserve Bank of New York Executive Vice President Alberto G. Musalem delivered remarks regarding the New York Fed’s initiatives to endorse a positive banking culture. Mr. Musalem explained that the New York Fed’s interest in reforming culture is a product of events since the financial crisis, including recent incidents of misconduct such as the manipulation of LIBOR. In his speech, Mr. Musalem offered three messages to the banking industry: (i) cultural problems are the banking industry’s responsibility to solve; (ii) a bank’s implicit norms – especially those reinforced through incentives – must align with the public purpose of banking; and (iii) the aim of reforming bank culture should be to restore trust. Mr. Musalem delivered his remarks at an event hosted by the Goethe University of Frankfurt’s Institute for Law and Finance titled “Towards a New Age of Responsibility in Banking and Finance: Getting the Culture and the Ethics Right.”
View the speech.TOPIC : Conduct & Culture -
Committee on Payments and Market Infrastructures Reports on Digital Currencies
11/23/2015
The Committee on Payments and Market Infrastructures published a report on digital currencies. The report aims to address the various impacts that digital currencies may have on financial markets and the wider economy, such as potential disruptions to business models and the creation of new economic interactions. The report, amongst other things, deals with regulatory issues and approaches for digital currencies such as: (i) consumer protection; (ii) prudential and organisational rules for different stakeholders; and (iii) specific operating rules as payment mechanisms. The report states that coordinated approaches for regulation at a global level may be important in addition to ones taken at national level, and lists five possible categories of actions: (i) to highlight the risks towards users and investors and influencing the market through moral suasion; (ii) to regulate specific entities; (iii) to assess whether existing regulatory arrangements can be applied to digital currencies; (iv) to seek a broader approach to regulation, for example, by national regulators making consumer protection arrangements that apply to other payment methods used by consumers also apply to transactions conducted with digital currencies; and (v) national regulators banning the use of digital currencies in their respective jurisdictions.
View the report.TOPIC : Financial Services -
US Regulatory Agencies Issue Two New Volcker Rule FAQs
11/20/2015
The US Federal Reserve Board, Office of the Comptroller of the Currency, FDIC, Securities and Exchange Commission and Commodity Futures Trading Commission (collectively, the Agencies) released two new Frequently Asked Questions in respect of the Volcker Rule. FAQ 19 relates to a banking entity’s residual marketmaking positions following termination of its market-making business. FAQ 20 clarifies the applicability of the Volcker Rule’s so-called “Super 23A” provisions to covered transactions entered into before and after the Volcker Rule’s conformance period. FAQ 19 refers to situations where a banking entity terminates its market-making business and holds residual positions from its prior market-making activities. The FAQ states that the banking entity may hold and dispose of such residual market-making positions, provided that: (i) the banking entity hedges the risks of any such positions in accordance with the requirements of the Volcker Rule’s risk-mitigating hedging exemption; and (ii) the banking entity sells or unwinds the residual market-making positions as soon as commercially practicable. In the event that a banking entity holds residual market-making positions but does not hedge the risks of such positions, the subsequent sales of those residual positions would generally be considered proprietary trading under the Volcker Rule.
View the Volcker FAQs.TOPIC : Bank Structural Reform -
Financial Conduct Authority Proposes Amending its Guidance on Delaying Disclosure of Inside Information
11/20/2015
The Financial Conduct Authority published proposals to amend its guidance on when an issuer can delay disclosure of inside information under the FCA's Disclosure and Transparency Rules. Under the UK market abuse regime, which includes the transposition of the EU Market Abuse Directive, an issuer can delay disclosing inside information to protect its legitimate interest subject to certain conditions being met. FCA guidance on when an issuer might have a legitimate interest states that there are unlikely to be other circumstances where a delay would be justified except in relation to impending developments, the provision of liquidity by a central bank to the issuer or a member of its group and the non-exhaustive list of examples included in the DTR, which are taken from MAD. The FCA is proposing to delete that guidance. As a result of recent case law, stakeholders have highlighted to the FCA that issuers are concerned that more information should be considered inside information than was previously thought to be the case. However, the ability of the issuer to delay disclosure of that information is constrained by the FCA's guidance which goes further than the EU requirements. Under the Market Abuse Regulation, which comes into effect in the UK on July 1, 2016, the European Securities and Markets Authority must issue guidelines on an issuer's legitimate interest, including a non-exhaustive indicative list of examples. The FCA therefore does not intend to define a list of legitimate interests at this time. Responses to the FCA's consultation are due by February 20, 2016.
View the consultation paper. -
Review on Failure of HBOS plc Published By UK Regulators
11/19/2015
The final Review on the failure of HBOS plc was published by the Prudential Regulation Authority and the Financial Conduct Authority. The Review assesses the strategy adopted by HBOS, how HBOS failed (focusing on asset quality, reliance on wholesale funding and capital), the role of management, governance and the culture of HBOS and the Financial Services Authority's (the UK regulator at the time of the failure of HBOS) regulatory approach. The HBOS group was formed by the merger of the former Halifax Building Society and Bank of Scotland. Recommendations include: (i) a bank's Board is responsible for ensuring a firm has a sustainable business model and for embedding the principle of safety and soundness in a firm's culture. The Review notes that directors will have specific accountabilities for this under the Senior Managers Regime from March 7, 2016; (ii) the non-executive directors of a bank must have diverse experience and the capacity to challenge key business issues; (iii) senior managers should proactively seek to identify threats to the safety and soundness of their firm and notify the regulators when issues arise; (iv) regulators must be willing and able to intervene where necessary, free from undue influence; (v) the UK regulators should understand the scope of oversight provided by a local regulator for globally active banks to understand the extent of the reliance that they can place on local regulatory authorities; and (vi) UK regulators should be aware of potential conflicts of interest arising from the composition of their boards.
View the Review and related documents. -
Luxembourg Referred to European Court of Justice for Failure to Implement EU Legislation on Reducing Reliance on Credit Ratings
11/19/2015
The European Commission announced that it had referred Luxembourg to the Court of Justice of the EU for failing to transpose the EU Directive on reducing over-reliance on credit ratings into national legislation. The Directive was due to be transposed by all EU Member States by December 21, 2014. The referral follows a written notice served on Luxembourg by the Commission in January 2015 and an Opinion filed in June 2015. According to the Directive, investors should not overly rely on credit ratings when assessing the risks related to investments made by institutions for occupational retirement provision, Undertakings for the Collective Investment in Transferable Securities and Alternative Investment Funds.
View the announcement. -
European Securities and Markets Authority Will Not Extend Grace Period for Exemption from Providing Collateralized Bank Guarantees
11/19/2015
The European Securities and Markets Authority announced that it was not going to further extend the exemption for non-financial counterparties from the obligation to provide collateralized bank guarantees for their energy derivatives cleared by EU CCPs. Therefore, from March 15, 2016, CCPs authorized under the European Market Infrastructure Regulation must fully collateralize commercial bank guarantees used to cover transactions in derivatives relating to electricity or natural gas produced. Non-financial counterparties have had a three year grace period to ensure that they will be able to comply with the collateral obligations under EMIR which requires CCPs to only accept highly liquid collateral with minimal credit and market risk.
View ESMA's announcement.TOPIC : Derivatives -
Final Report on the Enforcement Actions Following the Failure of HBOS Published
11/19/2015
The final Report into the Financial Services Authority's enforcement actions following the failure of HBOS plc, prepared by Andrew Green Q.C., was published by the Prudential Regulation Authority and the Financial Conduct Authority. The Report assesses the reasonableness of the scope of the FSA's enforcement investigations in relation to the failure of HBOS from October 1, 2008 to September 12, 2012 and concludes that the scope was not reasonable, that the FSA's decision-making process was materially flawed and that the FSA should have conducted a wider investigation or series of investigations into the conduct of the HBOS Corporate Division and Mr Cummings, CEO of the Corporate Division at the relevant time. Recommendations include: (i) the regulators should have a system for pre-referral decision-making through which they identify and record the potential individuals that could be the subject of enforcement action related to an event/s, including reasons. One individual at the regulator/s should be made responsible for the pre-referral decision-making process; (ii) there should be an ongoing dialogue between Supervision and Enforcement, including discussions on the appropriateness of the scope of the investigation and any decisions should be recorded; (iii) the Memorandum of Appointment of Investigators issued to individuals by the regulators should include a summary of the potential breaches and an explanation of the matters that give rise to those alleged breaches; and (iv) the minutes of a regulators' Executive Committee meetings should be subject to review and approval. The Report also recommends that the PRA and FCA consider whether to investigate other former senior managers at HBOS with a view to prohibition proceedings.
View the report. -
US New York State Department of Financial Services Enforcement Order against Barclays
11/18/2015
The New York State Department of Financial Services announced that Barclays will pay an additional $150 million penalty for misconduct related to automated, electronic foreign exchange trading through its “Last Look” system. Barclays was also ordered to terminate its Global Head of Electronic Fixed Income, Currencies and Commodities Automated Flow Trading. This action brings the overall penalty Barclays has paid to NYDFS for foreign exchange enforcement actions to $635 million. Barclays Last Look system was designed to protect Barclays against “toxic order flow” caused by another market maker’s more sophisticated electronic trading system detecting market movement some milliseconds before the Barclays’ systems. As such, Last Look imposed a hold period between its receipt of a customer order and its acceptance and execution of the same in order to allow Barclays’ systems time to properly adjust prices based on such market movement. According to the order, in certain instances Barclays used its Last Look system to automatically reject client orders that would otherwise be unprofitable for the bank due to subsequent price movements during the milliseconds-long hold period. Furthermore, Barclays failed to disclose to clients the reason that the trades were rejected.\
View the press release.
View the order.TOPIC : Enforcement -
US Federal Reserve Presidents Deliver Speeches at The Clearing House Annual Conference
11/18/2015
US Federal Reserve Bank of New York President, William C. Dudley, and US Federal Reserve Bank of Cleveland President, Loretta Mester, delivered speeches at The Clearing House annual conference. Dudley noted that much progress has been made toward eradicating the notion that firms are “too big to fail” but work remains to be done to ensure large institutions will fail in an orderly manner without necessitating taxpayer bailout. He touted the Federal Reserve Board’s recent issuance of a proposed rule to establish long-term debt and total loss-absorbing capacity requirements for US global systemically important banks, but remarked that institutions need to further simplify legal structures in order to ensure that they remain operational in times of stress. Mr. Dudley also justified the Federal Reserve Board’s history of implementing rules that are more restrictive than international standards, citing that the US financial system is typically more complex, thereby requiring greater oversight. Ms. Mester’s speech focused on initiatives aimed at improving the US payment systems speed, efficiency and security. She stressed the importance of collaboration between the Federal Reserve Board and the private-sector industry players in order to foster payment-system improvement. She also discussed the roles of two new task forces created by the Federal Reserve, one focused on faster payments and the other on the security of payments.
View Mr. Dudley’s speech.
View Ms. Mester’s speech.TOPIC : Recovery & Resolution -
US Securities and Exchange Commission Propose to Enhance Transparency and Oversight of Alternative Trading Systems
11/18/2015
The SEC proposed rules that would require Alternative Trading Systems that trade stocks listed on national securities exchanges, including “dark pools”, to make certain detailed disclosures regarding their operations and the activities of their broker-dealer operators and affiliates. The proposed Form ATS-N would, among other things, require disclosure of: (i) information regarding trading by the broker-dealer operator and its affiliates on the ATS; (ii) 7 FINANCIAL REGULATORY DEVELOPMENTS FOCUS November 25, 2015 Issue 44/2015 the types of orders and market data used on the ATS; and (iii) the ATS’ execution and priority procedures. The proposed rules would make Form ATS-N disclosures publicly available on the SEC’s website. The SEC will accept public comment on the proposal for 60 days after its publication in the Federal Register.
View the text of the SEC proposed rule.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Chairman Delivers Speech at The Clearing House Annual Conference
11/18/2015
US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at The Clearing House annual conference regarding progress the FDIC has made in implementing the Dodd-Frank Act’s framework for the orderly failure of large, complex, Systemically Important Financial Institutions. With respect to providing feedback to the largest financial institutions on their living will submissions, the Chairman described certain specific actions that firms have been asked to address in their resolution plans, including requiring firms to place a greater focus on reducing the interconnectedness between legal entities and provide greater detail in the public portions of the resolution plans. He also discussed the progress the FDIC has made in: (i) facilitating the orderly resolution of a SIFI under its Title II Orderly Liquidation Authority; and (ii) cross-border coordination on resolution. The Chairman echoed similar remarks made in his speeches at the Peterson Institute for International Economics in May 2015 and at the FDIC Banking Research Conference in September 2015.
View the speech. -
Basel Committee on Banking Supervision Publishes Interim Impact Analysis on Fundamental Review of Trading Book
11/18/2015
The Basel Committee on Banking Supervision published an interim impact analysis of its fundamental review of the trading book. The analysis used data from 44 banks and assesses the impact of the revisions proposed in previous consultations carried out in 2013 and 2014. The analysis found, amongst other things, that: (i) change in market risk capital charges would produce an increase of 4.7% in the overall Basel III minimum capital requirement; (ii) that such change leads to a 2.3% increase when the bank with the largest value of market risk-weighted assets is excluded from the sample; and (iii) in comparison with the current market risk framework, the standard proposed would result in a weighted average increase of 74% in aggregate market risk capital. The Basel Committee expects to finalize the review before the end of 2015.
View the analysis. -
European Banking Authority Consults on Draft Regulatory Technical Standards for Additional Criteria for Preferential Treatment for Intragroup Liquidity
11/18/2015
The European Banking Authority launched a consultation on draft Regulatory Technical Standards to specify additional criteria for preferential treatment in calculating the Liquidity Coverage Requirement for cross-border intragroup liquidity flows, as required under the Capital Requirements Regulation. The CRR observes that there can at times be a need for intra-group financial support in a case where an institution experiences liquidity difficulties and finds itself under conditions of stress. The draft RTS, amongst other things, specify how liquidity providers and receivers can display a low liquidity risk profile, by for example, a liquidity provider monitoring the liquidity position of the receiver on a daily basis. The draft RTS also detail the binding agreements and commitments that are required for credit and liquidity between group entities. Comments on the consultation are due by January 13, 2016.
View the consultation and draft RTS. -
UK Regulator Launches Asset Management Market Study
11/18/2015
The Financial Conduct Authority launched its market study into asset management by publishing the Terms of Reference for the study. The FCA announced its intention to conduct the study in its 2015/2016 business plan following feedback it received during the wholesale sector competition review. The Terms of Reference state that the FCA will investigate three core areas: (i) how asset managers compete to deliver value; (ii) are asset managers willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA will also be looking at whether there are any barriers to innovation that prevent investors from obtaining better results. The Terms of Reference are not being formally consulted on but the FCA will accept comments received by December 18, 2015 on them and the issues raised. An interim report is expected to be published in summer 2016 setting out preliminary conclusions and possibly remedies to address any identified issues. The final report is expected in early 2017.
View the Terms of Reference.TOPIC : Competition -
Financial Stability Board Publishes Finalized Standards For Global Securities Financing Data Collection
11/18/2015
The Financial Stability Board published its finalized standards and processes for global securities financing data collection and aggregation. The report sets out the data that national regulators are to report as aggregates to the FSB, for financial stability purposes. The standards, amongst other things, define the data elements for repurchase agreements, securities lending and margin lending that national regulators will be asked to report to the FSB. The report also sets out recommendations for national regulators on the collection of data from market participants, so that timely and comprehensive visibility into trends and developments in these markets can be obtained.
View the FSB's standards and processes. -
US Federal Reserve Board Governor Delivers Speech on Nonbank Financial Intermediation
11/17/2015
US Federal Reserve Board Governor, Daniel K. Tarullo, delivered a speech at the Brookings Institution discussing the need to carefully regulate nonbank financial intermediation activities. He emphasized the importance of having a non-uniform, multi-dimensional approach to the regulation of the various forms of nonbank intermediaries, given the “constantly changing and largely unrelated set of intermediation activities pursued by very different types of financial market actors”. He also stated that regulators should identify and assess the specific risks applicable to each particular institution, noting that not all nonbank financial entities or activities pose material threats to financial stability. Although Governor Tarullo noted that the growth of shadow banking in recent years has been modest, he cautioned specifically about the risks to financial stability that could result from heavy reliance on short-term credit providers and the use of “highly volatile funding structures outside of the regulated sector”.
View the speech.TOPIC : Funds -
US Federal Reserve Board Governor Delivers Speech on Central Counterparty Clearing
11/17/2015
US Federal Reserve Board Governor, Jerome H. Powell, delivered a speech at The Clearing House annual conference discussing progress made in strengthening CCPs and expanding central clearing for repurchase agreement markets. Governor Powell touted global regulatory efforts to strengthen CCP resiliency, but noted that there is still work to be done due to the concentrated risks inherent to CCPs. His remarks focused largely on repurchase agreement transactions, where he enumerated the benefits of executing these transactions through a CCP. He noted that the use of a CCP provides market participants with greater transparency into potential risks by aggregating and standardizing market data. Additionally, CCPs may stabilize the financial system in the event of a defaulting counterparty by transferring defaulting positions to solvent parties, or otherwise managing such defaults, thereby reducing the risk of “fire sales” by non-defaulting counterparties. Finally, Governor Powell noted the risk-sharing benefits of utilizing CCPs. He concluded by urging regulators to consider implementing greater clearing solutions in markets with highly liquid assets, such as repurchase agreement trading for government and agency securities.
View the speech.TOPIC : Financial Services -
Remarks by US Deputy Secretary of the Treasury Sarah Bloom Raskin at The Clearing House Annual Conference
11/17/2015
US Deputy Secretary of the Treasury, Sarah Bloom Raskin, delivered a speech at The Clearing House annual conference discussing cybersecurity and resiliency in the financial services sector. Raskin emphasized the need for greater cooperation among financial sectors and governments globally in order to mitigate cybersecurity threats. She also stressed the importance of financial institutions embedding cybersecurity into their risk management and control procedures, practicing basic “cyber hygiene” by bolstering the resiliency of computer systems and preparing a recovery playbook for significant cyber incidents.
View the speech.TOPIC : Cyber Security -
European Securities and Markets Authority Publishes Discussion Paper on Validation and Review of Credit Rating Agencies' Methodologies
11/17/2015
The European Securities and Markets Authority published a discussion paper seeking views on the validation and review of Credit Rating Agencies methodologies and on quantitative and qualitative techniques used as part of the validation of CRA methodologies, as required under the Credit Rating Agency Regulation. The CRA Regulation requires CRAs to use rigorous, systematic and continuous methodologies based on historical experience. The discussion paper sets out validation practices in the credit rating industry and notes the good practices perceived by ESMA in its recent supervisory investigation on validation. The discussion paper also seeks views on how CRA methodologies are deemed to be good predictors of credit worthiness and what CRAs should do to meet the requirements under the CRA Regulation to ensure that systemic credit rating anomalies identified through back-testing are addressed in the appropriate way. Responses are due by February 19, 2016.
View the discussion paper.TOPIC : Credit Ratings -
G20 Leaders Publish Communiqué Further to Antalya Summit
11/16/2015
The G20 Leaders published a communiqué about their recent summit in Antalya. The press release, amongst other things, refers to enhancing the resilience and stability of financial institutions and systems, noting that core elements of the financial reform agenda have been completed, such as the finalization of the Total Loss-Absorbing Capacity for Global Systemically Important Banks. Further work is however going, in particular on: (i) CCP resilience; (ii) recovery planning and resolvability; (iii) the decline in correspondent banking services; and (iv) the implementation of OTC derivatives reforms. The G20 leaders will next meet in Hangzhou, China, in September 2016.
View the communiqué.TOPIC : Financial Services -
European Securities and Markets Authority Protocol on Operation of Market in Financial Instruments Directive Database
11/16/2015
The European Securities and Markets Authority published a Protocol on the operation of its online Market in Financial Instruments Directive database. The database publishes the results obtained from calculations made by national regulators in connection with shares admitted to trading on a regulated market. The calculations relate to, amongst other things, average daily turnovers and number of transactions. The information aims to provide market participants with appropriate information enabling them to recognize liquid shares and make determinations on waivers for pre-trade transparency requirements and delayed post-trade publication. The information must be made available by national regulators under MiFID and forms part of the MiFID market transparency regime. The Protocol sets out the responsibilities and tasks to be carried out by ESMA and national regulators and also provides practical and technical guidance as to how calculations should be made.
View the MiFID database.
View the Protocol.TOPIC : MiFID II -
European Central Bank Announces Results of Comprehensive Assessment of Nine Eurozone Banks
11/14/2015
The European Central Bank announced the outcome of its 2015 Comprehensive Assessment of nine banks - Banque Degroof S.A. (Belgium), Sberbank Europe AG (Austria), Unicredit Slovenia (Slovenia), VTB Bank (Austria) AG (Austria), Novo Banco SA (Portugal), Agence Française de Développement (France), J.P. Morgan Bank Luxembourg S.A. (Luxembourg), Medifin Holding Limited (Malta) and Kuntarahoitus Oyj (Municipality Finance plc) (Finland). All banks that become or will become subject to direct prudential supervision by the ECB under the Single Supervisory Mechanism are subject to a Comprehensive Assessment. Capital shortfalls were identified at five of the nine banks: Agence Française de Développement, Medifin Holding Limited, Novo Banco SA, Sberbank Europe AG and VTB Bank AG. Four of these banks have already covered the shortfall. In addition, certain failings in systems and processes were also identified.
View the announcement and results. -
Further EU Equivalence Decisions on Regulatory Regimes for CCPs
11/14/2015
Five equivalence decisions on the regulatory regimes for CCPs under the European Market Infrastructure Regulation were published in the Official Journal of the European Union. These relate to Canada, Mexico, South Korea, South Africa and Switzerland. The legal and supervisory arrangements of these jurisdictions are considered to be equivalent to the requirements set out in EMIR. Equivalence decisions for CCP regimes have previously been given only for Australia, Hong Kong, Singapore and Japan. A decision for the US is still outstanding due to the differing margin requirements for exchange-traded derivatives.
View the equivalence decision for Canada.
View the equivalence decision for Mexico.
View the equivalence decision for South Korea.
View the equivalence decision for South Africa.
View the equivalence decision for Switzerland.TOPIC : Derivatives -
Sanket Bulsara Named Deputy General Counsel for US Securities and Exchange Commission’s Appellate Litigation and Adjudication Groups
11/13/2015
The SEC named Sanket J. Bulsara as the Deputy General Counsel for Appellate Litigation and Adjudication.TOPIC : People -
US Federal Deposit Insurance Corporation Updates Frequently Asked Questions on Brokered Deposits
11/13/2015
The FDIC updated its Frequently Asked Questions regarding brokered deposits. FDIC regulations typically prohibit the acceptance of brokered deposits by FDIC-insured depository institutions that are not well capitalized. The updated FAQs contain revised responses on various topics relating to identifying, accepting and reporting brokered deposits, including but not limited to: (i) the circumstances under which certain business professionals that refer clients to a bank will be considered deposit brokers; (ii) examples of programs that would not be considered brokered deposit programs; and (iii) situations in which contract and dual employees would not be classified as deposit brokers by the FDIC. The FDIC is soliciting comments on the updated document until December 28, 2015.
View the FAQs in “Clean” Format.
View the FAQs in “Track Changes” Format. -
Proposed Updated EU Technical Standards on Derivatives Reporting Requirements
11/13/2015
The European Securities and Markets Authority published proposed draft technical standards that will amend the existing Commission Delegated Regulation on the minimum details of data to be reported to trade repositories and the Implementing Regulation on the format and frequency of trade reports to trade repositories. ESMA consulted on these changes in November 2014. ESMA considers that the current standards should be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under the European Market Infrastructure Regulation since 2013. The changes are mainly related to clarifying data fields and/or their description, amending existing fields so that they reflect reporting logic in existing Q&As and introducing new fields to reflect market practice. ESMA has also aimed to align reporting requirements under EMIR with those under the Markets in Financial Instruments Regulation, so as to minimize the burden on those entities that are required to report under both regimes. The changes include: (i) allowing the use of multiple reports for the reporting of complex derivatives provided that counterparties agree the number of reports to be submitted; (ii) adding a definition for the notional amount of a derivative; and (iii) amending the fields for reporting of collateral to, amongst other things, split the value field into initial margin posted and variation margin posted. The proposed draft technical standards have been sent to the European Commission for endorsement. ESMA proposes that the standards would only apply nine months after they come into force.
View ESMA's press release.TOPIC : Derivatives -
Basel Committee on Banking Supervision Publishes Reports on Post-Crisis Reform and on Implementation of Basel Standards
11/13/2015
The Basel Committee on Banking Supervision published a report to the G20 Leaders, providing an update on finalizing its post-crisis reforms, reviewing the work it has carried out to strengthen the international regulatory framework for banks since the global financial crisis. The report states that the Basel Committee has made good progress in finalizing its post-crisis reforms, which include: (i) carrying out a consultation on proposed revisions to the standardized approaches for credit risk, market risk and operational risk as well as on the design of a capital floor based on these standardised approaches; (ii) finalizing the revised Pillar 3 disclosure requirements; and (iii) completing its analysis and monitoring of the drivers of variability of risk-weighted assets in the banking book and trading book. The Basel Committee also published a second report to the G20 Leaders, providing an update on the implementation of Basel III standards since its 2014 progress report to the G20 Leaders. The report states that all member jurisdictions have implemented the Basel III risk-based capital regulations and that almost all member jurisdictions have implemented final rules on the liquidity coverage ratio. Work remains ongoing for the adoption of the Basel III standards for the leverage ratio and the net stable funding ratio. The Basel Committee aims to finalize the remaining core elements of the global bank regulatory reform agenda by the end of 2016.
View the reports. -
UK's Serious Fraud Office Issues Criminal Proceedings for Manipulation of Euro Interbank Offered Rate
11/13/2015
The Serious Fraud Office issued criminal proceedings against six Deutsche Bank and four Barclays Bank employees for conspiracy to defraud by manipulating the Euro Interbank Offered Rate, known as EURIBOR. These are the first criminal proceedings issued in connection with the SFO's investigation into the manipulation of EURIBOR. The defendants are expected to appear in court on January 11, 2016.
View the press release.TOPIC : Enforcement -
Prudential Regulation Authority Publishes Final Rules on Contractual Stays in Financial Contracts Governed by Third-Country Law
11/13/2015
The Prudential Regulation Authority published its Policy Statement, including final rules, and Supervisory Statement on contractual stays in certain financial contracts governed by third-country law. The rules will apply to all UK incorporated PRA-authorized banks, building societies, PRA-designated investment firms and their qualifying parents. Those firms will need to agree with their counterparties to certain financial contracts governed by the laws of a jurisdiction outside the EEA that any action taken by the UK authorities to stay the termination rights in those contracts or to enforce a security interest would be recognized. Contractual agreement in writing is not required, as initially proposed. Instead, firms must ensure that the counterparty has agreed in an "enforceable manner" that its termination rights and rights to enforce a security interest will be limited according to the UK rules. The PRA states that legal opinions are not required as a matter of course but firms will need to ensure and demonstrate that they are in compliance. The rules will apply to contracts with counterparties that are credit institutions or investment firms from June 1, 2016 and to contracts with all other counterparties from January 1, 2017.
View the Policy Statement.
View the Supervisory Statement.TOPIC : Recovery & Resolution -
Financial Stability Board Publishes Report on Transforming Shadow Banking Into Resilient Market-Based Finance
11/13/2015
The Financial Stability Board published a report to the G20 Leaders on transforming shadow banking into resilient market-based finance. The report sets out the actions taken so far to address concerns raised over the past year associated with financial stability and shadow banking, such as the FSB's annual monitoring exercise to assess global trends and risks in the shadow banking system. This year's monitoring exercise covered 26 jurisdictions, four of which represent around 80% of global GDP and 90% of global financial system assets. The FSB has also taken steps to strengthen the oversight and regulation of shadow banking, in particular in the area of securities financing. The report also sets out the next steps required to transform shadow banking into resilient market-based financing, including on: (i) the implementation of the regulatory framework for haircuts on non-centrally cleared SFTs at the international level; (ii) the implementation of policy recommendations related to structural aspects of the securities financing markets; and (iii) the monitoring of global trends and risks in the shadow banking system. The FSB intends to report further on its progress in September 2016. On the same day, the FSB also published its 2015 global shadow banking monitoring report, regulatory framework for haircuts on non-centrally cleared securities financing transactions as well as its updated roadmap towards strengthened oversight and regulation of shadow banking in 2015.
View the FSB's report and related documents.TOPIC : Shadow Banking -
Marc Wyatt Named Director of US Security and Exchange Commission’s Office of Compliance Inspections and Examinations
11/12/2015
The SEC named Marc Wyatt Director of its Office of Compliance Inspections and Examinations and leader of its National Exam Program.TOPIC : People -
European Banking Authority Consults on Draft Guidelines on Treatment of Credit Valuation Adjustment Risk Under Supervisory Review and Evaluation Process
11/12/2015
The European Banking Authority published a consultation paper including draft Guidelines on the treatment of Credit Valuation Adjustment risk further to the Supervisory Review and Evaluation Process under the Capital Requirements Regulation. The draft Guidelines implement the recommendations of the EBA's report on CVAs published in February 2015 and aim to form a common and proportionate approach to determine: (i) the materiality of CVA risk for an institution; (ii) material CVA risk under the SREP; and (iii) adequate additional own fund requirements where risks aren't sufficiently covered. The EBA has also published a data collection exercise for a Quantitative Impact Study to ensure the appropriate calibration of threshold values. The Guidelines will be finalized once the consultation process and QIS are complete. National regulators will then have two months from the date of publication of the translated versions of the guidelines on the EBA website to report whether or not they comply with the Guidelines. Comments on the consultation are due by February 12, 2016. It is expected that the data collection exercise will be completed by January 28, 2016.
View the consultation paper and draft Guidelines. -
UK Regulations Implementing the EU Regulation on European Long-Term Investment Funds Published
11/12/2015
UK Regulations amending primary and secondary legislation to give effect to the EU Regulation on European Long-term Investment Funds, known as ELTIFs, was published. ELTIFs are a new type of alternative investment fund managed by authorized Alternative Investment Fund Managers. The Regulations come into force on December 3, 2015.
View the Regulations.TOPIC : Funds -
European Banking Authority Reports on Approved Higher Ratios for Compensation
11/12/2015
The European Banking Authority published a report on the use by banks of the possibility to increase the maximum ratio between variable and fixed remuneration up to 200% with shareholder approval. Under the Capital Requirements Directive, the ratio is limited to 100% unless a Member State allows firms to increase the ratio provided certain criteria are met. All Member States, except for Belgium, Romania, Slovenia and Sweden, have allowed firms the ability to increase the ratio. Only firms in 15 Member States have used that ability. The report also notes that firms have made use of the increase in Member States where remuneration levels are higher.
View the report.TOPIC : Compensation -
European Banking Authority Reports on Measures Taken on Role-Based Allowances
11/12/2015
The European Banking Authority published a report on the steps taken by national authorities to ensure that firms that had introduced role-based allowances as fixed remuneration had taken or were taking steps to revise their remuneration policies. Role-based allowances were introduced by some firms following the introduction of the EU bonus cap, a limit of the ratio between the variable and fixed parts of remuneration of 100%. The EBA published an Opinion in October 2014 in which it stated that role-based allowances that are not predetermined, transparent to staff, permanent and that provide incentives to take risks are not compliant with the requirements under the Capital Requirements Directive. The EBA had asked national regulators to ensure that remuneration policies complied with its Opinion by December 31, 2014. The EBA's report confirms that national regulators have taken such measures although some of those will only be effective for remuneration awarded for the performance year 2015. The EBA intends to include criteria on classifying remuneration as either fixed or variable in its guidelines on sound remuneration policies. It is also working with the European Commission to review whether the CRD requires further reinforcement in this area.
View the report.TOPIC : Compensation -
International Swaps and Derivatives Association Announces Revised Resolution Stay Protocol
11/12/2015
The International Swaps and Derivatives Association re-launched the ISDA Resolution Stay Protocol. The new Protocol, called the ISDA 2015 Universal Resolution Stay Protocol, was developed in coordination with the Financial Stability Board. The ISDA 2015 Universal Resolution Stay Protocol includes an annex covering securities financing transactions, developed by ISDA with the International Capital Market Association (ICMA), the International Securities Lending Association (ISLA) and the Securities Industry and Financial Markets Association. 21 financial institutions have adhered to the new Protocol and ISDA expects more to do so. By adhering to the Protocol, relevant parties are able to amend the terms of Protocol Covered Agreements and opt in to existing and forthcoming resolution regimes, ensuring that cross-border derivatives and securities financing transactions are caught by statutory stays on cross-default and early termination rights under the US Bankruptcy Code, should a counterparty enter into resolution.
View the Protocol.TOPIC : Recovery & Resolution -
European Supervisory Authorities Publishes Final Draft Implementing Technical Standards on Mapping of Credit Assessments by External Credit Assessment Institutions
11/11/2015
The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published two final draft Implementing Technical Standards on the mapping of credit assessments to risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation and Solvency II Directive. The ITS aim to ensure sound credit assessments to encourage financial stability in the EU and determine an objective approach for attributing risk weights to the assessment of ECAIs. The final ITS will replace the Committee of European Banking Supervisors' guidelines on the recognition of ECAIs as well as the existing mappings of ECAIs' credit assessments issued by national regulators. The final draft ITS have been submitted to the European Commission for endorsement.
View the final draft ITS. -
European Central Bank Consults on the Use of Options and Discretions Under Capital Requirements Directive IV
11/11/2015
The European Central Bank published a consultation on harmonizing the exercise of Options and Discretions (O&Ds) available to EU member state national supervisory authorities under the Capital Requirements Regulation and Capital Requirements Directive, together known as CRD IV. Alongside the consultation, the ECB also published a draft Regulation on the exercise of O&Ds, a draft Guide on available O&Ds, an Explanatory Note as well as Q&As. An Option can allow a member state or a national regulator to choose how to comply with a given provision of CRD IV, selecting from a range of alternatives set out in such legislation. A Discretion can allow a national regulator or a member state to choose whether or not to apply a certain provision in CRD IV. The aim of the Regulation is to encourage the harmonization of supervision of significant banks in the Euro area, with the aim of safeguarding the financial stability and integration of the EU banking system. Comments on the consultation are due by December 16, 2015.
View the consultation and related documents. -
UK Regulator Publishes Updated Supervisory Statement on Internal Ratings Based Approach to Credit Risk
11/11/2015
The Prudential Regulation Authority published an updated Supervisory Statement on the Internal Ratings Based approaches to credit risk under the Capital Requirements Regulation. This is the approach under which certain banks and investment firms with sophisticated risk management systems are allowed to calculate capital requirements based on internally produced parameters. Amongst other things, expectations that have been superseded by decisions or technical standards adopted by the European Commission have been deleted, including on third country equivalence, and expectations for the notification of changes to IRB rating systems have been amended.
View the updated Supervisory Statement. -
European Securities and Markets Authority Additional Interest Rate Swaps for the Clearing Obligation
11/10/2015
The European Securities and Markets Authority published a final report setting out additional final draft Regulatory Technical Standards on the clearing obligation, in particular, the central clearing of interest rate OTC Derivatives in additional currencies. The additional final draft RTS propose a clearing obligation for fixed-to-float Interest Rate Swaps as well as forward rate agreements denominated in Norwegian Krone (NOK), Polish Zloty (PLN) and Swedish Krona (SEK). ESMA considers that because substantial trading volumes exist in these currencies, such contracts are of significant systemic relevance for the EU as well as to specific local markets and the addition of these classes to the clearing obligation will play an important role in reducing systemic risk. ESMA has already deemed IRS denominated in Euros (EUR), Great British Pounds (GBP), Japanese Yen (JPY) and United States Dollars (USD) eligible for mandatory clearing, for which RTS have already been endorsed by the European Commission and central clearing is expected to begin in mid-2016. ESMA has submitted the additional final draft RTS to the European Commission for endorsement.
View the final report.TOPIC : Derivatives -
International Organization of Securities Commissions Report on Standards for Custody of Collective Investment Scheme Assets
11/10/2015
The International Organization of Securities Commissions published its final report on standards for the custody of Collective Investment Schemes' assets. The report seeks to develop guidance for the custody of CIS assets consistent with the IOSCO Objectives and Principles of Securities Regulation. The report sets out standards that aim to identify core issues that require consistent review to ensure investors' assets are well protected. The key risks identified by the report are: (i) operational risk; (ii) misuse of CIS assets; (iii) risk of fraud or theft; and (iv) information technology risk. The report sets out the role and responsibilities of custodians and examines the ways in which key risks associated with the custody of CIS assets can be managed and mitigated.
View the report.TOPIC : Financial Services -
Basel Committee on Banking Supervision Consults on Capital Requirements for Simple, Transparent and Comparable Securitizations
11/10/2015
The Basel Committee on Banking Supervision published proposals for the capital treatment of simple, transparent and comparable securitizations which will amend the revised securitization framework published in December 2014. The proposals should be read with the criteria for identifying simple, transparent and comparable securitizations released in July 2015 by the Basel Committee and the International Organization for Securities Commissions. The proposals include the additional criteria that a STC securitization would need to meet in order for lower regulatory capital requirements to apply. Asset-backed commercial paper programmes and synthetic securitizations are excluded from the proposals. Responses to the consultation are due by February 5, 2016. The Basel Committee intends to publish the final standard in 2016. The implementation date will take into account that the revised securitization framework is to be implemented by 2018.
View the consultation paper.
View the press release. -
Financial Stability Board Publishes Progress Report on Compensation Practices
11/10/2015
The Financial Stability Board published its fourth progress report on implementing the FSB's principles for sound compensation practices and their implementation standards. The progress report states that almost all FSB jurisdictions have fully implemented the principles and standards for banks which were issued in 2009. The FSB report also states that: (i) the oversight of compensation practices has been embedded in bank supervisory frameworks in most jurisdictions; (ii) several jurisdictions have shown an increase in the fixed portion of remuneration in 2014 compared to 2011; and (iii) compensation and risk governance frameworks are increasingly linked.
View the report.TOPIC : Compensation -
European Banking Authority Consults on Common Procedures for Information Exchange between National Regulators on Proposed Acquisitions
11/10/2015
The European Banking Authority published a consultation paper on draft Implementing Technical Standards for common procedures that national regulators in the EU should use when consulting with each other about prudential assessments for proposed acquisitions and increases of qualifying holdings in credit institutions. The draft ITS set out the proposed process and timeframes for requests of information and includes proposed templates and forms that are to be used by national regulators. Comments on the consultation are due by February 10, 2016.
View the consultation paper. -
Financial Stability Board Publishes Report on Removing Obstacles to Resolvability
11/09/2015
The Financial Stability Board published a report on removing remaining obstacles to resolvability. The report states that significant work is still to be carried out to make resolution plans fully operational and recognizes that not all FSB jurisdictions have a bank resolution regime that is in line with the FSB's key attributes of effective resolution regimes for financial institutions, which were last updated in October 2014. The FSB intends, amongst other things, to develop guidance to implement the Total Loss-Absorbing Capacity standard and undertake work on CCP resolution and resolution planning, including possibly making a proposal for draft guidance.
View the report.TOPIC : Recovery & Resolution -
Basel Committee on Banking Supervision Consultation on Total Loss Absorbing Capacity Holdings
11/09/2015
The Basel Committee on Banking Supervision published a consultation paper on Total Loss Absorbing Capacity holdings, setting out the proposed prudential treatment of investments in TLAC-qualifying instruments by both Global Systemically Important Banks and non-G-SIBs that are subject to the Basel Committee's standards. The consultation proposes that banks deduct their holdings of TLAC instruments from their regulatory capital, subject to certain thresholds, and seeks to limit contagion within the financial system, should a G-SIB enter into resolution. The consultation also sets out revisions that are required to the text of Basel III, specifying how G-SIBs must take on board TLAC requirements when calculating regulatory capital buffers. Comments are due by February 12, 2016.
View the consultation paper. -
US Regulators Issue Supervisory Guidance on Capital Treatment of Certain Investments in Covered Funds under Regulatory Capital Rule and Volcker Rule
11/06/2015
The US Board of Governors of the Federal Reserve System, together with the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation, issued guidance entitled Deduction Methodology for Investments in Covered Funds, in order to reconcile the regulatory capital rule and the Volcker Rule with respect to the capital treatment for investments in certain hedge funds and private equity funds (i.e. covered funds under the Volcker Rule). The Methodology provides banking organizations with guidance on reporting deductions of covered funds under the Volcker Rule as well as a step-by-step process to reconcile the treatment of overlapping tier 1 capital deductions for investments in covered funds required by the Volcker Rule with any regulatory capital rule’s deductions for investments in the capital of unconsolidated financial institutions.
View the press release and guidance.TOPIC : Bank Structural Reform -
Financial Stability Board Progress Report on Reducing Misconduct in Finance Industry
11/06/2015
The Financial Stability Board published a progress report on measures to reduce misconduct in the finance industry. The report, amongst other things, sets out the next steps that the FSB will take to address such misconduct. The FSB's aims include: (i) establishing a working group so that outlooks and good practices can be exchanged with a view to create possible necessary guidelines; (ii) examining the use of compensation tools for addressing misconduct, with a view to making recommendations on better practices if needed; and (iii) organizing a workshop so that national experiences can be shared on the role of enforcement powers of bank regulators in addressing misconduct by individuals.
View the report.TOPIC : Conduct & Culture -
UK Government and Regulators Jointly Publish Policy Statement on Implementation of Transparency Directive Amending Directive
11/06/2015
HM Treasury and the Financial Conduct Authority jointly published a policy statement on the implementation of the directive amending the Transparency Directive, setting out final rules and summarizing feedback received on their previous joint consultation on proposed amendments to the Financial Services and Markets Act 2000 and Disclosure Rules and Transparency Rules (known as DTRs) for such implementation. The policy statement sets out the responses to the previous consultation, including on the requirement to disclose voting rights arising from holdings of financial instruments that have a similar economic effect to holding shares, as well as on the extension of deadlines for the publication of half-yearly reports and the period of time for which financial reports are publicly available. The policy statement also includes the FCA's new DTRs Sourcebook (Transparency Directive Amending Directive) Instrument 2015, implementing the changes as set out in the policy statement. The new rules enter into force on November 26, 2015.
View the Policy Statement.TOPIC : Financial Services -
European Securities and Markets Authority Elects New Members to Management Board
11/06/2015
The European Securities and Markets Authority announced it had elected three members to its management board, replacing outgoing members whose terms expire in November 2015. Lourdes Centeno and Elisabeth Roegele are both new members, whilst Klaus Kumpfmüller has been re-elected for another term. All three members will serve a term of two and half years starting December 1, 2015.
View the press release.TOPIC : People -
US Banking Regulators Release Results of Annual Shared National Credit Review Noting High Credit Risk and Weaknesses Related to Leveraged Lending
11/05/2015
The Board of Governors of the Federal Reserve System, the FDIC and OCC released results from the annual Shared National Credit review. The SNC review has been conducted by the banking agencies since 1977 to assess risk in the largest and most complex credits shared by numerous financial institutions. A SNC generally includes large loans or formal loan commitment extended to borrowers by a federally supervised institution, its subsidiaries and certain affiliates and is shared by three or more unaffiliated supervised institutions. According to the release, leveraged lending continues to be a key issue in the SNC portfolio. Specifically, the agencies noted that leveraged transactions originated over the past year continue to show structural deficiencies, an issue that has persistently been cited by US regulators as problematic, including the 2013 interagency guidance on leveraged lending. The release notes that there seems to be a discrepancy between industry practices and safe and sound banking expectations when looking at leveraged transaction structures. The review also pointed out weaknesses related to oil and gas credits.
View the press release.
View the SNC Review.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Vice Chairman Hoenig Speaks on Post-Crisis Risks and Bank Equity Capital
11/05/2015
US FDIC Vice Chairman Thomas M. Hoenig spoke at the Annual International Banking Conference regarding “Post-crisis risks and bank equity capital”. Vice Chairman Hoenig’s remarks focused on the comparison of capitalizing banks with debt or equity capital. Specifically, he pointed out the key risks of using debt capital, as required by the recent TLAC proposal by the Federal Reserve. He noted that costly debt may put earnings pressure on firms and may even accelerate failure in the case of financial distress. Moreover, debt rules essentially require regulators to “predict what activities and investments might cause future crises”. Vice Chairman Hoenig suggested that equity rules would allow well capitalized institutions to withstand shocks and crises in the financial system and would not require any “extraordinary insight” from financial regulators. He argued that the overall economic benefits will be higher than the related costs, and points to the current outperformance of well-capitalized US institutions as compared to less well-capitalized European institutions as an example. According to Vice Chairman Hoenig, “…our goal to prevent failure should be every bit as important as resolving failed firms” and increased equity capital would be a stronger deterrent as compared to debt.
View the remarks.TOPIC : Conduct & Culture -
Federal Reserve Board Governor Daniel K. Tarullo Speaks at 18th Annual International Banking Conference
11/05/2015
Federal Reserve Board Governor, Daniel K. Tarullo, spoke at the 18th Annual International Banking Conference on “Shared Responsibility for the Regulation of International Banks”. He spoke about the benefits of international banking, including diversification and improved efficiencies, and the associated risks including contagion risk. Governor Tarullo also made recommendations encouraging further cross-border coordination including: (i) greater information sharing between countries; (ii) encouraging financial regulators to fully understand the risks and standards in other jurisdictions when considering substituted compliance; and (iii) regular contact between top country officials. In his conclusion, Governor Tarullo encouraged a “strong set of international prudential standards” and “good institutional relationships” in order to establish an improved environment for internationally active banks.
View the speech.TOPIC : Conduct & Culture -
Federal Reserve Bank President Dudley Opening Remarks at Reforming Culture and Behavior in Financial Services Industry Workshop
11/05/2015
William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, made opening remarks at the Reforming Culture and Behavior in the Financial Services Industry: Workshop on Progress and Challenges. In his remarks, he reiterated certain points from his previous speeches, noting that there still remain “deep-seated cultural and ethical failures” in the financial services industry that need to be handled from the inside out. He continued to encourage the industry to focus not just on banning specific examples of misconduct, but rather to try to find the underlying causes. “I think our focus should be less on the search for bad apples and more on how to improve the apple barrels.”
View the remarks.TOPIC : Conduct & Culture -
European Banking Authority Announces Details of 2016 EU-Wide Stress Test
11/05/2015
The European Banking Authority published the details of its 2016 EU-wide stress test exercise that will be launched in the first quarter of 2016. The names of the 53 EU banks that will take part in the exercise have been published, of which 39 fall under the jurisdiction of the Single Supervisory Mechanism. The stress test will cover broadly more than 70% of the EU banking sector and will assess the ability of EU banks to meet relevant supervisory capital ratios in the event of adverse economic conditions. The EBA also published its draft methodological note for discussion together with a draft template to be used as part of the stress test exercise. The results of the stress tests will be published in the third quarter of 2016.
View the press release. -
UK Government Publishes Order Allowing Non-UK Institutions to be Relevant Authorised Persons
11/05/2015
HM Treasury published the Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015 which amends the Financial Services and Markets Act 2000. A RAP is a UK institution that, amongst other things is: (i) a credit institution with permissions under FSMA to carry on the regulated activity of accepting deposits; or (b) an investment firm that deals in investments as principal; and (c) is not an insurer. The Order provides for non-UK institutions to be "relevant authorised persons" if they fall into one of two categories and if they are not insurers. The two categories are: (i) a non-UK firm that is a credit institution with a branch in the UK and that is authorised to take deposits; or (ii) a non-UK firm that is an investment firm with a branch in the UK, authorised to deal in investments as principal in the UK and is regulated by the Prudential Regulation Authority for that activity. The Order enters into force on November 9, 2015.
View the Order and Explanatory Note.TOPIC : Conduct & Culture -
UK Regulator Consults on Handbook Changes to Implement Market Abuse Regulation
11/05/2015
The Financial Conduct Authority published a consultation paper on proposals for necessary changes to the FCA Handbook that are required to implement the new Market Abuse Regulation. The consultation paper seeks views, amongst other things, on the different options for implementing the new regime in two areas, namely: (i) the requirement for issuers to provide an explanation for a delay in the disclosure of inside information under certain circumstances; and (ii) the threshold for disclosure of managers' transactions, for persons discharging managerial responsibilities within issuers. MAR replaces the Market Abuse Directive and will apply from July 3, 2016. Comments on the consultation are due by February 4, 2016.
View the consultation. -
UK Government Grants Further Disciplinary Powers to UK Regulator
11/05/2015
HM Treasury published the Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015 which amends the Financial Services and Markets Act 2000. The Order, amongst other things, grants the Financial Conduct Authority with disciplinary powers over individuals working in financial services firms, and when there has been a breach of the Alternative Investment Fund Managers Regulations 2013 by a firm. The Order enters into force on March 7, 2016 (excluding Article 2 and 3(4) of the Order which enter into force on March 7, 2017).
View the Order and Explanatory Note.TOPIC : Conduct & Culture -
European Securities and Markets Authority Consultation on Indirect Clearing Under European Market Infrastructure Regulation and Markets in Financial Instruments Regulation
11/05/2015
The European Securities and Markets Authority published a consultation paper on draft Regulatory Technical Standards for Indirect Clearing Arrangements relating to OTC derivatives under the European Market Infrastructure Regulation and on Exchange-Traded Derivatives under the Markets in Financial Instruments Regulation. Indirect clearing is a situation where a person accesses clearing through two or more layers of intermediation, i.e. both a clearing member and another intermediary such as a regional bank or affiliate. The draft RTS on ICAs developed under MiFIR included rules for ETDs and a separate RTS under EMIR applies to OTC derivatives. A draft new RTS under EMIR is proposed. Both RTS aim to resolve well-known market difficulties resulting from the incompatibility of existing RTS with insolvency laws and current market practice. There are proposals for persons using indirect clearing to have a choice of separate net margined or gross margined accounts at clearing house level. The requirements for "leapfrog" payments to be made by clearing members, bypassing insolvent intermediaries, are to be watered down considerably, due to concerns around conflicts with insolvency laws. New proposals are made for chains involving more than one intermediary. Both sets of draft RTS are included in the annexes of the consultation paper. Following the consultation period and any changes resulting from it, ESMA would submit new RTS to the European Commission. Comments are due by December 27, 2015.
View the consultation paper.TOPIC : Derivatives -
US Banking Regulators Announce Actions against Deutsche Bank Regarding US Sanctions Violations
11/04/2015
The US Federal Reserve Board, in conjunction with the New York Department of Financial Services, announced $258 million in total civil monetary penalties and a cease and desist order against Deutsche Bank AG in regards to US sanctions violations. According to the orders, Deutsche Bank conducted business at its offices outside of the United States with respect to, and in violation of, certain US-sanctioned countries including Iran, Libya, Syria and Sudan. The order requires Deutsche Bank to implement an enhanced global compliance program in accordance with US sanctions rules established by the US Department of Treasury’s Office of Foreign Assets Control. Additionally, Deutsche Bank will be required to terminate six employees allegedly involved, as well as bar three other employees from US operations-related duties. The Federal Reserve Board and NYDFS announced $58 million and $200 million civil monetary penalties, respectively. Deutsche Bank still faces investigations by the US Department of Justice and the NYDFS regarding possible sanctions violations with respect to its Russian activities.
View the Federal Reserve Board order.
View the NYDFS order.TOPIC : Enforcement -
Chair Janet L. Yellen Testifies on Supervision and Regulation before House Committee on Financial Services
11/04/2015
Janet Yellen, Chair of the Federal Reserve Board, testified before the House Committee on Financial Services on supervision and regulation of financial services. Her testimony consisted largely of a review of the regulatory framework and steps US regulators have taken since the financial crisis to strengthen the regulation and supervision of the largest banking institutions, including instituting capital, liquidity, stress testing and annual resolution planning requirements. Chair Yellen further spoke to the work of the Federal Reserve’s Large Institution Supervision Coordinating Committee, which is responsible for the supervision of the eight largest US G-SIBs. Though noting that the “financial condition of the firms… has strengthened considerably since the crisis…” both from financial stability and corporate governance perspectives, she stated that US G-SIBs continue to have “substantial compliance and risk-management issues”, which the Federal Reserve Board, through the LISCC, is dealing with “directly and comprehensively”.
View the statement.TOPIC : Conduct & Culture -
Financial Stability Board Publishes Updated List of Global Systemically Important Banks for 2015
11/03/2015
The Financial Stability Board published an updated list of banks identified by the FSB and the Basel Committee on Banking Supervision as Global Systemically Important Banks. The list, which is updated on an annual basis, sets out 30 banks that are considered to be G-SIBs. Compared to the list of G-SIBs identified in 2014, China Construction Bank has been added and Banco Bilbao Vizcaya Argentaria has been removed. The next updated list will be published in 2016.
View the list of G-SIBs. -
CFTC’s Division of Market Oversight Extends Time-Limited No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements
11/02/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight extended time-limited no-action relief to Swap Execution Facilities from certain requirements in the definition of “block trade” in CFTC Regulation Section 43.2. Section 43.2 includes in its definition of “block trade,” a publicly reportable swap transaction that “occurs away” from a registered SEF’s trading system and executed according to the SEF’s procedures. The No-Action Letter extends time-limited relief to SEFs from the “occurring away” requirement until November 15, 2016. Overall, the extension will allow the CFTC continued time to monitor and evaluate SEF trading practices, specifically in regards to pre-execution credit checks. It will also allow the CFTC time to evaluate best practices and create a more comprehensive permanent solution for screening block trade orders for compliance with risk-based limits.
View the press release.
View CFTC Staff Letter 15-60.TOPIC : Derivatives -
US Comptroller of the Currency Highlights Increasing Credit Risk
11/02/2015
The US Comptroller of the Currency, Thomas J. Curry, once more discussed the issue of increased credit risk confronting the federal banking system during the Risk Management Associations' Annual Risk Management Conference. He argued that credit quality issues are a rising concern because banks are beginning to increase their risk appetite and are taking on additional credit risk. He notes that credit risk is increasing in two forms: relaxed credit underwriting and increased loan concentrations. In his statement, Comptroller Curry recommended that banks take initiative to address concentration risk on their own and also review more closely their loan loss allowance levels to determine whether it is appropriate in relation to the level of credit risk within the bank's loan portfolio.
View Comptroller Curry's remarks. -
Financial Action Task Force Appoints New Executive Secretary
11/02/2015
Mr. David Lewis was appointed Executive Secretary of the Financial Action Task Force as of November 1, 2015.TOPIC : People -
US Securities and Exchange Commission Adopts Rules to Permit Crowdfunding
10/30/2015
The US SEC issued final rules providing a framework of regulation to allow companies to offer and sell securities through crowdfunding. Concurrent with the adoption of the final rule, the SEC also proposed amendments to Rule 147 and Rule 504 of the Securities Act of 1933, as amended, to facilitate intrastate and regional offerings. The proposed amendments to Rule 504 of the Securities Act would increase the aggregate amount that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings. The final rules enable individuals to purchase securities in crowdfunding offerings, subject to certain limits. Specifically, the rules: (i) allow a company to raise up to a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period; (ii) permit individual investors to invest in crowdfunding offerings, subject to specified limits over a 12-month period; and (iii) limit the aggregate amount of securities sold to an investor during any 12-month period to an amount not to exceed $100,000. In addition, companies that conduct crowdfunding offerings must, pursuant to the adopted rules, make certain disclosures about their business as well as the offering. The adopted crowdfunding rules and forms will be effective 180 days after publication in the Federal Register and the forms permitting funding portals to register with the SEC will be effective January 29, 2016. Public comments on the proposed amendments to Rule 147 and Rule 504 are open for a 60-day period following their publication in the Federal Register.
View the final rule.
View the proposed rules.TOPIC : Securities -
US Federal Agencies Jointly Issue Final Rules on Swap Margin Requirements
10/30/2015
The Farm Credit Administration, the FDIC, the Federal Housing Finance Agency, the Federal Reserve Board and the Office of the Comptroller of the Currency jointly issued a final rule establishing margin requirements for uncleared swaps. The FDIC and OCC had previously approved the final rule on October 22, 2015. The rule will apply to swap dealers, security-based swap dealers, major swap participants and major security-based swap participants supervised by the aforementioned agencies and registered with the US Commodity Futures Trading Commission or the Securities and Exchange Commission. Sections 731 and 764 of the Dodd-Frank Act require the agencies to establish capital and margin requirements for registered swap dealers, major swap participants, security- based swap dealers and major security-based swap participants in order to address the risks to such entities and the financial system from non-cleared derivatives. Specifically, the final rule requires that initial and variation margin be exchanged between covered swap entities and certain counterparties in connection with non-cleared swaps and security- based swaps. The rule also specifies how margin is to be calculated, what types of margin are eligible and how margin is to be held. Additionally, the agencies approved an interim final companion rule to the joint final rule establishing swap margin requirements.
View the final rule.
View the interim final rule.
View the OCC press release.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Proposes New Rule to Implement TLAC and Related Requirements
10/30/2015
The US Board of Governors of the Federal Reserve System proposed a rule, in consultation with the US Federal Deposit Insurance Corporation, requiring the largest US Global Systemically Important Banking Organizations (known as G-SIBs) and the US Intermediate Holding Companies of foreign G-SIBs to maintain a minimum amount of unsecured long-term debt and a minimum amount of “Total Loss-Absorbing Capacity” as a percentage of total risk-weighted assets. Generally, TLAC is intended to increase the resiliency of an organization by providing a significant capital buffer comprised of regulatory capital and certain eligible debt, together with related capital buffers. The long-term debt, once converted to equity, is aimed at absorbing losses and recapitalizing the covered entity's subsidiaries in resolution. There are four major components of the proposed rule: (i) external long-term debt and related TLAC requirements applicable to the top holding company of a US G-SIB; (ii) internal long-term debt and related TLAC requirements applicable to covered US IHCs; (iii) clean holding company requirements; and (iv) regulatory capital deductions applicable to certain investments in long term debt of covered G-SIBs. Additionally, the Federal Reserve Board is requesting comment on internal TLAC requirements for US G-SIBs. Once finalized, the rules would apply to 8 US G-SIBs and their related entities as well as IHCs controlled by non-US G-SIBs. Banking organizations covered by the rule would be required to comply with most of the proposed requirements by January 1, 2019. The calibration of the risk-weighted assets component of the external TLAC requirement would be phased in over a three-year period commencing on January 1, 2019.
View the proposed rulemaking. -
UK Competition and Markets Authority Proposes Remedies for Retail Banking Competition Issues
10/28/2015
The Competition and Markets Authority published a provisional report related to its investigation into the supply of Personal Current Accounts and of banking services to Small and Medium-sized Enterprises. The report identifies several competition issues in the PCA and SME banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The report also states that customers that are holders of more expensive accounts are not switching to better value and better quality cheaper accounts, which would be expected in a well-functioning market. The CMA is proposing remedies which include: (i) requiring banks to prompt customers to review the service they receive by receiving individual messages at certain "trigger points"; (ii) encouraging consumers and businesses to compare bank products by using Midata, an industry online tool, that allows consumers to easily access their banking data and compare it with other services; and (iii) creating a price comparison service for SMEs. Responses to the report are invited by November 20, 2015. The CMA also announced that it intends to review the undertakings put in place after the 2002 Competition Commission review into PCA banking in Northern Ireland and into SME banking generally.
View the CMA's report.TOPIC : Competition -
European Banking Authority Consults on Draft Guidelines for Disclosure of Confidential Information under Bank Recovery and Resolution Directive
10/27/2015
The European Banking Authority published a consultation paper on the draft Guidelines on the disclosure of confidential information in summary or collective form under the Bank Recovery and Resolution Directive. BRRD prohibits the disclosure of confidential information received by national regulators, resolution authorities, the EBA, central banks and government ministries as well as potential acquirers, bridge institutions and others involved in the resolution of a financial institution unless such disclosure is in the exercise of their functions under the BRRD, or is made with the express and prior consent of the authority or institution providing the information or the information is in summary or collective form which does not identify the individual institution or entities. The EBA's proposed Guidelines specify how confidential information in a summary or collective form must be disclosed, requiring that the information is: (i) in an anonymized format; (ii) relates to a minimum of three entities subject to certain exceptions; and (iii) avoids making reference to specific characteristics, distinctive features or other qualitative data that would identify specific firms. The draft Guidelines are expected to apply from February 2016. Comments on the proposed Guidelines are due by January 27, 2016.
View the consultation paper.TOPIC : Recovery & Resolution -
UK Government Consults on Amendments to Undertakings for Collective Investments in Transferable Securities Directive
10/23/2015
HM Treasury published a consultation paper on the proposed amendments to UK legislation required to implement the Undertakings for Collective Investments in Transferable Securities Directive V. UCITS V must be implemented by March 18, 2016. Whilst UCITS V will primarily be implemented through changes to the Financial Conduct Authority rules, legislative changes are also required. HM Treasury's consultation seeks views on such legislative changes whereas the FCA is consulting separately on the FCA rule changes. HM Treasury will be implementing legislative provisions on national sanction regimes and UCITS depositaries. HM Treasury is seeking views on its approach to the implementation of the depositary provisions, in particular: (i) governance practices such as the eligibility to act as a depositary; (ii) liability for safekeeping of a UCITS fund’s assets; and (iii) the delegation of custody of a UCITS fund’s assets. In relation to sanctions, HM Treasury aim to make minor amendments to the relevant sections already in place in the Financial Services and Markets Act, clarifying that breaches of national legislation transposing UCITS V trigger the FCA’s existing sanctions. Comments are due by December 17, 2015.
View the consultation paper.
View the proposed legislation.TOPIC : Funds -
US Federal Deposit Insurance Corporation Revises Provisions of its Securitization Safe Harbor Rule
10/22/2015
The US Federal Deposit Insurance Corporation approved a final rule and a notice of proposed rulemaking that revise certain provisions of its Securitization Safe Harbor Rule. The final rule pertains to the treatment of financial assets transferred in connection with a securitization or participation. The rule clarifies the requirements of the securitization safe harbor as to the retention of an economic interest in the credit risk of securitized financial assets in connection with the effectiveness of the credit risk retention regulations adopted under Section 15G of the Securities Exchange Act. The final rule will be effective on the date that is the later of (i) 60 days after publication in the Federal Register and (ii) January 1, 2016. The notice of proposed rulemaking intends to align the Securitization Safe Harbor Rule with US Consumer Financial Protection Bureau regulations dealing with the servicing of residential mortgages that became effective in January 2014. Specifically, the proposed rule would clarify that the requirement that a servicer take loss mitigation action within 90 days of delinquency does not necessitate that the securitization documents require a servicer to act contrary to the CFPB's mortgage loan servicing requirements as set forth in Regulation X. Comments on the proposed rule will be due 60 days after the rule is published in the Federal Register.
View the FDIC’s final rule.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Adopts Proposed Rule to Increase Deposit Insurance Fund to Statutorily Required Level
10/22/2015
The Federal Deposit Insurance Corporation issued for public comment a proposal to increase the reserve ratio of the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. The Dodd-Frank Wall Street Reform and Consumer Protection Act increased the minimum for the reserve ratio from 1.15 percent to 1.35 percent and required the ratio to reach the new minimum by September 30, 2020. Moreover, the Dodd-Frank Act made this increase the responsibility of large banks with $10 billion or more in total assets. In effect, the proposed rule, if finalized, would impose upon banks a quarterly surcharge of 4.5 cents per $100 of their assessment base, with certain adjustments. It is expected that the surcharges will commence in 2016 and the reserve ratio would reach 1.35 percent following approximately eight quarters of payments of such surcharges (i.e. in advance of the required 2020 date). Comments on the proposed rule will be due 60 days after the rule is published in the Federal Register.
View the proposed rule.
View the FDIC Chairman’s statement. -
European Securities and Markets Authority Publishes Standard Forms and Updated Documents in Preparation of Transparency Directive Entering into Force
10/22/2015
The European Securities and Markets Authority published, as part of the preparations for the revised Transparency Directive entering into force on November 26, 2015, the following: (i) a new standard form for issuers to disclose details of their home member state to relevant national regulator; (ii) a new standard form for the notification of major holdings to relevant national regulators; (iii) an updated indicative list of financial instruments subject to notification requirements; and (iv) an update to its Q&As on the Transparency Directive.
View the ESMA documents.TOPIC : Financial Services -
European Commission Consultation on Remuneration Requirements under CRD IV
10/22/2015
The European Commission published a consultation on the possible impact of the maximum remuneration ratio rule for variable and fixed remuneration required by the Capital Requirements Directive. The consultation also addresses the overall efficiency of the remuneration rules as set out in the CRD and Capital Requirements Regulation, together known as CRD IV. The consultation aims to obtain views on the remuneration provisions of CRD IV, including on: (i) the efficiency, implementation and enforcement of the principle of proportionality, as well as the identification of any gaps arising from the application of the principle; (ii) compliance with the maximum ratio rule for variable and fixed remuneration as prescribed by the CRD; and (iii) the impact of the maximum ratio rule on competitiveness, financial stability and staff in non-EEA countries. The Commission must report back to the European Parliament and Council by June 30, 2016. Responses are due by January 14, 2016.
View the European Commission's consultation page.
View the consultation. -
European Commission Takes Action Against Six Member States for Failing to Implement Bank Recovery and Resolution Directive
10/22/2015
The European Commission announced that it had referred the Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden to the Court of Justice of the EU for failing to transpose the Bank Recovery and Resolution Directive into national legislation. The BRRD was due to be transposed by all EU Member States by December 31, 2014. The referral follows a request in May 2015 by the Commission to eleven Member States, including the above six Member States, to fully implement the BRRD.
View the press release. -
EU Guidelines on the Application of Simplified Obligations under the Bank Recovery and Resolution Directive
10/22/2015
The European Banking Authority published translations of its final guidelines on the application of simplified obligations under the Bank Recovery and Resolution Directive. The EBA's guidelines set out: (i) criteria for considering whether a firm can be subject to simplified obligations; (ii) entitlement for national regulators to attribute certain weightings to such criteria; and (iii) creation of mandatory indicators which must be used and optional indicators which may be used, in assessing application criteria. The BRRD allows national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Such obligations will not apply to globally systemically important institutions and other systemically important institutions. The Guidelines are addressed to national regulators and national resolution authorities and will apply from December 17, 2015.
View the Guidelines.TOPIC : Recovery & Resolution -
US Comptroller of the Currency Discusses Credit Risk
10/21/2015
The Comptroller of the Currency, Thomas J. Curry, in a speech before the Exchequer Club, discussed the increasing credit risk in the federal banking system. Comptroller Curry believes the financial system is currently at a point in the market cycle where loan underwriting standards are weakening and credit risk is becoming an increasing point of focus. He stated, “...we should be asking whether banks have the appropriate risk management processes and structures in place to measure, monitor and control the increased credit risk they are taking on.” In his remarks, the Comptroller mentioned leveraged lending and auto lending as two specific products of concern.
View the press release.
View the Comptroller’s remarks. -
Abu Dhabi Global Market Opens for Business
10/21/2015
The Abu Dhabi Global Market announced that it was officially open for business and that the Financial Services Regulatory Authority was ready to accept applications for a license from financial institutions. The ADGM is the newest international financial centre and it has adopted English common law by applying it in its jurisdiction for civil and commercial law. The application of English common law will govern matters such as contracts, tort, trusts, equitable remedies, unjust enrichment, damages, conflicts of laws, security and personal property.
Shearman & Sterling helped develop ADGM's world-class legal and regulatory regime to be in line with international standards to provide the sophistication and certainty found in the world’s top financial centres. The firm drafted all the Financial Services and Markets Regulations and Financial Services Regulatory Authority Rules as well as legislation governing matters such as companies, insolvency, interpretation, commercial licensing, arbitration, courts, employment, limited liability partnerships, real property and strata title.
View the ADGM press release.TOPIC : Financial Services -
European Supervisory Authorities Consult on Anti-Money Laundering and Counter Terrorist Financing Guidelines
10/21/2015
The European Supervisory Authorities published two consultations on proposed joint guidelines for: (i) financial institutions on the factors for financial institutions to consider when assessing money laundering and counter terrorist financing risks associated with individual business relationships or occasional transactions and the extent to which a firm's customer due diligence can be adjusted based on the risk identified; and (ii) national regulators on the supervision of AML/CFT on a risk sensitive basis. The guidelines are required to be prepared by the ESA's by the Fourth Anti-Money Laundering Directive, also known as 4AMLD, which Member States must transpose into national law by June 26, 2017. The proposed guidelines would apply to banks, investment firms, insurers, insurance intermediaries, money brokerage firms, collective investment undertaking marketing its units or shares and to branches of those firms (regardless of whether their head office is located in an EU Member State or a third country) and to national regulators of those financial institutions. The consultations are open until January 22, 2016 and the ESA's expect to finalise them in Spring 2016. The final guidelines will apply from June 26, 2017.
View the proposed Risk Factors Guidelines.
View the proposed Risk-based Supervision Guidelines.TOPIC : Financial Services -
Bank of England Publishes Approach to Stress Testing the UK Banking System
10/21/2015
The Bank of England published its approach to stress testing and evaluating the resilience of the UK banking system and set out its plans in this regard for the next three years. The BoE's approach will include the introduction of an annual cyclical scenario, assessing risks to the banking system that derive from financial cycles, taking into account domestic, global and markets elements. This annual cyclical scenario will include all PRA-regulated banks and building societies with total retail deposits greater than £50 billion, on an individual or consolidated basis, at a firm's financial year end date. Currently, this means the following firms will be included: Barclays plc, HSBC Holdings Group, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland Group, Santander UK plc and Standard Chartered Bank Group. UK subsidiaries of foreign-owned investment banks will be excluded. Every other year, the BoE will also biannually explore scenarios that are unrelated to the financial cycle and for which risks to financial stability and individual banks are deemed to be emerging. Therefore, in 2016, there will be a European Banking Authority stress test and a UK cyclical scenario test. In 2017, there will be both a UK cyclical and exploratory scenario test (for the first time). In 2018, the BoE intends to only run a UK cyclical scenario test. The results of the 2015 UK stress test are expected to be published on December 1, 2015.
View the BoE's approach to stress testing. -
European Securities and Markets Authority Publishes Final Guidelines on the Commodity Derivatives Definition
10/21/2015
The European Securities and Markets Authority published translations of its Guidelines on the application of the definition of commodity derivatives under the Markets in Financial Instruments Directive (known as MiFID I). The guidelines aim to provide a common, uniform and consistent application of the definition of commodity derivatives. There is no commonly adopted definition of derivatives in the EU under MiFID I and ESMA was concerned that this would lead to the inconsistent application of the European Market Infrastructure Regulation where it refers to the MiFID commodity derivatives definition. The Guidelines are also relevant to the reporting obligations under the Regulation on wholesale energy market integrity and transparency, known as REMIT. The Guidelines also aim to ensure continuity when MiFID II replaces MiFID I from January 3, 2017. The Guidelines were initially published on May 6, 2015 with ESMA's final report and feedback and applied from August 7, 2015.
View the Guidelines. -
US Regulators and Law Enforcement Agencies Announce Enforcement Orders Against Credit Agricole S.A. and Credit Agricole Corporate and Investment Bank
10/20/2015
The US Department of Justice, the US Department of Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office, the New York Department of Financial Services and the Federal Reserve Board jointly announced penalties against Crédit Agricole and Credit Agricole Corporate and Investment Bank,—headquartered in Paris, France—in connection with violations of US sanctions laws, and imposed a total of $787.3 million in criminal and civil financial penalties. According to the agencies, CACIB and certain predecessor banks thereof processed thousands of transactions to or through US financial institutions involving countries/persons subject to sanctions regulations issued by OFAC through 2008, even as personnel within these entities were aware of the sanctions programs requiring US financial institutions to block and reject transactions involving such countries. In addition to monetary penalties, the Federal Reserve Board announced that Crédit Agricole and CACIB have consented to a cease and desist order requiring the firms to implement an enhanced global compliance program to meet US sanctions requirements administered by OFAC. CACIB has also entered into settlement agreements with OFAC, the New York District Attorney’s Office and the NYDFS. Furthermore, CACIB has entered into deferred prosecution agreements with the US Attorney’s Office of District of Columbia for violations of the International Emergency Economic Powers Act and the Trading With the Enemy Act and with the New York County District Attorney’s Office for violations of New York State law based on falsification of records of New York financial institutions. The NYDFS has also required Crédit Agricole to install an independent consultant for one year.TOPIC : Enforcement -
US Securities and Exchange Commission Names Wenchi Hu and Christian Sabella Associate Directors in the Division of Trading and Markets
10/20/2015
The US Securities and Exchange Commission named Wenchi Hu and Christian Sabella as Associate Directors in the SEC’s Division of Trading and Markets. As Associate Director of Risk and Supervision, Ms. Hu will be responsible for supervising registered clearing agencies including those firms that clear securities-based swaps. Mr. Sabella will become Associate Director of Regulation, for which he will spearhead a team issuing recommendations for SEC policy and rulemaking focused on financial market infrastructure including clearing agencies, transfer agents and security-based swap data repositories. Ms. Hu joined the SEC in 2011 as a senior special counsel in the Office of Compliance Inspections and Examinations before moving to the Office of Derivatives Policy in the Division of Trading and Markets. Mr. Sabella joined the SEC in 2011 as a branch chief in the Office of Trading Practices.
View the SEC press release.TOPIC : People -
European Commission Reports on EU Capital Requirements for Covered Bonds
10/20/2015
The European Commission published its report to the European Parliament and the Council on the capital requirements for covered bonds as incorporated in the Capital Requirements Regulation. Under CRR, for banks investing in covered bonds that meet certain criteria a preferential risk weights is applied. The Commission is required to report on the appropriateness of: (i) the preferential risk weights taking into account types of cover assets, level of transparency on the cover pool and the impact of the covered bond issuance on the issuer's unsecured creditors; (ii) extending the preferential risk weights to covered bonds secured by certain aircraft loans; (iii) including covered bonds guaranteed by residential loans as eligible assets; (iv) the derogation for covered bonds backed by securitization instruments; and (v) the derogation for covered bonds backed by other covered bonds. The Commission considers the European Banking Authority's recommendations on the EU covered bond framework published in 2014 and sets out where it agrees with those recommendations and its proposed steps to implement them, including consulting with stakeholders on proposed changes to the legislative requirements. The Commission's recent consultation on the EU's covered bond framework under the Capital Markets Union initiative is also relevant and will impact on how the capital treatment for covered bonds is revised.
View the Commission's Report.
View the EBA's Report. -
Prudential Regulation Authority Consults on Identifying Other Systemically Important Institutions
10/19/2015
The Prudential Regulation Authority launched a consultation on its proposed criteria and methodology for identifying other systemically important institutions, i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system. According to the Capital Requirements Directive, national regulators are required to identify O-SIIs that are banks, investment firms or mixed financial holding companies incorporated in their jurisdiction. That requirement derives from the Basel Committee on Banking Supervision framework for domestic systemically important banks or D-SIBs. In developing its proposals, the PRA states that it has to take into account the relevant EBA Guidelines on the assessment of O-SIIs. The PRA must identify as O-SIIs those firms whose distress or failure would have a systemic impact on the UK or EU economy or financial system due to size, importance, complexity, cross-border activity and interconnectedness. Firms that are designated as O-SIIs by the PRA will be subject to enhanced supervision by the PRA. However, the PRA considers that O-SIIs are likely to be those firms that are currently subject to PRA supervision as a Category 1 firm and therefore there will be minimal impact on the firms. The PRA intends to publish the first list of O-SIIs in Q1 2016 and thereafter annually by December 1, each year. The consultation is open until January 18, 2016. The PRA will publish its final Statement of Policy in Q1 2016.
View the PRA consultation paper. -
Regulatory Oversight Committee Proposals to Include Branch Data into the Global Legal Entity Identifier System
10/19/2015
The Regulatory Oversight Committee launched a consultation on its proposed approach to incorporating data on branches into the Global Legal Entity Identifier System, known as GLEIS. The ROC is proposing that only branches that meet the following conditions would be eligible for an LEI: (i) the branch is an international branch; (ii) the branch is registered in a publicly accessible local business registry or local regulatory registry in its host country; and (iii) the head office of the branch already has an LEI so that the two entities could be linked through their respective LEIs. Responses to the consultation are due by November 16, 2015.
View the consultation paper.TOPIC : Financial Services -
US Securities and Exchange Commission Publishes Private Funds Statistics Report
10/16/2015
The US Securities and Exchange Commission published a report of private fund industry statistics and trends. The SEC aggregated and anonymized data private fund advisors have submitted to the SEC on Form ADV and Form PF. The report, which the SEC intends to update periodically, reflects information reported from the first calendar quarter of 2013 through the fourth calendar quarter of 2014. Among other things, the report includes statistics about the distribution of borrowings, an analysis of hedge fund gross notional exposure to net asset value, information regarding beneficial ownership and a comparison of average hedge fund investor and hedge fund portfolio liquidity.
View the report.TOPIC : Funds -
UK Government Announces Amendments to and Extension of Senior Manager and Certification Regime
10/15/2015
HM Treasury announced that certain amendments would be made to the Senior Manager and Certification Regime and that the SM&CR would be extended to all UK authorized firms. Amendments include: (i) removal of the presumption of responsibility for a senior manager when a breach of regulatory provisions occurs in the area that he is responsible for; and (ii) granting the regulators specific powers to take enforcement action against all non-executive directors of firms for their misconduct. The extension of the SM&CR follows from the recommendations of the Fair and Effective Markets Review in June 2015 that the regime should be extended to wholesale participants in the fixed income, currency and commodity markets. Both the amendments and the extension will be effected through primary legislation in the form of the Bank of England and Financial Services Bill that has been laid before Parliament. However, secondary legislation will also be amended to ensure that the reverse burden of proof and the notification requirements for breach of regulatory rules do not come into effect when the SM&CR comes into effect, which will be on March 7, 2016. It is currently expected that the extension of the SM&CR to all other UK financial institutions will be implemented during 2018.
View the policy paper.
You may wish to review our related client note.TOPIC : Corporate Governance -
UK Regulator Consults on Ensuring Operational Continuity in Resolution
10/15/2015
The Prudential Regulation Authority published a consultation paper proposing the creation of a new framework that would require firms to ensure operational continuity of shared services that are considered critical to the economy. This would mean that in the event of failure of a firm, recovery action, resolution or post-resolution restructuring would be facilitated. This consultation is relevant to banks, building societies and PRA-authorised investment firms and follows the PRA's previous discussion paper on this topic, published in October 2014, which includes draft rules and a supervisory statement. The consultation paper does not define the size of firms that are intended to be in scope, but notes that those firms that are deemed to perform functions critical to the economy as well as ring-fenced bodies and global systemically important banks are likely to be included. Similarly, the EU Bank Recovery and Resolution Directive would also preserve critical functions of firms by allowing authorities to place them into resolution, and in light of this, the PRA is consulting on such proposals. The PRA aims to publish an addendum to the consultation which will define the scope of the requirements together with a Bank of England consultation on the calibration of the minimum requirement for own funds and eligible liabilities. The PRA invites respondents to provide comments on the proposals but notes that respondents may wish to wait for the publication of the addendum before doing so. The addendum will set the closing date for the consultation period.
View the consultation.TOPIC : Recovery & Resolution -
UK Regulator Consults on Implementation of Ring-Fencing for Core UK Financial Services and Activities
10/15/2015
The Prudential Regulation Authority published a consultation paper on the implementation of ring-fencing for core UK financial services and activities, as required under the Financial Services and Markets Act 2000. Core activities are defined as: (i) facilities for accepting deposits or other payments into an account and provided in the course of carrying on the core activity of accepting deposits; (ii) facilities for withdrawing money or making payments from such an account; and (iii) overdraft facilities in connection with such an account. In this consultation, the PRA sets out new proposals for ring-fencing policies, including on: (i) prudential requirements for subsidiaries of Ring-Fenced Bodies; (ii) prudential requirements for other potential affiliates that would not necessarily be regulated by the PRA; (iii) intragroup prudential arrangements for groups containing RFBs; and (iv) the use of financial market infrastructures including inter-bank payment systems, Central Securities Depositories and CCPs. The proposals are relevant to all firms that are required to ring-fence their core activities before the implementation date of January 1, 2019 (which are firms, broadly speaking, with at least £25 billion of core deposits) and to growing firms that expect to meet this threshold by 2019. The PRA expects firms that currently meet the core deposits threshold of £25 billion to submit near-final plans to their PRA and FCA supervisors, taking into consideration the proposals in this consultation paper, by January 29, 2016. The PRA intends to publish a policy statement, final rules and supervisory statements by mid-2016 setting out the feedback to this consultation. Comments on the consultation paper are due by January 15, 2016.
View the consultation.TOPIC : Bank Structural Reform -
Corrigendum to Markets in Financial Instruments Regulation Published
10/15/2015
A corrigendum was published in the Official Journal of the European Union correcting the date of entry into force of Article 4(6) of the Markets in Financial Instruments Regulation. Under Article 4(6), the European Securities and Markets Authority must develop Regulatory Technical Standards on national regulators' powers to waive the pre-trade transparency requirements under which market operators and investment firms operating a trading venue must make public information such as current bid and offer prices for shares, exchange-traded funds and other similar financial instruments traded on a trading venue. In particular, the RTS should specify, amongst other things, the range of bid and offer prices to be made public for each class of instrument, as well as the depth of trading interest at those prices and the negotiated transactions that do not contribute to price formation. This provision should have been applicable from the date MiFIR entered into force, July 2, 2014, however Article 55 did not include the cross-reference.
View the corrigendum.TOPIC : MiFID II -
US Consumer Financial Protection Bureau Finalizes Amendments to Home Mortgage Disclosure Act Rule
10/15/2015
The US Consumer Financial Protection Bureau issued a final rule intended to streamline the process of reporting residential mortgage market information for financial institutions. Regulation C implements the Home Mortgage Disclosure Act and requires lenders to report certain information regarding home loans for which they receive applications or that they originate or purchase. The final rule amends current Regulation C requirements by calling for more specific information from lenders, such as property value, term of the loan, and the duration of any teaser or introductory interest rates. In addition, financial institutions will be obligated to deliver certain information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan.
Aside from requiring lenders to report more detailed information, the final rule also attempts to simplify the reporting process by easing reporting requirements for some small banks and credit unions and aligning reporting requirements more closely with industry standards. The rule also provides guidance on compliance with both new and existing requirements under Regulation C.
View the CFPB press release.
View the Final Rule.TOPIC : Consumer Protection -
US Commodity Futures Trading Commission Further Implements Trade Execution Requirement
10/14/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight extended existing time-limited no-action relief for swaps executed as part of certain package transactions that currently receive relief from the requirement that such swaps be executed on a Designated Contract Market or Swap Execution Facility under CFTC Letter 14-137, which was issued in November 2014.
In the CFTC no-action letter, the CFTC found that requiring certain package transactions be executed on a SEF or DCM still presents challenges to both counterparties as well as to SEFs and DCMs. Because many of the challenges previously necessitating no-action relief for certain package transactions have still not yet been resolved, the CFTC is extending relief from the trade execution requirement to enable market participants to continue to execute certain package transactions in a flexible manner.
In a statement issued concurrently with the no-action letter, CFTC Commissioner J. Christopher Giancarlo criticized this fourth extension of no-action relief, noting that the need for repeated extensions proves that the CFTC’s efforts to force certain complex package transactions to trade via a SEF’s limited execution methods is “simply not workable.” In the statement, Commissioner Giancarlo expressed support instead for allowing SEFs flexibility to implement the execution methods currently used to trade package transactions in global markets.
View the press release.
View CFTC Staff Letter 15-55.TOPIC : Derivatives -
Expansion of the US Board of Governors of the Federal Reserve System's Emergency Communications System
10/13/2015
The Federal Reserve Board issued SR Letter 15-10/CA 15-8 to announce the expansion of its Emergency Communications System – a service that maintains a database of emergency contacts to allow the Federal Reserve System staff to communicate with financial institutions in case of a natural disaster or operational emergency. The expansion will require supervised institutions to identify and register "designated cyber emergency contact(s)" that Federal Reserve staff may contact in the case of cyber emergencies. The Federal Reserve will periodically test the system to verify the contact’s business telephone number and e-mail address and the confirmation of delivery of test messages.
View the Federal Reserve Board press release.
View the SR Letter 15-10/CA 15-8.TOPIC : Cyber Security -
US Securities and Exchange Commission Charges UBS for Misleading US Investors as a Structured Products Issuer
10/13/2015
The SEC announced that UBS AG has agreed to pay $19.5 million to settle charges that it misled US investors by providing false or misleading statements and omissions in its offering materials regarding certain structured notes linked to a proprietary foreign exchange trading strategy. The SEC investigation found that UBS falsely stated that the investment relied on a "transparent" and "systematic" currency trading strategy and used "market prices" to calculate the securities underlying the index to which the securities were linked, the V10 Currency Index with Volatility Cap. However, the company did not disclose that its employees were engaged in certain hedging trades that could impact the index price, which trades were determined to have depressed the V10 Currency Index price by approximately five percent, resulting in losses to investors. This is the SEC’s first case related to misstatements and omissions by an issuer of structured notes.
View the SEC press release.
View the SEC order.TOPIC : Enforcement -
US Board of Governors of the Federal Reserve System Issues Guidance on Examinations of Insured Depository Institutions Prior to Membership as, or Merger Resulting in, a State Member Bank
10/13/2015
The US Board of Governors of the Federal Reserve System issued guidance intended to clarify the criteria and process used by the Federal Reserve Board in determining whether to waive or to conduct pre-membership safety-and-soundness and consumer compliance examinations of insured depository institutions that are looking to either: (i) become state chartered member banks of the Federal Reserve System; or (ii) merge with another institution where a state member bank would be the surviving entity, including those with $10 billion or less in total consolidated assets. Specifically, the Federal Reserve Board stated that a state nonmember bank, national bank, or savings association seeking to convert its status to a state member bank will not generally be required to complete a safety-and-soundness or consumer compliance examination prior to the conversion if the institution seeking membership meets the criteria for "eligible bank," as set forth in the Federal Reserve Board’s Regulation H, together with certain additional safety and soundness criteria set forth in the guidance (collectively, the "eligibility criteria"). Under circumstances where an insured depository institution is looking to merge with another institution where a state member bank would be the surviving entity, a safety-and-soundness or consumer compliance examination of the insured depository institution will not be required so long as the state member bank meets all of the eligibility criteria on an existing and pro-forma basis.
View the guidance. -
UK Supreme Court Judgment on European Communities Act Amending a UK Act of Parliament
10/12/2015
The UK Supreme Court considered the case of United States of America v Nolan. The case gave thought to whether a statutory instrument made under section 2 of the European Communities Act 1972 could effectively be deemed to amend a UK Act of Parliament. It was held that the ECA was wide enough for a statutory instrument to be effective in this way, however the Court found that the question was “difficult and borderline”. The EU Financial Collateral Directive was implemented in the UK via the Financial Collateral Regulations 2003, a statutory instrument, that was also made under the same section of the ECA. The Directive relates to title transfer financial collateral arrangements and security financial collateral arrangements made between certain classes of qualifying persons. Lord Mance considered previous case law on section 2 of the ECA, and in particular the decision taken in Cukurova Finance International Ltd v HM Treasury which related to the FCR. Lord Mance considered that Cukurova's unsuccessful challenge was "greatly underestimated", suggesting that it may have been wrongly decided, casting doubts on the enforceability of certain aspects of the FCR. In our view, these remarks are obiter dicta, given that the particular situation of these regulations was not at issue in the case.
View the decision in USA v Nolan.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Announces Appointment of Lawrence Gross, Jr., to Chief Information Officer
10/08/2015
The US Federal Deposit Insurance Corporation announced the appointment of Lawrence Gross, Jr., as the new Chief Information Officer. As CIO, Mr. Gross will advise senior leaders at the FDIC on a number of information technology-related issues including governance, investment, program management, strategic planning, and security. Mr. Gross has over 25 years of experience in technology-related roles both in the federal government and in military service.
View the FDIC press release.TOPIC : People -
US Securities and Exchange Commission Names Michael Liftik Deputy Chief of Staff
10/08/2015
The SEC announced that Michael Liftik will replace Erica Williams as deputy chief of staff of the agency. Since April 2013, Mr. Liftik has been a Senior Advisor to SEC Chair Mary Jo White, counseling on enforcement policy matters and cases. He has worked with the SEC staff and other agencies to address issues such as the asset management industry, cybersecurity, and macroeconomic trends. He also serves as the representative of Chair White on the Deputies Committee of the Financial Stability Oversight Council.TOPIC : People -
Federal Reserve Bank of New York Names Kevin Stiroh Executive Vice President Head of the Financial Institution Supervision Group
10/08/2015
The Federal Reserve Bank of New York announced that Kevin Stiroh has been named executive vice president in the New York Federal Reserve’s Integrated Policy Analysis Group as well as head of its Financial Institution Supervision Group, effective October 26, 2015. In his new roles, Mr. Stiroh will lead the teams responsible for supervising financial institutions in the Federal Reserve’s Second District. Mr. Stiroh has over 15 years of experience at the New York Federal Reserve and holds a Ph.D. in economics from Harvard University.TOPIC : People -
European Stability Mechanism New Appointments
10/08/2015
The European Stability Mechanism appointed Andrew Harkness and Jean Guill to its Board of Auditors for a period of three years.
View the press release.TOPIC : People -
European Parliament Adopts Revised Directive on Payment Services
10/08/2015
The European Parliament announced that it adopted the revised Directive on Payment Services known as PSD2, which will repeal the current PSD. The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The Directive is expected to be formally adopted by the EU Council of Ministers and will then be published in the Official Journal of the European Union. Member States will then have two years to introduce PSD2 into national law.
View the text of the revised Directive.
View the press release.TOPIC : Payment Services -
EU Regulation Correcting Regulatory Technical Standards on Securitization Retention under Capital Requirements Regulation
10/08/2015
A Delegated Regulation correcting the text of the Regulatory Technical Standards on requirements for investor, sponsor, original lenders and originator institutions for exposures to transferred credit risk under the Capital Requirements Regulation was published in the Official Journal of the European Union. Minor errors were made in the RTS published in various languages of the EU, and the revisions correct such errors, including clarifying that materially relevant data does not have to be provided to investors at an individual loan level in all circumstances and that it may be sufficient to provide such data on an aggregate basis in certain circumstances. The Delegated Regulation enters into force on October 28, 2015.
View the Delegated Regulation. -
US Board of Governors of the Federal Reserve System Announced Approval of Applications by Royal Bank of Canada and RBC USA Holdco Corporation
10/07/2015
The US Board of Governors of the Federal Reserve System announced the approval of the applications by Royal Bank of Canada and its subsidiary, RBC USA Holdco Corporation, to acquire City National Corporation and its wholly owned subsidiary, City National Bank, under section 3 of the Bank Holding Company Act. City National is a $33 billion banking organization. The Federal Reserve Board’s approval comes approximately seven months after submission of the application, which was the subject of comments opposing the application. On the same day, the Federal Reserve Board approved the application by Royal Bank of Canada to establish a limited federal branch in New Jersey. As a limited federal branch, it will only take deposits permitted to be taken by an Edge corporation under section 25A of the Federal Reserve Act.
View the press release announcing the approval of the acquisition.
View the Federal Reserve Board order approving the acquisition.
View the Federal Reserve Board press release approving the limited branch.
View the Federal Reserve Board order approving the limited branch. -
US Securities and Exchange Commission Charges Blackstone with Disclosure Failures
10/07/2015
The US Securities and Exchange Commission announced that three private equity fund advisers within The Blackstone Group ("Blackstone") agreed to pay approximately $39 million to settle charges regarding their failure to inform investors about benefits that the advisers received from accelerated monitoring fees and legal fee discounts. Nearly $29 million of the $39 million will be distributed to fund investors impacted by the disclosure failures. According to the SEC’s order, Blackstone breached its fiduciary duty by failing to adequately disclose to fund investors the acceleration of monitoring fees paid by certain portfolio companies owned by its funds prior to the companies’ sale/initial public offering. In essence, these fees reduced the value of the companies prior to their sale. The SEC order states Blackstone further violated its fiduciary duty by negotiating a legal fee arrangement for services by an outside law firm that provided greater discounts for itself than the funds, without adequately disclosing such arrangement to fund investors.Without admitting or denying the findings by the SEC, Blackstone consented to the entry of the SEC order. Blackstone agreed to cease and desist from further violations and to disgorge $26.2 million of ill-gotten gains as well as prejudgment interest of $2.6 million. It further agreed to pay a civil penalty of $10 million.
View the SEC press release.
View the SEC order.TOPIC : Enforcement -
European Banking Authority Publishes Guidelines on Management of Interest Rate Risk Arising from Non-Trading Activities
10/06/2015
The European Banking Authority published final translations of its Guidelines on the management of interest rate risk arising from non-trading activities, also known as interest rate risk in the banking book or IRRBB, which is the risk to firms arising from adverse movements in interest rates. Under the Capital Requirements Directive, national regulators must require a firm to take measures if its economic value declines by more than 20 per cent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points which is termed supervisory "standard shock". National regulators must also take steps when a change occurs, as defined by the EBA in these Guidelines. The Guidelines set out the definition of such change and the methods for the calculation of the outcome of the supervisory "standard shock", which is the shock applied to a firm's portfolio to determine the impact on the economic value of the firm, as well as specify the identification, management and mitigation of IRRBB. The Guidelines apply from January 1, 2016. They will repeal the Guidelines of the Committee of European Banking Supervisors published in 2006. The Guidelines are addressed to national regulators and relevant credit institutions and investment firms. National regulators must notify the EBA by December 7, 2015 as to whether they comply or intend to comply with the Guidelines.
View the Guidelines. -
UK Regulators Consult on Proposals for Regulatory References
10/06/2015
The Prudential Regulation Authority and Financial Conduct Authority jointly published a consultation paper on proposals for regulatory references that are employment references passed between firms when an individual moves roles. The proposals form part of the wider reforms aiming to strengthen accountability in the banking and insurance sectors and are relevant to candidates applying for new roles, including senior management functions under the Senior Managers Regime, significant harm functions under the Certification Regime and other roles within insurance firms and credit unions. The proposals include: (i) a requirement for firms to request regulatory references covering a period of six years from former employers; (ii) specific disclosures for inclusion in regulatory references, such as whether the firm has ever concluded that a candidate was at any point in the last six years deemed not fit and proper to perform a function, the details and basis of any disciplinary action taken and details of any other roles performed by a candidate within a firm whilst working as an employee of that firm; and (iii) a requirement for firms not to enter into any arrangements that would prevent them from disclosing relevant information. Final rules are expected to be in place for the start of the accountability regime on March 7, 2016. Comments on the consultation are due by December 7, 2015.
View the consultation paper.TOPIC : Conduct & Culture -
UK Regulators Finalize Whistleblowing Rules
10/06/2015
The Prudential Regulation Authority and Financial Conduct Authority published Policy Statements and final rules on whistleblowing. The rules require firms to implement internal whistleblowing procedures, to inform employees of the internal procedures and the whistleblowing services provided by the PRA and FCA and to ensure that employment contracts and settlement agreements do not deter employees from whistleblowing. The rules will apply to UK banks, building societies and credit unions with assets of £250 million or greater, PRA-designated investment firms, insurance and reinsurance firms within the scope of Solvency II and the Society of Lloyd's and managing agents. UK branches of overseas firms are not in scope but the regulators will consider this further once the effectiveness of these new rules can be properly assessed. The scope of the new rules therefore captures those UK firms that fall within the Senior Manager and Certification Regimes which come into effect on March 7, 2016. Firms will have until September 7, 2016 to implement the new whistleblowing rules. However, firms will have to assign a senior manager who is a non-executive director as the whistleblowers' champion by March 7, 2016 and that individual will be responsible for overseeing the firm's implementation of the new whistleblowing rules.
View the PRA Policy Statement.
View the FCA Policy Statement.TOPIC : Corporate Governance -
US Board of Governors of the Federal Reserve System Issues Revised Interagency Examination Procedures for Regulation P
10/05/2015
The US Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance revised interagency examination procedures for Regulation P, which governs the privacy of consumer financial information. Under Regulation P, financial institutions are prohibited from disclosing nonpublic personal information about consumers to unaffiliated third parties, with certain exceptions if the institution meets various opt-out and notice requirements. Regulation P also requires financial institutions to inform customers of their privacy policies and practices.Among other things, the revised examination procedures reflect a rulemaking by the US Consumer Financial Protection Bureau from October 2014 that creates an alternate delivery method financial institutions can use in their annual disclosure of privacy practices to customers. The examination procedures also reflect the recodification of Regulation P by the CFPB in December 2011. The revised examination procedures supersede previous Regulation P interagency examination procedures issued by the FFIEC via CA 11-4.
View the Federal Reserve Board press release.
View the revised interagency examination procedures.TOPIC : Consumer Protection -
European Securities and Markets Authority Publishes Final Guidelines on Alternative Performance Measures
10/05/2015
The European Securities and Markets Authority published its final Guidelines on Alternative Performance Measures for listed issuers. An APM is a financial measure of historical or future financial performance, position or cash flow and is usually derived from financial statements prepared by an issuer. The Guidelines aim to assist users in making investment decisions and encourage European issuers to publish comparable, transparent and reliable information on their financial performance so that users can obtain a comprehensive understanding of their performance. The Guidelines apply to issuers with securities traded on regulated markets who are required to publish regulated information under the EU Transparency Directive, any persons responsible for drawing up a prospectus under the EU Prospectus Directive and relevant EU national regulators. The guidelines will apply to APMs disclosed on or after July 3, 2016.
View the Guidelines.TOPIC : Securities -
Securities and Exchange Commission Appoints Associate Director in the Division of Economic and Risk Analysis
10/02/2015
The US Securities and Exchange Commission announced that Chyhe Becker has been named the Associate Director in the Division of Economic and Risk Analysis, responsible for the Office of Litigation Economics. The appointment is effective immediately.
View the press release.TOPIC : People -
US Consumer Financial Protection Bureau Sends Industry Letter on Know Before You Owe Mortgage Disclosure Rule Compliance
10/02/2015
The US Consumer Financial Protection Bureau sent a letter to mortgage industry trade groups specifying details regarding initial examinations for compliance with the Know Before You Owe mortgage disclosure rule (also known as the TILA-RESPA Integrated Disclosure regulation). The rule, which became effective October 3, 2015, requires institutions supervised by the CFPB to introduce more simplified mortgage disclosure forms. The CFPB intends to conduct initial examinations for compliance with the rule. Although the initial examinations will take into account the scale and scope of modifications necessary for each supervised institution, the CFPB letter re-stated the expectation that supervised institutions should make a good faith effort to comply with the rule. To that end, the letter detailed the various factors that CFPB examiners will take into consideration, which include: (i) the institution’s implementation plan, including actions taken to update policies, procedures and processes; (ii) its training of appropriate staff; and (iii) its handling of early technical problems.
View the press release.TOPIC : Consumer Protection -
European Securities and Markets Authority Reports on Aspects of EU Regulation of Credit Rating Agencies
10/02/2015
The European Securities and Markets Authority published a final report on the possibility of establishing mappings of credit ratings published on the European Rating Platform (a public website to be launched by ESMA in 2016 which will allow comparability of all ratings given by rating agencies registered and authorized in the EU), as required under the amended Credit Rating Agencies Regulation. Credit rating mapping would assist users of credit ratings in comparing ratings given by different credit agencies for the same entities. ESMA recommends that the European Commission not take any action at this point in terms of mapping and that ESMA should instead focus on constantly updating its information and data which allows users of credit ratings to carry out their own research. ESMA also published two sets of technical advice to the European Commission. The first is on reducing sole and mechanistic reliance on external credit ratings which considers the measures in place to date to reduce reliance on credit ratings and recommends that efforts should focus on removing reliance on credit ratings instead of trying to remove references to credit ratings in all EU legislation. The second is on competition, choice and conflicts of interest in the credit rating industry which considers the impact of certain provisions of the CRA Regulation on competition, conflicts of interest and structured finance instruments which were introduced in 2013. The European Commission must report to the European Parliament and Council by December 31, 2016 on whether references to credit ratings in EU legislation should be removed when the latest provisions of the CRA are implemented. ESMA proposes to reassess the implementation of the CRA Regulation within the next three to five years.
View the report and technical advice.TOPIC : Credit Ratings -
European Securities and Markets Authority Writes to European Commission on Technical Standards for Indirect Clearing
10/02/2015
The European Securities and Markets Authority sent a letter to Jonathan Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union at the European Commission on the Regulatory Technical Standards for indirect clearing for OTC derivatives under the European Market Infrastructure Regulation and the draft RTS on exchange-traded derivatives under the Markets in Financial Instruments Regulation. Both the final RTS under EMIR and the draft RTS under MiFIR aim to specify the types of indirect contractual arrangements that do not increase counterparty risk. Under MiFIR, the draft RTS on indirect clearing must be consistent with the RTS under EMIR. ESMA considers that the RTS under EMIR need to be revised to take into account the feedback received on the proposed draft RTS under MiFIR. ESMA therefore intends to consult on the possible changes to the EMIR RTS to align them with the draft MiFIR RTS. ESMA will submit the draft MiFIR RTS and draft amended EMIR RTS to the European Commission together, following its consultation.
View the letter.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Final Draft Technical Standards on the Clearing Obligation for CDS
10/02/2015
The European Securities and Markets Authority published its final report and final draft Regulatory Technical Standards on the clearing obligation for certain classes of credit derivatives. Under the European Market Infrastructure Regulation, ESMA is required to develop draft RTS setting out the OTC derivatives that should be subject to the clearing obligation, the date/s from which the obligation should apply and the minimum remaining maturity of OTC derivatives. The final draft RTS provide for the following two iTraxx Index CDS to be subject to the clearing obligation: (i) untranched iTraxx Index CDS (Main, EUR,5Y); and (ii) untranched iTraxx Index CDS (Crossover, EUR,5Y). ESMA has to a large extent adopted the same approach that it took for the RTS on the clearing obligation for IRS (which the European Commission adopted on August 6, 2015). The final draft RTS on the clearing obligation for CDS provide for the same categories of counterparties to be subject to the CDS clearing obligation as will be subject to the IRS clearing obligation. Similarly, the obligation for the different counterparties will be phased in according to counterparty type. ESMA has submitted the final draft RTS on a clearing obligation for CDS to the European Commission for endorsement.
View the final draft RTS on a clearing obligation for CDS.TOPIC : Derivatives -
US Securities and Exchange Commission Announced New Rulemaking Database
10/01/2015
The SEC announced the launch of a new rulemaking database to provide for greater transparency into the SEC’s rulemaking process. Unlike the structure of the current SEC website, the new database allows users to sort rules by date, status (e.g., proposed, completed, etc.), and SEC division (e.g., Investment Management, Trading and Markets, etc.).
View the SEC announcement of the new database.
View the SEC rulemaking index.TOPIC : Securities -
Basel Committee on Banking Supervision Issues Report on Regulatory Consistency of Risk-weighted Assets for Counterparty Credit Risk
10/01/2015
The Basel Committee on Banking Supervision published a report relating to the regulatory consistency of Risk-Weighted Assets for counterparty credit risk. This report is part of the BCBS’s wider Regulatory Consistency Assessment Program, which is intended to ensure consistent implementation of the Basel III framework. The report examines variability in banks’ modeling of derivatives, specifically exposure modeling, by presenting findings from a hypothetical test portfolio exercise. The report concentrates on the internal models method and the advanced credit valuation adjustments risk capital charge for OTC derivative trades. This report completes the BCBS’s review, in respect of trading-related internal models, and follows two earlier exercises that focused on market risk RWAs that were published in January 2013 and December 2013. In the report, the BCBS presents key findings, lists a number of observed good practices, and highlights areas where banks and supervisors may seek to harmonize practices to reduce variability in outcomes.
View the report. -
US Office of the Comptroller of the Currency Highlights National Cybersecurity Awareness Month
10/01/2015
The Comptroller of the Currency, Thomas J. Curry, issued a statement recognizing October as National Cybersecurity Awareness Month, as designated by President Obama. Mr. Curry stated that the goal of the month is to “raise awareness of threats to the data systems that have become part of our everyday lives and to encourage each of us to take steps to safeguard those systems.” Mr. Curry’s statement noted the increasing prevalence of cybersecurity breaches and encouraged banks/thrifts and supervisory agencies to work together to prevent breaches and to ensure that institutions have a plan in place to effectively detect, assess, and respond to cyber-attacks.
View the press release.TOPIC : Cyber Security -
European Stability Mechanism Announces New Management Board Member
10/01/2015
The European Stability Mechanism announced that Françoise Blondeel has been promoted to its Management Board. Ms Blondeel was previously Head of Middle and Back Office at the ESM and will now also be in charge of the ESM’s internal coordination.
View the press release.TOPIC : People -
Financial Stability Board Releases Progress Report on FX Benchmark Reforms
10/01/2015
The Financial Stability Board published a report detailing its progress in implementing its September 2014 recommendations for reforms to Foreign Exchange benchmarks. Although the report states that progress has been made in implementing many of the recommendations, the FSB notes that there are still areas where progress has been mixed. Specifically, among other things, the report reiterates that the FSB recommendations are intended to apply to all FX benchmarks, not just the London 4pm fix benchmark. The FSB asserts that a more complete implementation of the recommendations, particularly regarding other FX benchmarks, is essential to building upon improvements already witnessed.
View the report. -
President of the US Federal Reserve Bank of New York Delivers Speech on Regulation and Liquidity Provision
09/30/2015
William C. Dudley, President and Chief Executive Officer of the US Federal Reserve Bank of New York, delivered a speech at the SIFMA Liquidity Forum reiterating the need to strike a proper balance between sound regulation and liquidity in financial markets. Specifically, his remarks examined market liquidity in two important fixed-income markets: the US Treasury market and the US corporate bond market. He discussed, among other things, methods on how to measure liquidity, evidence of how liquidity has changed in recent years, factors that could influence liquidity provision, and costs associated with shifts in liquidity. Dudley expressed his support for the recommendations in the recently issued interagency report on the October 15, 2014 Treasury market flash rally, including the need to better understand the implications of the evolving Treasury market structure and liquidity and how changes in regulation and market structure influence liquidity conditions more generally. Specifically, he called for study and data analysis as to whether there is a decrease in liquidity and/or an increase in liquidity risk that is costly or poses a risk to financial stability and whether regulation can be altered to improve the balance between enhancing financial stability and the costs of such regulation, including adverse impacts on liquidity.
View the speech. -
European Commission Publishes Action Plan for Capital Markets Union
09/30/2015
The European Commission published its Action Plan for building the Capital Markets Union which follows its earlier consultation. The Action Plan sets out the steps for the medium and long term that the Commission intends to take in five priority areas: (i) providing more funding choices to EU businesses; (ii) ensuring an appropriate regulatory framework for long term investment and financing of Europe's infrastructure; (iii) increasing investment and choices for retail and institutional investors; (iv) improving bank lending capacity; and (v) removing cross-border barriers and developing more harmonized capital markets for all Member States. The Action Plan includes a detailed action list and indicative timeline of steps that the Commission intends to take, including publishing proposals to amend the Prospectus Directive before the end of 2015. Several proposals and consultations were published with the Action Plan, including (i) a call for evidence on the impact of the EU regulatory framework for financial services which seeks feedback on unnecessary regulatory burdens, inconsistencies, gaps and unintended consequences; and (ii) a proposed Commission Delegated Regulation amending the regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings.
View the Action Plan.
View the Call for Evidence.
View the proposed Commission Delegated Regulation.TOPIC : Financial Services -
European Commission Consults on a Review of EU Venture Capital Investment Funds
09/30/2015
The European Commission launched a consultation into the review of the European Venture Capital Funds Regulation and the European Social Entrepreneurships Funds Regulation as part of its Capital Markets Union initiative. The Commission is seeking views on steps that could be taken to improve the take-up of EuVECA and EuSEF funds through amendments to the two Regulations. Proposals include: (i) allowing managers authorized under the Alternative Investment Fund Managers Directive to be able to offer EuVECA and EuSEF funds to clients; (ii) exempting managers of EuVECA and EuSEF funds from authorization under AIFMD once they exceed the EUR500 million threshold; (iii) reducing the minimum subscription threshold for non-professional investors to attract more private investors; (iv) harmonization of registration requirements, including related costs; (v) extending the EuVECA and EuSEF Regulations to third country managers; (vi) extending the range of eligible assets that a EuVECA fund can invest in; and (vii) harmonizing requirements for the marketing of funds and fees for cross-border notifications. The consultation closes on January 6, 2016.
View the consultation paper.TOPIC : Funds -
European Commission Consults on EU Covered Bond Framework
09/30/2015
The European Commission launched a consultation on proposed action to address the legal and practical issues in the EU covered bond market to facilitate cross-border investment within the EU and from third countries. The consultation forms part of the Commission's Capital Markets Union initiative. The regulation of covered bonds is a matter of Member State national laws although the prudential treatment of covered bonds is provided for in a variety of EU legislative acts such as the Units for Collective Investment in Transferable Securities Directive, the Capital Requirements Regulation and the Bank Recovery and Resolution Directive. There are differences between the legal frameworks and supervisory practices of various EU Member States for covered bonds as highlighted by the European Banking Authority in its July 2014 report. The Commission is proposing a more integrated EU-wide covered bond framework that could be reflected in legislation and/or a set of recommendations and the consultation paper includes a discussion of the various approaches that might be taken in an effort to introduce harmonisation across the EU. The consultation closes on January 6, 2016.
View the EU Covered Bond consultation paper.TOPIC : Securities -
US Board of Governors of the Federal Reserve System Announces Approval of Applications by M&T Bank Corporation to Acquire Hudson City Bancorp, Inc.
09/30/2015
The US Board of Governors of the Federal Reserve System announced its approval of the applications by: (i) M&T Bank Corporation to acquire Hudson City Bancorp, Inc.; and (ii) by M&T’s subsidiary bank, Manufacturers and Traders Trust Company, to merge with Hudson City Savings Bank. Upon consummation of the transactions, M&T will have consolidated assets of approximately $132.5 billion, making it the 25th largest insured depository organization in the United States (currently it is 31st). M&T agreed to purchase Hudson City and submitted applications to the Federal Reserve Board in respect of the transaction in 2012. However, the Federal Reserve Board initially identified weaknesses in M&T’s risk management program, including issues in M&T’s Bank Secrecy Act/anti-money laundering compliance management program and its consumer compliance program and thus postponed consideration of the deal at M&T’s request until M&T was able to remediate these concerns.
View the press release.
View the Order. -
US Commodity Futures Trading Commission Orders Deutsche Bank AG to Pay a $2.5 Million Civil Monetary Penalty for Swaps Reporting Violations
09/30/2015
The US CFTC issued its first action enforcing new requirements issued pursuant to Dodd-Frank that provide for real-time public reporting of swap transactions and the reporting of swap data to swap data repositories, against Deutsche Bank. The Order finds that Deutsche Bank, a provisionally registered Swap Dealer, failed to properly report its swaps transactions and did not have a satisfactory supervisory system governing its swaps reporting requirements. Deutsche Bank is required to pay a $2.5 million civil monetary penalty in addition to complying with certain steps to improve its internal controls related to the accuracy of its swaps reporting.
View the press release.
View the Order.TOPIC : Enforcement -
UK Regulator Publishes Supervisory Statement on Reports Provided by Skilled Persons
09/30/2015
The Prudential Regulation Authority published an updated Supervisory Statement on reports provided by skilled persons under the Financial Services and Markets Act 2000. Under FSMA, the PRA may appoint, or may require a firm or a certain individual to appoint a skilled person to provide the PRA with a report giving an independent view of a firm's activity. This is part of the PRA's supervisory approach to firms, to identify, assess or prevent risks, track the development of previously identified risks or to use as part of possible remedial measures. The Supervisory Statement is to be read alongside the Use of Skilled Persons Part of the PRA Rulebook, which specifies the rules on contracts entered into with skilled persons. The updated Supervisory Statement provides greater clarity on the use of a skilled person as part of the PRA's supervisory approach and in particular as a discretionary supervisory tool. The Supervisory Statement includes: (i) the PRA's considerations when appointing a skilled person; (ii) the PRA's considerations when determining whether it should use its powers under FSMA to obtain a report by a skilled person or to appoint a skilled person to collect or update information; and (iii) the PRA's expectations of an appointed skilled person.
View the Supervisory Statement. -
European Banking Authority Publishes Report Analysing Asset Encumbrance for EU banks
09/30/2015
The European Banking Authority published its first analysis on asset encumbrance for EU banks, using data received from the 200 banks that provide it with such data. This first analysis initiates the regular monitoring of levels of asset encumbrance at EU level and future reports will be published annually. The analysis aims to assist supervisors in assessing how banks manage funding stress as well as the impact that switching from unsecured to secured funding might have on banks in conditions of stress. The report is based on data received for December 2014 and March 2015 further to a requirement under the Capital Requirements Regulation for banks to report levels of repurchase agreements, securities lending and all forms of asset encumbrance to national regulators. The analysis shows that the overall weighted average encumbrance ratio was 27% in March 2015, with ratios at country level that range from 0% for Estonia and 44% in Denmark and Greece. The report shows there has been no increase in levels of asset encumbrance over the past four years, based on a comparison with a similar report released by the European Systemic Risk Board in 2011.
View the report. -
European Commission Publishes Proposed Legislative Package to Revive EU Securitization Markets
09/30/2015
The European Commission published two proposed Regulations as part of its Capital Markets Union initiative which aim to revive the EU securitization markets. The proposed Regulation on common rules on securitization and creating a European framework for simple, transparent and standardized securitization (referred to as STS Securitization) sets out the eligibility criteria for STS securitizations such as risk retention rules, due diligence and disclosure requirements. The proposed Regulation also includes requirements for supervisory requirements, amendments to other EU legislation to ensure consistency, an exemption, subject to certain criteria being met, from the clearing obligation for OTC derivative contracts entered into by covered bond entities and securitization special purpose entities and rules on third country securitizations. The second proposed Regulation would amend the Capital Requirements Regulation to revise capital requirements for banks and investment firms originating, sponsoring or investing in securitizations. The objective of the proposals is to align the CRR provisions with the revised Basel framework of 2014 as was recommended by the European Banking Authority in its report on qualifying securitizations in July. The proposed revisions to CRR seek to adopt a more risk-sensitive approach to STS securitization which is currently in the early stages of development at international level. Both legislative proposals are subject to the European legislative process.
View the proposed STS Securitization Regulation.
View the proposed CRR Amendment Regulation. -
European Commission Publishes Guide on Crowdfunding for Small and Medium Enterprises
09/29/2015
The European Commission published a guide for small and medium enterprises on how to use crowdfunding. The guide describes the different types of crowdfunding available, such as peer-to-peer lending as well as equity, revenue-sharing, and debt-securities crowdfunding and includes details on how to plan and prepare for crowdfunding.
View the guide.TOPIC : Financial Services -
European Securities and Markets Authority Publishes Final Draft Technical Standards under the Market Abuse Regulation
09/28/2015
The European Securities and Markets Authority published a final report and final draft Regulatory and Implementing Technical Standards on the Market Abuse Regulation which replaces the Market Abuse Directive and applies from July 3, 2016. The report sets out the changes to the draft technical standards from those proposed in ESMA's initial consultation. The final draft technical standards cover: (i) detailed requirements for reporting of suspicious orders or transactions; (ii) the establishment, maintenance and termination of accepted market practices for certain behaviour not to be considered market manipulation; (iii) the arrangements, procedures and record keeping requirements that persons conducting market soundings must comply with for a market sounding not to be considered insider dealing, including the systems and notification templates and technical means for appropriate communication; (iv) the conditions that buy-back programmes and stabilisation of securities must meet not to be considered insider dealing or market abuse, including conditions for trading, restrictions on time and volume, price conditions and disclosure and reporting obligations; (v) notification requirements for trading venues of financial instruments for which a request for admission to trading is made, admitted to trading or traded for the first time; (vi) technical means and rules for public disclosure of insider information and rules on disclosure delays; (vii) arrangements for the objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflict of interest; (viii) the precise format of insider lists; and (ix) the format and template for notification of managers transactions. ESMA will submit the final report and final draft RTS and ITS to the European Commission for endorsement.
View the final report and technical standards. -
Speech by Governor Tarullo on Capital Regulation Across Financial Intermediaries
09/28/2015
Governor Daniel K. Tarullo spoke on "Capital Regulation Across Financial Intermediaries" at the Banque de France Conference on Financial Regulation entitled "Stability versus Uniformity; A Focus on Non-bank Actors." In the speech, Governor Tarullo remarked on the importance of relying on more than quantitative measures when establishing regulatory requirements for non-bank financial institutions. He stated that "simply deciding that an intermediary provides mostly commercial banking services or insurance products does not fully answer the question of what its capital requirement should be." As an example of a rule in which a more nuanced approach was taken, he pointed to the use of short-term wholesale funding measures in the US G-SIB surcharge requirement.
View the speech.
TOPIC : Shadow Banking -
European Securities and Markets Authority Publishes Final Draft Technical Standards to Harmonise Functioning of European Central Securities Depositories
09/28/2015
The European Securities and Markets Authority published a final report and final draft Regulatory and Implementing Technical Standards on improving securities settlement in the European Union and on Central Securities Depositories requirements. This follows from ESMA’s previously published discussion paper and consultation paper which sought views on the proposed technical standards. The final report sets out the feedback received from the consultation paper and ESMA’s proposed changes to the RTS and ITS on CSD as well as the RTS and ITS on internalised settlement. The two final draft standards on CSDs cover: (i) the authorisation and identification requirements for applicant CSDs, including forms and templates for CSDs applying for authorisation; (ii) recognition of a third-country CSD; (iii) risk monitoring rules that a CSD must establish; (iv) record keeping; and (v) general requirements for cooperation arrangements between regulators in home and host member states. The two final draft standards on internalised settlement cover: (i) templates and procedures for the reporting and transmission of information on internalised settlements; and (ii) specifications for the content of reporting on internalised settlements. The RTS on settlement discipline will become available later in a separate report, as ESMA still needs to review responses received to its more recent consultation on the operation of the buy-in process. ESMA will submit the final draft RTS and ITS to the European Commission for endorsement.
View the final report and technical standards.TOPIC : Financial Market Infrastructure -
US Commodity Futures Trading Commission’s Division of Market Oversight Issues Additional Time-Limited No-Action Relief from Electronic Reporting Requirements in the OCR Final Rule
09/28/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter, CFTC Letter No. 15-52, that provides additional time for reporting parties to comply with certain reporting requirements of the ownership and control final rule (OCR Final Rule). The OCR Final Rule introduces to the CFTC’s transaction and reporting program certain new and updated forms for reporting trader identification and market participant data. CFTC Letter No. 15-52 supersedes previous no-action relief issued in February 2015, and extends relief until April 2016, September 2016, or February 2017, depending on the type of reporting requirement.
View the press release.
View CFTC Letter No. 15-52.TOPIC : Derivatives -
Bank of England Announces Publication Date for Results of 2015 Stress Test
09/28/2015
The Bank of England announced the timetable for publication of the results of the 2015 UK stress test, which aims to evaluate the resilience of the UK banking system. The stress test covers seven major UK banks and building societies, namely Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander UK, and Standard Chartered. The Financial Policy Committee and Board of the Prudential Regulation Authority will make their final decisions on the results of the stress tests on November 30, 2015 and will revert to the relevant firms on the same day. The results will then be published on December 1, 2015.
View the press release. -
European Securities and Markets Authority Publishes Final Draft Technical Standards under MiFID II
09/28/2015
The European Securities and Markets Authority published a final report and final draft Regulatory and Implementing Technical Standards under the new Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, together known as MiFID II. MiFID II applies from January 3, 2017. The 28 final draft standards cover: (i) pre- and post-transparency requirements for debt and equity securities; (ii) rules for investment firms and trading venues relating to algorithmic trading; (iii) data publication and access; (iv) requirements applying on and to trading venues; (v) the methodology for the calculation and application of position limits for commodity derivatives; (vi) when an activity is to be considered ancillary to the main business for the purposes of the commodity derivatives exemption; (vii) market data reporting and the reporting obligation; (viii) the clearing obligation for derivatives and timing for acceptance for clearing (STP); (ix) information requirements for best execution; and (x) rules for on non-discriminatory access to CCPs, trading venues and benchmarks.
View the final report and technical standards.TOPIC : MiFID II -
European Banking Authority Publishes Guidelines under Capital Requirements Directive
09/28/2015
The European Banking Authority published final translations of its Guidelines on common procedures and methodologies for the Supervisory Review and Evaluation Process under the Capital Requirements Directive. The Guidelines include: (i) an overview of the common SREP framework; (ii) details on how regulators are to apply the principle of proportionality in their supervisory engagements with different types of firms; (iii) overall risk management and governance arrangements; and (iv) regular monitoring of key financial and non-financial indicators for changes in financial conditions and risk profiles of firms. National regulators must notify the EBA by February 20, 2016 as to whether they comply or intend to comply with the Guidelines.
View the Guidelines. -
Agencies Issue Two New Volcker Rule FAQs
09/25/2015
The US Federal Reserve Board, the US Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission (the "Agencies") released two new frequently asked questions on the Volcker Rule. FAQ 17 clarifies compliance requirements for market making and the identification of covered funds. FAQ 18 relates to CEO certification for prime brokerage transactions.
View the Volcker Rule FAQs.TOPIC : Bank Structural Reform -
US Office of the Comptroller of the Currency Releases Fiscal Year 2016 Bank Supervision Operating Plan
09/25/2015
The US Office of the Comptroller of the Currency released its bank supervision operating plan for fiscal year 2016. Generally, the operating plan identifies the OCC's bank supervision priorities and objectives for the year and guides the development of supervisory strategies for national banks and federal savings associations. According to the plan, supervisory strategies for fiscal year 2016 will focus on: (i) business model and strategy changes; (ii) compliance; (iii) credit risk and loan underwriting; (iv) cybersecurity and resiliency planning; and (v) interest rate risk.
View the press release.
View the operating plan. -
European Securities and Markets Authority Opinion on International Financial Reporting Standards requirements for Deposit Guarantee Schemes
09/25/2015
The European Securities and Markets Authority published its Opinion on the application of the International Financial Reporting Standards requirements for the recognition of contributions to Deposit Guarantee Schemes in IFRS accounts. The opinion relates to the accounting of ex-ante non-refundable cash contributions to DGSs for which the obligating event takes place at a single point in time. The Opinion states that a contribution must be recognised as an expense in full once a non-refundable cash contribution to a DGS is identified. ESMA will expect national regulators to take remedial measures if any material mis-statements are identified in the requirements.
View the Opinion.TOPIC : Recovery & Resolution -
Financial Stability Board Meeting to Discuss Ongoing Workplan
09/25/2015
The Financial Stability Board convened to discuss its ongoing workplan. The FSB discussed issues including ending too-big-to-fail, transforming shadow banking into resilient market-based finance, risks associated with market liquidity and asset management activities, reducing misconduct and the prospective policies that could mitigate potential risks. Further to the FSB's consultation last year which proposed a global standard for Total Loss-Absorbing Capacity to be applied to Global Systematically Important Banks, addressing the risks of bail-outs funded by taxpayers, the FSB has now agreed the draft final principles and supports the consistent implementation of this standard. Amongst other things, the FSB has also identified areas in which it aims to conduct further detailed analysis relating to structural vulnerabilities in asset management, such as the mismatch between liquidity of fund investment and redemption terms of conditions for fund units, leverage within investment funds and securities lending activities of asset managers and funds.
View the press release.TOPIC : Financial Services -
European Banking Authority Opinion on Draft Technical Standards on Additional Liquidity Monitoring Metrics
09/25/2015
The European Banking Authority published an opinion on the European Commission's proposal to amend the final draft Implementing Technical Standards on additional liquidity monitoring metrics under the Capital Requirements Regulation. The metrics aim to provide regulators with a more comprehensive liquidity risk profile of a firm according to the nature, scale and complexity of its activities. The Commission had proposed for the maturity ladder templates and instructions to be removed, due to these being based on the provisional approach to reporting requirements under the CRR and so that the ITS are adapted to the new and more detailed definition of liquid assets which becomes applicable from October 1, 2015. The EBA's opinion states that the benefits of having the maturity ladder as initially proposed rather than not having a harmonised tool at all for the next two years (which is the estimated time required to update the ITS and have them adopted by the Commission and implemented by institutions) are greater. If the maturity ladder is kept in the final ITS, the EBA will proceed promptly with an updated ITS, bringing them into line with the new liquidity provisions. The EBA also supports the Commission's suggestion to amend the date of application of the ITS from July 1, 2015 to January 1, 2016. A revised draft of the ITS is included in the annex to the Opinion.
View the Opinion. -
European Securities and Markets Authority Consults on Regulatory Technical Standards for European Single Electronic Format under Transparency Directive
09/25/2015
The European Securities and Markets Authority published a consultation paper on proposals for draft Regulatory Technical Standards on the European Single Electronic Format, the new format for annual financial reports, required under the Transparency Directive. The Transparency Directive requires issuers listed on regulated markets to prepare their annual financial reports in a new format from January 1, 2020. The new format aims to improve comparability and analysis for investors and regulators as well as simplify annual report submissions for issuers. The consultation paper assesses current practices and formats of annual financial reports and considers the options for harmonising the format of reports required under the Transparency Directive. ESMA is seeking views on its proposals in order to finalise draft RTS for submission to the European Commission before the end of 2016. Comments on the consultation are due by December 24, 2015.
View the consultation.TOPIC : Securities -
US Commodity Futures Trading Commission Settles with TeraExchange LLC, a Swap Execution Facility, for Failing to Enforce Trading Prohibitions
09/24/2015
The US Commodity Futures Trading Commissioin issued an Order filing and settling charges against TeraExchange LLC, a provisionally registered Swap Execution Facility. TeraExchange was charged for failing to enforce a prohibition on wash trading and prearranged trading on the SEF platform in connection with the SEF's offering for trade of a non-deliverable forward contract based on the relative value of the US Dollar and Bitcoin. TeraExchange is required to cease and desist from future violations regarding trade practices.
View the CFTC press release.
TOPIC : Derivatives -
US Federal Reserve Board Approves Enhancements to Reserve Banks' Same-Day ACH Service
09/23/2015
On September 23, 2015, the US Federal Reserve Board approved enhancements to its automated clearing house service that will require its receiving depository institutions to process same-day payments. Morning settlements will now be cleared by 1pm, and afternoon settlements by 5pm, according to the approved plan. Originating banks will be required to pay a 5.2 cent interbank fee to receiving banks for each same-day electronic payment. The enhancements become effective September 23, 2016.
View the press release.TOPIC : Financial Market Infrastructure -
European Central Bank Revises Policy on Location of CCPs
09/23/2015
The European Central Bank published a revised version of its Eurosystem Oversight Policy Framework which describes the role of the Eurosystem in oversight of payment systems. The Framework has been amended to remove the references to the Eurosystem location policy for CCPs. The revision follows the judgment of the General Court of March 4, 2015 on the UK Government's challenge of the Framework (as it then stood) and which annulled the Framework in so far as it set a requirement for CCPs to be located within the Eurozone. The Framework aimed to prevent CCPs in the European Union but outside the Eurozone from being able to have access to ECB Euro settlement facilities. Following that judgment, the ECB and the Bank of England announced that they had agreed to enhanced information exchange and cooperation arrangements for UK CCPs with significant euro-denominated business and that both central banks would extend the scope of their standing swap line order to aid the provision of multi-currency liquidity support by both central banks to CCPs established in the UK and the euro area. The ECB has also published Standards for the use of CCPs in Eurosystem foreign reserve management operations, which had been the subject of a separate legal challenge by the UK Government. The Standards would govern the use of CCPs for Interest Rate Swaps denominated in foreign currencies, aiming to limit the risks that would arise when these types of IRSs are cleared through a CCP.
View the revised Eurosystem Oversight Policy Framework.
View the ECB Standards for use of CCPs.TOPIC : Financial Market Infrastructure -
European Central Bank Announces New Appointments to Decision-Making Bodies
09/23/2015
The European Central Bank announced that Pedro Gustavo Teixeira will become the new Secretary to the ECB's decision-making bodies and Director General Secretariat from January 1, 2016. Petra Senkovic will become Secretary to the Supervisory Board and Director in Directorate Secretariat to the Supervisory Board from January 1, 2016.
View the press release.TOPIC : People -
European Securities and Markets Authority Extends and Announces New Appointments
09/23/2015
The European Securities and Markets Authority announced the extension of the terms of office for its Chair, Steven Maijoor, and Executive Director, Verena Ross by five years. ESMA also announced the appointments of David Lawton, Misu Negritoiu and Edwin Schooling Latter as chairs of its standing committees, for a period of two years, from October 1, 2015.
View the press release.
View the press release.TOPIC : People -
European Banking Authority Publishes Guidelines under Deposit Guarantee Schemes Directive
09/23/2015
The European Banking Authority published final translations of its Guidelines on methods for calculating contributions to Deposit Guarantee Schemes under the Deposit Guarantee Schemes Directive. The Guidelines include: (i) the principles that should be used for developing or approving methods for calculating contributions to DGSs; (ii) the mandatory elements of calculation methods; and (iii) the optional elements of calculation methods. National regulators must notify the EBA within two months of the publication of the translated guidelines whether they comply or intend to comply with those Guidelines.
View the Guidelines.TOPIC : Financial Services -
Financial Market Infrastructure US-EU Financial Market Regulatory Dialogue Meeting
09/23/2015
Participants of the US-EU Financial Market Regulatory Dialogue met to discuss key regulatory topics including recent developments in bank resolution, derivatives reforms, securitization and the creation of the a new Capital Markets Union, cybersecurity and plans to review the Prospectus Directive. Amongst other things, EU participants outlined the efforts that have been made to assist access to market-based funds through the creation of a CMU, and reported, together with participants from the US Securities and Exchange Commission and Commodity Futures Trading Commission that constructive bilateral discussions were continuing on derivatives reform and in particular on recognition under the European Market Infrastructure Regulation. Emphasis was placed on the importance of clear and well-designed recovery and resolution frameworks for CCPs and well-governed benchmark frameworks. The participants included representatives of the European Commission, European Securities and Markets Authority, European Banking Authority, US Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation. The next meeting will take place in Washington DC in February 2016.
View the joint statement.TOPIC : Financial Services -
US Securities and Exchange Commission's New York Regional Office Names Lara Shalov Mehraban Associate Director for Enforcement
09/22/2015
The US Securities and Exchange Commission announced that Lara Shalov Mehraban has been named Associate Regional Director for Enforcement in the New York Regional Office. Mehraban has been with the SEC since 2007 and has been an Assistant Regional Director in the office since 2012. Amelia Cottrell previously filled the position and left the agency in July 2015.
View the SEC press release.TOPIC : People -
New York Department of Financial Services Announces Approval of First BitLicense Application from Virtual Currency Firm
09/22/2015
Anthony J. Albanese, Acting Superintendent of Financial Services, announced that the New York State Department of Financial Services approved Circle Internet Financial's BitLicense application. This would make Circle Internet Financial the first company to receive a BitLicense from the NYDFS. The NYDFS finalized its BitLicense rules in June 2015 after receiving public comments on the proposed framework, making New York's BitLicense the first comprehensive regulatory framework for firms dealing in virtual currency. The rules include guidelines on consumer protection, anti-money laundering compliance and cybersecurity. The NYDFS has received 25 BitLicense applications to date.
View the press release.
TOPIC : Financial Services -
US Commodity Futures Trading Commission Approves Supplement to Proposed Rulemaking to Modify the Aggregation Provisions of Its Position Limits Rules
09/22/2015
The US Commodity Futures Trading Commission approved for public comment a supplement to its November 2013 proposed rulemaking to modify the policy for aggregation under the CFTC's position limits regime for futures and option contracts in Part 150 of its regulations. The supplemental notice of proposed rulemaking revises how the CFTC proposes to address situations when an exemption from the aggregation requirement is available for owners of greater than 50 percent interest in another entity. Under the November 2013 proposal, owners of a greater than 50 percent interest would have to provide specified information and certifications in an application to the CFTC, and obtain CFTC approval before disaggregating their positions. Under the supplement, owners of a greater than 50 percent interest would follow the same procedures that were proposed for owners of an interest between 10 and 50 percent, which procedures would permit such owners to disaggregate an owned entity's positions upon filing a notice with the CFTC stating that certain specified standards have been met. All other aspects of the November 2013 proposal remain the same. The CFTC continues to consider the November 2013 proposal and the comments submitted during the earlier comment periods.
View the press release.
View the CFTC proposed rule.
TOPIC : Derivatives -
US Securities and Exchange Commission Charges Investment Advisor with Failing to Adopt Proper Cybersecurity Policies and Procedures Prior to Breach
09/22/2015
The US Securities and Exchange Commission announced that R.T. Jones Capital Equities Management, an investment adviser, agreed to settle charges regarding its failure to follow guidelines for cybersecurity policies and procedures, which resulted in a breach which compromised the personally identifiable information of approximately 100,000 individuals. Federal securities laws require registered investment advisers to adopt written policies and procedures reasonably designed to protect customer records and information. The SEC investigation found that R.T. Jones Capital Equities Management violated this "safeguards rule" for approximately four years before the breach by failing to adopt any written policies and procedures to ensure the security and confidentiality of personally identifiable information. The SEC's order found that R.T. Jones violated Rule 30(a) of Regulation S-P under the Securities Act of 1933. In the settlement, R.T. Jones agreed to cease and desist from future violations of Rule 30(a) as well as pay a $75,000 penalty.
View the SEC press release.TOPIC : Cyber Security -
European Banking Authority Consults on Draft Guidelines on Application of Definition of Default under the Capital Requirements Regulation
09/22/2015
The European Banking Authority published a consultation paper on its draft Guidelines specifying the application of the definition of default in relation to the Internal Ratings Based Approach and the Standardized Approach under the Capital Requirements Regulation. The draft Guidelines aim to harmonise the definition of default across the EU framework so that EU banks apply regulatory requirements to their capital positions in a more consistent, comparable and uniform way. The draft Guidelines provide clarification for the definition of default, also covering issues such as indications of unlikeliness to pay, the days past due criterion for default identification and the conditions for a return to non-default status. Comments are due by January 22, 2016.
View the consultation paper. -
Workplan and Progress Report Published on Improving CCP Resilience
09/22/2015
The Financial Stability Board, together with the Basel Committee on Banking Supervision, the Committee on Payments and Markets Infrastructures and the International Organization of Securities Commissions jointly published a CCP workplan, dated April 2015. The workplan focuses on the resilience, recovery planning and resolvability of CCPs and coordinating the roles of each organisation in achieving these goals. A progress report on such work was published simultaneously, providing an update on work that has been done so far and listing an action plan with expected dates of delivery. The progress report states amongst other things that: (i) work on stress testing policies and practices have advanced and guidance will be developed after further analysis of other resilience topics such as CCP recovery and risk management has been carried out; (ii) a report on all CCP resilience and recovery issues will be published by mid-2016 for consultation; and (iii) a report analyzing the interdependencies between CCPs and major clearing members and any resulting systemic implications on global financial stability will be published by end-2016.
View the workplan.
View the progress report.TOPIC : Financial Market Infrastructure -
UK Regulator Announces New Appointment
09/22/2015
The Financial Conduct Authority announced Georgina Phillippou's appointment to the FCA's Executive Committee as the new Chief Operating Officer.
View the press release.TOPIC : People -
Financial Stability Board Reports to G20
09/22/2015
The Financial Stability Board published three reports provided to the G20 Finance Ministers and Central Bank Governors ahead of their meetings in September this year. The reports are: 1. The Sixth Progress Report by the FSB and the International Monetary Fund on the Implementation of the G20 Data Gaps Initiative which states that the set of 20 recommendations to close the data gaps identified following the global financial crisis, known as the first phase, should be completed by end 2015/early 2016. 2. A Joint Progress Report by the FSB, IMF and Bank for International Settlements on foreign currency exposures. The work seeks to address data gaps involving FX exposures so as to prepare for improved assessments of cross-border risks and analyze the vulnerabilities arising from such exposures. The work requires building on existing data initiatives and heavy coordination between the FSB, IMF and BIS. 3. The FSB Final Report on Corporate Funding Structures and Incentives, which examines the factors that shape the liability structure of corporates focusing on the implications for financial stability
View the Sixth Progress Report on the G20 Data Gaps Initiative.
View the Joint Progress Report on FX Exposures.
View the Report on Corporate Funding Structures.TOPIC : Financial Services -
Financial Conduct Authority and Payment Systems Regulator Boards Appoint New Committee Members
09/21/2015
The Financial Conduct Authority published a press release announcing that the FCA and Payment Systems Regulator has appointed new members to its decision making committees. The FCA's Regulatory Decisions Committee will welcome Tim Parkes as Chair, Elizabeth France and John Hull as Deputy Chairs and Kevin Brown, Caroline Ramsay and Chris Cummings as members. The PSR's Enforcement Decisions Committee will also welcome Tim Parkes as Chair, Elizabeth France as Deputy Chair and Kevin Brown, Chris Cummings, Stuart McIntosh, Professor Robin Mason, Malcolm Nicholson, Caroline Ramsay and Jonathan Haskel as members. The FCA and PSR Competition Decisions Committee will welcome Jonathan Haskel, Stuart McIntosh, Professor Robin Mason and Malcolm Nicholson as members.
View the FCA announcement.TOPIC : People -
Delegated Regulations on Regulatory Technical Standards under the Capital Requirements Regulation Published in Official Journal of the European Union
09/19/2015
Two delegated regulations on Regulatory Technical Standards under the Capital Requirements Regulation were published in the Official Journal of the European Union:- The delegated regulation for the disclosure of information for the compliance of institutions with the requirement for a countercyclical capital buffer which sets out the specifications for the disclosures required by firms for compliance with their requirements for a countercyclical capital buffer; and
- The delegated regulation for the transitional treatment of equity exposures under the Internal Ratings-Based approach which states that national regulators may grant certain firms with exemptions from the IRB treatment where the categories of the firm's equity exposures were already benefiting from an exemption from the IRB treatment on December 31, 2013.
View the Delegated Regulation for Disclosure.
View the Delegated Regulation for Transitional Treatment of Equity Exposures. -
The US Commodity Futures Trading Commission Issues Interpretative Guidance Regarding the Use of a "Firm or Forced Trades" Process by Derivatives Clearing Organizations
09/18/2015
The US Commodity Future Commission's Division of Market Oversight and Division of Clearing and Risk jointly published an interpretive letter stating that the use by a DCO of a "firm or forced trades" process to determine the price of certain swaps for which public market prices are not available, does not, by itself, trigger the requirement for the DCO to register as a swap execution facility.
In addition, the CFTC interpretive letter states that the DCO should be the reporting counterparty for swaps created by the firm or forced trades process for purposes of Part 45 of the CFTC's regulations.
View the CFTC Staff Letter.TOPIC : Derivatives -
The US Commodity Futures Trading Commission Issues Interpretation Clarifying the Consistency between CFTC Regulations Applicable to Derivatives Clearing Organizations and the Principles for Financial Market Infrastructures
09/18/2015
The US Commodity Futures Trading Commission’s Division of Clearing and Risk released an interpretation clarifying the consistency of the CFTC’s Part 39 regulations pertinent to certain derivatives clearing organizations with the CPMI-IOSCO Principles for Financial Market Infrastructures. The clarification relates to certain risk management standards which, among other things, address risks associated with the following: exchange-of-value settlement services; link arrangements of DCOs; the requirement to use central bank services, where available and practicable; and requirements regarding the due diligence conducted with respect to custodian banks.
In the guidance, the CFTC interprets the relevant Part 39 regulations, which apply to systemically important DCOs and those DCOs that have opted into an enhanced regulatory framework (known as Subpart C DCOs), to incorporate all of the standards set forth in the PFMIs.
View the CFTC Staff Interpretation.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Final Report and Draft Implementing Technical Standards on Penalties under UCITS V
09/18/2015
The European Securities and Markets Authority published a final report on draft Implementing Technical Standards on the procedures and forms for submitting information on penalties and measures under the UCITS V Directive. The draft ITS have been submitted to the European Commission for endorsement. National regulators will be required to provide ESMA with aggregated information on an annual basis of all penalties and measures that they have imposed on individuals and companies for breaches under UCITS V. Measures and penalties disclosed by national regulators to the general public must also be reported to ESMA simultaneously. The draft ITS include the relevant form that is to be submitted to ESMA. Member States must implement UCITS V into national law by March 18, 2016.
View ESMA's final report.TOPIC : Funds -
UK Regulators Consult on Amendments to Forms under New Senior Managers Regime and Current Approved Persons Regime
09/18/2015
The Financial Conduct Authority and Prudential Regulation Authority published a joint consultation paper on proposed changes to certain forms used by firms and individuals under the incoming Senior Managers Regime and current Approved Persons Regime. The consultation seeks views on proposed changes to two forms for the new SMR and two forms for the current APR regime. The proposed changes would modify the required disclosures required by individuals relating to ongoing investigations and past convictions, according to whether the individual will be a senior manager under the SMR or an approved person under the APR and allow the regulators to assess fitness and propriety appropriately. Other forms for which the regulators have no duty to consult on have also been amended with immediate effect, including Long Form A forms and Notifications for Change in Controller. Comments are due by October 19, 2015. The regulators intend to publish the revised forms before the end of 2015 and guidance notes on completing the forms for the Senior Managers Regime are also expected.
View the consultation paper.TOPIC : Corporate Governance -
UK Regulator Publishes Guides on its New Approach for Supervision of Fixed and Flexible Portfolio Firms
09/18/2015
The Financial Conduct Authority published two guides which set out its new approach to classification of firms for conduct supervision. Firms will now be classified as either flexible or fixed portfolio firms according to their size, market presence and customer footprint. Fixed portfolio firms require the highest level of supervision and are the smaller of the population of firms. The guides summarize the FCA's approach that will apply to the two different kinds of firms. The revisions aim to help the FCA to take a more sector-based approach to identifying risk and engaging more widely with market representatives.
View the guide for fixed portfolio firms.
View the guide for flexible portfolio firms.TOPIC : Financial Services -
UK Regulators Publish Consultation on Implementation of Ring-Fencing Transfer Schemes
09/18/2015
The Prudential Regulation Authority and Financial Conduct Authority both issued consultations on the implementation of Ring-Fencing Transfer Schemes under the UK's ring-fencing regime. Banks with core deposits over £25 billion over a period of three years must comply with ring-fencing requirements from January 1, 2019, separating the retail arms of banks from their riskier investment banking operations. RFTSs enable some or all of a bank's business to be transferred to another body so that the bank can restructure to comply with the ring-fencing rules. A scheme report, which must comment on whether the scheme could have any adverse effect on third parties, must be prepared by a skilled person approved by the PRA and FCA. The scheme report is intended to assist the court in its decision whether to sanction the scheme. Consent from all affected parties that is not required but third parties affected by the proposed scheme may make representations to the court. The PRA must also consult the FCA before approving a skilled person or a scheme report. The PRA will also issue two certificates: one providing its consent to the scheme and the second to verify that the transferee will have adequate financial resources. Where the transferee is only regulated by the FCA, the FCA must issue the financial resources certificate. The PRA seeks views on its draft Statement of Policy its approach to RFTSs and on its proposed approach for the approval of skilled persons and scheme reports. The FCA seeks views on its draft general guidance on RFTSs. Comments on both consultations are due by October 30, 2015.
View the PRA Consultation Paper.
View the FCA Consultation Paper.TOPIC : Bank Structural Reform -
The US Commodity Futures Trading Commission Orders Bitcoin Options Trading Platform Operator and its CEO to Cease Illegally Offering Bitcoin Options and to Cease Operating a Facility for Trading or Processing of Swaps without Registering
09/17/2015The US Commodity Futures Trading Commission issued an Order filing and settling charges against Coinflip, Inc., a San Francisco based company, and its chief executive officer, Francisco Riordan, for conducting activity related to commodity options transactions in violation of the Commodity Exchange Act rules and CFTC Regulations. In the Order, the CFTC found for the first time that Bitcoin and other virtual currencies are properly defined as commodities covered by the CEA. The Order found that Coinflip and Riordan operated a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations. The Order requires Coinflip and Riordan to cease and desist from further violations of the CEA and CFTC Regulations, as charged, and to comply with specified undertakings.
View the CFTC press release.
View the CFTC Order.TOPIC : Derivatives -
US Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg Gives Remarks at the FDIC Banking Research Conference on the Orderly Failure of Large, Complex, Systemically Important Financial Institutions
09/17/2015
The US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at the FDIC Banking Research Conference outlining the progress made by the FDIC to date in instituting a framework under the Dodd-Frank Act for the orderly failure of large, complex, systemically important financial institutions. Among other topics, the speech addressed the FDIC’s efforts to use the living will process to improve resolvability of firms under the US Bankruptcy Code, and the FDIC’s progress in developing the operational capabilities to carry out a resolution under the Orderly Liquidation Authority, a public-sector bankruptcy process prescribed by the Dodd Frank Act for institutions whose resolution under the US Bankruptcy Code would pose systemic concerns. Chairman Gruenberg asserted that using the living will process to bring about changes in the structure and operations of firms to facilitate orderly resolution under bankruptcy is a statutory mandate of the FDIC, as well as being prepared to use the powers available under the Orderly Liquidation Authority to manage the orderly failure of a firm. These remarks echoed previous statements given by Chairman Gruenberg when speaking in front of the Peterson Institute for International Economics in May 2015.
View the Speech.TOPIC : Bank Structural Reform -
Sarah Dahlgren Steps Down as Head of Financial Institution Supervision Group
09/17/2015
The Federal Reserve Bank of New York announced that Sarah Dahlgren stepped down as head of the Financial Institution Supervision Group. James Hennessy was named interim head of the Financial Institution Supervision Group.TOPIC : People -
The US Commodity Futures Trading Commission Orders Australia and New Zealand Banking Group Ltd. to Pay a $150,000 Penalty for Inaccurate Large Trader Reports for Physical Commodity Swap Positions
09/17/2015
The CFTC issued an Order filing and settling charges against Australia and New Zealand Banking Group Ltd. (“ANZ”), an Australia-based financial services company. The CFTC Order fined ANZ $150,000 for violations of Section 4s(f) of the Commodity Exchange Act and CFTC Regulations 20.4 and 20.7 by failing to comply with its obligation to submit accurate large trader reports for physical commodity swap positions. This is the CFTC’s first case enforcing the new Dodd-Frank Act large trader reporting requirements for physical commodity swap positions pursuant to Section 4s(f) of the CEA and Part 20 of the CFTC’s Regulations.
View the CFTC Press Release.
View the CFTC Order.TOPIC : Derivatives -
Industry Launches Derivatives Product Identification Initiative
09/17/2015
The International Swaps and Derivatives Association, Inc. announced the launch of a new industry data project which will develop an open-source standard derivatives product identification system that can be applied across different types of financial market infrastructure, such as trading venues, clearing houses and trade repositories. The initiative is in response to the derivatives reporting requirements which are imposed in various jurisdictions, including the US and EU. ISDA's new Symbology Governance Committee will provide oversight and governance to ensure that the product identification standard meets both industry and regulatory requirements. Eighteen entities (subject to finalization of contracts), have signed up to the project so far.
View ISDA's press release.TOPIC : Derivatives -
International Organization of Securities Commissions Publishes Final Report on Cross-Border Regulation in the Securities Markets
09/17/2015
The International Organization of Securities Commissions published a final report on the cross-border regulation of the global securities markets. The report sets out the cross-border regulatory toolkit of regulatory options available to national securities regulators, including an analysis of the approaches taken to cross-border regulation and the impact that the use of such cross-border regulatory tools may have on investor protection, markets and systemic risk. The tools that are used are classified into national treatment, recognition, and passporting. IOSCO undertook a survey of member jurisdictions to identify the tools that members currently use to regulate financial activities in the global securities markets. The report also sets out next steps for IOSCO, including considering (i) how to be more explicit in incorporating cross-border issues into its policy work; (ii) organizing workshops for regulators on the process and considerations for assessing foreign regulatory regimes under unilateral and mutual recognition or otherwise develop better understanding of the complex aspects of cross-border regulation; (iii) setting up an information repository of its members supervisory cooperation agreements; and (iv) setting up an information repository for recognition decisions, including the analyses that informed such decisions.
View the IOSCO Report.TOPIC : Securities -
The US Securities and Exchange Commission Removes References to Credit Ratings in Money Market Fund Rule and Form
09/16/2015
The US Securities and Exchange Commission adopted amendments pursuant to Section 939A of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act to SEC rule 2a-7, related to the removal of credit rating references in the rule. Rule 2a-7 is the principal rule that governs money market funds and the form that money market funds use to report information to the SEC each month about their portfolio holdings.
The amendments to rule 2a-7 would eliminate provisions which currently require money market funds to invest only in securities that have received one of the two highest short-term credit ratings or, if they are not rated, securities that are of comparable quality. In addition, under the amended rule, money market funds would also no longer be required to invest at least 97 percent of their assets in securities that have received the highest short-term credit rating. Instead, the amended rule would limit money market funds to investing in a security only if the fund determines that the security presents minimal credit risks after analyzing certain prescribed factors, which factors are discussed in more detail in the adopting release.
The SEC adopted additional amendments to rule 2a-7 that would subject additional securities to issuer diversification provisions in the money market fund rule by eliminating a current exclusion for securities subject to a guarantee issued by a non-controlled person.
View the SEC press release here.
View the final rule here.
TOPIC : Funds -
US Commodity Futures Trading Commission Proposes Amendments to the Definition of "Material Terms" for Purposes of Swap Portfolio Reconciliation
09/15/2015
The US Commodity Futures Trading Commission announced proposed amendments to the definition of “material terms” in connection with CFTC regulations relating to swap portfolio reconciliation.
CFTC regulations on swap portfolio reconciliation require swap dealers and major swap participants to reconcile swap terms with other SDs or MSPs daily, weekly, or quarterly, depending upon the size of the particular swap portfolio. These regulations also require SDs and MSPs provide non-SD and non-MSP counterparties with regular opportunities for portfolio reconciliation.
Under the new proposal, the CFTC would amend the definition of “material terms” to specifically exclude certain data fields from the periodic reconciliation requirements. If the proposed amendment to the definition of “material terms” is adopted, the proposed rule would supersede no-action relief provided pursuant to CFTC Letter 13-31 issued on June 26, 2013.
In separate statements, CFTC Commissioner J. Christopher Giancarlo and CFTC Chairman Timothy Massad praised the proposal for eliminating unnecessary burdens in the swap portfolio reconciliation rules. In addition, Commissioner Giancarlo encouraged parties affected by the swap reconciliation rules to submit comments regarding the ongoing costs associated with the reconciliation of other data fields that may not be relevant to the ongoing rights and obligations of the parties to a swap.
The comment period ends 60 days after the proposal’s publication in the Federal Register.
View the CFTC proposed rule.
TOPIC : Derivatives -
Extension of Exemption from EU Clearing Obligation for Pension Funds
09/15/2015
A Commission Delegated Regulation was published in the Official Journal of the European Union which extends the transitional exemption period under the European Market Infrastructure Regulation for pension funds to comply with the EU clearing obligation by two years. The European Commission announced on June 5, 2015, that the period would be extended from August 16, 2015 to August 16, 2017, noting that if pension funds were subject to the clearing obligation now, they would need to source cash for the margin requirements of CCPs. The Commission, and other EU regulators, have asked CCPs to develop a solution that would allow pension funds to clear derivatives without the obligation being too burdensome for pension funds but which will also allow CCPs to liquidate positions rapidly in the event of a default. To date, no solution has been confirmed.
View the Commission Delegated Regulation.TOPIC : Derivatives -
European Banking Authority's Guidelines on Payment Commitments for Deposit Guarantee Schemes Published
09/14/2015
The European Banking Authority published translated versions, dated September 11, 2015, of its final guidelines on payment commitments under the EU Directive on Deposit Guarantee Schemes. The DGS Directive provides that banks must pre-finance the DGS in its home member state. One of the methods available for such pre-financing is a payment commitment, provided that the total share of payment commitments does not exceed 30 per cent of the total amount of available financial means raised. The EBA guidelines on payment commitments set out the terms to be included in the contractual or statutory arrangements for a bank to provide payment commitments to a DGS, as well as the criteria for eligibility (i.e. sufficiently low risk) and management of the collateral. According to the guidelines, a bank may make payment commitments by either a Payment Commitment Arrangement or a Financial Collateral Arrangement. DGSs, relevant designated authorities, resolution authorities and national regulators should implement the guidelines by December 31, 2015 and confirm to the EBA, by November 11, 2015, the status of the guidelines.
The translated guidelines are available on the EBA's website.TOPIC : Recovery & Resolution -
Federal Reserve System Appoints Payments Security Strategy Leader
09/10/2015
The Board of Governors of the Federal Reserve System announced the appointment of Federal Reserve Bank of Chicago’s Senior Vice President, Todd Aadland, as its Payments Security Strategy Leader. Mr. Aadland will lead the initiative to address fraud risk and improve the safety, security and resiliency of the payment system.
View the press release.TOPIC : People -
US Commodity Futures Trading Commission Approves Final Regulation Requiring Certain Participants to Be Members of a Registered Futures Association
09/10/2015
The US Commodity Futures Trading Commission issued a final rule requiring all registered introducing brokers and commodity pool operators, and certain commodity trading advisors, to become and remain members of a registered futures association. Currently, the only registered futures association is the National Futures Association. Certain commodity trading advisors who qualify for an exemption from registration as a commodity trading advisor under CFTC regulation 4.14(a)(9) are not subject to this requirement. Compliance with the final rule is required by December 31, 2015.
View the press release.
View the final rule.TOPIC : Derivatives -
US Commodity Futures Trading Commission Chairman Massad Announces Eric J. Pan as Director of the Office of International Affairs
09/10/2015
The US Commodity Futures Trading Commission Chairman Timothy Massad announced that Eric J. Pan will be the CFTC’s new Director of the Office of International Affairs. Mr. Pan was previously the Associate Director for Regulatory Policy in the US Securities and Exchange Commission’s Office of International Affairs. At the SEC, he oversaw international regulatory policy and represented the SEC in IOSCO and the Financial Stability Board.
Chairman Massad also announced the retirement of CFTC employee Phyllis Dietz who served as Acting Director of the Division of Clearing and Risk and named Jeffrey Bandman as Acting Director of the Division of Clearing and Risk.
View the press release.TOPIC : People -
US Commodity Futures Trading Commission Issues Order of Temporary Registration as a Swap Execution Facility to Bitcoin Options Exchange
09/10/2015
The US Commodity Futures Trading Commission announced the approval of the application of LedgerX LLC for temporary registration as a swap execution facility. LedgerX is a Delaware limited liability company and wholly-owned subsidiary of NYBX Inc., a corporation based in Delaware. Following the approval for temporary registration, the CFTC will undertake a further substantive review of the company’s application for full registration. If approved, LedgerX would be the first federally regulated bitcoin options exchange and clearing house that would list and clear fully-collateralized, physically-settled bitcoin options for the institutional market.
View the press release.TOPIC : Derivatives -
Robert Cohen and Joseph Sansone Named Market Abuse Unit Co-Chiefs
09/10/2015
The US Securities and Exchange Commission announced the designation of Robert Cohen and Joseph Sansone as co-chiefs of the Division of Enforcement’s Market Abuse Unit. The Market Abuse Unit is a national specialized unit that focuses on complex insider trading issues as well as other market trading misconduct and abuse.
View the press release.TOPIC : People -
Members of UK Payment Strategy Forum Appointed
09/09/2015
The UK Payment Systems Regulator has announced the full membership of the new Payments Strategy Forum. Ruth Evans was appointed chair of the Forum in July this year. The 21 new members, apointed for an initial period of two years, are comprised of individuals who are advocates for consumers, retailers, small and medium-sized businesses, corporations and government, as well as individuals from credit unions, e-money firms and high street banks that are experienced providers of payment services. The Forum has been established to set strategic priorities for the development of innovative payment systems.
View the PSR announcement.TOPIC : People -
European Banking Authority Publishes New Taxonomy for Supervisory Reporting
09/09/2015
The European Banking Authority published the new taxonomy for national regulators to provide data to the EBA under the Implementing Technical Standards on supervisory reporting. The new taxonomy will be used for the first reports under the revised Liquidity and Leverage Ratio requirements and includes revised reporting structures for leverage ratio, and new parallel reporting structures for liquidity ratio for banks.
View the EBA announcement and taxonomy. -
Revised List of Validation Rules for Supervisory Reporting Issued by European Banking Authority
09/09/2015
The European Banking Authority published a revised list of validation rules for submitting supervisory reporting data. The rules detail the standards and formats that are to be used for submissions of data by national regulators under the Capital Requirements Directive IV. The revised list displays the rules that have been deactivated due to technical issues or incorrectness.
View the EBA announcement and revised rules. -
European Banking Authority Confirms Extension of the Terms for its Chairperson and Executive Director
09/09/2015
The Board of Supervisors of the European Banking Authority announced that Andrea Enria and Adam Farkas, Chairperson and Executive Director of the EBA respectively, would continue in their positions for a further five-year term from 2016 to 2021.
View the EBA announcement.TOPIC : People -
US Securities and Exchange Commission Charges Three RMBS Traders at Nomura Securities International with Defrauding Investors
09/08/2015
The US Attorney’s Office for the District of Connecticut brought criminal charges, and the SEC announced civil charges, against three traders at Nomura Securities International. The traders were accused of lying to customers who were relying on such traders for honest and accurate pricing information with respect to certain residential mortgage-backed securities. As a result, the traders generated millions of dollars in additional revenue for Nomura. According to the SEC, the traders misrepresented the bids and offers being provided to Nomura for the securities, the prices at which Nomura purchased and sold RMBS, and the spreads the firm earned intermediating trades. The traders further directed junior traders to engage in similar behavior.
The US Attorney’s Office charges the traders with one count of conspiracy, two counts of securities fraud, and seven counts of wire fraud – all of which carry terms of imprisonment. The SEC’s complaint charges the three traders with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 and Section 17(a) of the Securities Act of 1933.
View the U.S. Attorney's press release.
View the SEC press release.
View the SEC complaint.TOPIC : Enforcement -
UK Regulators Launch New Financial Services Register
09/07/2015
The Financial Conduct Authority announced the launch of the new Financial Services Register, which aims to make it easier to locate a firm, individual or collective investment scheme or exchange that is regulated by the FCA or Prudential Regulation Authority. Firms that the regulators believe are providing regulated products or services without the necessary authorization are also included in the register for the first time, flagged in red. The Mutuals Public Register and Regulated Covered Bonds Register do not form part of the new register and can be searched separately.
View the new Financial Services Register.
TOPIC : Financial Services -
Proposals for Global Collection of Direct and Ultimate Parent Data of Legal Entities in the Global LEI System
09/07/2015
The Legal Entity Identifier Regulatory Oversight Committee published proposals for a process for collecting data on parents of legal entities within the Global Legal Entity Identifier System. The LEI ROC is proposing to require entities that have or obtain an LEI to report their ultimate accounting consolidating parent and direct accounting consolidating parent, with the information to be published on the Global LEI System. LEIs are principally used by trade repositories to record derivatives transactions against particular legal entities. This initiative should therefore assist regulators in understanding the overall exposures of corporate groups. It is intended that the process would be phased in, according to priorities yet to be identified, with implementation starting near the end of 2015. The consultation closes on October 19, 2015.
View the consultation paper.TOPIC : Financial Services -
G20 Communiqué and Update on Financial Reforms
09/04/2015
The G20 Finance Ministers and Central Bank Governors issued a communiqué highlighting the actions required to achieve the goals of the G20 for this year. The group endorses the Organisation for Economic Cooperation and Development Principles on Corporate Governance, welcomes the progress made on the principles on SME financing and aims to finalize remaining elements of the global financial reform agenda this year. In addition, the OECD published a report prepared by the Financial Stability Board on corporate funding structures and incentives. The report sets out: (i) the growth and differences across countries and regions in nonfinancial corporate debt since the financial crisis; (ii) insights into the incentives that are influencing these trends; (iii) associated financial stability concerns; (iv) the role of macroprudential policies; and (v) potential action and next steps that could be taken, such as the use of macro prudential tools to moderate the risks of corporate leverage growth.
View the communiqué.
View the principles of corporate governance.
View the progress report on principles on SME financing.
View the report on corporate funding structures and incentives.TOPIC : Financial Services -
US Banking Agencies Approve Bank of America to Begin Using Advanced Approaches Framework to Calculate Risk-Based Capital Requirements
09/03/2015
The US Board of Governors of the Federal Reserve System and the US Office of the Comptroller of the Currency announced their approval of Bank of America and its subsidiary national banks to use the “advanced approaches” capital framework. The advanced approaches framework requires banks to meet certain criteria for risk-measurement and risk-management when calculating risk-based capital standards as developed by the Basel Committee on Banking Supervision. In order to use the advanced approaches framework, banks are required to conduct a satisfactory “parallel run” under the framework in order to show the relevant regulators that the bank is able to comply with the framework for at least four consecutive calendar quarters. Bank of America, along with its subsidiary national banks, fulfilled the parallel run requirement and will begin using the advanced approaches framework to calculate and disclose their risk-based capital measures beginning in the fourth quarter of 2015.
View the FRB press release.
View the OCC press release. -
UK Regulator Consults on Implementation of Recent Changes to UCITS V Directive
09/03/2015
The Financial Conduct Authority issued a consultation paper on the implementation of the Undertaking for Collective Investment in Transferable Securities V Directive and other changes to the FCA Handbook that affect investment funds. The consultation deals with three sets of proposals for the regulation of authorized investment funds and seeks views on: (i) the rules and guidance that will give effect to the most recent changes made to the UCITS V Directive; (ii) changes that are to be made to the Handbook to ensure that these work well in conjunction with the European Long Term Investment Funds Regulation, a new kind of fund vehicle which aims to contribute to financing the sustainable growth of the EU’s economy through targeting long term investment, which becomes applicable on December 9, 2015; and (iii) other changes to the Handbook relating to authorized investment funds, including clarification for some of the FCA’s reporting requirements and ambiguities to certain rules, so that the Handbook is kept up to date generally. The FCA is required to transpose the most recent changes to the UCITS V Directive by March 18, 2016. Comments are due by November 9, 2015 for Part I of the consultation, October 5, 2015 for Part II and December 7, 2015 for Part III.
View the consultation.
TOPIC : Funds -
International Organization of Securities Commissions Review of Implementation of Incentive Alignment Recommendations for Securitization
09/03/2015
The International Organization of Securities Commissions published its final report on the peer review of implementation of incentive alignment recommendations for securitization. The report sets out the implementation progress of its recommendations, which were published in 2012, on incentive alignment in securitization. The recommendations relate to, amongst other things: (i) achieving global harmonization of incentives of investors and securitizers along the securitization value chain; (ii) jurisdictions evaluating and formulating approaches for such alignment; and (iii) minimizing any adverse effects of cross border securitization transactions that may arise due to different approaches in incentive alignment and risk retention. The review states that only five jurisdictions of the 25 jurisdictions have reported to have completed implementation of all the recommended measures: China, India, Indonesia, Japan and Turkey. Eleven jurisdictions have taken steps to implement all measures but those steps were either not all complete or were not yet in force across the whole securitization market: Argentina, Brazil, France, Germany, Ireland, Italy, the Netherlands, Russia, Spain, the United Kingdom and the United States. The report also states that EU jurisdictions and the US were further progressed in implementation than other jurisdictions with smaller securitization markets. IOSCO aims to conduct a further adoption monitoring and implementation review in 2016.
View the report.
TOPIC : Securities -
International Organization of Securities Commissions Publishes Final Peer Review on the Regulation of Money Market Funds
09/02/2015
The International Organization of Securities Commissions published its final report on the peer review of the regulation of Money Market Funds. The report sets out the implementation progress of 31 jurisdictions in adopting legislation, regulation and policies relating to MMFs. The review covers eight areas of reform: (i) the scope of regulatory reform, including a definition of MMFs in regulation and other investment products that have similar features and investment objectives to MMFs; (ii) limitations to the types of risks and assets that are taken by MMFs; (iii) valuation practices of MMFs; (iv) liquidity management for MMFs; (v) possible risks that may arise that could affect the stability of MMFs offering a stable net asset value; (vi) use of credit ratings by the MMF industry; (vii) disclosure to investors; and (viii) practices related to repurchase agreement transactions. The review found that all participating jurisdictions had progressed in the implementation of measures across the areas of reform, that progress varied between different jurisdictions and that the global MMF market was dominated by five jurisdictions, being the US, France, Luxembourg, Ireland and China. The US, Brazil, India, Italy and Thailand are the only jurisdictions that have fully implemented measures across all eight reform areas.
View the report.
TOPIC : Shadow Banking -
Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions Consult on Harmonization of Key OTC Derivatives Data Elements
09/02/2015
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published a consultative report on the harmonization of a first batch of key OTC derivatives data elements, focusing on key data considered to be important for consistent and meaningful aggregation on a global basis, as OTC derivatives become required to be reported to trade repositories in many jurisdictions globally. The consultation seeks views on matters including: (i) proposed definitions of key data elements; (ii) whether the proposed definitions cover different market practices globally; and (iii) whether any alternative approaches to those mentioned in the report would better achieve the goals of the report. Comments are due by October 9, 2015.
View the report.
TOPIC : Derivatives -
US Deputy Comptroller Discusses Cybersecurity
08/31/2015
The US Office of the Comptroller of the Currency Deputy Comptroller for Compliance Operations and Policy, Grovetta Gardineer, discussed the cybersecurity assessment tool issued by the Federal Financial Institutions Examination Council in June 2015. According to Gardineer, the tool provides a common framework for assessment across institutions and represents a step forward in terms of supervision of banks and thrifts in cybersecurity. While the use of the cybersecurity tool is optional for financial institutions, it will be used by OCC examiners to supplement their exam work and to obtain a stronger and more complete understanding of the cybersecurity risks faced by financial institutions.
View press release.
View the speech.
TOPIC : Cyber Security -
European Securities and Markets Authority Consults on Remaining Draft Implementing Technical Standards under MiFID II
08/31/2015
The European Securities and Markets Authority published a consultation paper on the three remaining draft Implementing Technical Standards under the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation (together known as MiFID II) that it has not yet consulted upon. These draft ITS concern: (i) the format and timing of communications and publications in case of removal and suspension of financial instruments from trading on a trading venue; (ii) the standard forms, templates and procedures for authorization of Data Reporting Services Providers, covering DRSP applications for authorization, as well as notifications to changes of membership; and (iii) the format and timing of position reports by investment firms and market operators of trading venues for commodity derivatives, emission allowances and derivatives thereof. Comments to the consultation paper are due by October 31, 2015.
View the consultation.
TOPIC : MiFID II -
UK Regulators Launch New Websites for Revised Handbook and Rules
08/29/2015
The Financial Conduct Authority launched a new website for its Handbook of rules and guidance. The Prudential Regulation Authority launched its new website for the new PRA Rulebook.
View the new FCA website.
View the new PRA website.
View the FCA announcement.
View the PRA announcement.TOPIC : Financial Services -
US Commodity Futures Trading Commission Approves National Futures Association Rules Enhancing Protections for Retail Forex Customers
08/27/2015
On August 27, 2015, the US Commodity Futures Trading Commission approved rule amendments and a new interpretive notice filed by the National Futures Association heightening protections for retail customers of NFA Forex Dealer Members. Among other things, the rule amendments (i) impose additional capital requirements on FDMs; (ii) require FDMs to collect security deposits for off-exchange foreign currency transactions from both eligible contract participant counterparties as well as retail counterparties; (iii) require FDMs to adopt and implement more stringent risk management programs; and (iv) require FDMs to provide additional market disclosures and firm-specific information on their websites.
Statements issued by Chairman Timothy Massad and Commissioner Sharon Bowen emphasized the heightened risks faced by retail customers investing in the foreign exchange markets, including the losses retail investors face as a result of minor price movements in the foreign exchange market. In her statement, Commissioner Bowen further stated that the CFTC should consider imposing additional regulations on retail forex dealers, including, but not limited to: (i) imposing concentration charges on RFEDs if they are overly exposed to a particular currency pair or liquidity provider to incentivize RFEDs to balance their, and their retail counterparties’ positions; (ii) requiring that RFEDs get the best possible prices for their retail counterparties; and (iii) requiring or incentivizing RFEDs to clear in order to lower the credit risks that retail foreign exchange investors face.
View the press release.TOPIC : Derivatives -
European Securities and Markets Authority Seeks Feedback on CCP Time Horizon for Liquidation Period
08/27/2015
The European Securities and Markets Authority published a discussion paper on a review of the Regulatory Technical Standards for CCPs on the time horizons for the liquidation period for margin held by CCPs. The RTS currently specify a two-day time horizon as the liquidation period which should be sufficient for a CCP to transfer or liquidate the positions of a defaulting clearing member for exchange-traded derivatives. Margins are modeled to cover the exposures arising from this time horizon. The original RTS use this two-day liquidation period but based on net margin models, where offsetting positions of different customers cancel one another out. A key economic difference has been noted between the US and EU regimes for CCP margins, in that the US only requires a one day liquidation period but is calculated on a gross basis across all customer positions. A degree of harmonization of the two regimes is proposed to assist the EU in adopting a long-awaited equivalence decision for US CCPs under EMIR, with proposed adoption of a “one day gross” model for European CCP customer accounts. The two-day standard for clearing members' house accounts and the five-day liquidation period for OTC products would be retained. Responses to the discussion paper are due by September 30, 2015. On the basis of feedback, ESMA may prepare revised draft RTS for public consultation.
View the discussion paper and response form.
TOPIC : Derivatives -
European Securities and Markets Authority Publishes Examples of Waivers for Pre-Trade Transparency Requirements under MiFID I
08/26/2015
The European Securities and Markets Authority published a document setting out examples of waivers for pre-trade transparency requirements under the current Markets in Financial Instruments Directive and its implementing legislation, known as MiFID I. The document includes positions adopted by ESMA’s predecessor, the Committee of European Securities Regulators as well as opinions issued by ESMA. The document is intended to assist national regulators in ensuring that their supervisory practices are in line with ESMA’s opinions and to assist firms in determining the extent of the MiFID I requirements. Under MiFID I, operators of regulated markets and multilateral trading facilities must publish current bid and offer prices and the depth of trading interests in shares admitted to trading on a regulated market unless an exemption applies. Exemptions are available from national regulators for shares based on the market model or the type and size of orders. ESMA intends to update the document on an ongoing basis.
View the ESMA document.TOPIC : Securities -
European System of Central Banks Reports on Review of European Market Infrastructure Regulation for Access of CCPs to Central Bank Liquidity Facilities
08/25/2015
The European Central Bank published a report of the European System of Central Banks, which is comprised of the ECB and the national central banks of all EU Member States, on whether a measure should be included in the European Market Infrastructure Regulation which would facilitate the access of CCPs to central bank liquidity facilities. The report is required as part of the European Commission’s Review of EMIR. Under EMIR, there are no requirements for the provision of central bank liquidity facilities to CCPs. The decision whether to offer such facilities is left to each central bank’s discretion. This framework is in line with the Treaty on the Functioning of the European Union and the Statute of the ESCB. The ESCB does not consider that introducing requirements in EMIR for CCP access to central bank facilities is appropriate to address any potential weaknesses and concludes that the current legal framework is sufficient to ensure access for CCPs to liquidity facilities offered by central banks.
View the report.TOPIC : Derivatives -
US Federal Deposit Insurance Corporation Publishes Issue of Journal with Focus on the Critical Role of Corporate Governance and Strategic Planning in Responding to Earnings Challenges
08/24/2015
On August 24, 2015, the US Federal Deposit Insurance Corporation released the Summer 2015 issue of Supervisory Insights. The current issue includes papers on strategic planning and corporate governance. The journal also includes an article titled "Bank Investment in Securitizations: The New Regulatory Landscape in Brief" which explains how banks can structure their investment decision process in order to comply with these new rules resulting from the enactment of the Dodd-Frank Act.
View the Supervisory Insight.TOPIC : Corporate Governance -
Financial Services Roundtable Sends Letter to Governor Tarullo Urging Significant Changes to IAIS Insurer Proposal
08/24/2015
On August 24, 2015, the US Federal Deposit Insurance Corporation released the Summer 2015 issue of Supervisory Insights. The current issue includes papers on strategic planning and corporate governance. The journal also includes an article titled "Bank Investment in Securitizations: The New Regulatory Landscape in Brief" which explains how banks can structure their investment decision process in order to comply with these new rules resulting from the enactment of the Dodd-Frank Act.
View the letter.TOPIC : Corporate Governance -
US Commodity Futures Trading Commission Proposes Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps
08/19/2015
On August 19, 2015, the US Commodity Futures Trading Commission proposed amendments to existing regulations in order to provide further clarity to swap counterparties and registered entities concerning their reporting obligations for cleared swap transactions. In addition, the proposed amendments are intended to improve the efficiency of data collection and maintenance associated with the reporting of the swaps involved in a cleared swap transaction.
Among other things, the proposed rules are intended to provide clarity as to which counterparty to a swap is responsible for reporting creation and continuation data for certain swap transactions, including clarification as to whose obligation it is to report the extinguishment of a swap upon its acceptance by a derivatives clearing organization for clearing. The CFTC believes the proposed rules will reduce the probability of double-counting notional exposures and improve the capability to trace the history of a cleared swap transaction from execution between the original counterparties to clearing.
The proposed rule would modify Part 45 of the CFTC’s regulations, which the CFTC adopted on December 20, 2011. The comment period ends 60 days after the publication in the Federal Register.
View the press release.TOPIC : Derivatives -
US Securities and Exchange Commission Charges Citigroup Global Markets for Compliance and Surveillance Failures
08/19/2015
On August 19, 2015, the US Securities and Exchange Commission announced that Citigroup Global Markets Inc. (CGMI) agreed to pay a $15 million penalty in connection with settling charges for failing to enforce policies and procedures to prevent and detect securities transactions that could involve the misuse of material, nonpublic information. Additionally, CGMI agreed that they had failed to implement policies and procedures to prevent and detect principal transactions conducted by an affiliate.
According to the SEC’s order, CGMI violated Section 15(g) of the Securities Exchange Act of 1934 requiring brokers and dealers to establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information. The SEC’s order also found that CGMI violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-(7) requiring registered investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules. In additional to paying the penalty, CGMI has agreed to hire a consultant to review and recommend improvements to the firm’s trade surveillance and advisory account order handling and routing.
View the press release.TOPIC : Enforcement -
Shelly Luisi Named Associate Director in the Division of Corporation Finance
08/19/2015
On August 19, 2015, the SEC named Shelly Luisi the Associate Director in the Division of Corporation Finance. In her new role, Ms. Luisi will oversee the Disclosure Standards Office, which conducts research and assesses the Division of Corporation Finance program created to selectively review public-company filings. She begins her new role in September.
View the press release.TOPIC : People -
US Federal Reserve Bank of Richmond Published An Economic Brief Titled "Living Wills for Systemically Important Financial Institutions: Some Expected Benefits and Challenges"
08/19/2015The Federal Reserve Bank of Richmond published an August Economic Brief titled "Living Wills for Systemically Important Financial Institutions: Some Expected Benefits and Challenges." The brief considers challenges faced by regulators who must oversee the transition of systemically important financial institutions to resolvability, and some possible approaches to managing them.
Challenges include ascertaining short-term financing needs, organizational complexity of SIFIs and cross-border resolution hurdles. However, regulators may find that their authority under Dodd-Frank to impose changes in firm structures, together with market forces that may incentivize more streamlined organizational structures, may offer means to address some of these challenges.
View the Economic Brief.TOPIC : Recovery & Resolution -
Payment Systems Regulator Survey on Payment Service Providers and Indirect Payment Systems
08/19/2015
The UK Payment Systems Regulator announced that it is conducting a survey aimed at payment service providers who access payment systems indirectly. The survey is intended to inform the PSR’s consideration of whether action is required in the context of its two market reviews, which are on: (i) the supply of indirect access to payment systems, launched in May 2015; and (ii) the ownership and competitiveness of infrastructure provision (the hardware, software, secure telecommunications network and operating environments that are used to manage and operate payment systems), first announced in November 2014. Responses to the survey are due by September 23, 2015.
View the survey form. -
European Commission Issues Call for Advice on Net Stable Funding Requirements and Leverage Ratio
08/19/2015
The European Banking Authority issued a press release stating that it will conduct an analysis on the Net Stable Funding Requirements and Leverage Ratio under the Capital Requirements Regulation. This analysis is further to a recent call for advice issued by the European Commission to the EBA, seeking the EBA’s guidance so that it can prepare legislative proposals, if necessary, on technical issues that are not explicitly mentioned in the CRR. The Commission is seeking the EBA’s analysis on whether it is adequate to establish different NSFR and LR requirements for different types of institutions. This analysis would consider whether different firms could have, depending on their risk profile, size and business model: (i) different NSFR calibrations; (ii) simplified NSFR and LR requirements; or (iii) exemptions from the NSFR and LR requirements. The Commission also seeks analysis on other issues including: (i) the costs and benefits of excluding certain types of firms from the NSFR and LR requirements; (ii) the effects of the NSFR requirements on bank lending in the EU; and (iii) the impact of the NSFR on clearing, settlement and custody activities, on underwriting and market making, on business models and financing structures of institutions as well as on its interaction with risk-based capital requirements. The EBA must submit the reports on the NSFR and LR to the Commission by December 31, 2015 and October 31, 2016 respectively, although it plans to submit the LR report by July 2016.
View the EBA's press release.
View the European Commission's Call for Advice. -
Input Sought for Development of a Global Unique Transaction Identifier
08/19/2015
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions launched a consultation aimed at developing guidance for a uniform global unique transaction identifier. The development of a UTI was identified in September 2014 by the Financial Stability Board as one of the critical elements for a mechanism to produce and share global aggregated derivatives reporting data, along with the development a unique product identifier and the harmonization of certain other key data elements. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date 26 trade repositories have been established in 16 jurisdictions. The aggregation of data from those trade repositories is key to giving authorities a comprehensive view of the OTC derivatives market and activity and the purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories. The CPMI and IOSCO are seeking feedback that will assist in developing guidance on a UTI definition, the structure and format of a UTI and responsibility for generating a UTI. Implementation of the final guidance will be the subject of further work by the FSB. The consultation closes on September 30, 2015.
View the consultation paper.TOPIC : Derivatives -
Single Resolution Board Publishes Rules of Procedure
08/19/2015
The Single Resolution Board published a decision from its plenary and executive sessions of April 29, 2015 adopting its rules of procedure. The SRB works closely with the resolution authorities of EU member states that participate in the Single Supervisory Mechanism, the European Central Bank and the European Commission to ensure the orderly resolution of banks that are failing or likely to fail and to prevent any negative impact on the economy that could arise from such failings. The SRB has been operational in developing resolution plans for banks since January 1, 2015 and will be fully operational with a comprehensive set of resolution powers from January 2016. The SRB’s rules of procedure supplement the Singe Resolution Mechanism Resolution and include details on the SRB’s chairmanship, attendance of members at meetings, decision-making and voting.
View the Plenary decision.
View the Executive decision.TOPIC : Recovery & Resolution -
US Securities and Exchange Commission Charges BNY Mellon with Foreign Corrupt Practices Act Violations
08/18/2015TOPIC : Enforcement -
European Commission Publishes Management Plans for Economic and Financial Affairs, Financial Stability and Capital Markets Union
08/18/2015
The European Commission published the 2015 Management Plans for the Directorate-General of Economic and Financial Affairs (ECFIN) and the DG for Financial Stability, Financial Markets and Capital Markets Union (FISMA) which replaces the financial services directorates of the DG for Internal Market and Services (which ceased to exist in 2014). These DGs provide specialized services to the European Commission as departments of the Commission. The Management Plans include the mission statements, objectives and strategies. ECFIN’s objectives include to foster jobs, growth and investment and to promote prosperity beyond the EU. FISMA’s objectives include to ensure that the EU financial sector is adequately supervised, stable, transparent and is conducive to growth and jobs, that effective investor protection is applied through the use of strict conduct and disclosure rules, and that the banking, insurance and pension sectors are stable and resilient due to adequate prudential, supervisory and resolution regimes.
View the ECFIN Managament Plan.
View the FISMA Management Plan.TOPIC : Financial Services -
Robert Steven Kaplan Named President and Chief Executive Officer of the Federal Reserve Bank of Dallas
08/17/2015 | http://www.dallasfed.org/news/releases/2015/nr150817.cfmTOPIC : People -
Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges with US Securities and Exchange Commission
08/17/2015 | http://www.sec.gov/news/pressrelease/2015-168.htmlTOPIC : Enforcement
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European Stability Mechanism New Appointment
08/14/2015
The European Stability Mechanism announced the appointment of Juan Rojas as Head of Economics and Market Analysis.
View the ESM press release.TOPIC : People -
European Banking Authority Advice on Protections for Certain Arrangements in a Partial Property Transfer
08/14/2015
The European Banking Authority published technical advice to the European Commission under the Bank Recovery and Resolution Directive on the classes of arrangements to be protected in a partial property transfer. A partial property transfer occurs when some but not all of the assets, rights and liabilities of a failing firm are transferred to a new entity. Under the BRRD, the European Commission must adopt legislation that specifies which arrangements must be safeguarded to prevent linked liabilities, rights and contracts of a failing firm from being split in a partial property transfer. The EBA advises that a list of arrangements is not feasible because it would need to be exhaustive to capture the different legal frameworks in Member States, in particular, insolvency laws as well as any future developments. Instead, the EBA specifies the arrangements according to rules and definitions in a more specific way than the provisions of the BRRD itself. The criteria for whether an arrangement is within scope of the protection include the type, scope, economic purpose, the counterparties and the governing law of the arrangements. The EBA also recommends distinguishing between a core category of arrangements that should be protected in any event and others where the protection would depend on additional criteria and the specific circumstances. The EBA also advises that certain arrangements that would impair the feasibility of a partial property transfer resolution strategy should be excluded from protection. Finally, the EBA considers that where the BRRD text is unclear, resolution authorities should have the power to interpret the scope of the safeguards restrictively.
View the EBA’s advice.TOPIC : Recovery & Resolution -
US CFTC Commissioner Mark P. Wetjen Announces his Resignation
08/14/2015
On August 14, 2015, Commissioner Mark P. Wetjen announced his resignation from the US CFTC, effective August 28, 2015. During his time as Commissioner, Mr. Wetjen played a significant role in implementing the Dodd-Frank Act, including the implementation of the first trading mandate for interest rate and credit default swaps.
View the press release.TOPIC : People -
UK Prudential Regulation Authority Consults on Further Rulebook Parts
08/14/2015
The Prudential Regulation Authority published a consultation paper on proposals to transfer additional parts of the PRA rules that are in the FS Handbook into the stand-alone PRA Rulebook. The PRA is reshaping the materials inherited from the Financial Services Authority to create a Rulebook which contains PRA rules only and follows the split of the FSA into the PRA and the Financial Conduct Authority. The current consultation covers rules for financial conglomerates, third country groups, group risk systems and regulatory reporting. The consultation closes on November 13, 2015. It is expected that the new online PRA Rulebook will be available before the end of 2015.
View the consultation paper.
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US Commodity Futures Trading Commission Again Extends Relief from Certain Transaction-Level Requirements for Non-US Swap Dealers
08/13/2015
The US Commodity Futures Trading Commission issued a time-limited no-action letter, again extending relief to non-US swap dealers registered with the CFTC from certain transaction-level requirements under the Commodity Exchange Act. This extension builds on similar relief previously granted by the CFTC in 2014 and provides that the CFTC will not take an enforcement action against non-US swap dealers for failure to comply with the specified transaction-level requirements. Subject to the limitations laid out, the relief is effective until the earlier of September 30, 2016 or the effective date of any CFTC action with respect to relief for non-US swap dealers from certain transaction- level requirements.
View the CFTC press release.TOPIC : Derivatives -
Amrit Sekhon Named Deputy Comptroller for Capital and Regulatory Policy
08/13/2015
On August 13, 2015, Amrit Sekhon was named the OCC’s Deputy Comptroller for Capital and Regulatory Policy from October 4, 2015. Mr. Sekhon joined the OCC in 1998 and most recently served as Director for Capital Policy, overseeing the implementation of the Dodd-Frank capital and leverage rules. In his new role, Mr. Sekhon will be the key advisor to Comptroller Curry on domestic and international policies on bank capital. He will further serve as the OCC’s representative for Basel Committee meetings.
View the press release.TOPIC : People -
UK Regulators Publish Near-Final Rules on Senior Managers and Certification Regime for Non-UK Banks
08/13/2015
The Prudential Regulation Authority and Financial Conduct Authority published near-final rules on the Senior Manager and Certification regime for UK branches of EEA and non-EEA banks and PRA-designated investment firms. The new rules for all UK firms and branches of non-UK firms come into effect on March 7, 2016. Firms must notify the regulators by February 8, 2016 as to which individuals will be senior managers under the new regime. The regulators cannot make final rules until related legislation has been passed later this year. However, to give non-UK firms as much time as possible to implement the required changes, the regulators have decided to publish the near-final rules now. Amongst the changes included in the near-final rules are: (i) replacement of the FCA Overseas Branch Senior Management function with a new Executive Director function and a new Other Local Responsibility function; (ii) revised FCA guidance on remote booking; and (iii) clarifications on when an individual located outside of the UK who is involved in the activities of the branch might need to become approved as a senior manager.
View the PRA’s Policy Statement.
View the FCA’s Feedback Statement.TOPIC : Corporate Governance -
European Securities and Markets Authority Makes Recommendations under the EMIR Review
08/13/2015
The European Securities and Markets Authority published four reports which make recommendations for improving the framework of the European Market Infrastructure Regulation. The reports provide ESMA’s input into the European Commission’s review of EMIR. ESMA makes the following recommendations, amongst others: (i) streamlining the process for determining clearing obligations; (ii) introduction of a mechanism to temporarily suspend the clearing obligation; (iii) removal of the frontloading requirement; (iv) reconfiguration of the exemptions for intragroup transactions; (v) replacement of the current system for equivalence determinations for third country CCPs with a system based on Regulatory Technical Standards which includes powers to deny or suspend the recognition of a third country CCP; (vi) clarification of when new activities and services are not covered by a CCP’s initial authorization; (vii) granting ESMA increased supervisory and enforcement powers over trade repositories; (viii) the identification of quasi-financial entities, for example, hedge funds or some alternative investment funds, to prevent confusion with other non-financial counterparties, such as corporates; (ix) further details on the rules for implementing the counter-cyclical tools adopted by CCPs for margins and collateral; and (x) clarification of the provisions on segregation and portability by RTS.
View the ESMA reports.TOPIC : Derivatives -
UK Payment Systems Regulator Publishes Guidance on its Concurrent Competition Powers
08/13/2015
The UK Payment Systems Regulator published final guidance on its concurrent competition powers and on its approach to market reviews. The PSR has concurrent competition powers with the Competition and Markets Authority. The final guidance on the PSR’s powers and procedures under the Competition Act 1998, known as the CA98 Guidance, explains how the PSR will use its concurrent competition powers for participation in payment systems within the UK, in particular the enforcement processes it will follow and how they relate to its other powers and duties. The final guidance on the PSR’s powers and procedures for market reviews, market studies and market investigation, known as its Markets Guidance, explains the PSR’s powers to carry out market reviews, how the PSR will choose which powers to use, how the PSR will carry out market reviews and studies, including its approach to disclosure and use of information and how the PSR will make market investigation references.
View the CA98 Guidance.
View the Markets Guidance. -
US Consumer Financial Protection Bureau, US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Announce Enforcement Actions Against Citizens Bank
08/12/2015
On August 12, 2015, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation each issued enforcement actions against various Citizens Bank entities for unfair and deceptive and unsafe and unsound practices relating to the processes by which the bank reconciled discrepancies between amounts shown on deposit tickets and the actual amount of items submitted for deposit in violation of Section 5 of the Federal Trade Commission Act and other applicable laws. The enforcement actions impose civil money penalties on Citizens Bank and order the various entities to make restitution to affected customers and businesses as well as take certain other remedial corporate governance and other compliance-related actions.
View the press release.TOPIC : Enforcement -
UK High Court Issues Injunction and Penalties for Market Abuse
08/12/2015
The UK High Court of Justice, Chancery Division issued a judgment granting a permanent injunction to prohibit market abuse and imposing fines amounting to £7,750,000 against Da Vinci Invest Ltd and Mineworld Ltd as well as individual traders Szabolcs Banya, Gyorgy Szabolcs Brad and Tamas Pornye. Four of the five defendants were resident or incorporated abroad. The defendants were found to have committed market abuse in 2010 and 2011 using a trading tactic called “layering” or “spoofing,” which enabled them to trade UK-listed shares at artificial prices. This is the first time that the Financial Conduct Authority has asked the High Court to impose a permanent injunction for market abuse and to impose a penalty. Usually, the FCA would impose any penalty for market abuse.
View the judgment.
View the FCA’s press release.TOPIC : Enforcement -
Greg Coleman Named Deputy Comptroller for Large Bank Supervision
08/11/2015
On August 11, 2015, the OCC assigned Greg Coleman the role of Deputy Comptroller for Large Bank Supervision. Mr. Coleman joined the OCC in 1989 and became a commissioned national bank examiner in 1994. In his new role, Mr. Coleman joins three other Deputies for Large Bank Supervision and the Deputy Comptroller for International Banking Supervision in overseeing the large complex financial institutions subject to supervision by the OCC.
View the press release.http://www.occ.gov/news-issuances/news-releases/2015/nr-occ-2015-112.htmlTOPIC : People -
UK Regulators Publicly Censure the Co-operative Bank for Risk Management Failings
08/10/2015
The Prudential Regulation Authority and Financial Conduct Authority issued final notices publicly censuring the Co-operative Bank Plc. The PRA and FCA carried out a joint investigation and found serious breaches and failings in the bank’s systems between July 2009 and December 2013. The PRA focused its investigation on the bank’s risk management framework, capital management and corporate lending policies, whist the FCA focused on the bank’s publication of false and misleading information on the bank’s capital, which amounted to breaches of the listing rules. The regulators found, amongst other things, that the bank had: (i) inadequately assessed the level of risk it assumed, leading to a failure to manage that risk; (ii) mismanaged the information that it produced, leading to the bank’s Board not being familiar with key issues affecting the bank’s business; and (iii) prioritized its short-term financial position without taking reasonable and prudent actions for the longer-term. Both the FCA and PRA also noted the lack of notification to them of changes in senior management at the bank. These failings would usually trigger considerable fines however the regulators are not imposing any financial penalty, deeming it more appropriate to issue a public censure, in the interest of maintaining the safety and soundness of the firm. The regulators also took into account the turnaround plan that the bank has put in place to remedy the failings and to meet the individual capital guidance provided by regulators. The PRA would have otherwise imposed a significant fine of around £120 million on the bank.
View the PRA's final notice.
View the FCA's final notice.TOPIC : Enforcement -
US Comptroller of the Currency Discusses Innovation and Risk Management
08/07/2015
On August 7, 2015, the Comptroller of the Currency Thomas J. Curry gave a speech at a conference sponsored by the Federal Home Loan Bank of Chicago, entitled "Leading Toward the Future; Ideas and Insight for a New Era." In that speech, Mr. Curry discussed the ways in which innovation can benefit the financial system, the crucial role banks play in spurring such innovation, and efforts the OCC is undertaking to better comprehend the benefits and risks of innovative products and services. Mr. Curry noted that the OCC must develop a robust process in order to evaluate new approaches and encourage responsible innovation, while ensuring appropriate risk management and compliance with laws and regulations.
View the press release.TOPIC : Financial Market Infrastructure -
International Organization of Securities Commissions Report on Post-Trade Transparency in Credit Default Swaps Market
08/07/2015
The International Organization of Securities Commissions published its final report on post-trade transparency in the Credit Default Swaps market. The report discusses the impact of mandatory post-trade transparency in the CDS market generally, including the disclosure of price and volume of individual transactions. The report states that member jurisdictions should take further steps, including adopting legislation or implementing other legal powers where necessary, to enhance post-trade transparency in the CDS market.
View the report.TOPIC : Derivatives -
European Banking Authority Publishes Guidelines under Bank Recovery and Resolution Directive
08/07/2015
The European Banking Authority published final translations of certain of its Guidelines which are required under the Bank Recovery and Resolution Directive. The Guidelines are on: (i) the interpretation of the different circumstances in which a firm will be considered as failing or likely to fail; (ii) the minimum list of “critical” services or facilities that are necessary to enable a recipient to operate a business transferred to it; (iii) the asset separation tool, which provides guidance on the assets that may be transferred to an asset management vehicle (known as a “bad bank”); and (iv) the sale of business tool, which specifies how national regulators can deviate from standard marketing requirements for the sale of a business under resolution, if that failure presents a material risk to financial stability.
View the Guidelines on failing or likely to fail.
View the Guidelines on critical services.
View the Guidelines on asset separation tool.
View the Guidelines on the sale of business tool.
TOPIC : Recovery & Resolution -
Stephen W. Warren Named the US Office of the Comptroller of the Currency's Chief Information Officer
08/06/2015
On August 6, 2015, Stephen W. Warren was named Chief Information Officer at the US Office of the Comptroller of the Currency. He will join the OCC on September 6, 2015.TOPIC : People -
European Commission Intends to Amend Draft Technical Standards on Additional Monitoring Metrics for Liquidity Reporting
08/06/2015
The European Commission issued a press release dated July 24, 2015 announcing its intention to amend the draft Implementing Technical Standards on additional monitoring metrics for liquidity reporting under the Capital Requirements Regulation. The draft ITS set the amount and quality of capital that a bank must hold to absorb losses and also sets a general liquidity requirement for banks. The main amendment to the draft ITS concerns the removal of the “maturity ladder” template and its related instructions. This template lists the maturity of liquid assets as well as the expected timing of cash inflows and outflows for firms according to 22 timelines ranging from overnight to over 10 years. The amendment will ensure that the draft ITS aligns with the definition of “liquid assets” in the Commission’s Delegated Regulation on the liquidity coverage requirement for banks which includes the liquidity coverage ratio and the liquidity buffer. The Commission also intends to amend the proposed date of application of the draft ITS from July 1, 2015 to January 1, 2016.
View the press release. -
Mandatory Clearing of OTC Interest Rate Swaps a Step Closer in the EU
08/06/2015
The European Commission announced that it had adopted legislation which, once it comes into force, will make it mandatory to clear certain OTC interest rate swaps through CCPs. The obligation will apply to fixed-to-float IRS, known as plain vanilla IRS derivatives, float-to-float swaps, known as basis swaps, forward rate agreements and overnight index swaps which are denominated in euro, pounds sterling, Japanese yen or US dollars. The legislation is now subject to scrutiny by the European Parliament and the Council of the European Union. Mandatory clearing of these derivatives contracts represents the first mandatory clearing obligation under the European Market Infrastructure Regulation. It is expected that the European Securities and Markets Authority will in the near future propose mandatory clearing obligations for other types of OTC derivatives.
View the announcement.
View the Shearman & Sterling client note, "EU Clearing Obligation for Interest Rate Swaps Looms".TOPIC : Derivatives -
US Securities and Exchange Commission Adopts Rule for Pay Ratio Disclosure under Dodd-Frank
08/05/2015TOPIC : Compensation
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US Securities and Exchange Commission Adopts Final and Proposed Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants
08/05/2015
The US Securities and Exchange Commission adopted final rules under Dodd-Frank providing for the registration of security-based swap dealers and major security-based swap participants. Under the final rules, security-based swap dealers and major security-based swap participants, collectively referred to as SBS Entities, will be granted conditional registration status after filing an application with the SEC and providing certain senior officer certifications, pending the SEC’s review of the application. The SEC will then review the application to either grant ongoing registration or institute proceedings to deny registration to the SBS Entity. The registration process requires the submission by an SBS Entity of information about its business activities, structure and background as well as information about their control affiliates. Although the final rule will become effective 60 days after publication in the Federal Register, the compliance date for the final rules will depend on the timing of implementation of certain other security-based-swap-related final rules.
Additionally, on August 5, 2015, the SEC issued proposed rules, which would provide a process for a registered SBS Entity to apply to the SEC for an order permitting the SBS Entity to continue effecting security-based swaps through an associated person who is subject to a statutory disqualification. The SEC may issue an order granting such relief if it would be consistent with the public interest to permit such a person to be engaged in effecting security-based swaps notwithstanding the statutory disqualification. Comments on the proposed rule are due 60 days after publication in the Federal Register.
View the press release.
TOPIC : Derivatives -
Linda Cunningham Named the US Office of the Comptroller of the Currency's First Chief Risk Officer
08/05/2015
Linda Cunningham was named the first Chief Risk Officer at the US Office of the Comptroller of the Currency.TOPIC : People -
US Securities and Exchange Commission Adopts Rule for Pay Ratio Disclosure Under Dodd-Frank
08/05/2015TOPIC : Compensation
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UK Waiver for Firms on Depositor Protection Notifications
08/05/2015
The Prudential Regulation Authority published new waivers for firms on the notifications required for depositor protection. The recent changes require firms to notify all depositors of the limit change from £85,000 to £75,000 by September 1, 2015 and provide the Information Sheet to depositors between January 1 and July 1, 2016. The PRA’s preference is that firms send out the notification of changes to all depositors by September 1, 2015 and do not send out the Information Sheet or exclusions notification before January 1, 2016. However, to relieve some of the burden on firms, the PRA will allow firms to send the deposit limit change notification by September 1, 2015 to any depositor who is no longer covered by the depositor protection scheme and any depositor who holds aggregate eligible deposits of over £50,000 and either: (i) make the required systems or other changes to ensure that no Information Sheets or exclusions notifications are sent to depositors prior to January 1, 2016; or (ii) amend the Information Sheet to the new limit of £75,000 and send it with the exclusions notification on account opening and as an annual mailing between now and July 1, 2016.
View the modification by consent.TOPIC : Recovery & Resolution -
European Securities and Markets Authority Provides Technical Advice under Central Securities Depositories Regulation
08/05/2015
The European Securities and Markets Authority published its technical advice to the European Commission under the Regulation on improving securities settlement in the European Union and on central securities depositories, known as CSDR. The technical advice will be considered by the Commission in its preparation of delegated acts which it is required to pass under the CSDR. The technical advice is on penalties for settlement fails and on the substantial importance of a Central Securities Depository. Under CSDR, there is an obligation to settle instructions on the intended settlement date and a daily cash penalty applies for any failed settlement. ESMA’s technical advice is on the parameters for calculating the basic amount of the cash penalty, including the circumstances which may justify an increase or a reduction in the basic penalty amount. An EU passport is provided for under the CSDR which allows an EU-registered CSD to provide its services in any EU member state. Cooperation arrangements are required to be established between the home and host member states for the supervision of the CSD, in particular where the activities of the CSD are of “substantial importance for the functioning of the securities markets and the protection of investors” in the host member state. The Commission’s delegated act is required to set out which operations of a CSD could be considered of substantial importance.
View the technical advice.TOPIC : Financial Market Infrastructure -
European Banking Authority Consultation on Exclusion of Transactions with Non-EU Non-Financial Counterparties from Credit Valuation Adjustment Risk
08/05/2015
The European Banking Authority published a consultation paper including draft Regulatory Technical Standards on the procedures for excluding a firm’s transactions with Non-Financial Counterparties established in non-EU countries from the own funds requirements for Credit Valuation Adjustment risk under the Capital Requirements Regulation. A firm’s transaction with a NFC is excluded from the own funds requirements for CVA risk under the CRR, whether or not the NFC is established in the EU. This is the case as long as transactions do not exceed the clearing threshold specified in the European Market Infrastructure Regulation. As NFCs established in non-EU countries are not subject directly to EU regulation, the draft RTS clarify that firms are responsible for: (i) taking the necessary steps to identify all NFCs under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFCs if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds. The draft RTS align the treatment of NFCs established in a non-EU country with the treatment of NFCs established in the EU. Comments are due by November 5, 2015.
View the consultation paper. -
European Commission Assesses Level of Prudential Rules under Capital Requirements Legislation
08/05/2015
The European Commission published a report on its assessment of the appropriateness of the rules governing the levels of application of the prudential requirements under the Capital Requirements Directive and the Capital Requirements Regulation, together CRD IV. In the EU, subject to certain exceptions, the supervision of a banking group which includes several banks or investment firms is undertaken at the level of the entire banking group (so called consolidated supervision) as well as at the individual level. The outcome of the assessment is that the Commission does not think that it is appropriate to propose amendments to the rules at this time as consideration needs to be given to the impact of the Single Supervisory Mechanism, implementation of the liquidity coverage requirement and the application of the Bank Recovery and Resolution Directive.
View the report. -
US Office of the Comptroller of the Currency Issued Guidance Regarding Quantitative Limits on Physical Commodity Transactions
08/04/2015 | http://www.occ.gov/news-issuances/bulletins/2015/bulletin-2015-35.html.
The US Office of the Comptroller of the Currency issued a bulletin clarifying its expectations regarding the extent to which national banks and federal branches or agencies of foreign banks may make or take delivery of a physical commodity to hedge commodity derivatives risks. Among other things, the bulletin includes guidance on the calculation required to determine whether physical hedging activities are a nominal portion of risk management activities. Pursuant to the OCC bulletin, physical hedging positions are considered "nominal" if the bank’s commodity position is no more than 5 percent of the notional value of the bank’s derivatives that: (i) are in that particular commodity; and (ii) allow for physical settlement within 30 days. The guidance also reiterates the OCC’s expectation that a bank, prior to engaging in physical commodity hedging activities, should submit to the OCC a detailed plan for such activities and receive from the OCC a prior written supervisory nonobjection.
View the OCC bulletin.TOPIC : Derivatives -
US Office of the Comptroller of the Currency Issues Risk Management Guidance
08/04/2015 | http://www.occ.gov/news-issuances/bulletins/2015/bulletin-2015-36.html.
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New York State Department of Financial Services Issues Report on Investigation of Promontory Group
08/03/2015 | http://www.dfs.ny.gov/reportpub/promontory_inv_rpt_2015.pdf.TOPIC : Enforcement -
UK Prudential Regulation Authority Publishes Further Rulebook Parts and Supervisory Statements
08/03/2015
The Prudential Regulation Authority published a Policy Statement which sets out further rules that have been migrated from the joint Financial Conduct Authority/PRA Handbook to the PRA’s Rulebook. The PRA began reshaping the materials inherited from the Financial Services Authority to create a Rulebook which contains PRA rules only and follows the split of the FSA into the PRA and the FCA. The Policy Statement includes rules on passporting, regulatory reporting and reverse stress testing and final Supervisory Statements on: (i) the aggregation of holdings for the purpose of the prudential assessment of controllers; (ii) the internal capital adequacy assessment process or ICAAP and the supervisory review and evaluation process or SREP; (iii) guidelines for completing regulatory reports (entering into force on 1 January 2016); and (iv) internal governance. The Supervisory Statements set out the PRA’s expectations of firms in the relevant areas. The PRA has postponed publishing a Rulebook part and a related Supervisory Statement for internal governance of third-country branches because of the impact that the final rules under the Senior Managers Regime for third-country branches will have on those rules and its Supervisory Statement. The PRA intends to launch its online Rulebook before the end of 2015.
View the Policy Statement.
TOPIC : Financial Services -
UK to Review Financial Advice Market
08/03/2015
The UK government announced the launch of the Financial Advice Market Review which will be led by HM Treasury and the Financial Conduct Authority and include a separate expert advisory panel made up of leading individuals from financial services providers, financial advisors and consumer representatives. The review will assess the current regulatory and legal framework for the provision of financial advice and guidance to consumers and its effectiveness in ensuring access to the information, advice and guidance for consumers. The review will gather a broad range of initial evidence and then conduct the assessment on narrower terms according to where the advice gap is most evident. The initial evidence gathering will request examples of problems in obtaining advice in investments, savings, pensions and retirement income products, mortgages, consumer credit and general insurance. A consultation is expected to begin around the start of Q3 2015 and proposals are expected to be produced before the Budget is announced in 2016.
View the terms of reference.TOPIC : Consumer Protection -
Next Steps for UK Payment Systems Regulator
08/03/2015
The UK Payment Systems Regulator published an update on the work it has done to ensure that access, direct or indirect, to payment systems is fairer and also identified next steps to be taken. The PSR has introduced new access and reporting rules for operators and has imposed a disclosure obligation on the four main sponsor banks providing indirect access. The PSR will continue to work with operators and sponsor banks to help them adapt to the new regulatory requirements and will publish the findings from its review of their compliance reports later in 2015. The PSR launched a market review into the supply of indirect access to market systems and aims to publish an interim report on the review by January 2016 and a final report by May 2016.
View the report.
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European Banking Authority Call for Evidence on Capital Charges for Lending to Small and Medium Enterprises
07/31/2015The European Banking Authority published a call for evidence under the Capital Requirements Regulation on Small and Medium Enterprises and the related capital reduction for loans to SMEs, also known as the Supporting Factor. The Supporting Factor allows banks to counterbalance the rise in capital resulting from the capital conservation buffer. Under the CRR, banks should use the capital relief produced through the Supporting Factor exclusively to provide an adequate flow of credit to SMEs in the European Union. The call for evidence aims to collect views from stakeholders and the industry to contribute to the report to the European Commission on lending trends and lending conditions for SMEs, as well as the potential risks associated with SMEs in the context of capital reduction. The final report on SMEs and the Supporting Factor will be published by the EBA in the first quarter of 2016. Responses to the call for evidence are due by October 1, 2015.
View the call for evidence. -
Amendments to Templates for Supervisory Reporting Published in Official Journal of the European Union
07/31/2015
An Amending Regulation which amends the Regulation with Implementing Technical Standards on instructions, templates and definitions for the supervisory reporting of institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The amendments do not include any substantive changes to the original Regulation and relate only to the replacement of templates in the annexes of the Regulation. The changes aim to enhance precision in the submission, definitions and instructions relating to the supervisory reporting of institutions.
View the Amending Regulation. -
New Appointment to Board of Financial Conduct Authority
07/31/2015
Christopher Woolard has been appointed to the FCA Board as Director of Strategy and Competition for a three year term as of August 1, 2015.TOPIC : People -
Bank of England Secondment to the Financial Conduct Authority
07/31/2015
Megan Butler, Executive Director of International Banks Directorate at the Bank of England, will undertake a one year secondment as Director of Supervision—Investment, Wholesale & Specialists at the FCA, as of September 1, 2015. Sarah Breeden, Director of Overseas Banks Division will act as Executive Director of International Banks Directorate during Ms. Butler’s absence.TOPIC : People -
UK Prudential Regulation Authority Publishes Rules on Depositor Protection
07/31/2015
The Prudential Regulation Authority published a Policy Statement which includes final rules which will allow depositors affected by the recent change in level of deposit protection to adjust to the new limit without loss of interest or incurring any penalties. The PRA announced on July 3, 2015 that the existing £85,000 level of deposit protection will change to £75,000 after December 31, 2015. Depositors that are contractually tied into products with balances above £75,000, either currently or at product maturity, will be able to request, until December 31, 2015, to withdraw funds between the old and new limits. Firms are prohibited from requiring a depositor making such a request to close an entire account unless the funds are placed into a new product with similar terms. A firm must return funds to a depositor within the earlier of two months of the request or by January 31, 2016. The PRA also published a revised Supervisory Statement on depositors and dormant account protection which now includes the PRA's expectations of firms regarding the definition of "affected person", notification requirements, withdrawal of affected funds and the charges, penalties and loss of interest.
View the Policy Statement.
View the amended rules.
View the revised Supervisory Statement.TOPIC : Recovery & Resolution -
European Securities and Markets Authority Consults on Draft Regulatory Technical Standards for European Long-Term Investment Fund Regulation
07/31/2015
The European Securities and Markets Authority published a consultation paper on draft Regulatory Technical Standards for European Long-Term Investment Fund Regulation. An ELTIF is a new kind of fund vehicle which aims to contribute to financing the sustainable growth of the European Union's economy through targeting long-term investment. To achieve this aim, ELTIFs are subject to various rules concerning the types of assets in which they can invest. For example, an ELTIF should invest at least 70% of its capital in “eligible investment assets” (which are generally illiquid). ELTIFs are EU AIFs managed by authorized AIFMs and are therefore additionally subject to the AIFMD rules. The draft RTS aim to determine amongst other things: (i) the characteristics of the facilities made available to retail investors such as those for making subscriptions, payments to unit or shareholders, or repurchasing or redeeming units or shares; (ii) given that an ELTIF may not use financial derivative instruments except where it solely serves the purpose of hedging risks inherent to other investments of an ELTIF, the criteria for establishing the circumstances in which financial derivative instruments solely serve hedging purposes; and (iii) the circumstances in which the life of an ELTIF is considered to be sufficient in length. ELTIFs are expected to increase the volume of non-bank finance for companies investing in the European Union.
View the consultation paper.TOPIC : Funds -
US Federal Reserve Appoints Faster Payments Strategy
07/30/2015
The Federal Reserve Board announced the appointment of Federal Reserve Bank of Chicago Senior Vice President Sean Rodriguez as the Faster Payments Strategy Leader. Mr. Rodriguez will chair the Federal Reserve’s Faster Payments Task Force, comprised of more than 300 payment system stakeholders interested in improving the speed of authorization, clearing, settlement and notification of various types of personal and business payments.TOPIC : People -
Financial Conduct Authority Bans Former Trader from UK Financial Services Industry 07/30/2015
The Financial Condict Authority announced that it had banned Lee Stewart from the UK financial services industry. Mr. Stewart pleaded guilty in March 2015 in the US to charges of attempting to manipulate US Dollar LIBOR. He was formerly a trader at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. The FCA found that Mr. Stewart had breached the Fit and Proper requirements set out in its Handbook because he lacked integrity and honesty. The ban, which took effect on July 21, 2015, prohibits Mr. Stewart from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.TOPIC : Enforcement -
New Members of EU Consultative Working Group for the Investor Protection and Intermediaries Standing Committee
07/30/2015
The European Securities and Markets Authority announced the new members of its Consultative Working Group for the Investor Protection and Intermediaries Standing Committee. The new chair of the Committee is Jean-Paul Servais, Chair of the Belgian Financial Services and Markets Authority. The Committee is responsible for work on investor protection in the provision of investment services and activities by investment firms and banks, including the conduct of business rules, distribution of investment products, investment advice and suitability, and for providing technical advice and draft technical standards to the European Commission on relevant issues under the Markets in Financial Instruments Directive.TOPIC : People -
European Securities and Markets Authority Opines on Functioning of EU Passport and National Private Placement Regime and Advises on Extension of Passport to Non-EU jurisdictions
07/30/2015
The European Securities and Markets Authority published its Advice to the European Commission, Parliament and Council on the potential extension of the EU passport to non-EU countries under the Alternative Investment Fund Managers Directive. It also published its Opinion on the functioning of the EU passport under the AIFMD and on the operation of the National Private Placement Regime. Under current rules, non-EU Alternative Investment Fund Managers and EU AIFMs of non-EU Alternative Investment Funds are only able to market their funds into member states when permitted by the relevant NPPR. ESMA has now assessed six non-EU jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the US. ESMA's Advice states that there are no obstacles for extending the passport to Guernsey and Jersey AIFs and AIFMs. The same applies to Switzerland, pending certain amendments to the Swiss Federal Act on Stock Exchanges and Securities Trading. ESMA states that there is currently a lack of evidence for an appropriate assessment to be made in respect of Hong Kong, Singapore and the US, though it will complete its assessment of these jurisdictions as soon as possible. An assessment of other jurisdictions will also be undertaken. ESMA's Opinion states that some issues have been identified related to the use of the EU passport, including divergent approaches to marketing rules. The Opinion concludes that there is insufficient evidence to show that either the passport or NPPR have raised any major issues in the functioning and implementation of the AIFMD framework. ESMA recommends that a further Opinion on the functioning of the passport and the NPPR is prepared after a longer period of implementation has elapsed in all Member States.
View the Opinion and Advice.TOPIC : Funds -
International Organization of Securities Commissions Review on Timeliness and Frequency of Disclosure to Investors
07/30/2015
The International Organization of Securities Commissions published its Thematic Review of the implementation on the timeliness and frequency of disclosure to investors according to Principles 16 and 26 of the IOSCO Objectives and Principles of Securities Regulation. Thirty‑seven jurisdictions participated in the review. Principle 16 relates to issuers and states that there should be full, accurate and timely disclosure of financial results, risk and other information material to the decisions of investors. The review found that there are differences on the type of information that must be disclosed and the timing of the disclosures: listed issuers are more often subject to disclosure requirements compared to other issuers, and disclosure deadlines for listed issuers are tighter. Principle 23 relates to Collective Investment Schemes and states that regulation should require necessary disclosure to evaluate the suitability of a CIS for a particular investor and the value of the investor’s interest in the scheme. The review found that timely disclosure requirements on value, risk reward profile and costs of CISs were found to be in place for all jurisdictions.
View the Review.TOPIC : Financial Services -
US Federal Financial Institutions Examination Council Proposes Changes to Report for Foreign Branches of US Banks and Savings Associations
07/29/2015
The US Federal Financial Institutions Examination Council, a formal interagency body that prescribes reporting standards for financial institutions, of which the US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation (the "agencies") are members, approved for publication a proposal to extend, with certain revisions (including revisions to the officer declaration requirement), the Foreign Branch Report of Condition (FFIEC 030 and FFIEC 030S).
The FFIEC 030 collects information regarding the structure and geographic distribution of assets, liabilities and off-balance-sheet data of foreign branches of insured US banks and savings associations. The FFIEC 030S (the Abbreviated Foreign Branch Report of Condition) collects financial data items for smaller, less complex branches. Included in the proposed revisions is an amendment to the officer declaration requirement. Currently, the report must be signed by an officer who states that the report is true and correct to the best of his or her belief. The amendments would make explicit a requirement that the officer who signs the declaration must be an officer of the parent US institution, and the new form of declaration would state not only that it is true and correct to the best of the officer’s knowledge and belief, but also that the report has been prepared in conformance with FFIEC instructions. Other amendments would reduce the required information if the single-country consolidation option is elected and add a field on the cover page for the institution to indicate whether the branch meets the criteria for annual or quarterly filing. The proposal would be effective as of the December 31, 2015 report date. Comments are due by September 28, 2015.
View the proposal. -
Financial Conduct Authority Publishes Outcome of Review on Financial Benchmarks
07/29/2015
The Financial Conduct Authority published the results of its thematic review into the oversight and control of financial benchmark activities. The review assessed the extent to which firms had responded to concerns and issues highlighted in recent benchmark enforcement cases, whether firms had implemented appropriate oversight and controls to manage the risks involved in their benchmark activities and the understanding within firms of the International Organization of Securities Commissions' Principles for Financial Benchmarks. The review found that all of the 12 banks and broking firms involved in the review had taken steps to change their approach to benchmark activities but that work was still required by all the firms and includes six key messages for firms involved in benchmark activities, which are: (i) firms need to ensure that they identify all of the activities which constitute benchmark activity or could affect a benchmark; (ii) senior management in firms need to act quickly to implement improvement plans; (iii) firms need to strengthen their governance and oversight of benchmark activities; (iv) further work is required on identifying and managing conflicts of interest; (v) robust controls need to be established for in-house benchmarks; and (vi) firms exiting benchmark activities need to give due consideration to the wider impact of their actions. The report sets out good and bad practices that were observed at the firms assessed by the FCA. The FCA expects those firms that were provided feedback during the review to act to make the necessary improvements and for all firms and users of benchmarks to consider the key messages and results of the review.
View the report.TOPIC : Financial Market Infrastructure -
International Organization of Securities Commissions Reviews Implementation of Standards for Derivative Market Intermediaries
07/29/2015
The International Organization of Securities Commissions published a report which sets out the findings of its review on the progress by countries in adopting legislation, regulation and policies for derivatives market intermediaries as set out in the IOSCO “International Standards for Derivative Market Intermediary Regulation.” The Standards cover the scope of regulatory reform, registration requirements, capital standards for non-prudentially regulated DMIs, conduct of business standards, business supervision standards and recordkeeping standards. The review found that most jurisdictions are in the process of implementing legal frameworks which cover the same areas as the Standards and recommends that an implementation assessment need not be undertaken before the end of 2016.
View the Report.TOPIC : Derivatives -
UK Prudential Regulation Authority Publishes New Policies on Setting Pillar 2 Capital Requirements
07/29/2015
The Prudential Regulation Authority published: (i) a Policy Statement on assessing capital adequacy under Pillar 2; (ii) a Statement of Policy on the PRA’s methodologies for setting Pillar 2 capital; (iii) a Supervisory Statement on Pillar 2 reporting; and (iv) a Supervisory Statement on the Internal Capital Adequacy Assessment Process that must be undertaken by firms and the Supervisory Review and Evaluation Process conducted by the PRA. The documents are applicable to banks, building societies and PRA-designated firms. Pillar 2 aims to ensure that firms have sufficient capital to cover potential risks not sufficiently addressed in the prescriptive Pillar 1 requirements. The Pillar 2 framework enters into force on January 1, 2016. The PRA's Policy Statement on assessing capital adequacy under Pillar 2 contains feedback received on its consultation paper of January 2015 on proposals to enhance transparency and accountability in setting Pillar 2 capital requirements. The Policy Statement explains that firms must carry out an ICAAP in accordance with the PRA's rules and it is not sufficient to only replicate the PRA's methodologies as the ICAAP is the responsibility of a firm's management body.
View the Policy Statement.
View the Statement of Policy.
View the Supervisory Statement on Pillar 2 reporting.
View the Supervisory Statement on the ICAAP and SREP. -
European Banking Authority Consults on Guidelines on Cooperation Agreements between Deposit Guarantee Schemes
07/29/2015
The European Banking Authority launched a consultation on proposed guidelines for cooperation agreements between deposit guarantee schemes. Under the recast Deposit Guarantee Schemes Directive, designated authorities or deposit guarantee schemes must enter into written cooperation agreements. The proposed guidelines set out the objectives and minimum content of such cooperation agreements as well as a multilateral framework cooperation agreement which deposit guarantee schemes or designated authorities could adhere to unless they enter into bilateral agreements which go beyond the level of detail required by the framework agreement. In addition, the EBA proposes a sequence and timing framework governing when an EU host deposit guarantee scheme pays depositors of an EU branch of a non-EU headquartered firm. The consultation is open until October 29, 2015.
View the consultation paper.TOPIC : Recovery & Resolution -
European Banking Authority Publishes Key Information on Global Systemically Important Institutions and Other Large Banks in the EU
07/28/2015
The European Banking Authority published a table setting out metrics to identify Global Systemically Important Institutions in the EU. The table sets out the size, interconnectedness, substitutability, complexity and cross-jurisdictional activity of the largest 37 banks in the EU whose leverage ratio exposure measure exceeded €200 billion in 2014. This information is disclosed annually by the EBA. G-SIIs are subject to higher capital requirements and their identification as G-SIIs is the responsibility of their national regulator. A higher capital requirement applies one year after the publication by the national regulator of a bank’s scoring result, allowing the bank sufficient time to adjust to the new buffer requirement.
View the EBA press release and chart. -
European Systemic Risk Board Makes Recommendations for Review of European Market Infrastructure Regulation
07/28/2015
The European Systemic Risk Board published two reports on issues to be considered in the review of the European Market Infrastructure Regulation which the European Commission is responsible for conducting by August 17, 2015. The first report is on the efficiency of margining requirements to limit pro-cyclicality and the need to define additional intervention capacity in the area, focussing on margins and haircut setting for CCPs because the technical standards on margin for uncleared derivatives are not yet final. The second report considers the wider ambit of EMIR. In the reports, the ESRB makes several recommendations to the European Commission for the improvement of EMIR, including: (i) binding guidance on the three options available to a CCP for taking into account potential pro-cyclicality of margin requirements; (ii) a less flexible framework for calibrating collateral haircuts; (iii) that CCPs should be required to prepare an overall tolerance for pro-cyclicality policy and be subject to more granular transparency requirements for pro-cyclicality; (iv) a further review of EMIR in 2018; (v) a swift process for removal or suspension of mandatory clearing requirements; (vi) the replenishment of default funds and the skin-in-the-game design under EMIR and at an international level; and (vii) broader access rights for national regulators to trade repository data.
View the first report.
View the second report.TOPIC : Derivatives -
UK Financial Conduct Authority Issues Guidance on Managing Risks from Performance Management
07/27/2015
The Financial Conduct Authority has published final guidance for firms on risks to customers from performance management. The guidance applies to all firms with staff that deal directly with retail customers. The guidance is intended to assist firms in ensuring that the risk of misselling from performance management is managed and to monitor performance management, looking for indicators of undue pressure to identify poor practices. The FCA will reconsider the guidance once the Markets in Financial Instruments Regulation and Directive, known as MiFID II, come into effect on January 3, 2017.
View the guidance.TOPIC : Consumer Protection -
UK Prudential Regulation Authority Announces New Appointments to Board
07/27/2015
The Bank of England announced the appointment of David Thorburn and Dr Norval Bryson as independent members of the Board of the Prudential Regulation Authority, effective September 1, 2015.TOPIC : People -
UK Banking Standards Board Announces New Appointment to Board
07/27/2015
The UK Banking Standards Board announced the appointment of Saker Nusseibeh, CEO of Hermes Investment Management, to its Board from September 2015.TOPIC : People -
UK Financial Conduct Authority Publishes Final Guidance and Amended Rules on its Concurrent Competition Powers
07/24/2015
The FCA published final guidance and amended rules on its new competition law powers. The FCA obtained concurrent competition powers for the provision of financial services on April 1, 2015 which allow it to: (i) conduct investigations under the Competition Act 1998 and the Treaty on the Functioning of the European Union; and (ii) carry out market studies and make market investigation references to the Competition and Markets Authority under the Enterprise Act 2002. The finalized guidance clarifies how the FCA intends to use its new competition powers. The final rules, which come into effect from August 1, 2015, impose an obligation on authorized firms to report to the FCA any significant infringement of any applicable competition law.
View the Shearman & Sterling client publication on the FCA’s Concurrent Competition Powers.
View the FCA Policy Statement, including final rules.
View the final guidance on the FCA’s powers and procedures under the Competition Act 1998.
View the final guidance on the FCA’s market.TOPIC : Competition -
Financial Stability Board Reports on Implementation of OTC Derivative Reforms
07/24/2015
The Financial Stability Board published its ninth report on the implementation of OTC derivatives reforms. The report notes that implementation of the reforms continues to progress but that challenges do still exist. Issues that are being addressed at international level include harmonization of transaction reporting, a framework for uniform trade and product identifiers, coordination on CCP resilience and cross-border regulatory issues. The FSB will continue to monitor and report on implementation of the reforms including the effects thereof.
View the FSB report.TOPIC : Derivatives -
FX Working Group Established to Improve Global FX Market Standards
07/24/2015
The Markets Committee of the Bank for International Settlements announced that the Foreign Exchange Working Group has been established. The objective of the FX Working Group is to strengthen code of conduct standards and principles in FX markets through the establishment of a single global code of conduct and related principles to ensure increased adherence to the code.
View the announcement.TOPIC : Financial Services -
Agency for the Cooperation of Energy Regulators Approves Third Party Registered Reporting Mechanisms
07/24/2015
The EU Agency for the Cooperation of Energy Regulators has announced that it has approved the first five third-party Registered Reporting Mechanisms under the Regulation on wholesale energy market integrity and transparency, known as REMIT. From October 7, 2015, market participants must report their wholesale energy market transactions admitted to trading at Organized Market Places, including orders to trade, to ACER. Market participants must either be approved by ACER as an RRM or report through a third-party RRM to fulfill the obligation. Further reporting obligations come into effect on April 7, 2016, which will require market participants to report OTC standard and non-standard supply contracts and transportation contracts.
View the announcement.TOPIC : Derivatives -
EU Proposed Guidelines on Sound Remuneration Policies for Funds
07/23/2015
The European Securities and Markets Authority published proposed guidelines on sound remuneration policies under the Undertakings for the Collective Investment of Transferable Securities Directive, known as UCITS V. A minor revision of the guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive, known as AIFMD, is also proposed. The proposed UCITS V guidelines are based on the Guidelines on sound remuneration practices developed under AIFMD. ESMA intends to publish a final report and guidelines in Q1 2016 ahead of the implementation deadline for the UCITS V Directive of March 18, 2016. The consultation is open until October 23, 2015.
View the consultation paper.TOPIC : Funds -
Final Global Criteria for Simple, Transparent and Comparable Securitizations
07/23/2015
The Basel Committee and the International Organization of Securities Commissions published final criteria for identifying simple, transparent and comparable securitizations. The aim of the criteria is to assist parties to a securitization to assess the risk involved across similar products, although they do not serve as a substitute for investor due diligence. The criteria are non-exhaustive and non-binding.
View the final criteria.TOPIC : Financial Services -
New Chair of Financial Conduct Authority Practitioner Panel
07/23/2015
The Financial Conduct Authority announced that Antonio Simoes, Chief Executive Officer for HSBC in the UK, will become Chair of the FCA Practitioner Panel from August 1, 2015. Mr. Simoes will succeed Alison Brittain, former Group Director of Retail at Lloyds Banking Group.TOPIC : People -
UK Government Proposes to Amend Limited Partnership Legislation
07/23/2015
The UK Government published proposals to amend the Limited Partnership Act 1907 as it applies to funds. The aim of the proposals is to remove unnecessary legal complexity and administrative burdens so as to ensure that the UK limited partnership remains the market standard for European private equity and venture capital funds and other private funds. The proposals include: (i) for private fund vehicles that are limited partnerships to be designated as private fund limited partnerships upon registration; (ii) adding a non-exhaustive list of activities that a limited partner of a private fund limited partnership may carry out without being considered to take part in the management of the business; (iii) removing the requirement for limited partners in private funds to make capital contributions; (iv) allowing the partners in a private fund to agree who should wind up the limited partnership and removing the requirement to obtain a court order; and (v) removing the requirement for certain details to be provided when a private fund is established as a limited partnership. The consultation is open until October 5, 2015.
View the consultation.
View the draft amendment instrument.TOPIC : Funds -
European Banking Authority Publishes Reports on Consistency of Risk-Weighted Approaches and Calculation of Counterparty Credit Risk Exposures and Credit Valuation Adjustment Risk
07/22/2015
The European Banking Authority published two reports on the findings of two benchmarking exercises conducted under the Capital Requirements Directive IV. The exercises aim to assess and improve the consistency and comparability of Risk-Weighted Assets across large EU banks. The first report deals with findings on internal approaches applied for the calculation of RWAs for Low Default Portfolios across large EU firms. The study found that 75 percent of the observed differences in Global Charge levels across institutions can be explained by the proportion of defaulted exposures in a portfolio and portfolio mix. When each portfolio is looked at separately, the impact of defaulted exposures explains around 50 percent of GC differences for both large corporate and institutions portfolios. The remaining 50 percent could be attributed to bank-specific issues such as Internal Ratings-Based parameters or risk management practices. Data was collected from 41 institutions for this study. The study was based only on draft technical standards. The report states that more in-depth analysis is required on the impact of collateral on internal loss-given-default estimates as well as comparisons between the IRB and standardized approaches. The second report deals with the internal approaches applied for Counterparty Credit Risk exposures under the Internal Model Method and Credit Valuation Adjustment Risk according to the Advanced Approach. This study was carried out using data collected by the Basel Committee for Banking Supervision and shows significant variability in the calculation of CCR and CVAR when using the IMM across banks, especially where equity and foreign exchange OTC derivatives are concerned.
View the press release and both reports.
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European Banking Authority to Propose Legislative Initiative to Improve Consistency of Assessment of Bank Management
07/22/2015
The European Banking Authority published a report, dated June 16, 2015, following a peer review of the EBA Guidelines on the assessment of the suitability of members of the management body and key function holders in banks. The EU Capital Requirements Directive provides that a bank must have at least two suitable persons who effectively direct the business. The EBA Guidelines set out the criteria and processes for banks and their supervisors to follow when assessing the suitability of proposed and appointed members of the management body and provisions for the assessment of key function holders. The peer review results show that national regulators mostly apply the EBA Guidelines, that best practices have been identified but that there is no harmonized practice amongst EU Member States in many areas of the Guidelines. The EBA intends to set out best practices in a revised version of the EBA Guidelines and to recommend a legislative initiative on certain points to ensure further alignment of practices among Member States.
View the report.
View the EBA Guidelines. -
UK Government Consults on Further Reforms to the UK Regulatory Architecture
07/21/2015
The UK Government launched a consultation on proposed amendments to the governance and regulatory architecture in line with the announcement made alongside the Queen’s speech in May about a new Bank of England Bill. The proposals include ending the subsidiary status of the Prudential Regulation Authority by bringing it within the BoE and calling it the Prudential Regulation Committee. The PRA’s functions would transfer to the BoE and the PRC would have the responsibility for exercising them, retaining the independence of the PRA to make rules, policies and supervisory decisions. The new PRC would be set up on the same basis as the Monetary Policy Committee of the BoE. Other proposals include: (i) formalizing the working relationship established between HM Treasury and the BoE for coordination in a financial crisis and the development of resolution strategies for banks and large investment firms; (ii) adjusting the statutory status of the Financial Policy Committee from a sub-Committee of the Court of Directors of the BoE to a Committee of the BoE in line with the MPC; (iii) transferring responsibility for setting the BoE’s financial stability strategy from the Court of the BoE to the FPC; and (iv) decreasing the size of the Court and including the new Deputy Governor position for Markets and Banking. The consultation is open until September 11, 2015.
View the consultation paper.TOPIC : Financial Services -
Federal Reserve Board Governor Nominated by President Obama
07/20/2015
President Barack Obama announced his intent to nominate Dr. Kathryn M. Dominguez to serve on the Board of Governors of the Federal Reserve System. Dr. Dominguez is a Professor of Public Policy and Economics in the Gerald R. Ford School of Public Policy and the Department of Economics at the University of Michigan.TOPIC : People -
US Federal Reserve Board Issues G-SIB Surcharge Final Rule
07/20/2015
The US Board of Governors of the Federal Reserve System issued a final rule under Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring all US bank holding companies with $250 billion or more in consolidated total assets or $10 billion or more in consolidated total on-balance sheet foreign exposures to annually calculate their systemic importance using the methodology in the final rule. BHCs that meet the “G-SIB threshold” will be required to hold additional common equity tier 1 capital (the “G-SIB surcharge”) as an addition to the capital conservation buffer under the Federal Reserve’s minimum risk-based capital requirements. Eight US firms are currently expected to qualify as G-SIBs under the final rule. Similar to the proposed rule, under the final rule, estimated surcharges for the eight G-SIBs range from 1.0 to 4.5 percent of each firm’s total risk-weighted assets. Failure to meet the G-SIB surcharge will result in limitations on a G-SIB’s ability to make certain capital distributions and discretionary bonus payments. The Final Rule is generally similar to the proposed rule issued in December 2014 and is largely based on, but stricter than, an international standard adopted by the Basel Committee on Banking Supervision. The G-SIB surcharge will be phased in starting in 2016, and will become fully effective on January 1, 2019.
View the press release.
View the final rule.
View the Shearman & Sterling client publication. -
Prudential Regulation Authority Sets Interim LCR Reporting Requirements
07/20/2015
The Prudential Regulation Authority published a Supervisory Statement setting out the liquidity coverage requirement reporting standards which firm's will need to comply with on an interim basis between October 1, 2015, the date the LCR applies under the original implementing technical standards, and the date of the new LCR requirements come into effect following the adoption by the European Commission of revised ITS on liquidity reporting. Firms are required to submit LCR data to national regulators under the CRR and CRD. The PRA considers that firms should report their LCR positions in the interim period so that their liquidity resilience can be monitored. However, if firms report their LCR positions according to the provisions of the original ITS, their LCR positions will not be properly determined. Therefore, the PRA has set out in the Supervisory Statement the data that firms are required to submit in the interim period.
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US Federal Reserve Board Issues Final Order that Establishes Enhanced Prudential Standards for General Electric Capital Corporation
07/20/2015
The US Board of Governors of the Federal Reserve System issued a final order establishing enhanced prudential standards for General Electric Capital Corporation. GECC is a nonbank financial company designated by the Financial Stability Oversight Council for supervision by the Federal Reserve Board. The final order establishes the application of enhanced prudential standards in two phases due to the recent announcement by General Electric – the parent company of GECC – of its plan to shrink GECC’s systemic footprint and only retain businesses that support GE’s core business. Enhanced prudential standards for GECC are similar to those applicable to large bank holding companies with certain alterations to reflect GECC’s unique business model. Enhanced prudential standards include capital requirements, capital-planning and stress-testing, liquidity requirements, and risk-management and risk-committee requirements. GECC must begin compliance with relevant requirements from January 1, 2016.
View the press release. -
New External Members Appointed to the UK Financial Services Trade and Investment Board
07/20/2015
The UK Government announced the appointment of new external members to the Financial Services Trade and Investment Board, the body created in 2013 to ensure that Britain's position as a global finance centre is strengthened. The new external members are: (i) Helena Morrissey, CEO, Newton and Chair, The Investment Association; (ii) Inga Beale, CEO, Lloyd’s of London; (iii) John McFarlane, Chairman, Barclays, and incoming Chairman, TheCityUK; and (iv) Nathan Bostock, CEO, Santander UK.TOPIC : People -
US Federal Reserve Board Proposes Rule to Modify Capital Planning and Stress Testing Regulations
07/17/2015The US Board of Governors of the Federal Reserve System proposed a rule modifying its regulations for capital planning and stress testing. Specific changes include altering the timing for several requirements that have not yet been integrated into the stress testing framework. Notably, banks subject to the supplementary leverage ratio would not be required to incorporate the ratio into their stress testing until the 2017 cycle. Additionally, all banks would continue to use standardized risk-weighted assets for capital planning and stress testing while the use of advanced approaches risk-weighted assets (applicable to banks with more than $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures) would be delayed indefinitely. The proposal would also remove the requirement that banking organizations calculate a tier 1 common capital ratio. Currently, banks are required to project post-stress regulatory capital ratios in their stress tests using the tier 1 common capital ration, but as the common equity tier 1 capital ratio becomes fully phased in under the Federal Reserve Board’s regulatory capital rule, it would generally require more capital than the tier 1 common capital ratio. The Federal Reserve Board only expected the tier 1 common capital ratio to remain in force until the common equity tier 1 capital requirement was adopted. The proposed changes would take effect for the 2016 capital plan and stress testing cycles. Comments on the proposal will be accepted through September 24, 2015. The Federal Reserve Board is also currently considering several issues related to its capital plan and stress testing rules and any modifications relating to these issues will be effected through a separate rulemaking, with changes thereunder taking effect no earlier than the 2017 cycle.
View the press release.
View the proposed rule. -
Financial Conduct Authority Chief Executive to Stand Down
07/17/2015
The FCA announced that Chief Executive Martin Wheatley would be standing down from September 12, 2015. Mr. Wheatley will continue to act as an advisor to the FCA Board until January 31, 2016, particularly on the implementation of the recommendations of the Fair and Effective Markets Review.TOPIC : People -
Volcker Rule Frequently Asked Question 16 Addressing Seeding Period Treatment for Registered Investment Companies and Foreign Public Funds
07/16/2015
The five US federal financial regulatory agencies – US Federal Reserve Board, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, the US Securities and Exchange Commission and the US Commodity Futures Trading Commission – issued a new Volcker Rule Frequently Asked Question 16 addressing the status of certain US-registered investment companies and foreign public funds as “banking entities” during their “seeding period.” Certain RICs and foreign public funds are currently excluded from the Volcker Rule’s definition of “covered fund” and FAQ 16 ensures that they will not be treated as “banking entities” under the Volcker Rule solely due to a banking entity’s ownership of the registered investment company or foreign public fund during the “seeding period” absent evidence that the RIC or foreign public fund was being used to evade the Volcker Rule’s requirements.
View Volcker Rule FAQ 16.TOPIC : Bank Structural Reform -
European Banking Authority Publishes Amending Standards under Capital Requirements Legislation
07/16/2015
The EBA published (i) amending Regulatory Technical Standards on the treatment of non-delta risk of options in the standardized market risk approach; and (ii) amending RTS on the criteria to identify categories of staff whose professional activities have a material impact on a firm’s risk profile. According to the EBA, the amendments are necessary corrections following changes introduced by the European Commission during the legal adoption process of the original RTS. The RTS were prepared under the CRR and CRD.
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Basel Committee Guidelines on Identifying and Dealing with Weak Banks
07/16/2015
The Basel Committee for Banking Supervision published guidelines for identifying and dealing with weak banks. The guidelines revise and update the 2002 Basel Committee guidance for dealing with weak banks to take into account the changes in regulatory expectations and practices on early intervention, resolution frameworks, recovery and resolution planning, stress testing and macroprudential oversight. The revised guidelines are directed to supervisors and resolution authorities as well as international financial institutions advising supervisors.
View the guidelines. -
European Commission Consults on the Possible Impact of EU Capital Requirements Legislation on Bank Financing of the Economy
07/15/2015
The European Commission launched a consultation on the possible impact of the Capital Requirements Regulation and the Capital Requirements Directive on bank financing of the economy. Under the CRR, the European Commission must conduct an analysis of how the CRR may impact the ability of banks to provide lending to the wider economy. The consultation aims for a better understanding of the impact of the CRR requirements on the availability of financing, particularly for infrastructure and other investments that support long-term growth as well as corporate borrowers, including small and medium enterprises. Responses to the consultation will form part of the Commission’s report to the European Parliament and the Council of the EU. The report will also consider the analysis being conducted by the European Banking Authority on SME lending and independent research. The consultation is open until October 7, 2015.
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European Banking Authority Releases Draft Details for EU-wide Transparency Exercise and 2016 EU-wide Stress Tests
07/15/2015
The EBA published a draft list of banks that would be participating in the EU-wide transparency exercise at the end of 2015, together with draft templates showing the type of data that will be disclosed covering composition of capital, leverage ratio, risk weighted assets by risk type, sovereign exposures, credit risk exposures and asset quality, market risk and securitization exposures as of December 2014 and June 2015. The EBA also announced certain features of the 2016 EU-wide stress test, which is expected to launch in the first quarter of 2016. The assessment and quality checks of the 2016 stress tests are expected to be concluded by the third quarter of 2016 which is when the results of individual banks will also be published.
View the EBA’s announcement. -
European Banking Authority Publishes Guidelines on Product Oversight and Governance Arrangements for Retail Banking Products
07/15/2015
The EBA published final guidelines on product oversight and governance arrangements for financial institutions as manufacturers of retail banking products and for distributors of retail banking products – mortgages, personal loans, deposits, payment accounts, payment services and electronic money. The guidelines will apply from January 3, 2017 to all products brought to market after that date as well as to existing products that are significantly changed after that (the EBA does not clarify the meaning of "significantly changed"). The guidelines are addressed to EU national regulators and financial institutions and require the establishment of product oversight and governance arrangements for the design, bringing to market and review of retail banking products over their lifecycle. The guidelines supplement the EBA’s 2011 guidelines on internal governance but do not cover the suitability of products for individual consumers.
View the final guidelines.
View the guidelines on internal governance.
TOPIC : Financial Services -
Chair Appointed to UK Payments Strategy Forum
07/15/2015
The UK Payment Systems Regulator announced that Ruth Evans had been appointed as chair of the Payments Strategy Forum and would take up her role on July 27, 2015. The Payments Strategy Forum will be responsible for identifying and developing initiatives that the industry can work together to deliver innovation. A call for members of the Forum was also issued on the same day as the announcement.TOPIC : People -
European Commission Consults on the Possible Impact of EU Capital Requirements Legislation on Bank Financing of the Economy
07/15/2015The European Commission launched a consultation on the possible impact of the Capital Requirements Regulation and the Capital Requirements Directive on bank financing of the economy. Under the CRR, the European Commission must conduct an analysis of how the CRR may impact the ability of banks to provide lending to the wider economy. The consultation aims for a better understanding of the impact of the CRR requirements on the availability of financing, particularly for infrastructure and other investments that support long-term growth as well as corporate borrowers, including small and medium enterprises. Responses to the consultation will form part of the Commission’s report to the European Parliament and the Council of the EU. The report will also consider the analysis being conducted by the European Banking Authority on SME lending and independent research. The consultation is open until October 7, 2015.
View the consultation paper. -
Financial Conduct Authority Proposes Rules on Disclosure by Non Ring-Fenced Banks
07/14/2015
The Financial Conduct Authority launched a consultation on proposed rules requiring information to be provided to customers by a non-ring-fenced body. The FCA is proposing that a NRFB be required to provide information about its investment and commodities trading activities to individuals with financial assets of at least £250,000 who are account holders or who have applied to open an account. The information is intended to inform customers of the implication of banking with a NRFB entity in a group which includes a ring-fenced bank. The ring-fencing regime is set to apply from January 1, 2019. The FCA’s proposed rules would require a NRFB to provide the information in good time before the regime enters force. A NRFB will also be required to publish the information on its website. Responses to the FCA consultation are due by November 13, 2015. The FCA intends to publish final rules in Q1 2016.
The FCA’s consultation paper.TOPIC : Bank Structural Reform -
US Regulators Release Joint Staff Report Regarding the US Treasury Market
07/13/2015
The US Department of Treasury, the Federal Reserve Board, the Federal Reserve Bank of New York, the US Securities and Exchange Commission and the US Commodity Futures Trading Commission issued a joint report analyzing the significant volatility in the US Treasury market on October 15, 2014. The joint report provides insight and detailed analysis of the market conditions and offers a number of developments which may help explain the conditions that likely contributed to the volatility. Specifically, the report finds that among other things, changes in global risk sentiment and investor positions, a decline in order book depth and changes in order flow and liquidity provision together provide important insight into the developments of that day. The report also highlights the changing structure of the US Treasury market and proposes next steps to further enhance the public and private sectors’ understanding of changes to the structure of the US Treasury market and their implications. The report recommends continued analysis of US Treasury market structure and functioning, focusing on trading and risk management practices, the availability of public data and continued efforts to strengthen monitoring and inter-agency coordination related to trading across the US Treasury cash and futures markets.
TOPIC : Financial Market Infrastructure -
EMIR Classification Letter Published by the International Swaps and Derivatives Association
07/13/2015
The International Swaps and Derivatives Association published an "EMIR Classification Letter" and related guidance. The Letter is intended to help counterparties to determine and communicate their classification under the European Market Infrastructure Regulation. Under EMIR, the obligations of counterparties to a derivatives transaction are dependent on the classification of each counterparty as either a financial counterparty or a non-financial counterparty. The Letter aims to facilitate that determination by asking a series of questions.
View the Letter and guidance.TOPIC : Derivatives -
UK Prudential Regulation Authority Consults on Implementation of UK Leverage Ratio Framework
07/10/2015
The Prudential Regulation Authority published proposed rules on the implementation of the UK leverage ratio framework. The Financial Policy Committee directed the PRA on July 1, 2015, to implement a UK leverage ratio framework applying: (i) a minimum leverage requirement immediately to UK Global Systemically Important Institutions, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA-regulated investment firms; (ii) a supplementary leverage ratio buffer of 35 percent. of corresponding risk weighted systemic buffer rates to UK G SIIs, phased in from 2016, and to domestically systemically important banks, building societies and PRA regulated investment firms from 2019, referred to as the additional leverage ratio buffer or ALRB; and (iii) a countercyclical leverage ratio buffer of 35 percent. of a firm’s institution-specific countercyclical capital buffer rate which will apply immediately to UK G SIIs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA regulated investment firms, including any ring fenced banks, large building societies and any other banks that become subject to a countercyclical capital buffer. The PRA’s consultation sets out how it intends to implement that framework and includes proposed rules, templates for reporting, a supervisory statement on which firms would be expected to report leverage ratio information and a supervisory statement on the PRA’s expectations on the application of the UK leverage ratio framework. Responses to the consultation must be submitted by October 12, 2015.
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European Securities and Markets Authority Registers New Credit Rating Agency
07/10/2015
The European Securities and Markets Authority approved the registration of modeFinance S.r.l., as a credit rating agency under the Credit Rating Agencies Regulation. ModeFinance is based in Italy, and its credit ratings may now be used for regulatory purposes within the European Union.
TOPIC : Credit Ratings -
Board of the International Organization of Securities Publishes Report Titled SME Financing Through Capital Markets
07/09/2015
The Board of IOSCO published a report titled SME Financing through Capital Markets, which provides recommendations for regulators to facilitate capital-raising by Small and Medium Enterprises in emerging markets. The report recognizes the obstacles facing SMEs in accessing market-based financing, and examines some of the successful measures applied by regulators to aid SMEs in accessing capital markets. Successful regulatory frameworks and measures include establishing separate equity and fixed income markets with regulatory requirements tailored to SMEs, establishing market advisor and market-making systems and introducing alternative methods of financing such as private equity, venture capital and securitization. The IOSCO Board will have a roundtable on the issue of SME access to market-based finance at its next meeting in Toronto in October 2015.
View the report.TOPIC : Financial Services -
Assessment of Implementation of Principles for Financial Market Infrastructures Announced
07/09/2015
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions announced that they had begun the first Level 3 assessment of the implementation of the Principles for Financial Market Infrastructures. The review aims to assess the consistency of outcomes achieved through implementation of the PFMIs and will focus on requirements for financial risk management by CCPs by considering the outcomes achieved by a number of globally and locally active CCPs clearing exchange-traded and OTC derivatives. The results of the assessment are intended to be published in 2016.
View The announcement.TOPIC : Financial Market Infrastructure -
Financial Stability Board Progress in Reforming Major Interest Rate Benchmarks
07/09/2015
The Financial Stability Board published an interim progress report on reforms to existing interest rate benchmarks and on the construction and implementation of alternative near risk-free interest rate benchmarks. This follows the FSB’s recommendations for reforms in this area, published in July 2014. The report examines the progress made towards achieving those recommendations. The FSB’s recommendations in the July 2014 report called for a strengthening in existing interest rate benchmarks, such as LIBOR, EURIBOR and TIBOR, collectively coined “IBORs,” and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transaction data. In addition, the FSB proposed steps to develop alternative near risk-free interest rate benchmarks, given that there are certain financial transactions, including many derivatives transactions, that it considers better suited to such reference rates.
Read more. -
European Banking Authority Guidelines on Conditions for Group Financial Support
07/09/2015
The EBA published final guidelines on conditions for group financial support under the BRRD, together with final draft Regulatory Technical Standards, specifying the conditions for group financial support and final draft RTS on the form and content of disclosure of financial support agreements. The EBA’s guidelines enhance the means through which one member of a banking group may provide support to another member of the same group, which is in financial difficulty. This overcomes the current lack of a comprehensive group support mechanism across the EU, ensuring that such support may be enforced between cross-border institutions forming part of the same banking group. The RTS outline the factors to be considered when ascertaining whether the conditions for the provision of group financial support are satisfied. National regulators are also required to consider the possible reasons for the financial distress of the relevant entity (e.g., whether this is due to its business model, the current market situation or other circumstances). The guidelines and RTS also confirm that group support may be enforced in certain instances, even where prudential requirements have not been met.
TOPIC : Recovery & Resolution -
Basel Committee on Banking Supervision Publishes Revised International Guidelines on Corporate Governance Principles for Banks
07/08/2015
The Basel Committee on Banking Supervision published final updated Guidelines on Corporate Governance Principles for Banks. The Guidelines replace the guidance published by the Basel Committee in 2010 which had been produced as a result of the lessons learnt since the recent financial crisis. The revised guidance has been issued because the thematic review on risk governance that the Financial Stability Board undertook in 2013 showed that banks still need to improve risk governance frameworks, including enhancing the authority and independence of chief risk officers, and that national regulators need to improve their ability to assess the effectiveness of a bank’s risk governance and engage more frequently with the bank’s board and risk and audit committees.
View the revised Guidelines.TOPIC : Corporate Governance -
UK Government Makes Recommendations to the Financial Policy Committee
07/08/2015
George Osborne, Chancellor of the Exchequer, wrote to Mark Carney, Governor of the Bank of England, specifying the remit and recommendations for the FPC in the coming year. Once a year, the Chancellor is required to set out the economic policy of the Government and make recommendations to the FPC about matters that the FPC should consider as relevant to BoE’s financial stability objective and the FPC’s responsibility for achieving that objective. In the letter, the FPC is requested to consider a broad range of risks to the UK financial system, including identifying, monitoring and addressing systemic non-financial risks such as cyber risks. The Chancellor’s recommendations included that the FPC: (i) should support the Government’s strategy for making the UK’s financial services sector the best regulated and most competitive in the world, including taking into account the promotion of competition and innovation in all sectors of the industry and retaining the UK’s position as a leading international financial center; (ii) should consider whether there is a risk of public funds being required and should seek to minimize such risks; and (iii) should note in its public documents how it has had regard to the policy settings and forecasts of the Monetary Policy Committee.
View the letter.TOPIC : Financial Services -
UK Financial Conduct Authority Appoints New Director of Supervision, Retail and Authorizations
07/07/2015The FCA announced that it has appointed Jonathan Davidson as its new Director of Supervision for retail and authorizations beginning in the third quarter of 2015.TOPIC : People
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European Banking Authority Opinion on Securitization
07/07/2015
The European Banking Authority published an Opinion on the establishment of a European framework for qualifying securitizations. The Opinion is addressed to the European Commission, which issued a call for advice in January 2014 to identify the most appropriate characteristics in relation to categories of underlying assets and certain structural and transparency features for “high-quality” transactions. The EBA was asked to assess whether it would be appropriate to grant preferential treatment to high-quality securitizations, so as to boost EU securitization markets. The Opinion makes five recommendations, namely to: (i) conduct an all-inclusive review of the regulatory framework for securitizations and other investment products such as covered bonds and whole loan portfolios; (ii) create a framework for qualifying securitizations; (iii) establish criteria defining qualifying term securitizations; (iv) establish criteria defining qualifying asset-backed commercial paper securitizations; and (v) re-calibrate the Basel Committee on Banking Supervision 2014 securitization framework applicable to qualifying securitization positions. The Opinion states that these recommendations on the implementation of a qualifying securitization framework should be reconsidered subject to any progress made by the Basel Committee on Banking Supervision and International Organization of Securities Commission on the definition of a simple transparent and comparable securitizations framework. An accompanying report on qualifying securitization was also published by the EBA and describes the analysis carried out in order to reach the recommendations.
View the Opinion.TOPIC : Financial Services -
UK Regulators Publish Further Final Rules on Senior Manager and Certification Regime
07/07/2015
The PRA and Financial Conduct Authority published further Policy Statements, including feedback to proposals and final rules for the Senior Manager and Certification Regime which comes into effect next year. The PRA and FCA have now issued final rules on all aspects of the regime except for: (i) rules on regulatory references (the PRA will consider the recommendations made by the Fair and Effective Markets Review before making final rules before March next year); (ii) rules applicable to UK branches of non-EEA firms; and (iii) rules applicable to UK branches of EEA firms for which final legislation is required before the rules can be made. The FCA is also consulting on the extension of the certification regime to individuals involved in wholesale activity, responses to which are due by September 6, 2015. The regulators also intend to provide final guidelines on enforcement matters and senior management responsibility regarding whistleblowing. The Senior Manager and Certification Regime is due to come into effect from March 7, 2016.
View the PRA’s Policy Statement.
View the FCA’s Final Rules and Consultation Paper.
View the PRA simultaneously published a Supervisory Statement.
View Statement of Policy.
TOPIC : Corporate Governance -
European Banking Authority Guidelines and Standards on Simplified Obligations
07/07/2015
The EBA published a final report, including final guidelines and final draft Implementing Technical Standards on the eligibility of institutions for simplified obligations in the context of recovery planning, resolution planning and resolvability assessments under the Bank Recovery and Resolution Directive. The EBA also published final draft ITS on the procedures, forms and templates for submitting information on resolution plans. The BRRD allows national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Such obligations will not apply to globally systemically important institutions and other systemically important institutions. The EBA’s final guidelines set out: (i) criteria for considering whether a firm can be subject to simplified obligations; (ii) entitlement for national regulators to attribute certain weightings to such criteria; and (iii) creation of ‘mandatory indicators’ which must be used and ‘optional indicators’ which may be used, in assessing application criteria. The technical standards specify general reporting procedures, including further instructions for completing the reporting form. National regulators retain the power to select which form a particular firm is required to complete. Authorities are to report within two months of publication of the translated versions of the guidelines on the EBA website how they assessed the application of the criteria and indicators to their institutions. The EBA will then assess any difference in the modes of assessment by the jurisdiction, and will submit a report of its findings to the European Parliament, Council and European Commission by December 31, 2017.
View the final report, guidelines and draft ITS.TOPIC : Recovery & Resolution -
European Banking Authority Consults on Draft Regulatory Technical Standards for Capital Requirements for Mortgage Exposures
07/06/2015
The European Banking Authority published a consultation paper on draft Regulatory Technical Standards relating to the conditions that national regulators must consider when tightening capital requirements for mortgage exposures and determining higher risk‑weights and higher minimum Loss Given Default values under the Capital Requirements Regulation. The draft RTS set out the conditions and financial stability considerations that would promote harmonization in setting higher risk weights and higher minimum LGD values. The proposed conditions set out in the consultation paper include a requirement for national regulators to specify the LGD expectation on property segments in property markets. The consultation states that forward‑looking analyses should be made and consideration given to developments in the property markets. The consultation also seeks views on the levels of indicative benchmarks for loss expectations when higher risk weights are set. Responses to the consultation are due by October 6, 2015.
View the consultation. -
UK Regulator Announces New Depositor Protection Limit and Other Changes to the Depositor Protection Regime
07/03/2015
The Prudential Regulation Authority announced changes to depositor protection provided by the Financial Services Compensation Scheme. Currently, the deposit compensation limit is £85,000 for deposits made by private individuals and small businesses. The changes include: (i) amending the deposit protection limit to £75,000 from July 3, 2015 to match the new limit under the recast Deposit Guarantee Schemes Directive and because Member States converting the limit into their national currency must use the exchange rate prevailing on July 3, 2015 to recalculate the limit; (ii) transitional UK legislation under which most depositors remain protected up to £85,000 up to and including December 31, 2015; (iii) making certain deposits of large companies and small local authorities eligible for protection from July 3, 2015 onwards although the £75,000 deposit protection limit will apply which is a significant change from the past scope of the UK compensation scheme; (iv) amendments to the PRA rules to ensure that firms update disclosures and procedures to account for new limits and scope of the regime; and (v) requiring firms to communicate the changes to their customers by September 1, 2015 using the PRA’s prescribed language. The PRA is also consulting on proposals that would ensure that all depositors to which the decrease in FSCS protection applies have an opportunity to adjust to the new limit, without incurring any penalties, charges or loss of interest from August 1, 2015 until December 31, 2015. Responses to the consultation paper are due by July 24, 2015.
View the new rules.
View the consultation paper.TOPIC : Consumer Protection -
European Supervisory Authorities Consult on Draft Guidelines for the Prudential Assessment of Acquisitions and Qualifying Holdings
07/03/2015
The Joint Committee of the European Supervisory Authorities (consisting of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) published new proposals and draft guidelines for the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. The new guidelines will replace previous guidelines published by the ESAs’ predecessors. The draft guidelines aim to provide legal certainty and clarity on assessment processes relating to increases of control and acquisitions in banks, investment firms and insurance firms, bringing a more harmonized, clear and transparent process in prudential assessments by national regulators, as well as clearer details on what information is required from proposed acquirers. The guidelines cover questions related to: (i) indirect acquisitions of qualifying holdings; (ii) assessment periods; and (iii) financial soundness of acquirers. Responses to the consultation are due by October 2, 2015.
View the consultation and draft guidelines. -
European Banking Authority Opinion and Amended Draft Regulatory Technical Standards on Derogations for Currencies with Constraints on Availability of Liquid Assets
07/03/2015
The European Banking Authority published an Opinion on the European Commission’s intention to amend draft Regulatory Technical Standards on derogations for currencies with constraints on the availability of liquid assets under the Capital Requirements Regulation. The CRR allows firms to apply derogations where a justified need for liquid assets exists owing to the Liquidity Coverage Requirement, and exceeds the availability of those liquid assets in certain currencies. Measures in the draft RTS were introduced to prevent the unnecessary use of derogations by firms, such as a general 8% haircut to be applied to foreign currency liquid assets, and a requirement that the value of the collateral posted at a central bank is subject to a haircut of at least 15%. The EBA states in its Opinion that it agrees with the Commission’s suggestion to remove from the RTS the requirement for a haircut of at least 15%. The EBA also agrees with other amendments suggested by the Commission, such as providing more detail on what is considered to be an exceptional circumstance, conditions for derogations, and the process for notification of exceptional circumstances. The EBA has amended and resubmitted the draft RTS, and these are included in the Opinion.
View the Opinion. -
European Banking Authority Publishes Semi‑Annual Report on Risks in the European Banking Sector
07/03/2015
The European Banking Authority published its seventh semi‑annual report on risks in the European banking sector. The report is based on 2014 data. The report does not cover the current situation in Greece. However, an addendum to the report notes that based on the most recent supervisory data, the exposure towards Greek borrowers by non‑Greek banks in Europe appears to be less than €20 billion or 1.4% of Common Equity Tier 1. The report sets out the main developments and trends that have affected the EU banking sector since mid‑2014 until June 12, 2015 as well as the EBA’s view of the key micro‑prudential risks in the near future.
View the report. -
Final Draft Technical Standards under Bank Recovery and Resolution Directive
07/03/2015
The European Banking Authority has published draft final Regulatory Technical Standards under the EU Bank Recovery and Resolution Directive on the criteria for assessing the independence of valuers from both the resolution authority and the firm or entity subject to the valuation, including ensuring that the valuer has no actual or potential material interests in common or in conflict with any relevant authority or entity concerned which might influence the valuer’s judgement in performing the valuation. The RTS identify two situations which preclude a person per se from being an independent valuer: (i) where the valuer is not legally separate from an authority or entity subject to valuation; and (ii) where the person, in the year preceding the date on which his independence is assessed, has completed a statutory audit of the relevant entity. The RTS will, once they enter into force, apply directly across the EU.
View the RTS on valuers.TOPIC : Recovery & Resolution -
Final Draft Technical Standards under Bank Recovery and Resolution Directive
07/03/2015
The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:
1. RTS on the operational functioning of resolution colleges which will be established for groups that operate on a cross-border basis in the European Economic Area. The RTS set out details on the establishment of a college, describe the resolution planning process, provide for the manner in which the resolution of a cross-border group should be undertaken, the exchange of information and interaction between resolution authorities, the requirements for EU resolution authorities to develop a framework for involvement of third country resolution authorities and the process for reaching decisions in the event of disagreement between resolution authorities.
2. RTS on notification which set out the process and information required for firms to notify their national regulators that the firm is failing or likely to fail, for national regulators to then notify the resolution authority and the publication by the resolution authority of the resolution action taken using its powers under the BRRD. The RTS also cover the situation where the national regulator assesses for itself that a firm is likely to fail or is failing.
The RTS will, once they enter into force, apply directly across the EU.
View the RTS on resolution colleges.
View the RTS on notification requirements.TOPIC : Recovery & Resolution -
Final Draft Technical Standards under Bank Recovery and Resolution Directive
07/03/2015
The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:
1. RTS on the minimum requirement for own funds and eligible liabilities, known as MREL, to ensure firms have adequate loss absorbing capacity. MREL will be set by resolution authorities for each firm so that resolution plans are effective and will be linked to the capital requirements of a firm. A tailored approach is set out for financial market infrastructures that are also subject to MREL requirements and for subsidiaries of groups. The RTS aim to ensure that the MREL requirements are compatible with the proposed Total Loss Absorbing Capacity requirements, known as TLAC, which are being developed at international level.
2. RTS on the contractual recognition of bail-in of contracts governed by the law of a non-EU country which set out when the contractual recognition clause requirement does not apply, for example, if the non-EU country has a statutory regime which provides for the recognition of the write-down and conversion powers of an EU resolution authority.
The RTS will, once they enter into force, apply directly across the EU.
View the RTS on MREL.
View the RTS on contractual recognition of bail-in powers.TOPIC : Recovery & Resolution -
UK Competition and Markets Authority Appoints New Executive Director for Enforcement
07/02/2015
The UK Competition and Markets Authority announced that it appointed Dr. Michael Grenfell to its board as the new Executive Director for Enforcement.
View the press release.TOPIC : People -
Financial Stability Board Launches Peer Review on Implementation of Shadow Banking Framework
07/02/2015
The Financial Stability Board announced a peer review on the implementation of its shadow banking framework, excluding money market funds. The review will assess the extent to which FSB‑member jurisdictions have adequately assessed shadow banking entities based on the economic functions that they undertake, adopted tools to mitigate any identified financial stability risks, implemented reporting requirements for public disclosure by shadow banking entities of certain risks and implemented arrangements, systems and processes for authorities to collect and analyze information about the risks that shadow banking entities pose. Questionnaires will be provided to FSB members for completion and to feed back into the review report, which will be published in early 2016. The FSB is also inviting financial market participants and stakeholders to comment by July 24, 2015, on means of updating the regulatory perimeter, types of information needed to assess shadow banking risks, methods for enhancing transparency of shadow bank entities’ risks and the design of policy tools to mitigate financial stability risks posed by shadow banking entities.
View the terms of reference for the peer review.TOPIC : Shadow Banking -
European Securities and Markets Authority Final Report on Extension of Scope of Interoperability Arrangements
07/02/2015
The European Securities and Markets Authority published a final report on the interoperability arrangements between EU‑based CCPs. The report is required under the European Market Infrastructure Regulation. Interoperability arrangements made between two or more CCPs enable a counterparty using one CCP to execute a trade with a counterparty that chooses to use a different CCP. The report, which describes current interoperability arrangements for different product types such as equities and government bonds recommends that the interoperability provisions in EMIR (which are currently limited to transferable securities and money‑market instruments only) are not yet extended to OTC derivatives, given the additional complexities involved in an interoperability arrangement between CCPs clearing OTC derivative contracts. The report does, however, recommend that the interoperability provisions in EMIR be extended to Exchange‑Traded Derivatives, as one interoperability arrangement already exists (between LCH.Clearnet Ltd and Oslo Clearing), as is the general framework for assessing the risk involved as a result. This proposal will next be considered by the European Commission and may prove to be controversial.
View the final report.TOPIC : Financial Market Infrastructure -
Basel Committee on Banking Supervision Report on Impact and Accountability of Banking Supervision
07/02/2015
The Basel Committee on Banking Supervision published a report on the impact and accountability of banking supervision. The report analyzes how global supervisors define and evaluate the impact of their policies and actions and discusses: (i) supervisory trends and their development over time since the financial crisis; (ii) the objectives of supervision and how these are transformed into supervisory actions; (iii) developments in how to measure the impact of supervision through quality assurance mechanisms and feedback loops within the supervisory process; and (iv) internal and external accountability arrangements in the wake of the financial crisis.
View the consultation paper. -
European Securities and Markets Authority Q&As on Anti‑Money Laundering and Terrorist Financing in Investment‑Based Crowdfunding Platforms
07/01/2015
The European Securities and Markets Authority published Q&As on anti‑money laundering and terrorist financing in investment‑based crowdfunding platforms. The Q&As aim to encourage common supervisory approaches and consistent application of anti‑money laundering and terrorist financing rules to investment‑based crowdfunding platforms. The Q&As deal with questions related to the treatment of investment‑based crowdfunding under the Anti‑Money Laundering Directive, the differences in risk profiles of platforms operating inside or outside a regulatory regime or within the scope of MiFID, and how to mitigate risks.
View the Q&As.TOPIC : Financial Services -
Basel Committee on Banking Supervision Consults on Review of the Credit Valuation Adjustment Risk Framework
07/01/2015
The Basel Committee on Banking Supervision announced a review of the Credit Valuation Adjustment Risk Framework. The objectives of the review include ensuring that all important drivers of CVA risk and CVA hedges are covered in the Basel regulatory capital standard. Further, the review will align the capital standard with the fair value measurement of CVA employed under a number of accounting regimes and ensure consistency with the proposed revisions to the market risk framework under the Basel Committee’s Fundamental Review of the Trading Book.
View the consultation paper. -
UK Financial Policy Committee Publishes Policy Statement on New UK Leverage Ratio Framework
07/01/2015
The Bank of England published a Policy Statement on the Financial Policy Committee’s powers over leverage ratio tools. The BoE was given powers of direction over leverage ratio requirements and buffers for banks, building societies and Prudental Regulation Authority‑regulated investment firms in April this year. The FPC intends to direct the PRA to apply: (i) a minimum leverage requirement immediately to UK Global Systemically Important Banks and other major domestic UK banks and building societies, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA‑regulated investment firms; (ii) a supplementary leverage ratio buffer of 35% of corresponding risk‑weighted systemic buffer rates to UK G‑SIBs, phased in from 2016, and to domestically systemically important banks, building societies and PRA‑regulated investment firms from 2019; and (iii) a countercyclical leverage ratio buffer of 35% of a firm’s institution‑specific countercyclical capital buffer rate which will apply immediately to UK G‑SIBs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA‑regulated investment firms, including any ring‑fenced banks, large building societies and any other banks that become subject to a systemic risk‑weighted capital buffer. The FPC cannot direct the means by which or the time within which the PRA must implement a direction but the PRA is now expected to take the proposals forwards. The implementation of the UK leverage ratio framework for G‑SIBs and other major domestic UK banks and building societies is ahead of the internationally agreed standards which are expected to introduce a minimum leverage ratio requirement by January 1, 2018. A consultation paper on implementation of the FPC’s direction is due to be published on July 10, 2015.
View the Policy Statement. -
Bank of England Publishes Financial Stability Report Identifying Main Current Risks in UK Financial System
07/01/2015
The Bank of England published its Financial Stability Report which identifies the main current risks in the UK financial system. The report sets out recommendations made by the Financial Policy Committee on Additional Tier 1 capital for the purposes of the minimum leverage ratio requirement. The report recommends to the Prudential Regulation Authority that AT1 capital should be counted towards Tier 1 capital only if the relevant capital instrument specifies a trigger event that occurs when the Common Equity Tier 1 capital ratio of the institution falls below 7%. The report also directs the BoE, PRA and Financial Conduct Authority to work with firms to complete cyber‑attack resilience assessments (also known as CBEST tests), adopt cyber‑resilience action plans and establish arrangements for CBEST tests to become regular cyber resilience assessments within the UK financial system. The report also refers to recommendations on the new UK leverage ratio framework which are discussed in further detail below.
View the report. -
US Federal Reserve Board Implements Changes to the Name Check Process for Domestic and International Banking Applications
07/01/2015On June 25, 2015, the Federal Reserve Board issued a supervisory letter implementing changes to the "name check" process for banking applications. Under the previous process, a name check was conducted on all proposed officers and/or new principle shareholders of a supervised financial institution involved in an application under consideration by the Federal Reserve Board. The new name check process will only be conducted for individuals that will become principal shareholders or one of the top two policymakers of the organization upon consummation of the process. In the case of a group acting in concert, name checks generally will be initiated on all individual group members with five percent or greater individual ownership interests. A completed name check will remain current for five years; individuals and companies with current name checks will generally not be rechecked unless circumstances indicate otherwise. In addition, the Federal Reserve Board will obtain credit bureau reports in certain limited situations to supplement and corroborate financial information provided in the application process. The guidance is applicable to all financial institutions supervised by the Federal Reserve Board, including those with $10 billion or less in consolidated assets.
View the Federal Reserve Board supervisory letter. -
US Federal Financial Institutions Examination Council Develops Cybersecurity Assessment Tool for Chief Executive Officers and Boards of Directors
06/30/2015
The Federal Financial Institutions Examination Council – an interagency body composed of the US Board of Governors of the Federal Reserve System, the FDIC, the US National Credit Union Administration, the US Office of the Comptroller of the Currency, and the US Consumer Financial Protection Bureau – announced its release of a Cybersecurity Assessment Tool. The tool, together with other resources made available by the FFIEC to financial institutions, is available for all financial institutions regardless of asset size and is intended to aid senior management and boards of directors of financial institutions to assess cybersecurity risk and preparedness.
View the Federal Reserve Board press release.
View the cybersecurity assessment tool.
TOPIC : Cyber Security -
Final Draft Technical Standards under Markets in Financial Instruments Regulation and Markets in Financial Instruments Directive II
06/30/2015
The European Securities and Markets Authority published final draft implementing technical standards and Regulatory Technical Standards on requirements for: (i) the authorization of investment firms, including template forms; (ii) requirements for passport notification, including template forms and procedures; (iii) information for registration with ESMA of third country firms; (iv) the format of information to be provided by third country firms to their EU clients on the submission of disputes to the jurisdiction of a court or arbitral tribunal in a Member State; and (v) cooperation between national regulators including the exchange of information. ESMA is required to prepare the ITS and RTS under the Markets in Financial Instruments Regulation and Directive, which will apply from January 3, 2017. ESMA will provide the remaining technical standards to the European Commission before the end of 2015.
View the report.TOPIC : Financial Services -
European Securities and Markets Authority Consults on Implementing the Buy‑in Process under the Central Securities Depositories Regulation
06/30/2015
The European Securities and Markets Authority published proposed draft Regulatory Technical Standards on the buy‑in process, including the timeframe for delivery of financial instruments which ESMA is required to prepare under the EU Central Securities Depositories Regulation. The CSDR came into force on September 17, 2014. ESMA consulted in December 2014 on the buy‑in process, noting that there is currently no uniform approach to buy‑in by central securities depositories, CCPs and trading venues. Feedback to the consultation suggested that buy‑in should be executed by a bank or execution dealer that was not connected to the parties in the failed transaction. The current consultation therefore focuses on which entity should be responsible for operating the buy‑in process for OTC transactions that are not centrally cleared. ESMA seeks feedback on three proposed options: trading level execution, trading level with fall‑back option execution and CSD participant level execution. Responses to the proposals are due by August 6, 2015. ESMA must provide all of the final draft RTS under the CSD to the European Commission by the end of September 2015.
View the consultation paper.TOPIC : Financial Market Infrastructure -
Board of International Organization of Securities Commissions Seeks Better Understanding of Credit Rating Agency Industry
06/30/2015
The Board of the International Organization of Securities Commissions approved a project specification for its Committee 6 on Credit Rating Agencies. The goal of the project is to help the Board gain an improved understanding of the credit rating industry as well as CRA products other than those that are disclosed to subscribers, such as private ratings, confidential ratings, scoring and other tools that can be used for risk assessments. The collected data will aid discussions between C6 members, issuers and users of other CRA products and other parties.
View the questionnaire.
View the press release.TOPIC : Credit Ratings -
UK Payment Systems Regulator Publishes Final Terms of Reference for Market Review on Payments System Infrastructure
06/30/2015
The Payment Systems Regulator published the final terms of reference for its market review into the ownership and competitiveness of the UK payments system infrastructure. The review aims to ascertain whether current infrastructure services are effective for service users and able to support new developments and innovations. The review focuses in particular on interbank payment systems BACS, FPS and Link, and is based around the seven following questions: (i) whether there is effective competition in the provision of infrastructure services in interbank payments; (ii) whether current ownership arrangements of infrastructure providers affect competition; (iii) whether there are any barriers to effective competition; (iv) what the likelihood is of entry or expansion in respect of provision of infrastructure services; (v) whether there are any efficiencies resulting from the present ownership arrangements; (vi) how demand affects competition in the provision of infrastructure services; and (vii) what the benefits of greater levels of competition might be. The review will aim to address any concerns identified with a view to publishing new directions, recommendations or guidance if necessary, as well as encouraging further industry initiatives and self-regulation if needed. The PSR welcomes views on the key questions outlined in the terms of reference and aims to publish its final report in the second quarter of 2016.
View the terms of reference. -
European Securities and Markets Authority Issues Public Notice to European Credit Rating Agency
06/29/2015
The European Securities and Markets Authority issued a public notice to EU credit rating agency DBRS Ratings Limited for failing to comply with corporate governance, compliance and record-keeping requirements under the EU Credit Rating Agencies Regulation. ESMA found DBRS to have governance arrangements whereby the board of directors and a body called the Executive Group worked alongside one another. There was however no delegation by the directors to the Executive Group and the two bodies did not report to each other. ESMA also found that DBRS failed to have adequate policies or maintain decision-making procedures and organizational structures which clearly specified responsibilities and reporting lines. DBRS was fined €30,000 for acting negligently in record-keeping failings.
View the public notice. -
European Securities and Markets Authority Board of Supervisors Appoints New Chairs of its Standing Committees
06/26/2015
The Board of Supervisors of the European Securities and Markets Authority has appointed the following individuals as chairs of its standing committees: (i) Lourdes Centeno to chair the Review Panel; (ii) Hannelore Lausch to chair the Corporate Reporting Standing Committee; (iii) David Lawton to chair the Market Data Standing Committee; (iv) Elizabeth Roegele to chair the Secondary Markets Standing Committee; (v) Jean-Paul Servais to chair the Financial Innovation Standing Committee; and (vi) Martin Wheatley to chair the Investor Protection and Intermediaries Standing Committee.
View the press release.TOPIC : People -
Proposals Published for Updating the 2004 Report on International Regulatory Standards on Fees and Expenses
06/25/2015
The International Organization of Securities Commissions published proposed recommendations and statements of practice on fees and expenses of investment funds. The recommendations and statements of practice are intended to update the 2004 report on International Regulatory Standards on Fees and Expenses which provided a set of international standards of best practice for collective investment schemes and regulators to consider. The proposed recommendations and statements of practice cover issues such as types of permitted fees and expenses, performance-related fees, disclosure of fees and expenses, transaction costs and hard and soft commissions on transactions. The report is aimed at funds whose shares or units may be sold to retail investors and includes open-ended funds, closed-ended funds whose shares are traded in the securities market, unit investment trusts and contractual models. The proposals are open for comment until September 23, 2015.
View the report.TOPIC : Funds -
UK Regulator Publishes Discussion Paper on Delivering Smarter Communications to Consumers
06/25/2015
The Financial Conduct Authority issued an interactive discussion paper to start a debate and encourage firms to deliver smarter communications to consumers in more effective ways. The discussion paper states that for a market to perform well, engaged and informed consumers are needed. The FCA recognizes that some methods of communication can overwhelm, confuse and even deter consumers from making effective choices about financial products and services. The FCA is committed to ensuring that firms operate with due regard for their consumers, that communications are not misleading and that communications are transmitted in a clear and fair way. The FCA also published research alongside the discussion paper. Responses to the discussion paper are due by September 25, 2015.
View the discussion paper and research.TOPIC : Financial Services -
European Systemic Risk Board Publishes Recommendations on Misconduct Risk
06/25/2015
The European Systemic Risk Board published a report on misconduct risk in the banking sector. The report analyses misconduct risk in the banking sector from a macroprudential angle and makes the following recommendations: (i) prudential and conduct regulators should continue to impose requirements on banks that limit the opportunities for misconduct; (ii) coordination and transparency between regulators at an international level should be improved, including preparation of a set of principles for authorities to follow where action against a bank in one jurisdiction may have systemic implications in another jurisdiction; (iii) extension of the legal entity identifier scheme to a wider range of counterparties so that banks can determine which entities are subject to financial sanctions; (iv) the European Supervisory Review and Evaluation Process taking into account the systemic impact of potential misconduct; and (v) inclusion of potential misconduct risks in future EU-wide stress tests.
View the report.TOPIC : Conduct & Culture -
Payments Systems Regulator Issues Call for Input on Card Payment Systems
06/24/2015
The Payment Systems Regulator issued a call for input on card payment systems. The PSR seeks views on issues related to payment systems in the UK and in particular on interbank payment systems. The PSR is interested in hearing about the impact of new EU regulations which introduce new rules and implement caps on interchange fees, and the effect that these regulations might have on the way in which the UK card payment systems operate. The call for input also wishes to obtain views on general trends within card payment systems and gather information on how the interests of service users are considered in decision making. Responses to the call for input are due before July 31, 2015.
View the call for input.TOPIC : Financial Services -
UK Regulators Propose New Rules for Regulating Credit Unions
06/24/2015
The Prudential Regulation Authority and the Financial Conduct Authority launched a consultation on proposals to reform the Credit Unions Sourcebook in the Handbook. The PRA intends to replace the current Credit Unions Sourcebook that was inherited from the Financial Services Authority with a new Credit Unions Rulebook in the PRA Rulebook which will focus on the safety and soundness of credit unions and will reflect the now broader range of financial services offered by credit unions. The FCA intends to replicate many of the provisions of the Credit Unions Sourcebook. The consultation closes on September 30, 2015.
View the consultation.TOPIC : Financial Services -
Monetary Authority of Singapore Releases Consultation Paper on Resolution Regimes for Financial Institutions in Singapore
06/23/2015
The Monetary Authority of Singapore released its Consultation Paper on Proposed Enhancements to Resolution Regime for Financial Institutions in Singapore. In the paper, MAS proposed enhancements to the resolution regime in Singapore by strengthening its powers to resolve distressed institutions while maintaining continuity of their critical economic functions. Among other topics, the policy proposals cover: (i) recovery and resolution planning; (ii) temporary stays and suspensions; (iii) statutory bail-in powers; (iv) cross-border recognition of resolution actions; (v) creditor safeguards; and (vi) resolution funding. The proposed policy changes will be introduced primarily through amendments to the MAS Act, supported by the necessary regulations. MAS will also consult on the legislative amendments, after considering the feedback received on the policy proposals in this consultation. The submission deadline for comments on the proposal is July 22, 2015.
View the consultation paper. -
European Guidelines on Periodic Information Reporting Requirements for Credit Rating Agencies
06/23/2015
The final guidelines on periodic information to be submitted by Credit Rating Agencies to the European Securities and Markets Authority were published on June 23, 2015. The guidelines apply to CRAs registered in the EU, but not to certified CRAs. They set out the information that CRAs should submit to ESMA on a quarterly, semi-annual and annual basis, including for the calculation by ESMA of supervisory fees and CRA market share. The guidelines will apply from August 23, 2015.
View the final guidelines.TOPIC : Credit Ratings -
Final Draft Implementing Technical Standards on Supervisory Reporting for Liquidity Coverage Ratio
06/23/2015
The European Banking Authority published its final draft Implementing Technical Standards under the Capital Requirements Regulation, amending the existing ITS on supervisory reporting on the Liquidity Coverage Ratio. The final draft ITS make significant changes to the existing LCR reporting templates and a large number of new data items need to be introduced further to the requirements of the LCR delegated regulation published in the Official Journal of the European Union in January 2015. The changes include new templates and instructions for banks on capturing and reporting all necessary LCR items. The new templates cover liquid assets, outflows, inflows, collateral swaps and calculation of the LCR. The new instructions will only apply to banks – investment firms will continue to use current instructions and templates, at least for now.
View the ITS. -
UK Regulators Publish Further New Rules on Remuneration
06/23/2015
The Prudential Regulation Authority and Financial Conduct Authority issued a joint Policy Statement on new remuneration rules to strengthen the alignment of risk and reward,. The changes to the PRA Rulebook and FCA Handbook will apply to banks, building societies, PRA designated investment firms as well as UK branches of non-EEA headquartered firms. The new rules apply to all Material Risk Takers and Senior Managers covered by the incoming Senior Managers Regime which takes effect next year. The changes include: (i) extending deferral periods for Senior Managers to no less than seven years, with no vesting period prior to the third anniversary of the award and vesting no faster than on a pro-rata basis; (ii) extending deferral periods for all other MRTs to no less than five years, with vesting no faster than pro-rata from one year (PRA only requirement); (iii) clarifying that the rule that no variable remuneration should be paid to the management body of a firm which receives exceptional government support unless justified applies to all discretionary payments but would not apply to firms receiving emergency liquidity assistance; (iv) a new FCA rule requiring firms to apply clawback where there is misconduct or risk management failures up to seven years from the date of a variable remuneration award (the PRA implemented the same rule from January 1, 2015); and (v) extending the clawback period by up to three years, in addition to the seven years for PRA-designated Senior Managers where there are outstanding internal or regulatory investigations at the end of the normal seven-year clawback period. The final rules on clawback and deferrals will apply to variable remuneration awarded for performance periods beginning on or after January 1, 2016. The remainder of the new rules will apply from July 1, 2015.
View the Policy Statement.TOPIC : Compensation -
US Commodity Futures Trading Commission Updates Guidebook and Appendices for Part 20 Reports
06/22/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight published an updated Guidebook and Appendices for Part 20 Reports, providing guidance and instructions for the submission of large swaps trader reports to the CFTC in accordance with Part 20 of the CFTC regulations. Among other things, the Part 20 Guidebook includes instructions on reporting formats and record layouts for submitting position reports and examples for converting swaps into futures equivalent units as required under Part 20.
View the CFTC Guidebook for Part 20 Reports.TOPIC : Derivatives -
Basel Committee Releases Final Net Stable Funding Ratio Disclosure Standards
06/22/2015
The Basel Committee on Banking Supervision released final Net Stable Funding Ratio disclosure standards. The NSFR was introduced by the Basel Committee to reduce funding risk over a period of one year by requiring banks to fund their activities with sufficiently stable sources to mitigate the risk of future funding stress. The NSFR and the Liquidity Coverage Ratio are intended to increase a bank's resilience to liquidity shocks, ensure more stable funding and enhance liquidity risk management. Similar to the LCR disclosure framework, the goal of the NSFR disclosure standards is to improve transparency of funding requirements and reduce uncertainty in the markets as the NSFR is implemented. The NSFR disclosure requirements are applicable to internationally active banks on a consolidated basis although jurisdictions may choose to apply the requirements to other banks. Banks will be required to publish their NSFR disclosures at the same time as they publish their financial statements, either within those statements or linked to their websites. Banks will also need to make archived disclosures publicly available on their websites for a retention period to be determined by national regulators. The NSFR disclosure requirements will be adopted in parallel to the NSFR and banks will be required to comply with the new disclosure requirements from the date of the first reporting period after January 1, 2018.
View the press release.
View the final standards. -
US Federal Reserve Board Announces New Deputy Director of Division of Monetary Affairs
06/19/2015
The Federal Reserve Board announced that Brian F. Madigan will become the new secretary of the Federal Open Market Committee and deputy director of the Federal Reserve Board’s Division of Monetary Affairs.
View the Federal Reserve Board press release.TOPIC : People -
EU Technical Standards on Extensions and Changes to Internal Approaches Consolidated
06/19/2015
An Amending Regulation which amends the Regulatory Technical Standards on assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk was published in the Official Journal of the European Union. The Amending Regulation adds standards to the original RTS on the conditions for assessing materiality of extensions and changes to Internal Model approaches used for the calculation of own funds requirements for market risk. The amendments mean that all of the provisions regulating extensions and changes to internal approaches are set out in a single legal text. The original RTS only included provisions for the Internal Rating Based Approach and the Advanced Measurement Approaches used for calculating capital requirements for credit and operational risk. The Amending Regulation enters into force on July 9, 2015.
View the Amending Regulation. -
European Supervisory Authorities Consult Again on Margin for Uncleared Derivatives
06/19/2015
The European Supervisory Authorities published their second consultation on draft regulatory technical standards on risk mitigation techniques for OTC derivatives not cleared by a CCP. Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk. This second consultation follows the proposals published in April 2014 and seeks to address the issue of how the requirements would impact firms subject to differing requirements across jurisdictions. The second consultation seeks feedback on a narrower set of issues, including: (i) the treatment of non-financial counterparties established outside of the EU; (ii) the timing of calculation, call and delivery of initial and variation margin; (iii) unintended consequences that might arise due to the design or implementation of initial margin models; (iv) the requirements for trading relationship documentation; (v) the treatment of FX mismatch between collateral and OTC derivatives; (vi) whether allowing cash posted as initial margin to be re-invested will alleviate concerns that the ban on rehypothecation would result in a de facto ban of cash as initial margin; (vii) whether replacing the requirement to obtain legal opinions on the segregation of initial margin with a requirement for counterparties to conduct an internal assessment of the reliability and enforceability of agreements in each jurisdiction is sufficient to ease the burden on counterparties; and (viii) the revised regime for units in UCITS as eligible collateral. Responses to the consultation are due by July 10, 2015. The revised international timeline would apply.
View the Consultation paper.TOPIC : Derivatives -
US Board of Governors of the Federal Reserve System Approves Final Rule Amending Regulation D
06/18/2015
The Board of Governors of the Federal Reserve System adopted a final rule amending Regulation D (Reserve Requirements of Depository Institutions), changing the calculation of interest payments on certain balances maintained by eligible institutions at Federal Reserve Banks. In contrast to the previous rule, which based interest payments on the average rate over the two-week reserve maintenance period, the final rule bases interest payments on a daily rate. The amendment is intended to enhance the effectiveness of changes in such rates of interest in moving the Federal funds rate into the target range established by the Federal Open Market Committee, especially when changes in those rates do not coincide with the beginning of a maintenance period. The amendments to Regulation D will be effective July 23, 2015.
View text of amended Regulation D. -
Delay on Delivery of European Technical Standards under Central Securities Depositories Regulation
06/18/2015
The European Securities and Markets Authority published a letter, dated June 17, 2015, from it to the European Commission that informs the Commission that ESMA will be providing the technical standards due under the Central Securities Depositories Regulation in September 2015. The original due date for delivery of the technical standards was June 18, 2015. The delay to delivery of the standards is due to the European Commission’s Legal Services undertaking an early review of the standards to ensure conformity and consistency of EU legislation. There is not expected to be a delay in adoption by the European Commission of the technical standards under CSDR. The CSDR introduces common standards for settlements across the EU, such as the harmonization of the rules governing central securities depositories which operate the infrastructures enabling settlement, and the timing of securities settlement in the EU. The CSDR will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities. Certain provisions will only apply from the date of entry into force of the relevant delegated act adopted by the Commission under the CSDR.
View ESMA's letter.TOPIC : Financial Market Infrastructure -
EU Political Agreement on Proposed Regulation on Reporting and Transparency of Securities Financing Transactions
06/17/2015
The Council of the European Union and the European Parliament announced that they had reached agreement on the text of the proposed Regulation on Reporting and Transparency of Securities Financing Transactions, known as SFTR. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buy-sell back or sell-buy back transactions and margin lending transactions which will help reduce the likelihood of banks seeking to avoid rules applicable to them by moving certain of their activities to the shadow banking sector. The SFTR, once finalized, will require: (i) all securities financing transactions, subject to certain exceptions for central banks and similar bodies, to be reported to EU recognized trade repositories; (ii) investment funds to disclose their use of SFTs to investors in regular reports and pre-investment documents; and (iii) minimum conditions to be met on the reuse of collateral, such as disclosure of risks and the need to obtain prior consent. The politically agreed SFTR must be technically finalized before the official legal text can be adopted by the European Parliament, which is currently scheduled for October 2015.
View the European Council's press release.
View the European Parliament's press release.TOPIC : Shadow Banking -
Report on Credible Deterrence in the Enforcement of Securities Regulation
06/17/2015
The International Organization of Securities Commissions published a report on credible deterrence in the enforcement of securities regulation. With the objective of promoting awareness of deterrence, the report sets out the following as factors that may lead to credible deterrence of misconduct in the securities and investment markets if adopted by regulators: (i) legal certainty of the consequence of misconduct; (ii) detecting misconduct by being well connected and getting the right information; (iii) co-operation and collaboration between regulatory authorities; (iv) bold and resolute enforcement in investigations and prosecution of misconduct; (v) strong punishments which ensure that there is no profit from misconduct; (vi) promoting public understanding; and (vii) good regulatory governance.
View the report.TOPIC : Enforcement -
OCC Announces Plans to Escheat Funds from the Foreclosure Review, the Termination of Orders against Certain Mortgage Servicers and the Imposition of Restrictions on Six Other Mortgage Servicers
06/17/2015
The OCC announced its intention to escheat at the end of 2015 any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. According to OCC estimates, approximately $280 million from OCC-supervised institutions will remain unclaimed at the end of 2015 despite efforts to locate eligible borrowers. The decision to escheat all funds available from uncashed checks provides an opportunity for the remaining eligible borrowers and their heirs to claim the funds through their states’ escheatment claims processes. Concurrently with the decision, the OCC terminated foreclosure-related consent orders against three national bank mortgage servicers (Bank of America, N.A., Citibank N.A., and PNC Bank, N.A.) that the OCC deemed to have met the consent order requirements, and imposed business restrictions on six banks that have not completed the required corrective actions. The restrictions issued by the OCC include limitations on the acquisition of residential mortgage servicing or residential mortgage servicing rights; new contracts for the bank to perform residential mortgage servicing for other parties; outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; off-shoring new residential mortgage servicing activities; and new appointments of senior officials responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance. The specific restrictions imposed on the banks vary based on the particular circumstance of each bank.
View the OCC press release.TOPIC : Enforcement -
EU Technical Standards on Own Funds Requirements Amended
06/17/2015
A regulation which amends the regulatory technical standards for own funds requirements was published in the Official Journal of the European Union. The amending regulation aims to ensure a harmonized approach across the EU to the deduction from own funds items of indirect and synthetic holdings in firms' own funds instruments and indirect and synthetic holdings in financial sector entities. The amending regulation adds provisions to the original RTS which: (i) explain what intermediate entities mean for the purpose of deducting holdings in financial sector entities held indirectly through intermediate entities; (ii) expand upon the different investments which should be considered as synthetic holdings and the amount to be deducted from Common Equity Tier 1 items in each case; (iii) set out the calculation for firms to determine the percentage held indirectly in a financial sector entity; (iv) include criteria required for indices to be qualify as broad market indices; and (v) explain the calculation of minority interests. The amending regulation enters into force on July 7, 2015.
View the amending regulation. -
Financial Conduct Authority Calls for Input on Innovation in Digital and Mobile Solutions in Financial Services
06/17/2015
The Financial Conduct Authority issued a call for input, asking two specific questions on digital and mobile solutions for financial services, so that it may obtain market views on: (i) specific UK or EU rules and policies that may currently restrict the development of new and innovative products; and (ii) rules and policies that should be introduced to facilitate innovation in this field. The FCA is asking for specific examples, taking into account both UK and EU perspectives. The call for input also provides a summary on the FCA’s considerations related to the digital and mobile space to date, such as the demand for the regulation of digital currencies and concerns about regulatory requirements creating lengthy customer terms and conditions that are deemed not to be appropriate for digital and mobile solutions. Responses to the Call for input are due by September 7, 2015.
View the call for input.TOPIC : Financial Market Infrastructure -
International Organization for Securities Commissions Issues Press Release Further to Annual Conference
06/17/2015
The International Organization for Securities Commissions issued a press release further to its recent annual conference, reporting that important organization and policy issues have been discussed, including IOSCO’s strategic direction to 2020 as well as its action plans. IOSCO aims to reinforce its position as a global reference for securities regulation and aims to implement 43 new initiatives encompassing six priority areas: (i) research and risk identification; (ii) standard setting and developing guidance; (iii) implementation monitoring; (iv) capacity building; (v) co-operation and information exchange; and (vi) collaboration and engagement with other international organizations.
View the press release.TOPIC : Financial Services -
US Federal Deposit Insurance Corporation Issues Notice of Proposed Rulemaking to Revise How Small Banks are Assessed for Deposit Insurance
06/16/2015
The US Federal Deposit Insurance Corporation approved a Notice of Proposed Rulemaking and request for comment on proposed refinements to the deposit insurance assessment system for small insured depository institutions that have been federally insured for at least five years (referred to as “established small banks”). The FDIC is proposing to refine the deposit insurance assessment system by: (i) revising the financial ratios method so that it would be based on a statistical model estimating the probability of failure over three years; (ii) updating the financial measures used in the financial ratios method consistent with the statistical model; and (iii) eliminating risk categories for established small banks and using the financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum initial assessment rates based upon a bank’s composite rating). The FDIC proposes that the refinements would become operative the quarter after the reserve ratio of the Deposit Insurance Fund reaches 1.15 percent. and that a final rule would go into effect the quarter after a final rule is adopted; however, as stated above, the proposed amendments would not become operative until the quarter after the DIF reserve ratio reaches 1.15 percent.
View the FDIC press release.
View the Noticed of Proposed Rulemaking. -
US Federal Deposit Insurance Corporation Proposes Rule to Revise Deposit Insurance Assessments for Small Banks
06/16/2015
The FDIC proposed an amendment to the methods used by the FDIC in assessing small banks for deposit insurance. Under the proposal, only banks with less than $10 billion in assets that have been insured by the FDIC for at least five years would be affected. Specifically, the FDIC will (i) revise the financial ratios method to be based on a statistical model estimating the probability of failure over three years; (ii) update the financial measures used in the financial ratios method to be consistent with the statistical model; and (iii) eliminate risk categories for established small banks and use the financial ratios method to determine assessment rates for all such banks. As the proposal seeks to be revenue neutral, the aggregate assessment revenue collected from small banks affected by the revisions is expected to remain approximately the same as it would have been otherwise. To assist banks in understanding the potential effect of the proposed rule and in estimating assessment rates under the proposal, the FDIC has published an online assessment calculator. Comments on the proposal are due within 60 days from publication of the proposed rule in the Federal Register.
View the notice of proposed rulemaking.
View the proposed assessment calculator.
View statement by FDIC Chairman, Martin J. Gruenberg. -
US Federal Banking Agencies Finalize Revisions to the Capital Rules Applicable to Advanced Approaches Banking Organizations
06/16/2015
The Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued final revisions to the regulatory capital rules adopted in July 2013. The final rule is applicable to large, international banking organizations that calculate their regulatory capital ratios using the advanced approaches rule (generally, institutions with more than $250 billion in total consolidated assets or more than $10 billion in total on-balance sheet foreign exposures). The final rule substantially adopts the changes to the rule as proposed on December 18, 2014, and corrects and updates certain aspects of the advanced approaches rule, including the calculation requirements for risk-weighted assets for banking organizations using the advanced approaches method. The revisions also enhance the consistency of the advanced approaches rule with international capital standards. The final rule will be effective October 1, 2015.
View the final rule. -
US Federal Reserve Board Releases Statement on Court’s Decision in Starr International Company, Inc. v. The United States
06/15/2015
The Federal Reserve Board issued a public statement regarding AIG and the recently issued United States Court of Federal Claims decision in Starr International Company, Inc. v. The United States. In its statement, the Federal Reserve Board stated that its actions during the bailout of AIG during the financial crisis were “legal, proper and effective.” In the decision, the United States Court of Federal Claims found in favor of Starr International Company, Inc. on a portion of its claim against the United States under the Fifth Amendment, but ultimately did not award any damages. The opinion strongly criticized many of the US government’s actions with respect to the assistance it provided AIG in 2008 and the years following. Ultimately, the Court held that no damages were available to the shareholders, because they were in fact in a better position than they would have been had the US government not intervened and AIG had filed for bankruptcy.
View Federal Reserve Board press release. -
European Banking Authority Final Draft Implementing Technical Standards on Disclosure and Supervisory Reporting of Leverage Ratio
06/15/2015
The European Banking Authority published two final draft Implementing Technical Standards under the Capital Requirements Regulation on the leverage ratio for EU firms with regards to disclosure and supervisory reporting. These include amendments and updates to templates used for supervisory reporting and instructions to update the leverage ratio disclosure and reporting framework. The final draft ITS on reporting aim to encourage the harmonization of reporting and disclosure of the leverage ratio across the European Union, as consistent reporting requirements in all member states facilitate the comparability of data as well as cross-border supervision. The final draft ITS will enter into force following their publication in the Official Journal of the European Union.
View final draft ITS.
View final draft ITS 2. -
Final UK Rules on Restrictions on Retail Distribution of CoCos and Mutual Society Shares
06/12/2015
The Financial Conduct Authority published its Policy Statement and final rules on the restrictions on the retail distribution of contingent convertible securities, known as CoCos, and mutual society shares. The FCA announced a temporary ban on the retail distribution of CoCos, which entered into force on October 1, 2014. The final permanent rules restricting distribution of CoCos to retail clients will come into effect on October 1, 2015 and the rules on mutual society shares will come into effect on July 1, 2015.
View the FCA's Policy Statement.TOPIC : Financial Services -
US Securities and Exchange Commission Publishes Request for Public Comment on Exchange-Traded Products
06/12/2015
The US Securities and Exchange Commission announced that it is seeking public comment on the listing and trading of new, novel or complex exchange-traded products (“ETPs”). Specifically, the request deals with key issues that arise when market participants seek an exemption in order to trade a new ETP or when a securities exchange is looking to establish standards for the listing of new ETPs. ETPs have become an important investment vehicle to market participants. Given the significant increase in the number and complexity of new products, the SEC has determined that broad public input is necessary regarding certain issues, including arbitrage mechanisms and market pricing for ETPs, legal exemptions and other regulatory positions related to the trading of ETPs and securities exchange listing standards for ETPs. The request also solicits comment on how market professionals sell ETPs, especially to retail investors, and on investors’ understanding of the nature and use of ETPs. The public comment period will remain open for 60 days following publication of the comment request in the Federal Register.
View the press release.
View the request for comment.TOPIC : Financial Services -
US Federal Agencies Publish Volcker Rule Frequently Asked Questions 14 and 15
06/12/2015
The US federal agencies responsible for implementing the Volcker Rule (the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission) issued two new Volcker Rule Frequently Asked Questions. The FAQs provide guidance regarding the application of covered funds exclusions to foreign public funds and joint ventures.
FAQ 14 generally provides that foreign public funds sponsored by banking entities will not themselves be treated as banking entities even if controlled by a foreign banking entity though means other than share ownership. FAQ 15 generally emphasizes that joint ventures must be engaged in business activities, as opposed to investing in securities or other financial instruments, in order to be exempt as a joint venture.
View FAQ 14.
View FAQ 15. -
Assessment Report on Implementation of the Principles for Financial Market Infrastructures
06/11/2015
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published the second report on Level 1 assessments of implementation monitoring of the Principles for Financial Market Infrastructures. Level 1 assessments are based on self-assessments by individual jurisdictions on how they have adopted the PFMIs through legislation, regulations and other policies. The PFMIs are international standards for payment, clearing and settlement systems and trade repositories aimed at ensuring that such
infrastructure is robust and able to withstand financial stability shocks. Level 1 assessments will next be undertaken in 2016.
View the report.TOPIC : Financial Market Infrastructure -
Bank of England Announces Open Forum on Assessment of the Reforms Impacting the FICC Markets
06/11/2015
The Bank of England announced an Open Forum, that will take place in autumn this year, to assess the financial regulatory reforms affecting the Fixed Income, Currency and Commodities markets that are already implemented or in train. Alongside the announcement, the Bank published a paper detailing its analysis of the short fallings of the FICC market, issues with its own frameworks and operating procedures, measures to rectify those failings and the difficulties that remain. Further details of the Open Forum will be published in due course. In the meantime, stakeholders are invited to register their interest in attending the event through the Bank of England’s website.
View the announcement.
View the related document.TOPIC : Financial Services -
UK Fair and Effective Markets Review Makes Recommendations in Final Report
06/10/2015
The final report of the UK Fair and Effective Markets Review was published. The report includes an analysis of the causes of recent misconduct in the Fixed Income, Currency and Commodities markets, an evaluation of the impact of related reforms that have been implemented or are otherwise in progress and recommendations to enhance the fairness of the FICC markets. The recommendations will need to be implemented by public authorities and market participants domestically although several will require international discussions and coordination to implement. The recommendations to be implemented domestically include: (i) extending the UK criminal sanctions regime for market abuse by including a wider range of FICC markets, lengthening the maximum sentence from seven to ten year’s imprisonment and creating a regime for spot FX (the latter would be a civil and criminal regime for market abuse); (ii) extending certain elements of the Senior Managers and Certification regimes to a wider range of regulated firms that participate in the FICC markets; (iii) establishing a new FICC Market Standards Board; (iv) improving awareness of the application of competition law to the FICC markets; (v) developing new training and qualification standards; (vi) and requiring regulatory references for individuals. Recommendations requiring international coordination include:
(i) developing globally agreed common standards for trading practices in FICC markets; (ii) agreeing a single global FX code; (iii) considering how to ensure benchmark administrators publish consistent self-assessments; and (iv) examining means to improve the alignment of remuneration and conduct risk. A report on implementation progress will be published by June 2016.
View the final report.TOPIC : Financial Services -
US Consumer Financial Protection Bureau To Supervise Nonbank Auto Finance Industry
06/10/2015
The US Consumer Financial Protection Bureau published a rule that for the first time permits CFPB oversight over larger non-bank auto finance companies. The agency’s Supervisory and Examination Manual has also been updated to guide examiners who are monitoring compliance by auto finance companies with federal consumer financial laws (e.g., the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair, deceptive or abusive acts or practices).
The final rule extends the CFPB’s current oversight of auto financing at the largest banks and credit unions to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act. While the CFPB has finalized the rule largely as proposed in September 2014, the final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold and slightly modifies the definition of refinancing for the purpose of the threshold.
The CFPB rule will take effect 60 days after publication in the Federal Register.
View the CFPB press release.
View the Final Rule.
View the Examination Procedures for Auto Finance.TOPIC : Consumer Protection -
European Banking Authority’s Technical Advice on Target Level and Initial Period for Contributions to the Single Resolution Fund
06/10/2015
The European Banking Authority published technical advice on the target level and initial period for contributions to the Single Resolution Fund under the Single Resolution Mechanism. The EBA’s advice was requested by the European Commission to assist it in developing legislation which specifies criteria for: (i) the spreading out in time of the contributions to the SRF; (ii) determining the number of years by which the initial period for reaching the target level can be extended; and (iii) establishing the annual contribution when the available financial means of the SRF falls below its target level after the initial period. The SRM and the SRF provide for the resolution of credit institutions and certain investment firms established in Member States within the Eurozone or in Member States that participate in the Banking Union. The SRF will support resolution measures for those banks and investment firms and will be financed by bank levies raised at national level. Ex ante contributions by those firms must be made to ensure that the SRF reaches a level of one per cent of the protected deposits of all banks within the Banking Union within eight years. The SRM and SRF are due to come into effect from January 1, 2016.
View the EBA's advice.TOPIC : Recovery & Resolution -
US Federal Agencies Issue Final Standards for Assessing Diversity Policies and Practices of Regulated Entities
06/09/2015
Several US federal financial regulatory agencies (including the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Securities and Exchange Commission) issued a final interagency policy statement creating joint standards to assess the diversity policies and practices of entities they regulate, as required by Section 342 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
Similar to the proposed standards, the final standards provide regulated entities with a framework for strengthening their
diversity policies and practices. This framework includes an organizational commitment to diversity, workforce and employment practices, procurement and business practices and practices to promote transparency of organizational diversity and inclusion within the entities’ US operations.
The final interagency policy statement is effective on publication in the Federal Register.
View the press release.
View the interagency policy statement. -
Basel Committee on Banking Supervision Launches Consultation on Interest Rate Risk in the Banking Book
06/08/2015
The Basel Committee on Banking Supervision published a consultation paper on the risk management, capital treatment and supervision of interest rate risk in the banking book. The proposals expand upon, and are intended to ultimately replace, the Basel Committee’s 2004 Principles for the Management and Supervision of Interest Rate Risk. The objectives of the proposals are to help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates and to limit capital arbitrage between the trading book and the banking book, as well as between banking book portfolios that are subject to different accounting treatments. The published proposal
presents two options for the capital treatment of interest rate risk in the banking book: (i) a Pillar 1 (Minimum Capital Requirements) approach; and (ii) an enhanced Pillar 2 approach. Comments to the proposal are due by September 11, 2015.
View the consultation document.
View the 2004 Principles for the Management and Supervision of Interest Rate Risk. -
US Financial Stability Oversight Council Releases Guidance Regarding Calculations of Stage 1 Threshold
06/08/2015
US Financial Stability Oversight Council staff released guidance providing additional information regarding the calculation of Stage 1 thresholds, used by the FSOC to help identify nonbank financial companies for potential supervision by the Board of Governors of the Federal Reserve System and to determine application of enhanced prudential standards to such companies. To assist its determination, the FSOC created a three-stage process, where it applies in Stage 1 six quantitative thresholds to a broad group of nonbank financial companies to assess whether any may be subject to further evaluation in Stage 2. The recent FSOC guidance describes the components of each of the thresholds, applicable accounting standards that are applied, data sources that are utilized, entities included in the calculations, the frequency of calculations and periodic review of the Stage 1 thresholds.
View the FSOC staff guidance. -
UK Prudential Regulation Authority Publishes Final Rules on Approach to Regulating Liquidity
06/08/2015
The Prudential Regulation Authority published a Policy Statement setting out the final rules on its approach to regulating liquidity under the Capital Requirements Regulation. The Policy Statement provides feedback on the responses received by the PRA to the consultation on liquidity published in November 2014, and refers to a new Supervisory Statement on supervisory liquidity and funding risks which was published on the same day. The Policy Statement is aimed at UK banks, EEA banks with a branch in the UK, PRA-designated investment firms, as well as third country banks or PRA-designated investment firms. The Policy Statement includes new rules and feedback on issues related to: (i) the phasing-in of the Liquidity Coverage Requirement and additional liquidity requirements on top of the LCR; (ii) liquidity reporting and disclosure, including changes made to address concerns about the increased and burdensome volume of liquidity data that is to be reported; and (iii) interim LCR reporting. The Supervisory Statement deals with issues including (i) the Internal Liquidity Adequacy Assessment Process; (ii) the liquidity supervisory review and evaluation process; (iii) the drawing down of liquid asset buffers; (iv) collateral placed at the Bank of England; and (v) reporting of liquidity positions. The rules and Supervisory Statement come into effect on October 1, 2015, with the exception of Annex E, which will delete the requirement to submit certain liquidity returns and which will enter into force following a further review.
View the policy statement.
View the supervisory statement. -
International Organization of Securities Commissions Publishes Final Report on Good Practices on Reducing Reliance on CRAs in Asset Management
06/08/2015
The International Organization of Securities Commissions published its final report titled Good Practices on Reducing Reliance on credit rating agencies in Asset Management, which lists a set of eight good practices intended to help asset managers avoid over-reliance on external credit ratings in the industry. To address concerns, IOSCO recommends that the Financial Stability Board consider potential ways to reduce possible investor overreliance on external ratings which are driven by regulatory requirements, such as those in the Basel framework or the Solvency regime applicable to insurers. The report highlights the importance of asset managers having the appropriate expertise and processes in place to evaluate and manage the credit risk associated with their investments.
View the IOSCO Final Report.TOPIC : Credit Ratings -
UK Changes to Pension Transfer Rules Come into Effect
06/08/2015
The Financial Conduct Authority published a Policy Statement and final rules on changes to the pension transfer rules. The amendments, which were consulted on in March this year, are needed to ensure that the rules reflect the change to legislation that made it a regulated activity to advise on the conversion or transfer of safeguarded pension benefits into flexible benefits. The FCA has also made changes to the Conduct of Business rules so that pension transfer requirements apply to all pension transfers, regardless of when the transferred benefits are accessed. The new rules came into force on June 8, 2015.
View the Policy Statement.TOPIC : Financial Services -
EU Revised Anti-Money Laundering and Terrorist Financing Framework Comes into Effect
06/05/2015
The revised EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “4th Anti-money Laundering Directive” or “4MLD”) and the Regulation on information accompanying transfers of funds were published in the Official Journal of the European Union. Together, the legislation represents the revised EU framework on anti-money laundering and terrorist financing. Member States have until June 26, 2017 to transpose the requirements of the 4th Anti-money Laundering Directive into national law. The 4th Anti-money Laundering Directive will repeal, from June 26, 2017, the current anti-money laundering Directive and its related Implementing Directive. The Regulation will apply directly in all Member States from June 26, 2017 and will repeal the 2006 Regulation on information on the payer accompanying transfers of funds from that date.
View the 4th Anti-Money Laundering Directive.
View the Regulation.TOPIC : Financial Services -
US Commodity Futures Trading Commission Issues No-Action Relief to International Financial Institutions from Broker and Commodity Trading Advisor Registration
06/05/2015
The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight issued no-action relief from introducing broker and commodity trading advisor registration to persons located outside the US that facilitate swap transactions for International Financial Institutions that have offices in the US. The relief granted by the DSIO is consistent with prior treatment of IFIs, including for purposes of the swap dealer definition and mandatory clearing requirements.
The definition of IFIs, for purposes of the no-action letter and in accordance with prior CFTC policy, is limited to certain specified institutions and organizations, including but not limited to, the International Monetary Fund, the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development and the International Development Association, among others.
View the CFTC Staff Letter 15-37.TOPIC : Derivatives -
US Commodity Futures Trading Commission’s Division of Market Oversight Extends Time-Limited, No-Action Relief for Swap Dealers and Major Swap Participants from Compliance with Reporting Obligations
06/05/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter (CFTC Staff Letter 15-38) extending time-limited relief to Swap Dealers and Major Swap Participants from the obligation to report valuation data for cleared swaps. The no-action relief applies to (i) all SDs and MSPs that are reporting counterparties under regulation 45.8, for the purposes of section 45.4(b)(2)(ii) of the CFTC’s regulations, and (ii) all cleared swaps for which the SD or MSP has the obligation to report valuation data under section 45.4(b)(2)(ii).
According to the no-action letter, the DMO will not recommend that the CFTC take enforcement action against an SD or MSP for failing to comply with the requirements of the CFTC’s regulation to report valuation data.
Originally expiring on June 30, 2015, in accordance with the time-limited relief provided previously in CFTC Staff Letter 14-90, the no-action letter issued on June 15, 2015, extends the relief until June 30, 2016.
View the press release.
View the CFTC Staff letter 15-38.
View the CFTC Staff letter 14-90.TOPIC : Derivatives -
European Commission Announces Extension of Exemption from Clearing Obligation for Pension Funds
06/05/2015
The European Commission announced an extension of the exemption from the clearing obligation for pension funds from August 16, 2015 to August 16, 2017. The announcement was accompanied by a draft Commission Regulation which will, once it has come into effect, amend the European Market Infrastructure Regulation to give effect to the extension. The Commission noted that if pension funds were subject to the clearing obligation now, they would need to source cash for the margin requirements of CCPs. The Commission, and other EU regulators, have asked CCPs to develop a solution that would allow pension funds to clear derivatives without the obligation being too burdensome for pension funds but which will also allow CCPs to liquidate positions rapidly in the event of a default. To date, no solution has been confirmed.
View the draft Commission Regulation.TOPIC : Derivatives -
Final Draft Regulatory Technical Standards on Advanced Measurement Approaches for Calculating Capital Requirements for Operational Risk
06/05/2015
The European Banking Authority published a final report, dated June 3, 2015, including final draft Regulatory Technical Standards on the criteria that national regulators must take into account before allowing firms to use the Advanced Measurement Approaches for calculating capital requirements for operational risk under the Capital Requirements Regulation. The draft RTS aim to encourage regulatory harmonization across the European Union and also detail the assessment methodology that is to be used by national regulators. The draft RTS cover: (i) the qualitative and quantitative criteria that firms must meet before they are granted permission to use AMA models; (ii) the criteria for the supervisory assessment of key methodological components of the operational risk measurement system; and (iii) the common standards for the supervisory assessment of a bank’s operational risk governance.
View the final draft RTS. -
Lloyds Banking Group Fined for Failures to Handle PPI Complaints Fairly
06/04/2015
The Financial Conduct Authority issued a final notice imposing a fine of £117m on Lloyds Bank Plc, Bank of Scotland Plc and Black Horse Ltd (together LBG). The fine relates to the unfair approach of LBG’s complaint handling operations and failures to treat customers fairly when handling Payment Protection Insurance complaints between March 2012 and May 2013. In handling PPI complaints, LBG designed and implemented a policy which sought to comply with the rules and guidance of UK regulators. However, during the relevant period, LBG advised its complaint handlers that LBG’s PPI sales processes had been “compliant and robust,” unless notified otherwise. This was described as “the Overriding Principle.” The Overriding Principle affected the judgments of some complaint handlers who relied on this principle to dismiss customer accounts of what had happened during the PPI sale, and some complaints were therefore not fully investigated. LBG also failed to notify its complaints handlers of the known failings of its sales of PPI. The investigation showed that a significant number of customer complaints were rejected unfairly due to these reasons. The FCA found that customers who had originally been mis-sold PPI and treated unfairly were once again treated unfairly and denied the redress that was owed to them.
View the final notice.TOPIC : Enforcement -
US Securities and Exchange Commission Provides Additional Analysis Related to Proposed Pay Ratio Disclosure Rules
06/04/2015
The US Securities and Exchange Commission’s Division of Economic and Risk Analysis published additional analysis related to its proposed rules for pay ratio disclosure. Among other things, the analysis considers the potential effects of excluding different percentages of employees from the pay ratio calculation. In September 2013, the SEC proposed rules that would require the disclosure of the median of the annual total compensation of all employees of the issuer, the annual total compensation of the chief executive officer of the issuer and the ration of the median of the annual total compensation of all employees of the issuer to the annual total compensation of the chief executive officer of the issuer. The analysis and proposed rules are available for public comment until July 6, 2015.
View the SEC analysis.
View the proposed SEC rules for pay ratio disclosure.TOPIC : Compensation -
Extension of Transitional Provisions for Exposures to CCPs Formally Announced
06/04/2015
Following the announcement by the European Commission, that the transitional period for regulatory capital requirements for EU banks’ exposures to CCPs under the EU Capital Requirements Regulation would be extended from June 15, 2015 to December 15, 2015, the Implementing Regulation was published in the Official Journal of the European Union on June 9, 2015. The Implementing Regulation comes into effect on June 12, 2015. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. One of the requirements for recognition of a third country CCP is that the third country’s regime for supervision of CCPs is deemed to be equivalent to that of the regime under EMIR. Equivalence decisions for CCP regimes have only been given for Hong Kong, Singapore, Australia and Japan. Decisions for major jurisdictions, such as the US, are still outstanding. Authorization or recognition under EMIR will give the CCP the status of being a Qualifying CCP, which is relevant for clearing member firms to calculate their capital requirements for exposures to CCPs under the CRR. Lower capital requirements will be imposed for exposures to a QCCP than for exposures to a non-QCCP CCP.
View the Implementing Regulation.
View our client note on third country equivalence under EMIR. -
UK Financial Conduct Authority Consults on Fair, Reasonable and Non-Discriminatory Access to Regulated Benchmarks
06/03/2015
The Financial Conduct Authority published a consultation paper setting out proposals for fair, reasonable and non-discriminatory access to regulated benchmarks by benchmark administrators. This is further to the policy statement published by the FCA in March 2015 on the seven new benchmarks it will be regulating and supervising. The policy statement included the FCA’s final rules amending Chapter 8 of the Market Conduct Sourcebook (MAR 8), originally designed for benchmarks determined through a submission process, such as LIBOR. The FCA’s proposals are in response to concerns raised about the unconstrained ability of administrators to set the prices of access to benchmark information and benchmark licenses. The new proposals limit the ability of benchmark administrators to exploit their market power in a way that could encourage unfair competition. The new rules would apply to existing and future pricing and licensing arrangements and would not apply retrospectively. Responses are due before August 3, 2015 and the FCA aims to publish a policy statement and final rules towards the end of 2015.
View the consultation paper.TOPIC : Financial Market Infrastructure -
Federal Banking Agencies Release Statement on Annual Stress Tests at Medium-Sized Financial Companies
06/02/2015
The US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the US Office of the Comptroller of the Currency (collectively, the Federal banking agencies), released a statement reiterating the disclosure requirements for the annual company-run stress tests conducted by financial institutions with total consolidated assets between $10 billion and $50 billion. In the statement, the Federal banking agencies emphasized the requirement for such medium-sized firms to disclose certain information regarding the annual stress tests, including: (i) a description of the types of risks included in the stress test; (ii) a summary description of the methodologies used to conduct the stress test; (iii) estimates of losses, revenue, and net income; (iv) post-stress capital ratios; and (v) an explanation of the most significant causes for the changes in regulatory capital ratios. In addition, as the Federal banking agencies have previously stated, the company-run stress tests are intended to produce hypothetical results and are not intended to be forecasts or expected outcomes.
Stress test results must be disclosed between June 15, 2015 and June 30, 2015. Any questions regarding the disclosures made in connection with the stress tests should be directed to the firms.
View statement released by the Federal banking agencies. -
Amending Regulation on Own Funds Requirements in Force
06/02/2015
The Amending Regulation setting out Regulatory Technical Standards on own funds requirements for institutions under the EU Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV, was published in the Official Journal of the European Union. The Amending Regulation applies to banks and investment firms and specifies the conditions in which a drag on own funds is disproportionate in terms of distributions on: (i) an individual Common Equity Tier 1 instrument; and (ii) the total own funds of the firm. The Amending Regulation also deals with preferential distributions regarding preferential rights to payments of distributions as well as preferential distributions regarding the order of distribution payments. The Amending Regulation enters into effect on June 22, 2015.
View the Regulation. -
European Banking Authority Publishes Questionnaire on Regulatory Equivalence of Third Countries
06/02/2015
The European Banking Authority published a questionnaire on the assessment of third country equivalence with the regulatory and supervisory framework under the Capital Requirements Directive IV package. The questionnaire aims to assess whether third countries apply regulatory and supervisory provisions equivalent to those in the EU framework. The questionnaire will be sent to certain third countries so that the regimes of those countries can be assessed. For third countries that are deemed to be equivalent, more favorable treatment in terms of capital requirements could be available for EU credit institutions with relevant exposures to entities located in these countries, though only after the European Commission adopts an Implementing Decision determining the equivalence of the third country’s prudential supervisory and regulatory requirements.
View the questionnaire. -
US Federal Bank Regulatory Agencies Seek Further Comment on Interagency Effort to Reduce Regulatory Burden
05/29/2015
The US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the Federal Reserve Board (collectively, the "federal bank regulatory agencies") approved a notice requesting comment on a third set of regulatory categories as part of their review to identify outdated or unnecessary regulations applied to insured depository institutions. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 requires federal bank regulatory agencies to review their regulations at least once every 10 years and to categorize and publish the regulations for comment. Consistent with the EGRPRA, the federal bank regulatory agencies have grouped regulations applicable to insured depository institutions into 12 regulatory categories: (i) Applications and Reporting; (ii) Banking Operations; (iii) Capital; (iv) Community Reinvestment Act; (v) Consumer Protection; (vi) Directors, Officers and Employees; (vii) International Operations; (viii) Money Laundering; (ix) Powers and Activities; (x) Rules of Procedure; (xi) Safety and Soundness; and (xii) Securities. The latest notice seeks comment on regulations in the following three categories: (i) Consumer Protection; (ii) Directors, Officers and Employees; and (iii) Money Laundering. Comments will be accepted within 90 days after publication in the Federal Register. Although the current notice seeks comment on the three specifically enumerated categories above, comments are accepted on any of the established categories of regulation as well as on all rules that have been finalized before the publication of the last EGRPRA notice which is expected by year-end. The European Commission also recently launched its Better Regulation Agenda, which among other things, aims to improve the review of existing EU laws.
View the Federal Register Notice.
View the EGRPRA website. -
European Banking Authority Publishes Report on Additional Tier 1 Capital Instruments
05/29/2015
The European Banking Authority published a final report on the monitoring of Additional Tier 1 capital instruments issued by EU firms. Under the EU Capital Requirements Regulation, the EBA must monitor the quality of own funds instruments issued by EU institutions. The report presents the EBA’s recent monitoring results and updates the EBA’s earlier report on the topic, published on May 4, 2015. The EBA has examined 15 AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and 10 under a temporary write-down mechanism, for a total amount of €21.4 billion. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised to minimize uncertainty. Wording used should be consistent with that in the CRR, for example, "non-objection" cannot be used as a substitute for "supervisory permission," a term used in the CRR. Also, certain issuances include partial regulatory calls. This means that only a portion of the instruments may be called by an institution if the corresponding part of the issuance is, due to a regulatory change, no longer recognized in Tier 1 capital. The report states that only regulatory calls for the full amount of instruments are acceptable, irrespective of whether a regulatory changes triggers full or partial derecognition from AT1 capital. The EBA intends to continue monitoring certain AT1 issuances, expects that future issuances will use some level of standardization and advises that terms and conditions should not be unjustifiably complex. The EBA will also develop standardized terms and conditions for AT1 issuances which would not be compulsory for firms but would help to ensure compliance with regulatory provisions.
View the report. -
CFTC Announces International Affairs Director Sarah Josephson to Assume New Role at Agency
05/29/2015
The Director of the CFTC’s Office of International Affairs, Sarah E. Josephson, announced her resignation as director of the OIA and return to her previous position as the CFTC Deputy Director in the Division of Clearing and Risk. Special Counsel, Jeffrey M. Bandman, has been appointed Acting Director of OIA while the CFTC conducts a search for a new director.TOPIC : People -
US Securities and Exchange Commission Names Andrew J. Donohue as Chief of Staff
05/28/2015
The SEC named Andrew J. Donohue the SEC Chief of Staff.Mr. Donohue will replace Lona Nallengara who leaves the SEC in June. As chief of staff, Mr. Donohue will be a senior adviser to SEC Chair Mary Jo White on all policy, management and regulatory issues.TOPIC : People -
UK Prudential Regulation Authority Publishes Policy Statement on Ring Fencing Rules
05/27/2015
The Prudential Regulation Authority published a policy statement on ring-fencing rules concerning legal structure, governance and continuity of services and facilities. The policy statement applies to banks that are required to ring-fence their core activities, banking groups with core deposits exceeding £25 billion and financial and other institutions who deal with ring-fenced bodies. The document sets out the new rules and the new "Ring-Fenced Bodies" Part to the PRA Rulebook, all in near-final versions. A second consultation paper on ring-fencing will be published later in 2015. Final versions of all the rules and supervisory statements relating to ring-fencing will be published in the first half of 2016.
View the policy statement.TOPIC : Corporate Governance -
Bank of England Publishes Guidance on Traded Risk Methodology for Stress Test of UK Banking System together with Traded Risk and Structured Finance Scenario
05/26/2015
The Bank of England published a report on stress testing the UK banking system, which includes guidance on the traded risk methodology for participating banks and building societies. The document sets out the approach that banks are expected to take in the execution of the stress test of the UK banking system relating to trading positions. The guidance is designed to assist firms to carry out their own analysis for the stress test. The BoE also published a traded risk and structured finance scenario. This is a "tail risk" scenario, designed to assess the resilience of banks to deterioration in global economic conditions.
View the report.
View the scenario.TOPIC : Financial Services -
US Financial Stability Oversight Council Releases Annual Report
05/26/2015
The US Financial Stability Oversight Council unanimously approved and published its 2015 annual report. The report discusses a variety of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the US, and recommendations on methods to mitigate such threats. The findings in the FSOC report emphasize, among other things, the need for the continuing enhancement of cyber security for all market participants, the ongoing investigation into whether existing rules and standards are sufficiently robust to mitigate the potential risk that central counterparties could transmit credit and liquidity problems among financial institutions and markets during periods of market stress, and the efforts made to reduce gaps that remain in the scope and quality of data sharing among regulators.
View the 2015 FSOC annual report.
View press release. -
US Securities and Exchange Commission Charges Deutsche Bank with Misstating Financial Reports during Financial Crisis
05/26/2015
The US Securities and Exchange Commission announced a settlement with Deutsche Bank AG in connection with the filing by Deutsche Bank of misstated financial reports during the financial crisis that failed to take into account a material risk for potential losses estimated to be in the billions of dollars. The investigation found that Deutsche Bank overvalued a derivatives portfolio consisting of Leveraged Super Senior trades through which the bank purchased protection against credit default losses. Because these positions were leveraged, the collateral posted for such positions by the sellers was only a fraction of the total in purchased protection. This leverage created a "gap risk" that the market value of Deutsche Bank’s protection could at some point exceed the available collateral, and the sellers could decide to unwind the trade rather than post additional collateral in that scenario. Thus, Deutsche Bank was not protected for the full market value of its credit protection. In connection with the settlement, and in addition to the SEC cease and desist order, Deutsche Bank agreed to pay a $55 million penalty.
View the SEC order.
View the SEC press release.TOPIC : Enforcement -
European Banking Authority Publishes Final Guidelines on Firms Considered as Failing or Likely to Fail
05/26/2015
The European Banking Authority published its final guidelines on the circumstances in which an institution shall be considered as "failing or likely to fail" under the Bank Recovery and Resolution Directive. The guidelines are aimed at national regulators and resolution authorities who will determine at their discretion whether an institution is failing or likely to fail. The guidelines set out the broad elements that should be taken into account for such a determination, namely: (i) a current or likely infringement of the requirements for continuing authorization in a way that would justify the withdrawal of authorization; (ii) assets currently lower or likely to be lower than liabilities; (iii) a current or likely inability to pay debts or other liabilities as they fall due; and (iv) a need for extraordinary public financial support. The guidelines will apply from January 1, 2016.
View the guidelines.TOPIC : Recovery & Resolution -
Prudential Regulation Authority Consults on Contractual Stays in Financial Contracts Governed by Third Country Law
05/26/2015
The Prudential Regulation Authority published a consultation paper on contractual stays in financial contracts governed by non-EEA law. The consultation paper proposes a new rule to be included in the PRA rulebook that would require the contractual adoption of UK resolution stays in certain financial contracts governed by the laws of a jurisdiction outside the EEA. The rule would apply to PRA regulated banks and investment firms, prohibiting firms from creating new obligations or materially amending existing obligations under a financial contract governed by third country law, unless there is agreement in writing with the counterparty to the contract concerning stays in resolution. The rule’s aim is to reduce risks of contagion from the failure of a firm and to support orderly resolution so that when resolution action is taken against a firm, this does not immediately lead to the early termination of financial contracts governed by third country law while its financial contracts governed by UK or EU law are stayed. The deadline for comments on the proposed rule is August 26, 2015.
View the consultation paper.TOPIC : Recovery & Resolution -
Final EU Guidelines on the Management of Interest Rate Risk Arising from Non-Trading Activities
05/22/2015
The European Banking Authority published a final report on guidelines on the management of interest rate risk arising from non-trading activities also known as interest rate risk in the banking book or IRRBB. The report includes the final guidelines which apply from January 1, 2016, and are addressed to national regulators, relevant credit institutions and investment firms. The final guidelines update and repeal the guidelines published on October 3, 2006 by the Committee of European Banking Supervisors. The guidelines set out the expectations for the identification and mitigation of IRRBB risks by firms. The level of application of the guidelines should be consistent with the level of application of the supervisory review and evaluation process.
View the report. -
European Securities and Markets Authority Calls for Amendment of UCITS Directive to Eliminate Conflict with European Market Infrastructure Regulation
05/22/2015
The European Securities and Markets Authority published its opinion on the impact of the European Market Infrastructure Regulation on requirements under the Undertakings for Collective Investment in Transferable Securities Directive for OTC derivative transactions that are centrally cleared. ESMA recommends that the provisions on the counterparty risk limits for OTC derivatives in the UCITS Directive should be amended to take into account the clearing obligation of certain OTC derivatives under EMIR. ESMA’s opinion is that the UCITS Directive should not differentiate between OTC derivatives and exchange traded derivatives. The distinction should rather be between cleared and uncleared derivative transactions which would allow a UCITS to treat ETDs and cleared derivatives transactions with similar counterparty risk characteristics in the same way.
View ESMA’s opinion.TOPIC : Funds -
Bank of England Consults on Proposed Approach to Removing Impediments to Resolvability
05/22/2015
The Bank of England launched a consultation on its proposed approach for exercising its power to direct firms to address impediments to resolvability under the Banking Act 2009, including a proposed Statement of Policy. The Banking Act 2009 implements the Bank Recovery and Resolution Directive. The BoE, in preparing the resolution plan for a firm, must assess the resolvability of a firm. If any substantive impediments are identified during that assessment or otherwise, the BoE has the power to require the firm to remove any such obstacle, including requiring the amendment of a group financial support agreement, the disposal of certain assets or a change to its legal or operational structure. The proposed Statement of Policy also includes a list of possible scenarios in which the BoE might consider using its power of direction, including: (i) the issuance of debt instruments at parent company level to allow for loss absorption and recapitalization of group entities; (ii) to ensure continuity of services in resolution such as operational services, trading agreements and access to payment services and financial market infrastructures; and (iii) for systems to be put in place to support rapid and effective valuation. The consultation is open until August 22, 2015. The BoEintends to issue later this year a separate statement on its power to direct firms to maintain a minimum requirement for own funds and eligible liabilities, known as MREL.
View the consultation paper.TOPIC : Recovery & Resolution -
UK Financial Conduct Authority Launches Market Study into Competition in Investment and Corporate Banking
05/22/2015The Financial Conduct Authority published the terms of reference for its upcoming market study into competition in investment and corporate banking. The need for the market study emerged during the FCA’s review of competition into the wholesale sector. The aim of the market study is to assess whether competition for investment banking and corporate banking services is functioning well, focusing on primary market and related activities provided in the UK. The market study will concentrate on: (i) choice of banks and advisers, including the competitive landscape, clients’ purchasing behavior and entry and expansion within the sector; (ii) limited transparency, including the adequacy of information available to clients, transparency of the allocation process and the impact of established practices, processes or regulation on transparency in the IPO process; and (iii) bundling and cross-subsidization of investment and corporate and banking services, including whether there are any resulting adverse effects on competition and clients. The outcome of the market study may lead the FCA to adopt measures to promote effective competition. However, the FCA will be taking into account related initiatives such as the Fair and Effective Markets Review, the implementation of MiFID II and the Capital Markets Union, and may decide that no further action is required if any concerns arising from the market study are likely to be satisfied by upcoming legislative measures or otherwise. The FCA will be accepting comments on the terms of reference until June 22, 2015, although the regulator is not formally consulting on the terms. The FCA intends to publish an interim report, including any proposed remedies that may be necessary, by the end of the year and a final report in spring 2016.
View the terms of reference.TOPIC : Competition -
UK Financial Conduct Authority Publishes Letter to Certain Firms on the Application of Malus
05/21/2015
The Financial Conduct Authority published a letter from its Director of Supervision, Clive Adamson, to the Remuneration Committee Chair of banks, building societies and investment firms with total assets exceeding £50 billion. The letter highlights the FCA’s expectations on the application of malus (bonus clawback) ahead of the annual review of remuneration policies and practices by the FCA and the Prudential Regulation Authority. Following the first annual review, the FCA published guidance to share best practices on the application of malus to variable remuneration and ex-ante risk adjustments.
View the letter.TOPIC : Compensation -
US Board of Governors of the Federal Reserve System Proposes Rule to Treat US Municipal Securities as Level 2B High-Quality Liquid Assets under the Liquidity Coverage Ratio
05/21/2015
The US Board of Governors of the Federal Reserve System issued a proposal adding certain general obligation state and municipal bonds to the range of assets a banking organization may use to satisfy the Liquidity Coverage Ratio requirement. Under the LCR requirement adopted by the federal banking agencies in September 2014, large banking organizations are required to hold High-Quality Liquid Assets that can be easily and quickly converted into cash within 30 days during a period of financial stress. The proposed rule would allow investment grade, general obligation US state and municipal bonds to be counted as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. The limits on the amount of a state or municipality’s bonds that could qualify are based on the specific liquidity characteristics of the bonds. The proposed rule would apply only to entities subject to the LCR and supervised by the Federal Reserve Board. The deadline for comments on the proposed rule is July 24, 2015.
View the proposed rule. -
UK Prudential Regulation Authority Consults on Board Responsibilities
05/21/2015The Prudential Regulation Authority published a consultation paper which includes a draft Supervisory Statement on the PRA’s expectations for board governance. The purpose of the Supervisory Statement would be to identify those aspects of board governance to which the PRA attaches particular importance and on which the PRA is likely to focus during the course of supervision. The draft Statement confirms the PRA’s view that the accountability of Senior Managers under the new Senior Manager Regime would be additional and complementary to the collective responsibility of the board members. The proposed Supervisory Statement would apply to all PRA-regulated firms—banks, insurance firms, certain large investment firms and credit unions. However, the PRA recognizes that different governance models apply depending on the nature and size of the firm and that the degree of supervisory attention may vary from firm to firm depending on the risk profile of the firm and the potential impact of failure of a firm. The PRA’s judgments on the adequacy of governance arrangements may also be influenced by a firm’s recovery and resolution strategy, including (i) the extent to which the PRA is satisfied that the board of a material subsidiary can demonstrate that it is capable of independent action; (ii) culture; (iii) management incentives and business goals of the firm; and (iv) the extent to which those may differ from the PRA’s statutory objectives. Responses to the consultation are due by September 14, 2015.
View the consultation paper.TOPIC : Corporate Governance -
European Commission Launches Consultation on the Review of the European Market Infrastructure Regulation
05/21/2015
The European Commission published a consultation document on the review of the European Market Infrastructure Regulation. Under EMIR, the European Commission must submit a report, together with any relevant legislative proposals, by August 17, 2015 to the European Parliament and the European Council, both of which will assess: (i) the potential need for measures to facilitate access by CCPs to central bank liquidity facilities; (ii) the systemic importance of transactions of non-financial counterparties in OTC derivatives and the impact of EMIR on such firms; (iii) the supervisory framework for CCPs; (iv) the efficiency of margining requirements to limit procyclicality and the need to define additional intervention capacity in this area; and (v) the development of CCPs’ policies on collateral margining and their adaptation to the specific activities and risk profiles of their users. The Commission intends to focus only on those aspects of EMIR that have already been implemented, leaving out, for example, the obligation to exchange collateral for non-cleared derivatives. The report will also take into account other issues identified in the implementation of EMIR as well as reports submitted by the European Securities and Markets Authority to the European Commission on, for example, the application of the clearing obligation and the application of the segregation requirements. Feedback on the consultation is due by August 13, 2015.
View the consultation paper.TOPIC : Derivatives -
European Securities and Markets Authority Publishes Opinion on the Composition of CCP Colleges
05/21/2015
The European Securities and Markets Authority published an opinion, dated May 7, 2015, on the composition of CCP colleges under the European Market Infrastructure Regulation following the establishment of the Single Supervisory Mechanism and the European Central Bank assuming direct responsibility for prudential supervision of large banks within the SSM. ESMA’s opinion clarifies which authorities qualify as a college member as well as the voting rights that the ECB will hold as a college member.
View ESMA’s opinion.TOPIC : Derivatives -
European Banking Authority Publishes Final Guidelines on Implementation of Resolution Tools
05/20/2015
The European Banking Authority published three sets of final guidelines on the implementation of the resolution tools under the Bank Recovery and Resolution Directive. The final guidelines, which will apply to national resolution authorities from August 1, 2015, are: (i) guidelines on the determination of when the liquidation of assets or liabilities under normal insolvency proceedings could have an adverse effect on one or more financial markets; (ii) guidelines on factual circumstances amounting to a material threat to financial stability and on the elements related to the effectiveness of the sale of business tool; and (iii) guidelines on the minimum list of services or facilities that are necessary to enable a recipient to operate a business transferred to it under the BRRD.
View the final guidelines.TOPIC : Recovery & Resolution -
Prudential Regulation Authority Publishes Revised Rules for Depositor and Dormant Account Protection
05/20/2015
The Prudential Regulation Authority published a Policy Statement on depositor and dormant account protection which sets out the final rules that aim to reduce the adverse effects that the failure of a firm may have on the stability of the UK financial system as well as improve depositor confidence. The Policy Statement includes the amended rules for the Depositor Protection and Dormant Account Scheme rules in the PRA Rulebook. An updated Supervisory Statement on the PRA’s expectations of firms in connection to the amended rules was also published on the same day. The amended rules include a definition of public authority, extend deposit protection to deposits held by local authorities with an annual budget of up to €500,000, add a requirement for firms to inform depositors of deposits that are no longer covered by a deposit guarantee scheme from July 3, 2015 and a new requirement for deposit-takers to provide the Financial Services Compensation Scheme with information held on dormant accounts that have been transferred to a dormant account fund operator.
View PRA’s Policy Statement.
View updated Supervisory Statement.TOPIC : Recovery & Resolution -
UK Financial Conduct Authority Fines Barclays for FX Failings
05/20/2015
The Financial Conduct Authority imposed a fine of £284.4 million on Barclays Bank PLC for failing to have adequate systems and controls in place over its FX business in London. The FCA considered that the failings were particularly serious because of the potential impact on the systematically important spot FX market. The failure by the bank to have the necessary systems and controls in place led its traders to engage in misconduct such as inappropriate sharing of information of clients’ activities, attempts to manipulate spot FX currency rates and colluding with traders at other firms.
View the FCA’s final notice.TOPIC : Enforcement -
US Financial Regulators Impose Fines on Six Major Banking Organizations for Practices in the Foreign Exchange Markets
05/20/2015TOPIC : Enforcement
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Benjamin Lawsky to Step Down as New York Superintendent of Financial Services
05/20/2015
Benjamin M. Lawsky, the superintendent of the New York Department of Financial Services, New York’s top financial regulator, announced his departure from the NYDFS effective late June 2015. Mr. Lawsky’s successor has not yet been announced.TOPIC : People -
European Commission Adopts Better Regulation Agenda
05/19/2015
The European Commission launched its Better Regulation Agenda. Through this package, the Commission aims to: (i) enhance transparency in the EU decision-making process by introducing a new web portal where initiatives can be tracked and by providing more opportunities for stakeholders to comment throughout the policy lifecycle, including allowing for feedback after the Commission has adopted a legislative proposal or, for secondary legislation, before adoption by the Commission or Member States; (ii) improve the quality of new laws through better impact assessments of draft legislation and amendments by: (a) transforming the current Commission Impact Assessment Board into an independent Regulatory Scrutiny Board with an expanded role; and (b) ensuring that impact assessments are carried out throughout the legislative process; and (iii) improve the review of existing EU laws by amending the Regulatory Fitness and Performance Programme (known as REFIT) so that it is more targeted, looks at the most serious sources of inefficiency and quantifies costs and benefits whenever possible. The European Commission also announced that it will enter into negotiations with the European Parliament and Council on a proposed new Interinstitutional Agreement on Better Law-making, endeavoring to reach an agreement by the end of 2015. The US federal bank regulatory agencies are also currently reviewing potential outdated or unnecessary regulations.
View the Better Regulation documents.TOPIC : Financial Services -
Regulation on European Long-Term Investment Funds
05/19/2015
The Regulation on European long-term investment funds was published in the Official Journal of the European Union. The Regulation sets out harmonized rules for the authorization, investment policies and operating conditions of EU alternative investment funds, or parts thereof, that are marketed in the European Union as European long-term investment funds. The Regulation will apply in all EU Member States from December 9, 2015 and Member States are not able to add additional requirements for areas covered by the Regulation.
View the Regulation.TOPIC : Funds -
US Office of the Comptroller of the Currency Issues Final Rule Integrating National Bank and Federal Savings Association Licensing Activities
05/18/2015
The US Office of the Comptroller of the Currency released a final rule integrating policies and procedures for certain corporate activities and transactions by national banks and federal savings associations. The OCC aims to make the regulatory regime for both national banks and federal savings associations more efficient and streamlined, where possible, to promote fair supervision and to promote the safe and sound operation of the institutions it supervises. The final rule makes technical and conforming changes that will allow certain provisions to apply to national banks and federal savings associations and provides clarity on OCC licensing offices’ responsibilities. The rule also updates the description of the OCC supervision structure and contact information.
View the published Federal Register notice.
View the OCC press release.TOPIC : Financial Services -
Application of EU Requirements for Remuneration Policies for Small and Non-Complex Firms Confirmed
05/14/2015
The European Banking Authority published letters between itself and the European Commission on the application of the proportionality principle to the remuneration requirements under the EU Capital Requirements Directive and Capital Requirements Regulation. The proportionality principle states that firms should implement the remuneration provisions in a manner and to the extent that is appropriate to the firm’s size, internal organization and the nature, scope and complexity of its activities. The EBA requested the Commission's views on the approach that the EBA should adopt to interpreting the proportionality principle in its guidelines on sound remuneration policies. The EBA noted that on a legal interpretation of CRD IV the remuneration principles must be applied proportionately, but that there could be no waiver for small or non-complex firms. However, a waiver might be justified on policy grounds for small and non-complex firms because variable remuneration paid is low and the incentives for employees to take risks is low but implementing costs would be significant. The European Commission confirmed that the EBA should follow its legal interpretation as to do otherwise would be to take a policy decision, which is outside of its powers. The EBA is consulting on draft guidelines on sound remuneration policies, adopting the Commission's approach.
View the EBA letter.
View the Commission’s response.
TOPIC : Compensation -
European Regulators Announce Delay for Delivery of Draft Technical Standards under the Market Abuse Regulation and the Markets in Financial Instruments Regulation and Directive
05/13/2015
The European Securities and Markets Authority published letters between itself and the European Commission which set out their agreement for the deadline for delivery by ESMA of technical standards due under the Market Abuse Regulation, the Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation to be postponed to the end of September 2015. The extension is a result of the European Commission conducting an early legal review of draft technical standards. The early legal review will assess the legality and legislative consistency of technical standards under the Undertakings for Collective Investment in Transferable Securities V Directive, the Transparency Directive, the Central Securities Depository Regulation, MAR and MiFID II.
View ESMA’s letter.
TOPIC : Financial Services -
European Banking Authority Consults on Valuation of Derivatives under the Banking Recovery and Resolution Directive
05/13/2015
The European Banking Authority published its proposed draft Regulatory Technical Standards on the valuation of derivatives under the Banking Recovery and Resolution Directive. Under the BRRD, a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine a value of those derivative liabilities at the moment of exercise of the resolution power. The EBA’s proposed draft RTS (i) provides a methodology for resolution authorities to follow with the close-out amount being based on the principle of replacement cost; and (ii) sets out the approach for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in which should be done on a case-by-case basis. The consultation closes on August 13, 2015. The EBA is required to submit the final draft RTS to the European Commission by January 3, 2016. Member states are required to implement the bail-in tool by January 1, 2016.
TOPIC : Recovery & Resolution -
Chairman of US Federal Deposit Insurance Corporation Delivers Speech on the Resolution of Systemically Important Financial Institutions
05/12/2015
Martin J. Gruenberg, Chairman of the US Federal Deposit Insurance Corporation, delivered a speech regarding the progress the FDIC has made in developing a framework for the orderly resolution of large, complex, systemically important financial institutions (SIFIs) in the event that a SIFI experiences failure or other financial distress. Among other topics, the speech addressed the FDIC’s effort to strengthen the bankruptcy process and define the purpose of Orderly Liquidation Authority, a public-sector bankruptcy process prescribed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) for institutions whose resolution under the US Bankruptcy Code Bankruptcy Code would pose systemic concerns.
View the full text.TOPIC : Recovery & Resolution -
European Supervisory Authorities Publish Recommendations for Improving the EU Securitization Framework
05/12/2015
The European Supervisory Authorities published a report setting out the outcome of their review of EU legislative disclosure and due diligence requirements for securitizations and making recommendations for removing inconsistencies across the EU framework. The recommendations constitute the ESA’s response to the European Commission’s consultation on securitization published in February 2015 as part of the Capital Markets Union initiative. The EU framework for structured finance instruments, covering investor due diligence, originator, issuer and sponsor retention and disclosure requirements, is established under a number of EU legislative measures including the Prospectus Directive, the Capital Requirements legislation, the Alternative Investment Fund Managers Directive, the Credit Rating Agency Regulation and Solvency II. The ESAs are recommending: (i) harmonization of due diligence requirements across investor types; (ii) that investor due diligence needs and requirements are met by the disclosure requirements; (iii) a standardized investor report which is available in a centralized public space; (iv) that loan by loan data should be provided to investors; (v) that data providers should be able to fulfill disclosure requirements provided the data owner retains responsibility for the quality of the information; (vi) that all investors should be able to conduct stress tests on all types of structured finance instruments; (vii) a review of the definitions and key terms in the legislation with a comprehensive glossary to support the framework; and (viii) mandatory disclosure requirements for all structured finance instruments admitted to trading on an EU regulated market or offered to the public.
TOPIC : Financial Services -
US Regulators Issue the Final Interpretation on Forward Contracts with Embedded Volumetric Optionality
05/12/2015
The US Commodity Futures Trading Commission and the US Securities and Exchange Commission, after consultation with the US Board of Governors of the Federal Reserve System, jointly issued an interpretation concerning forward contracts with embedded volumetric optionality. The interpretation clarifies certain aspects of the original CFTC proposal made in November 2014 and identifies when an agreement, contract or transaction would fall within the forward contract exclusions from the “swap” and “future delivery” definitions in the Commodity Exchange Act, allowing for forward contracts that provide for variations in delivery amount (i.e., contains “embedded volumetric optionality”).
Although the interpretation was issued jointly, it is solely an interpretation of the CFTC and does not apply to the exclusion from the swap and security-based swap definitions for security forwards or to the distinction between security forwards and security futures products.
View the CFTC’s Final Interpretation.
View the ‘Fact Sheet’.TOPIC : Derivatives -
European Banking Authority Consults on Assignation of Risk Weights to Specialized Lending Exposures
05/11/2015
The European Banking Authority published a consultation paper comprising draft Regulatory Technical Standards on the assignation of risk weights to specialized lending exposures under the Capital Requirements Regulation. Specialized lending exposures are exposures to entities created explicitly to finance or operate physical assets. The CRR allows for special treatment of these exposures within the internal model based approach using a set of supervisory risk weights made up of five categories. The proposed RTS aim to determine how banks take into account certain factors, such as financial strength, political and legal environment and transaction characteristics, when assigning risk weight to specialized lending exposures. The draft RTS also specify how banks should combine those factors to determine the final assignment to a certain category. Responses to the consultation are due by August 11, 2015.
View the consultation paper. -
European Securities and Markets Authority Consults on Expanding the Scope of the Clearing Obligation for Interest Rate Swaps
05/11/2015
The European Securities and Markets Authority launched a consultation on proposed regulatory technical standards on the clearing obligation for additional classes of OTC interest rate derivatives not already included in the first RTS on the clearing obligation for interest rate swaps. The additional classes of OTC interest rate derivatives are those denominated in certain non-G4 European currencies. The additions are: (i) fixed-to-float interest rate swaps denominated in Czech Koruna, Danish Krone, Hungarian Forint, Norwegian Krone, Swedish Krona and Polish Zloty; and (ii) forward rate agreements denominated in Norwegian Krone, Swedish Krona and Polish Zloty. The consultation also includes a summary of the clearing obligation procedure, the structure of the classes of OTC interest rate derivatives and the determination of the classes subject to mandatory clearing. Comments on the proposed RTS should be provided to ESMA by July 15, 2015.
View the consultation paper.TOPIC : Derivatives -
Federal Reserve Bank of New York Creates Wholesale Product Office
05/08/2015
The Federal Reserve Bank of New York announced the creation of a new group called the Wholesale Product Office. The WPO, currently a function within the Federal Reserve Bank of New York’s Executive Office, manages the Fedwire Funds, Fedwire Securities, and the National Settlement Service. Richard P. Dzina will serve as the head of the WPO as of July 1, 2015, as well as a member of the Federal Reserve Bank of New York’s Management Committee.
View the press release.TOPIC : Financial Services -
Bank of England Publishes Consolidated Version of Rules for Recognized Clearing Houses
05/08/2015
The Bank of England published a consolidated version of its rules for Recognized Clearing Houses. RCHs are regulated by the Financial Services and Markets Act 2000 and are subject to the FSMA 2000 (Recognition Requirements) Regulations 2001, though different recognition requirements will apply under the European Market Infrastructure Regulation for RCHs that are also CCPs. RCHs that are also CCPs must comply with domestic requirements as well as EMIR. All UK RCHs must comply with the BoE rules.
View the BoE RCH rules.TOPIC : Financial Market Infrastructure -
European Banking Authority Publishes New Taxonomy for Supervisory Reporting
05/08/2015
The EBA published the new taxonomy for national regulators to provide data to the EBA under the supervisory reporting requirements set out in the Capital Requirements Directive. The revised taxonomy is for reporting on funding plans and supervisory benchmarking from December 31, 2014 onwards. The revised taxonomy incorporates corrections to funding plans and benchmarking reporting structures.
View the EBA announcement. -
European Banking Authority Publishes Final Guidelines on Triggers for Early Intervention Powers
05/08/2015
The European Banking Authority published its final report on guidelines on triggers for the use of early intervention powers under the Bank Recovery and Resolution Directive. The final guidelines provide national regulators with guidance on when to apply early intervention measures to firms. National regulators are not obliged to apply the triggers automatically and may even apply the measures when the triggers are not met. The guidelines identify the following triggers: (i) overall Supervisory Review and Evaluation Process score and outcome, expanding on when regulators should consider application of the early intervention measures; (ii) material changes or anomalies identified in the monitoring of key financial and non-financial indicators under SREP; and (iii) significant events indicating that the conditions for early intervention are met. The final guidelines will apply from January 1, 2016.
View the guidelines.TOPIC : Recovery & Resolution -
Jeremiah O. Norton Submits Resignation as Director of the US Federal Deposit Insurance Corporation
05/08/2015
Jeremiah O. Norton submitted his resignation as Director of the US Federal Deposit Insurance Corporation. Mr. Norton has served as Director of the FDIC since April 16, 2012. His resignation will become effective on June 5, 2015.
View the press release.TOPIC : People -
David Grim Named Director of the US Securities and Exchange Commission’s Division of Investment Management
05/08/2015
The SEC announced that David Grim wills serve as the new Director of the Division of Investment Management. Mr. Grim has been the acting director of the Division of Investment Management since February 2015.
View the SEC press release.TOPIC : People -
US and EU Issue Joint Statement on CCP Equivalence Decision
05/07/2015
The European Commission and US Commodity Futures Trading Commission published a statement made jointly by Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, and Timothy Massad, CFTC Chairman. Mr Massad and Commissioner Hill discussed a possible European Commission equivalence decision for CCPs regulated and supervised by the CFTC, and the statement reveals that discussions will continue so that an approach may be finalized by summer 2015.
View the statement.TOPIC : Derivatives -
European Banking Authority Consults on Mapping of Credit Assessments of External Credit Assessment Institutions for Securitization Positions
05/07/2015
The European Banking Authority published a consultation paper comprising draft Implementing Technical Standards on the mapping of credit assessments of External Credit Assessment Institutions for securitization positions under the Capital Requirements Regulation. The draft ITS aim to determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to ECAIs’ ratings issued on securitizations. Under the CRR, risk weights under the standardized and internal ratings based approach for securitization positions should be based on the credit quality of those positions established according to the credit ratings of ECAIs. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions’ capital requirements. Responses to the consultation are due by August 7, 2015.
View the consultation paper. -
International Organization of Securities Commissions Consults on Sound Practices for Large Intermediaries
05/07/2015
The International Organization of Securities Commissions published a consultation on sound practices at large intermediaries, discussing alternatives to the use of credit ratings in assessing creditworthiness. The report lists thirteen draft practices to be considered by large market intermediaries when developing internal credit assessment policies. These aim to encourage the implementation of efficient alternative methods to assess creditworthiness and reduce the overreliance on credit rating agencies. These draft practices are to be considered also by regulators when overseeing market intermediaries. The draft sound practices include: (i) establishing independent credit assessment functions separate from other business units; (ii) incorporating diverse qualitative and quantitative measures into robust assessment processes; and (iii) improving credit risk assessment practices to ensure that firms remain well informed on the latest developments that might have an adverse effect on the firm. A final report will be prepared after responses to the consultation have been considered. Responses to the consultation are due by July 8, 2015.
View the consultation.TOPIC : Credit Ratings -
New York State Department of Financial Services Grants First Charter to a New York Virtual Currency Company
05/07/2015
The New York State Department of Financial Services announced that it has granted a charter under the New York Banking Law to itBit Trust Company, LLC – a commercial Bitcoin exchange based in New York City. The announcement establishes ItBit as the first virtual currency company to receive a charter from the NYDFS. This announcement caps a series of announcements from the NYDFS, outlining and establishing regulatory guidelines for virtual currencies. Most recently, in December 2014, the NYDFS released a framework for licensing virtual currency firms, known as the "Bitlicense framework." The BitLicense framework included consumer protection, anti-money laundering compliance and cyber security rules tailored for virtual currency firms, including the creation of a two-year transitional BitLicense to assist startups. The additional comment period for the revised BitLicense framework ended in March 2015 and NYDFS expects to put forward its final regulatory framework later this month.
View the press release.TOPIC : Financial Services -
European Banking Authority Publishes Final Guidelines on Recovery Plan Indicators
05/06/2015
The EBA published its final report on guidelines on the minimum list of qualitative and quantitative recovery plan indicators, including the final guidelines. Under the Banking Recovery and Resolution Directive, banks and certain investment firms are required to prepare recovery plans setting out the measures that a firm would take to restore its financial position. Recovery plans are required to include a set of indicators which identify when any of the measures included in the recovery plan are to be invoked. The final guidelines, which should be read in conjunction with the guidelines on the range of scenarios to test recovery scenarios, must be agreed by the national regulator charged with approving the overall recovery plan of a firm. The final guidelines specify that each recovery plan must include capital, liquidity, profitability and asset quality recovery plan indicators. Market-based indicators and macroeconomic indicators must also be included in a recovery plan unless the national regulator agrees that such indicator/s is not relevant to the firm’s legal structure, risk profile, size and complexity. For each category of indicators, the guidelines set out the specific indicators to be included. The guidelines are a minimum list of indicators and firms should not limit their indicators to that minimum. The guidelines will apply from July 31, 2015 to banks and investment firms subject to the BRRD and to national regulators.
View the guidelines.TOPIC : Recovery & Resolution -
US Securities and Exchange Commission Approves Pilot to Assess Tick Size Impact for Smaller Companies
05/06/2015
The US Securities and Exchange Commission approved a proposal by the national securities exchanges and the US Financial Industry Regulatory Authority regarding a two-year pilot program widening the minimum quoting and trading increments, known as "tick sizes" for stocks of some small firms. The pilot program aims to assess whether wider tick sizes would improve the quality of small company stocks for issuers and investors.
View the the SEC press release.TOPIC : Financial Market Infrastructure -
European Securities and Markets Authority Publishes Final Guidelines on the Commodity Derivatives Definition under Markets in Financial Instruments Directive
05/06/2015
The European Securities and Markets Authority published its guidelines on the application of the definition of commodity derivatives under the Markets in Financial Instruments Directive (known as MiFID I). The guidelines aim to provide a common, uniform and consistent application of the definition of commodity derivatives. There is no commonly adopted definition of derivatives in the EU under MiFID I, which can result in the inconsistent application of EMIR when it refers to the MiFID commodity derivatives definition. The guidelines also aim to ensure continuity when MiFID II replaces MiFID I from January 3, 2017. The guidelines will apply from August 7, 2015.
View the guidelines.TOPIC : MiFID II -
TARGET2-Securities Group of European Central Bank Publishes Impact Analysis on T2S Harmonization Standards Non-Compliance
05/05/2015
The TARGET2-Securities advisory group of the European Central Bank published an impact analysis report on non-compliance with T2S harmonization standards. The standards aim to provide a single centralized platform for securities settlement in central bank funds across European securities markets. In November 2014, six jurisdictions declared that it would not be likely that they would be able to comply with some of the obligatory harmonization standards by the time their markets plan to migrate to T2S. These jurisdictions are Belgium, France, Germany, the Netherlands, Romania and Switzerland. The report states that there have been no new cases of non-compliance with T2S harmonization standards. The T2S group has assessed the impact of non-compliant T2S markets on the T2S community as a whole. For the Belgian, Dutch, French, Romanian and Swiss markets, the impact of non-compliance is deemed to be manageable and the T2S group has asked for the further monitoring of implementation plans. A decision for the German market has been postponed until the next impact analysis.
View the impact analysis.TOPIC : Financial Market Infrastructure -
European Parliament and Council Agree on New Draft Payment Services Directive
05/05/2015
The Council of the European Union issued a press release stating it had reached a tentative agreement with the European Parliament on a draft directive that would further the development of electronic payments in the EU market. The new directive will incorporate and repeal the existing Payment Services Directive to create a new framework for emerging and innovative payment services, including internet and mobile payments, providing a more secure and harmonized environment for payments. Once the full text is finalized, the draft directive will need to be confirmed by the Council, submitted to the European Parliament for a vote and then to the Council for adoption. Once adopted, member states will have two years to transpose the directive into national law.
View the press release.TOPIC : Financial Market Infrastructure -
US Commodity Futures Trading Commission Staff Issues Interpretive Letter to Ford Motor Credit Company
05/04/2015
The CFTC’s Division of Clearing and Risk issued an interpretive letter in response to letters from the Ford Motor Credit Company LLC, among others. The CFTC letter clarifies that a securitization special purpose vehicle wholly-owned by, and consolidated with, an entity as described in Section 2(h)(7)(C)(iii) of the Commodity Exchange Act qualifies as a captive finance company. Captive finance companies, in turn, are eligible to elect the end-user exception from the clearing requirement issued by the CFTC under Section 2(h) of the CEA.
View the press release.TOPIC : Derivatives -
European Banking Authority Monitors Additional Tier 1 Capital Instruments
05/04/2015
The European Banking Authority published a report on the monitoring of Additional Tier 1 capital instruments issued by EU institutions. Under the EU Capital Requirements Regulation, the EBA must monitor the quality of own funds instruments issued by EU institutions. The report presents the EBA’s recent monitoring results and updates the EBA’s earlier report on the topic, published in October 2014. The EBA has examined fifteen AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and ten under a temporary write-down mechanism. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised so that uncertainty and complexity is minimized. Wording used should be consistent with that in the CRR, for example, "non-objection" cannot be used as a substitute for "supervisory permission," a term used in the CRR. The EBA intends to continue monitoring certain AT1 issuances, expects that future issuances will use some level of standardization, and advises that terms and conditions should not be unjustifiably complex. The EBA will also develop standardized terms and conditions for AT1 issuances. These would be non-compulsory for institutions, but would help to ensure compliance with regulatory provisions. The EBA report is not fully comprehensive and a final report will be published at the end of May 2015.
View the report. -
Federal Agencies Issue Final Rule on Minimum Requirements for Appraisal Management Companies
04/30/2015TOPIC : Financial Services
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Sarah Dahlgren to Resign from the New York Federal Reserve Bank
04/30/2015
The Federal Reserve Bank of New York announced the resignation of Sarah Dahlgren, executive vice president and head of the New York Fed’s Financial Institution Supervision Group. On October 1, 2015, Ms. Dahlgren will assume the role of senior advisor to the president of the New York Fed, Mr. William C. Dudley. Ms. Dahlgren is expected to remain in her current position as head of FISG until October 1, 2015, to assist with the transition.
View the press release.TOPIC : People -
UK Regulator Publishes Final Rule on Biannual Branch Return Form for Third Country Bank Branches
04/30/2015
The UK Prudential Regulation Authority published a policy statement introducing the final rule that implements the Branch Return, a new return that will collect data biannually from EEA and non-EEA firms with UK branches. The final rule is also directed at firms looking to operate in the UK in the future. The new return gathers quantitative information on economic functions performed by branches in the UK and aims to enhance the PRA’s understanding of the impact that branches have on UK financial stability.
View the Policy Statement and Branch Return Form. -
UK Regulator Publishes Consultation on New PRA Rulebook
04/30/2015
The Prudential Regulation Authority published its third consultation paper on the PRA Rulebook, setting out proposals to amend or delete certain modules of the PRA Handbook and create a new PRA Rulebook. The aim of the review is to reshape materials inherited from the Financial Services Authority to create a Rulebook which contains PRA rules only and follows the split of the FSA into the PRA and the Financial Conduct Authority. This is intended to facilitate firms’ compliance with PRA rules and to provide access to more concise rules, resulting in a more comprehensive understanding of the PRA’s requirements. The consultation paper sets out suggested Rulebook parts including on: (i) the exercise of passport rights by UK firms; (ii) reverse stress-testing (which will be moved to the Internal Capital Adequacy Assessment part of the Rulebook); and (iii) integrated regulatory reporting. The consultation paper also includes draft supervisory statements on: (i) guidelines for completing regulatory reports; (ii) internal governance of third country branches; (iii) Internal Capital Adequacy Assessment Process and Supervisory Review and Evaluation Process; and (iv) internal governance. Responses to the consultation are due by June 30, 2015.
View the consultation paper.TOPIC : Financial Services -
US Federal Banking Agencies Issue Guidance on Regulation Z and Regulation X
04/30/2015
The US Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance issued interagency examination procedures for Regulation Z (Truth in Lending) and Regulation X (Real Estate Settlement Procedures Act). The procedures reflect recent amendments by the CFPB to Regulation Z and Regulation X that, among other things, revised and integrated the disclosures received in connection with certain closed-end mortgage loans. The guidance will become effective on August 1, 2015.
View the Federal Reserve Board’s press release.
View a summary of the updates to the examination procedures. -
US Federal Reserve Board Releases Semiannual Report on Banking Applications Activity
04/30/2015
The US Board of Governors of the Federal Reserve System released its Semiannual Report on Banking Applications Activity. The report delivers aggregate information on applications submitted by bank holding companies, state member banks, savings and loan holding companies, foreign banking organizations, and other entities and individuals for approval to undertake various transactions, including mergers and acquisitions, and engaging in new activities. The latest report covers the period from July 1, 2014 to December 31, 2014. During that period, 681 proposals were reviewed, of which 629 were approved and 52 were withdrawn. Among other things, the report noted that merger and acquisition proposals are generally more complex than other proposals. The average and median number of days to approve such an application is 60 and 41 days, respectively, but the average number of days to approve an application that receives adverse public comments is 206 days.
View the latest Semiannual Report on Banking Applications Activity. -
European Securities and Markets Authority Recognizes Ten Third Country CCPs
04/29/2015
The European Securities and Markets Authority published a list of ten third country central counterparties that have been recognized to offer services in the EU under the European Market Infrastructure Regulation. These third country CCPs are established in Australia, Hong Kong, Japan and Singapore, jurisdictions that are deemed by the European Commission to have legal and supervisory provisions for CCPs equivalent to the regime for EU CCPs under EMIR. The ten CCPs are ASX Clear (Futures) Pty Ltd, ASX Clear Pty Ltd, HKFE Clearing Corporation Limited, Hong Kong Securities Clearing Company Limited, OTC Clearing Hong Kong Limited, SEHK Options Clearing House Limited, Japan Securities Clearing Corporation, Tokyo Financial Exchange Inc, Singapore Exchange Derivatives Clearing Limited and The Central Depository (Pte) Limited. The recognized CCPs will be able to provide clearing services to clearing members or trading venues established in the EU and clearing on these CCPs will satisfy the clearing obligation under EMIR.
View the list of third-country CCPs.TOPIC : Derivatives -
US Securities and Exchange Commission Proposes Rule Regarding Cross-Border Application of Certain Security-Based Swaps Reporting Requirements
04/29/2015TOPIC : Derivatives
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US Securities and Exchange Commission Proposes Executive Compensation Disclosure Rules
04/29/2015
The US Securities and Exchange Commission proposed rules that would require companies to disclose to shareholders the relationship between executive compensation and the financial performance of a company. The proposal, which is designed to enhance company transparency and to allow shareholders to be better informed when making voting decisions to elect directors, would require a company to disclose for itself as well as for other companies in its peer group certain information, including but not limited to information regarding executive pay and performance as well as total shareholder return. Under the rule, companies would be required to disclose the relevant information for the last five fiscal years. Smaller reporting companies, as defined in the proposed rule, would only be required to provide disclosure for the last three fiscal years. The proposed rule provides for a phased-in compliance period for these requirements. The comment period for the SEC proposal is 60 days after publication in the Federal Register which occurred on April 29, 2015.
View our client note on this development.
View the SEC press release.TOPIC : Compensation -
European Banking Authority Consults on Identification Methodology for Global Systemically Important Institutions
04/29/2015
The European Banking Authority published a consultation paper to update its data template for the identification methodology for Global Systemically Important Institutions under the Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV. This review follows on from the introduction by the Basel Committee on Banking Supervision of new identification methodology in January 2015. The consultation paper includes a draft regulation amending the regulatory technical standards on the identification methodology for G-SIIs and the implementing technical standards on uniform format and date of disclosure by G-SIIs. The new data template comprises minor technical revisions such as: (i) average exchange rates being provided by the relevant supervisory authority rather than the respondent bank; and (ii) long-term monitoring items being re-labeled as "Ancillary Data". The scope of the disclosure requirements under CRD IV remains unchanged. Draft revised guidelines on further specification of the indicators of global systemic importance are also included in the consultation paper. Going forward, the data template will be incorporated into the guidelines and instructions specifying how the template should be completed will be published on the EBA website. Responses to the consultation are due by May 30, 2015.
View the consultation paper. -
Michael Brickman Named Deputy Comptroller for Thrift Supervision
04/27/2015
Comptroller of the Currency Thomas J. Curry appointed Michael Brickman as Deputy Comptroller for Thrift Supervision. Mr. Brickman will also continue to serve as Deputy Comptroller for Special Supervision.
View the press release.TOPIC : People -
European Securities and Markets Authority Consults on Draft Guidelines on Knowledge and Competence under MiFID II
04/23/2015
The European Securities and Markets Authority launched a consultation on draft guidelines specifying the criteria for the assessment of the knowledge and competence of employees in investment firms that provide investment advice, information aboutfinancial instruments, investment services or ancillary services to clients. Under the new Markets in Financial Instruments Directive II, investment firms will have to ensure and be able to demonstrate to national regulators that employees of the firm involved in such activities have the necessary knowledge and competence to provide such advice, to act in the best interests of the client and to act honestly, fairly and professionally. The draft guidelines will apply to investment firms and national regulators from January 3, 2017, the date that MiFID II comes into effect. Responses to the consultation are due by July 10, 2015. ESMA intends to publish its final report in Q4 2015.
TOPIC : MiFID II -
Commodity Futures Trading Commission Issues Guidance for Swap Execution Facilities on the Calculation of Projected Operating Costs
04/23/2015
The CFTC’s Division of Market Oversight issued guidance to SEFs concerning the calculation of projected operating costs for the purpose of complying with the financial resource requirements under SEF Core Principle 13 and CFTC Regulation 13.1303. This guidance follows two no-action letters providing relief for erroneous swap trades and swap trade confirmations issued on April 22, 2015. The guidance provides that the cost of variable commissions that a voice-based SEF might pay its employee-brokers does not need to be included in a SEF’s calculation of projected operating costs. However, any fixed salaries or compensation payable to the SEF’s employee-brokers must be included in the calculation of projected operating expenses.
View the CFTC guidance to SEFs.TOPIC : Derivatives -
European Securities and Markets Authority Calls for Evidence on Virtual Currencies
04/22/2015
The European Securities and Markets Authority published a call for evidence on investment using virtual currency or distributed ledger technology. ESMA has been monitoring virtual currency investment to understand market developments, the potential benefits and risks for investors and potential issues for market integrity and financial stability. ESMA sets out its analysis in the paper and requests feedback on three particular topics: (i) virtual currency investment products, such as collective investment schemes or derivatives that have virtual currencies as an underlying or which invest in virtual currency businesses; (ii) virtual currency based assets, securities and asset transfers; and (iii) the application of distributed ledger technology to securities. ESMA is not proposing regulatory action at this stage but will continue to monitor investments using virtual currencies or distributed ledger technology to assist national regulators in keeping up to date with market developments. In July 2014, the European Banking Authority published an opinion proposing a potential regulatory regime for virtual currencies and advising national regulators to “discourage” financial institutions from buying, holding or selling them until a regulatory regime is in place.
View the call for evidence.TOPIC : Financial Services -
Statement by Mark Carney Chairman of the Financial Stability Board to the International Monetary and Financial Committee
04/22/2015
The Financial Stability Board published a statement written by FSB Chairman Mark Carney to the International Monetary and Financial Committee. The statement contains information on ongoing work to finalize post-crisis reforms and measures being taken by the FSB to promote financial stability. The letter discusses certain financial vulnerabilities, such as diminished market liquidity, asset price discontinuities, financial institution misconduct and contagion across markets. The statement reports certain measures taken by the FSB to address these risks, including the formulation of a plan to identify financial stability risks associated with market liquidity in fixed-income markets and asset management activities, ending too-big-to fail for global systemically important banks and developing procedures for implementation monitoring of the agreed international financial regulatory reforms.
TOPIC : Recovery & Resolution -
Merrill Lynch International Fined for Transaction Reporting Failures
04/22/2015
The Financial Conduct Authority fined Merrill Lynch International £13,285,900 for failing to report, or to accurately report, transactions between November 2007 and November 2014. Transaction reporting is required to assist the FCA in monitoring the market and to provide information relating to investigations into market abuse, insider trading and market manipulation. In the final notice, the FCA notes that Merrill Lynch has since taken steps to ensure accurate reporting and to remediate the causes of the failings, including a review of internal systems and processes.
View the final notice.TOPIC : Enforcement -
US and UK Regulators and Authorities Fine Deutsche Bank $2.5 Billion for Failings related to IBOR and LIBOR
04/22/2015
US and UK regulators imposed fines on Deutsche Bank AG for failings related to EURIBOR and LIBOR (collectively known as IBOR) submissions. The CFTC imposed a financial penalty of $800 million, the US Department of Justice imposed a financial penalty of $775 million on DB Group Services (UK) Limited, a wholly-owned subsidiary of Deutsche Bank, which agreed to plead guilty to wire fraud for its role in manipulating LIBOR, the New York Department of Financial Services imposed a fine of $600 million and the UK FCA imposed a fine of £227 million (circa $340 million). The FCA found that Deutsche Bank had breached several regulatory requirements by attempting to manipulate IBOR rates and improperly influence IBOR submissions and for failing to have proper systems and controls in place. The FCA also fined the bank for the failure by its Managers and Senior Managers to deal with it in an open and cooperative way, for misleading the FCA and for not responding to requests for information timeously and effectively.
The CFTC Order stated that from at least 2005 through early 2011, and across currencies, Deutsche Bank’s submitters routinely took into account other Deutsche Bank traders’ derivatives trading positions, as well as their own cash and derivatives trading positions, when making the bank’s IBOR submissions. Furthermore, Deutsche Bank allowed submitters and traders to prioritize profit motives over appropriate submission considerations, permitted a culture of trader self-interest to exist and created conflicts of interest, which allowed the misconduct to occur.
View the FCA notice.
View the CFTC order.
View the New York Department of Financial Services order.
View the US Department of Justice press releaseTOPIC : Derivatives -
Commodity Futures Trading Commission Issues No Action Letters for Erroneous Swap Trades and Swap Trade Confirmations
04/22/2015
The US Commodity Futures Trading Commission’s Division of Market Oversight and the Division of Clearing and Risk issued two no-action letters providing certain time-limited relief to swap execution facilities and designated contract markets. CFTC Staff Letter 15-24 provides time-limited relief from certain CFTC regulations to permit SEFs and DCMs to correct clerical or operational errors that may cause a swap to be rejected for clearing and permits counterparties to resubmit the trade with the correct terms. The no-action letter also permits SEFs and DCMs to correct clerical or operational errors revealed after a swap has been cleared. It allows counterparties to execute a trade to offset the cleared trade and submit a new trade with the correct terms. The relief provided is set to expire on June 15, 2016.
CFTC Staff Letter 15-25 extends the time period for relief previously provided in No-Action Letter 14-108, from September 30, 2015 to March 31, 2016, with certain modifications. This Confirmation No-Action Letter provides relief to SEFs from certain requirements concerning trade confirmations required from SEFs for non-cleared swaps. Specifically, it provides relief to SEFs from the requirement to obtain documents that are incorporated by reference in a trade confirmation issued by a SEF, prior to issuing the confirmation. Additionally, the letter relieves SEFs from the requirement to preserve such documents as records.
View CFTC Staff Letter 15-24.
View CFTC Staff Letter 15-25.TOPIC : Derivatives -
Basel Committee Removes Selected National Discretions and Replies to Frequently Asked Question on Funding Valuation Adjustment
04/21/2015
The Basel Committee on Banking Supervision agreed to eliminate certain national discretions from the Basel II capital framework. The use of national discretions can hinder comparability across jurisdictions and increase variability in risk-weighted assets. The Basel Committee has agreed to remove national discretions from the Basel II capital framework regarding: (i) the treatment of past due loans; (ii) the definition of retail exposures; (iii) transitional arrangements for corporate, sovereign, bank and retail exposures; (iv) the rating structure standards for wholesale exposures; (v) internal and external audit; and (vi) re-ageing. The national discretion for the internal ratings-based approach treatment of equity exposures will expire in 2016. The Basel Committee intends to monitor national discretions that are still available and consider whether more of them should be removed. The Basel Committee also responded to a frequently asked question on funding valuation adjustment. The FAQ notes that a bank’s adoption of FVA should not have the effect of offsetting or reducing its “own credit” adjustment. A bank should continue to derecognize its debit valuation adjustment in full, whether or not it has adopted a funding valuation-type adjustment.
View the press release. -
Federal Deposit Insurance Corporation Seeks Comment on Potential New Deposit Account Records Requirements for Banks with a Large Number of Deposit Accounts
04/21/2015
The US Federal Deposit Insurance Corporation issued an advanced notice of proposed rulemaking (“ANPR”), seeking input on potential new recordkeeping standards for certain FDIC-insured institutions with more than two million deposit accounts. The FDIC is required to provide depositors with access to their insured accounts as soon as possible after an institution fails. For a bank with a large number of deposit accounts, payments might be delayed if the bank’s records are unclear or incomplete, making it difficult to determine what is insured and what is not. Generally, the FDIC seeks input on whether banks with a large number of deposit accounts should be required to have a greater responsibility in the deposit insurance determination process. Specifically, the FDIC seeks comment on whether banks should be required to meet certain records standards, including the ability to calculate insured and uninsured amounts for each depositor at the end of each business day. The FDIC also seeks input on what types of new data requirements would aid a quick and effective insurance determination process as well as the appropriate threshold for institutions to have to comply with the potential new requirements. The proposals will be open for comment for 90 days after the ANPR has been published in the Federal Register.
View a statement issued by FDIC Director, Jeremiah O. Norton.
View the press release. -
Council of the EU Approves New Rules against Money Laundering and Terrorist Financing
04/20/2015
The Council of the EU approved a new directive and regulation aimed at strengthening rules against money laundering and terrorist financing. The new set of laws, when in effect, aim to bring the EU in line with approaches currently taken internationally, and follow the recommendations made by the Financial Action Task Force which is deemed to be a global reference for anti-money laundering and terrorist financing. The final text of the regulation and directive is yet to be published in the Official Journal of the European Union. Once published, member states will have two years to transpose the directive into national law. The regulation will be directly applicable in EU Member States without the need for any further transposition. The new laws will repeal the current European regulation and directive on anti-money laundering and terrorist financing.
View the proposed texts of the regulation and directive and press release.
TOPIC : Financial Services -
Council of the EU Adopts Regulation on New European Long Term Investment Fund
04/20/2015
The Council of the EU adopted a regulation that would increase the capital available for long-term investment in the EU economy. The new kind of fund vehicle, the European long-term investment fund, known as an ELTIF, is expected to provide investors with stable long term returns. An ELTIF will be subject to additional rules, requiring it, for example, to invest at least 70% of its capital in clearly defined categories of assets. Only alternative investment funds managed by alternative investment fund managers and authorized under the Alternative Investment Fund Managers Directive would be able to market themselves as ELTIFs. The regulation will come into force on the twentieth day following its publication in the Official Journal of the European Union.
View the text of the regulations.TOPIC : Funds -
Financial Stability Board Chair’s Letter to G20 on Financial Reforms
04/17/2015
The Financial Stability Board chair wrote a letter to the G20 Financial Ministers and Central Bank Governors on the FSB’s progress on the financial regulation agenda. The letter includes information on continuing work to finalize post-crisis reforms in two major areas: (i) ending too-big-to-fail for financial institutions; and (ii) emerging vulnerabilities, specifically, financial stability risks, especially those from asset managers, and misconduct risks and withdrawal from correspondent banking.
View the letter.TOPIC : Financial Services -
US Federal Reserve Board Outlines Organizational Structure of the Large Institution Supervision Coordinating Committee
04/17/2015
The US Board of Governors of the Federal Reserve System, Division of Banking, Supervision and Regulation issued information regarding the operating structure of the Large Institution Supervision Coordinating Committee supervisory program. SR Letter 15-7 provides information on the program’s organizational structure, including the roles and responsibilities of the committees, subgroups and dedicated supervisory teams that collectively comprise the LISCC’s governance structure. Established in 2010, the LISCC program aims to oversee and supervise the largest, most systemically important financial institutions using a centralized process and is comprised of senior Federal Reserve Board and Federal Reserve Bank officers and financial professionals.
View the letter. -
Annual Assessment on EU Colleges of Supervisors for Cross-Border Banking Groups
04/17/2015
The European Banking Authority published its annual assessment on the EU Colleges of Supervisors. Colleges bring together regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The EBA’s assessment specifies an action plan for 2015, and states that the College’s 2014 action plan was fulfilled to a reasonable extent with improvements in the efficiency of EU supervisory cooperation and the development of a better understanding of the risk profiles of cross-border banking groups. The 2015 action plan covers issues such as: (i) credit, conduct and IT risk; (ii) key tasks for supervisory colleges, including joint decisions on capital and liquidity; and (iii) how best to align the functioning of the College with the new Regulatory Technical Standards and Implementing Technical Standards on the operational functioning of supervisory colleges.
View the assessment. -
European Banking Authority Publishes Report to Correct Taxonomy for Supervisory Reporting
04/17/2015
The European Banking Authority published a report on the eXtensible Business Reporting Language taxonomy filing rules. National regulators use this taxonomy to provide data to the EBA under the supervisory reporting requirements set out in the new European capital requirements legislation. The document corrects the scheme identifier for pre-LEIs. Supervisory reporting covers own funds, financial information, large exposures, leverage and liquidity ratios, asset encumbrance and funding plans
View the report. -
US Federal Reserve Board Outlines Organizational Structure of the Large Institution Supervision Coordinating Committee
04/17/2015
The US Board of Governors of the Federal Reserve System, Division of Banking, Supervision and Regulation issued information regarding the operating structure of the Large Institution Supervision Coordinating Committee supervisory program. SR Letter 15-7 provides information on the program’s organizational structure, including the roles and responsibilities of the committees, subgroups and dedicated supervisory teams that collectively comprise the LISCC’s governance structure. Established in 2010, the LISCC program aims to oversee and supervise the largest, most systemically important financial institutions using a centralized process and is comprised of senior Federal Reserve Board and Federal Reserve Bank officers and financial professionals.
View the letter. -
OFAC Director Adam Szubin Nominated for Undersecretary of the Treasury for Terrorism and Financial Crimes
04/16/2015
President Obama announced the nomination of the US Office of Foreign Assets Control’s Director, Adam Szubin, for the role of Undersecretary of the Treasury for Terrorism and Financial Crimes.
View the press release.TOPIC : People -
G20 Finance Ministers and Central Bank Governors Meeting
04/16/2015
On April 16 and 17, 2015, the G20 Finance Ministers and Central Bank Governors held their second meeting under Turkish presidency in Washington, DC. Further to the meeting, a communiqué was published which detailed the conclusions of the group as well as its goals for the future. The G20 stated, amongst other things, that (i) the commitment remains to finalize the total loss absorbing capacity standard for global financial institutions by November 2015; (ii) gaps in the recovery and resolution of CCPs will be identified and addressed; (iii) the G20 roadmap for the regulation of shadow banking is being implemented; and (iv) that cross-border cooperation will be enhanced to ensure more effective regulations, particularly for resolution and OTC derivative market reforms. The G20 Finance Ministers and Central Bank Governors will meet again in September 2015. The next G20 summit is in November 2015.
TOPIC : Financial Services -
US Consumer Financial Protection Bureau Finalizes Rule Aimed at Improving Credit Card Agreement Submission Process
04/15/2015
The US Consumer Financial Protection Bureau issued a final rule intended to improve the process for companies submitting consumer credit card agreements to the CFPB. The final rule suspends credit card issuers’ obligations to submit their credit card agreements to the CFPB for one year. The purpose of the suspension period is to give the CFPB time to create a more streamlined and automated electronic submission system. Under the rule, credit card issuers will not be required to submit agreements that would otherwise have been due to the CFPB by the first business day on or after April 30, 2015, July 31, 2015, October 31, 2015 and January 31, 2016. During the temporary suspension period, the CFPB will collect consumer credit card agreements from credit card issuers’ public websites and post the agreements to its online consumer credit card agreements database. Credit card issuers will be required to resume submitting credit card agreements on a quarterly basis starting on April 30, 2016.
View the final rule.TOPIC : Consumer Protection -
Final EU Regulations on Calculation of Margin Periods of Risk
04/15/2015
Regulations on the calculation of margin periods of risk of netting sets, which calculation firms must use to calculate their own funds requirements when acting as a clearing member, were published in the Official Journal of the European Union. The Regulations, which supplement the Capital Requirements Regulation, provide for the calculation of exposures to clients according to whether a transaction is cleared by a qualifying CCP or not. A qualifying CCP is one which has been authorized or recognized under the European Market Infrastructure Regulation.
View the Regulations. -
Financial Conduct Authority Finalizes Guidance for MTF Operators on Regulatory Requirements for MTF Rules and Procedures
04/15/2015
The Financial Conduct Authority published final guidance for Multilateral Trading Facility operators on regulatory requirements for MTF rulebooks and procedures as set out in the Market Conduct Sourcebook of the FCA Handbook. The FCA consulted on its proposed guidance late in 2014 which was based on feedback received through a thematic review. The FCA expects all MTF operators to be able to demonstrate that they have considered the good practice observations included in the guidance when setting their approach to compliance with the Market Conduct requirements.
View the final guidance.TOPIC : Financial Market Infrastructure -
BNY Mellon Fined by Financial Conduct Authority for Failing to Comply with Custody Rules
04/15/2015
The Financial Conduct Authority announced that it had fined The Bank of New York Mellon, London Branch and The Bank of New York Mellon International Limited, £126 million for failing to arrange adequate protection for the safe custody of client assets and for failing to comply with the FCA custody rules as set out in the Client Assets Sourcebook under which firms are required to maintain records and reconcile accounts at regular intervals on a legal entity-specific basis. The breaches occurred between November 1, 2007 and August 12, 2013. The FCA’s custody rules aim to ensure that the wind-down of an insolvent firm could be carried out in an orderly manner with minimum loss to clients and as little delay in the return of assets to clients. According to the FCA, the BNY entities are the third and eighth largest custody banks in the UK and a failure of either firm could have a severe impact on the UK market and therefore their breaches were considered to be very serious.
View the FCA announcement and final notices.TOPIC : Enforcement -
EU Central Ratings Repository Updated
04/15/2015
The European Securities and Markets Authority announced that the latest set of statistical data on the performance of credit ratings is available in the Central Ratings Repository. CEREP contains information on credit ratings issued by credit rating agencies which are either registered or certified in the European Union and is intended to assist investors in assessing the performance and reliability of credit ratings on different types of ratings, asset classes and geographical regions.
View ESMA's announcement.TOPIC : Credit Ratings -
International Monetary Fund Publishes Chapters on Shadow Banking Risks
04/14/2015
The International Monetary Fund recently published two chapters for its annual Global Financial Stability Report discussing the risks mutual funds and local lenders may pose to financial stability. The two chapters are titled: “Chapter 2: International Banking After the Crisis: Increasingly Local and Safer?” and “Chapter 3: The Asset Management Industry and Financial Stability.” The IMF warns that mutual funds are increasingly crowding into the same securities, especially bond funds, and that this “herding behavior” may lead to financial instability.
View the chapter.TOPIC : Shadow Banking -
US Office of the Comptroller of the Currency Issues Revised Booklets of the Comptroller’s Handbook
04/14/2015
The US Office of the Comptroller of the Currency issued the “Real Estate Settlement Procedures Act” booklet of the Comptroller’s Handbook. The revised booklet replaces a similar booklet issued in October 2011 and provides updated information resulting from recent changes in Regulation X (12 CFR 1024) related to mortgage servicing and loss mitigation. Additionally, on April 15, 2015, the OCC issued the “Trade Finance and Services” booklet of the Comptroller’s Handbook. The revised booklet replaces the “Trade Finance” and “Bankers’ Acceptances” booklets issued in November 1998 and September 1999, respectively.
View the OCC press release.
View the "Trade Finance and Services" booklet.
View the OCC bulletin for the "Real Estate Settlement Procedures Act" booklet.TOPIC : Financial Services -
US Federal Reserve Board Requests Public Comment on Proposed Amendments to Regulation D
04/14/2015
The Federal Reserve Board requested public comment on proposed amendments to Regulation D (Reserve Requirements of Depository Institutions). The amendments include making technical changes to the calculation of interest payments on certain balances maintained by depository institutions at Federal Reserve Banks. Comments on the proposal are requested within 30 days of publication in the Federal Register.
View the press release.
View the proposal.
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The Financial Stability Board Launches Second Peer Review on Resolution Regimes
04/13/2015
The Financial Stability Board initiated the second review of resolution regimes in FSB member jurisdictions. The goal of the review is to survey the scope of resolution powers that are available in FSB jurisdictions for the banking sector. As part of the review, the FSB invites feedback from financial institutions, industry associations, and other stakeholders on the implementation of reforms to resolution regimes. Feedback should be submitted to the FSB by May 8, 2015 and the peer review report will be published in early 2016.
View the press release.
View the details of the peer review.TOPIC : Recovery & Resolution -
European Banking Authority Reports on Progress of Supervisory Convergence Across the EU
04/09/2015
The European Banking Authority published its first report on progress towards convergence of supervisory practice across EU Member States. Under the Capital Requirements Directive, the EBA must report annually to the EU Parliament and the Council on the degree of convergence of supervisory practices between Member States. The EBA is responsible for developing a Single Rulebook and recommendations as well as a European supervisory handbook to promote consistency across the EU. The EBA’s report focuses on the supervisory review and evaluation process and assessment of risks (known as SREP), stress testing, review of permissions to use internal approach, and supervisory measures and powers. The EBA notes that there has been significant progress since 2011 in strengthening supervisory colleges and that supervisory convergence is under way. However, further work is required, such as the development of technical standards and guidelines on key aspects of the Internal Ratings Based Approach, the interaction between capital buffers, and additional capital requirements and implementation by national regulators of the EBA’s guidelines and other policy items relating to supervision.
View the EBA’s report. -
US Federal Reserve Board Expands Applicability of Small Bank Holding Company Policy Statement
04/09/2015
The US Board of Governors of the Federal Reserve System issued a final rule expanding the applicability of its Small Bank Holding Company Policy Statement (“Policy Statement”) to include certain savings and loan holding companies and raising the asset threshold of the Policy Statement from $500 million to $1 billion in total consolidated assets. This rulemaking will allow a greater number of community banks to qualify for the advantages of being deemed a small bank holding company.
Small bank holding companies are exempt from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. This rule allows small bank holding companies to use non-equity funding, such as holding company loans, to finance growth and/or to use leverage to fund share repurchases and otherwise provide liquidity to shareholders.
The final rule implements a law passed in December 2014 by Congress. It will become effective 30 days after publication in the Federal Register.View the Federal Reserve Board press release.
View the draft final rule.
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International Organization of Securities Commissions Consults on Business Continuity Plans for Trading Venues and Market Intermediaries
04/07/2015
The International Organization of Securities Commissions launched two consultations on business continuity plans for trading venues and for market intermediaries which aim to address weaknesses and gaps in the business continuity plans and recovery strategies of trading venues and market intermediaries. The first consultation report, “Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity,” focuses on how trading venues manage technology and the potential risks arising from technological developments and electronic trading. The second consultative report, “Market Intermediary Business Continuity and Recovery Planning,” proposes standards for regulators and sound practices for market intermediaries whilst recognizing that not all of the sound practices are suitable for each type of intermediary. Both consultations close on June 6, 2015.
TOPIC : Recovery & Resolution -
US Banking Agencies Issue FAQs on the Regulatory Capital Rule
04/06/2015
The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve and the US Federal Deposit Insurance Corporation issued answers to certain frequently asked questions on the regulatory capital rule. The topics addressed in the FAQs include the following: (i) the definition of capital; (ii) separate account and equity exposures to investment funds; (iii) high volatility commercial real estate exposures; (iv) other real estate and off-balance-sheet exposures; (v) qualifying central counterparty questions; (vi) credit valuation adjustment questions; and (vii) other miscellaneous questions.
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Maryann Kennedy and Kris McIntire Named Deputy Comptrollers for Large Bank Supervision
04/03/2015
The OCC named Maryann H. Kennedy and Kris A. McIntire Deputy Comptrollers for Large Bank Supervision. In this role, Ms. Kennedy and Mr. McIntire will oversee the supervision of a portion of the OCC’s large bank portfolio.TOPIC : People -
Prudential Regulation Authority Publishes Further Parts of the PRA Rulebook
04/02/2015
The Prudential Regulation Authority published further Rules and Supervisory Statements and Policy Statements that will form part of the PRA Rulebook. The new Rulebook parts include verification of standing data rules and internal governance rules. The new Supervisory Statements cover internal governance, exercising certain functions under the Building Societies Act 1986 and supervising building societies’ treasury and lending activities. Also published is a new Policy Statement on the PRA’s approach to insurance business transfers. The PRA is creating a stand-alone PRA Rulebook and intends to launch the new Rulebook website online in summer 2015. The current PRA Handbook sits alongside the Financial Conduct Authority’s Handbook, inherited from the Financial Services Authority.
View the PRA Rulebook.
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Richard Taft Named Deputy Comptroller for Credit Risk
04/01/2015
Richard Taft was named as Deputy Comptroller for Credit Risk at the OCC, starting in May. As a principal advisor on credit risks facing the banking system, he will oversee the Commercial and Retail Credit Policy units.TOPIC : People -
International Swaps and Derivatives Association Highlights Concerns Over Lack of Harmonization of Trading Obligation Rules
04/01/2015
The International Swaps and Derivatives Association published a document entitled “Path Forward for Centralized Execution of Swaps.” The Path Forward is a set of principles which aim to promote consistency between the regulatory rules adopted by different jurisdictions for the mandatory trading of derivatives on an exchange or electronic trading platform. ISDA is concerned that market fragmentation will continue and increase if US, European and other regulators do not reconcile their requirements. ISDA suggests that the US regulations are inconsistent with its principles and that changes need to be made to the US trade execution rules for a harmonized international regime to be achieved. The principles are: (i) the trading liquidity of a derivatives contract should be determined by reference to specific objective criteria; (ii) derivatives contracts that are subject to the trading obligation should be able to trade on a number of different types of centralized venues; and (iii) trading venues should offer flexible execution mechanisms that take into account the trading liquidity and unique characteristics of a particular category of swap.
View the Path Forward.TOPIC : Derivatives -
European Banking Authority Makes Recommendations on Equivalence of Confidentiality Regimes
04/01/2015
The European Banking Authority published its recommendations on the equivalence of the confidentiality regimes of third country supervisory authorities. Under the EU Capital Requirements Directive, third country supervisory authorities may participate in a college of supervisors set up for an international cross-border bank if: (i) it is considered appropriate for that authority to participate and (ii) the authority is subject to confidentiality requirements that are equivalent to those set out in the EU Capital Requirements Directive. The EBA’s recommendations only relate to the equivalence of the confidentiality regimes. The appropriateness issue is to be determined by each college of supervisors. The EBA recommends that the confidentiality regimes of the supervisory authorities in the following countries should be considered as equivalent to the CRD IV requirements: Bosnia-Herzegovina, Brazil, Canada, China, FYR Macedonia, Mexico, Montenegro, Serbia, Singapore, Switzerland, Turkey and the United States.
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European Securities and Markets Authority Announces Centralized Data Projects
04/01/2015
The European Securities and Markets Authority announced the launch of two centalized data projects relating to obligations under the European Market Infrastructure Regulation, the Markets in Financial Instruments Regulation and the Market Abuse Regulation. The projects are:- The Instrument Reference Data Project which will provide a central facility for instrument and trading data and the calculation of transparency and liquidity thresholds. This facility is expected to go live in early 2017.
- The Trade Repositories Project which will provide a single access point to trade repository data under EMIR. This data facility is expected to go live in 2016.
TOPIC : Financial Services -
US Commodity Futures Trading Commission Staff Issues No-Action Relief for Swap Dealers Entering into Swaps with Legacy Special Purpose Vehicles
03/31/2015
The CFTC issued no-action relief, subject to specified conditions, to provisionally registered swap dealers from compliance with certain CFTC regulations. The regulations relate to business conduct standards with counterparties and swap trading relationship documentation when entering into swaps with certain special purpose vehicles (“SPVs”) in existence prior to October 10, 2013. Such swaps are referred to as “Legacy SPV Swaps” and the documentation governing the Legacy SPV Swaps are referred to as “Legacy SPV Swap Documentation.” As outlined in the request for the no-action relief, SPVs are entities established for very limited purposes and the permitted activities of SPVs, therefore, are significantly limited through covenants contained in their constitutive documents and transaction agreements. Since they are not operating entities, SPVs rely on third-party service providers to satisfy the SPV’s obligations under the Legacy SPV Swap Documentation and the various structured finance transaction agreements. As the specified CFTC regulations were not contemplated or addressed under the Legacy SPV Swap Documentation and related structured finance transaction agreements, there are consequent legal and practical impediments to third-party service providers taking the steps on behalf of SPVs that may be necessary to comply with the regulatory obligations set forth under the CFTC regulations.
In the no-action relief, the CFTC stated that no enforcement action would be taken against swap dealers for failure to comply with certain CFTC regulations as such regulations may apply to a Legacy SPV Swap.
TOPIC : Derivatives -
Prudential Regulation Authority Board Member Steps Down
03/31/2015
The Bank of England announced that non-executive Prudential Regulation Authority board member, Iain Cornish, would be stepping down with immediate effect.TOPIC : People -
Regulation on Reporting of Supervisory Financial Information Under the Single Supervisory Mechanism Comes into Effect
03/31/2015
The Regulation of the European Central Bank on reporting of supervisory financial information was published in the Official Journal of the European Union. The Regulation sets out the requirements for significant and less significant banks to report supervisory financial information to their relevant national regulator. The Regulation applies to all banks that fall under the Single Supervisory Mechanism as well as any branches of banks established outside of the SSM where the branch operates in a Eurozone Member State or another Member State that has opted into the SSM. The aim of the Regulation is to ensure that both significant and less significant firms report a common minimum set of information to national regulators, which will then be passed to the ECB. The Regulation came into effect on April 1, 2015.
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US Banking Agencies Permit Wells Fargo to Begin Using Advanced Approaches Framework
03/31/2015
The US Board of Governors of the Federal Reserve and the US Office of the Comptroller announced that Wells Fargo – one of the largest global systemically important financial institutions – will be permitted to use the “advanced approaches” capital framework to calculate and publicly disclose its risk-based capital requirements as of the second quarter of 2015. The US advanced approaches framework is available for the largest US banks following a trial or “parallel run” in which the bank proves its ability to meet disclosure requirements for the capital framework under the advanced approach method for four consecutive calendar years. Currently, seven other US banks use the advanced approaches framework. Previously, Wells Fargo used the standardized approach to calculate risk-based capital.
View the Federal Reserve Board press release. -
Revised Code of Best Practice for the FX Market
03/30/2015
A revised Global Preamble: Codes of Best Practice and Shared Global Principles was published by eight FX committees which sit in the major financial centres — Australia, Canada, Frankfurt, Hong Kong, London, New York, Singapore and Tokyo. FX market participants are expected to incorporate the guidance into their FX policies in a timely manner. The Global Preamble, last revised in 2013, covers standards of personal conduct, execution and dealing practices, confidentiality and market conduct.
View the revised Global Preamble.TOPIC : Financial Services -
UK Bank of England Announces Details of 2015 Stress Test
03/30/2015
The Bank of England published details of the 2015 stress test for the largest UK banks and building societies. The stress test, which aims to assess the resilience of banks and the banking system to severe shock, was agreed between the Financial Policy Committee and the Prudential Regulation Authority Board. It is not a variant to the EU stress test calibrated by the European Banking Authority, as was the case for the 2014 stress test. The European Banking Authority is not intending to undertake an EU-wide stress test this year. The results of the stress test will be announced in December 2015. If a firm’s capital or leverage ratios fall below the threshold in the test, it is likely that the PRA will require the firm to strengthen its capital position. The PRA may also require a firm whose ratios meet the threshold to strengthen its capital position after examining capital adequacy, recovery and resolution plans and the extent to which potentially significant risks are not quantified adequately as part of the stress. Any weakness detected in the banking system will be addressed by the FPC which has a variety of powers at its disposal, including recommendations to the PRA and the Financial Conduct Authority.
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UK Government and European Central Bank Agree to Cease Legal Action on CCP Location Policy
03/29/2015
The European Central Bank and the Bank of England published a joint press release announcing that they had agreed to enhanced information exchange and cooperation arrangements for UK CCPs with significant euro-denominated business. Further, both central banks are extending the scope of their standing swap line order to aid the provision of multi-currency liquidity support by both central banks to CCPs established in the UK and the euro area. As a result of the measures, the UK Government announced that it would withdraw the two as yet undecided cases brought by the UK Government against the ECB’s CCP location policy. The announcements follow the General Court judgment on March 4, 2015, which annulled the ECB’s Eurosystem Oversight Policy Framework which had the effect of requiring CCPs with significant euro-denominated business to be located within the eurozone. The ECB has not yet made any announcement about the documents which are the subject of the two cases to be withdrawn (Decision of 11 December 2012 on the terms and conditions of TARGET2 and the ECB’s Statement of Standards published on 18 November 2011 in so far as it sets out a location policy for CCPs).
View the ECB / BoE press release.
View the UK Government’s announcement.TOPIC : Financial Market Infrastructure -
Federal Reserve Bank of New York Appoints First Vice President
03/27/2015
The Federal Reserve Bank of New York appointed Michael Strine first Vice President, effective July 1, 2015. The appointment was approved by the Federal Reserve Board.TOPIC : People -
EU Regulations on Information on the Functioning of the EU Passport Regime under the AIFMD
03/27/2015
Commission Delegated Regulations on the information to be provided by national regulators to the European Securities and Markets Authority on the passport for EU alternative investment fund managers managing or marketing EU alternative investment funds in the EU were published on March 27, 2015. Under the Alternative Investment Fund Managers Directive, ESMA is required to assess the functioning of the EU passport regime, the operating conditions for AIFs and their managers and the potential impact of an extension of the passport. The Regulations set out the information that national regulators will need to provide to ESMA, including the numbers of EU AIFMs authorized in their jurisdiction, problems relating to coordination between national regulators and cooperation arrangements with non-EU regulators, the effectiveness of the collection and sharing of information for monitoring systemic risk and the national regime for marketing of non-EU AIFs by EU AIFMs.
View the Regulations.TOPIC : Funds -
US Commodity Futures Trading Commission Staff Issues No-Action Position Regarding Timing for Submission of Chief Compliance Officer Annual Reports
03/27/2015
The US Commodity Futures Trading Commission issued a no-action letter to futures commission merchants, swap dealers and major swap participants that provides relief from certain requirements under CFTC Regulation 3.3(f). CFTC Regulation 3.3(f) requires FCMs, SDs and MSPs to submit to the CFTC annual reports by Chief Compliance Officers not more than 60 days after the end of their fiscal year. The relief grants FCMs, SDs and MSPs an additional 30 days to provide such annual reports to the CFTC. The relief will remain in effect until the adoption of a rule or rule amendment that modifies the timing requirements of CFTC Regulation 3.3(f)(2) and provides that the CFTC retains the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided, in its discretion.
TOPIC : Derivatives -
Technical Standards on the Assessment of the Proposed Acquisition of an Investment Firm under MiFID I and II
03/27/2015
The European Securities and Markets Authority published its final report and final draft technical standards on the assessment of acquisitions and increases in qualifying holdings in investment firms under the Markets in Financial Instruments Directive I. The final draft technical standards comprise regulatory technical standards to establish an exhaustive list of information that an acquirer of an investment firm must provide to the relevant national regulator and implementing technical standards with standard forms, templates and procedures for cooperation and exchange of information between relevant national regulators. ESMA previously submitted draft RTS and ITS to the European Commission in December 2013. However, due to an amendment to legislation, those RTS need to be amended to cover information that the proposed acquirer must provide on the reputation and experience of any person who will direct the business of the investment firm after the proposed acquisition. The RTS and ITS published by ESMA on March 27, 2015 are the proposed revised RTS and ITS. Under MiFID II, which comes into effect on January 3, 2017, ESMA is required to prepare identical RTS and ITS and therefore ESMA considers that the revised RTS and ITS also satisfy its obligations under MiFID II.
View ESMA final report.TOPIC : MiFID II -
UK Government Consults on Transposing MiFID II
03/27/2015
HM Treasury published a consultation paper on its proposed transposition of the Markets in Financial Instruments Directive II into UK law, including four draft statutory instruments. Member States are required to adopt measures transposing MiFID II by July 3, 2016 and to apply the provisions from January 3, 2017. In addition to the proposed statutory instruments, the FCA will also need to revise current rules and make new rules to transpose MiFID II. The proposed statutory instruments include provisions which create the position limit regime for commodity derivatives, make operating an organized trading facility a regulated activity, bring emission allowances, structured deposits and option and futures within the regulatory perimeter, provide for the exercise of the optional exemptions and transpose other exemptions and impose obligations on certain unauthorized firms in relation to algorithmic trading, provision of direct electronic access services and acting as a general clearing member of the CCP. The consultation closes on June 1, 2015. It is expected that the proposed legislation will be made in 2016.
View the consultation page.TOPIC : MiFID II -
US Agencies Adjust Resolution Plan Filing Deadline for Nonbank Financial Institutions
03/26/2015
The Federal Reserve Board and the FDIC permanently changed the annual resolution plan or “living will” deadline for four non-bank systemically important financial institutions (“non-bank SIFIs”) from July 1 to December 31 beginning in 2016. The institutions include American International Group, Inc., General Electric Capital Corporation, Inc., MetLife Inc., and Prudential Financial, Inc. The agencies previously temporarily extended the 2015 living will deadlines for American International Group, General Electric Capital Corporation, and Prudential Financial to December 31, 2015. MetLife, recently designated as systemically important, is required to submit its first resolution plan by December 31, 2016.
Resolution plans are required by the Dodd-Frank Wall-Street Reform and Consumer Protection Act for the largest financial institutions. Each living will must describe the company’s strategy for rapid and orderly resolution under the US Bankruptcy Code in the event of material financial distress or failure of the company.
View the press release.TOPIC : Recovery & Resolution -
Financial Conduct Authority’s Initial Policy Options for Conduct of Business and Organizational Requirements under MiFID II
03/26/2015
The Financial Conduct Authority published a discussion paper on its proposals for implementing the Markets in Financial Instruments Directive II conduct of business and organizational requirements. The paper sets out the policy choices available to the FCA in implementing some provisions of MiFID II including: (i) the application of MiFID II to insurance-based investment products and pensions; (ii) the best approach to implementing the extended application of MiFID II’s investor protection requirements to the sale of and advice on structured deposits; (iii) whether a ban on discretionary investment management firms accepting commissions and other deposits is appropriate for retail client business; (iv) changing the criteria for local authorities’ treatment as elective professional clients; (v) adopting the new requirements for independent advice on shares, bonds, derivatives and structured products; (vi) extending the MiFID II remuneration rules for conduct of business to non-MiFID firms; and (viii) amending the UK approach to recording telephone conversations and electronic communications. The FCA paper also highlights key conduct of business changes that firms will be required to comply with from January 3, 2017. In particular, the paper discusses types of third party inducements that firms will be able to receive and the classification of products as either non-complex or complex, relevant to the determination of whether the appropriateness test must be applied. The FCA consultation closes on May 26, 2015. The FCA intends to consult fully on implementing the MiFID II requirements in December 2015 and to publish its final rules in June 2016.
View the FCA discussion paper.
View an FCA implementation timetable.TOPIC : MiFID II -
Financial Conduct Authority Consults on Guidance on the Application of Performance Adjustment
03/26/2015
The Financial Conduct Authority published proposed guidance on the application of ex-post risk adjustment to variable compensation (also known as performance adjustment). Ex-post risk adjustment is the adjustment of variable compensation to take into account a specific crystalized risk or adverse performance outcome and includes measures such as reducing current year awards, the application of malus and clawback. The proposed guidance is intended to amend and replace the guidance consulted on by the FCA in its joint consultation paper with the Prudential Regulation Authority on strengthening the alignment of risk and reward at the end of 2014. The revised proposed guidance will only apply to dual-regulated firms — banks, building societies and PRA-designated investments firms — and not to firms that are only regulated by the FCA, as was proposed in the 2014 consultation. The FCA notes that the revised proposed guidance may need to be amended depending on the outcome of the European Banking Authority's consultation on guidelines on sound compensation policies under the EU Capital Requirements Directive and Capital Requirements Regulation, known as CRD IV. Responses to the FCA's consultation are due by May 7, 2015. The FCA expects that the final revised proposed guidance will come into effect in summer 2015.
TOPIC : Compensation -
US Consumer Financial Protection Bureau Considers Proposal to End Payday Debt Traps
03/26/2015
The US Consumer Financial Protection Bureau announced that it is considering proposing rules that would require lenders to ensure that consumers can repay their loans. The proposals under consideration would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that pile up excessive fees. The consumer protections being considered would apply to payday loans, vehicle title loans, deposit advance products and certain high-cost installment loans and open-end loans. The CFPB published an outline of the proposals under consideration in preparation for convening a Small Business Review Panel to gather feedback from small lenders, which is the next step in the rulemaking process.
View a fact sheet summarizing the proposals under consideration.TOPIC : Consumer Protection -
US Securities and Exchange Commission Proposes Rule to Require Broker-Dealers Active in Off-Exchange Markets to Become Members of National Securities Association
03/25/2015
The US Securities and Exchange Commission proposed rule amendments to require broker- dealers trading in off-exchange venues to become members of a national securities association. The amendments would seek to heighten regulatory oversight of active proprietary trading firms. The proposed amendments to Rule 15b9-1 under the Exchange Act of 1934 would narrow the current exemption available to certain broker-dealers from membership of a national securities association if the broker-dealer is a member of a national securities exchange, carries no customer accounts and has annual gross income of no more than $1,000 that is derived from securities transactions effected otherwise than on a national securities exchange of which it is a member. The exemption was originally tailored to exchange specialists and other floor members that might need to utilize limited hedging or other off-exchange activities secondary to their floor-based business. The proposed amendments would also update the exemption that permits off-exchange transactions necessary to comply with the regulatory requirements preventing trade-throughs. The public comment period on the proposed rule amendment will last 60 days following its publication in the Federal Register.
TOPIC : Financial Market Infrastructure -
US Securities and Exchange Commission Adopts Final Rules Related to the JOBS Act
03/25/2015
The SEC adopted final rules to allow smaller companies better access to capital and provide investors with more investment choices. The new rules update and expand Regulation A, an existing exemption from registration for smaller issuers of securities and will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements. The rules are mandated by Title IV of the Jumpstart Our Business Startups Act and will attempt to provide investors with more investment choices, especially among smaller companies. The rules will be effective 60 days after publication in the Federal Register.
View the Final Rules.TOPIC : Financial Services -
UK Payment Systems Regulator Up and Running
03/25/2015
The UK Payment Systems Regulator published the regulatory framework for payment systems in the UK which sets out the PSR’s approach to regulation of payment systems and related industry, work programme regulatory tools and guiding principles. The new PSR is fully operational as of April 1, 2015. Two market reviews were announced alongside the publication of the regulatory framework. The first review is into the ownership and competitiveness of payment systems infrastructure which will look into the ownership of a small number of banks of both BACS, Faster Payments Services and LINK payment systems and the central infrastructure for those systems, VocalLink. The second review is into the supply of indirect access to payment systems which is provided only by Barclays, HSBC, Lloyds and RBS. The PSR is seeking comments on the scope of the reviews with a view to finalizing the terms of reference for each review by the end of May at which time more detailed timetables will be available.
View the regulatory framework.TOPIC : Financial Market Infrastructure -
Financial Policy Committee Given Certain Macro-Prudential Powers of Direction
03/25/2015
UK legislation was enacted which gives the Bank of England's Financial Policy Committee power to issue directions to the Prudential Regulation Authority and the Financial Conduct Authority for certain macro-prudential measures. The FPC will be able to give a direction to (i) specify a minimum leverage ratio for UK banks and PRA-designated UK investment firms; (ii) require UK banks and PRA-designated UK investment firms for which the PRA sets a strategic risk buffer to also maintain an additional leverage ratio specified by the FPC; (iii) require globally systemically important institutions to hold sufficient Tier 1 capital to satisfy an additional leverage ratio specified by the FPC; and (iv) require UK banks and PRA-designated UK investment firms to hold sufficient capital to maintain a countercyclical leverage buffer. The legislation comes into force on April 6, 2015, except for the power of direction for firms required to hold a strategic risk buffer which comes into force on January 1, 2019.
View the legislation. -
Single Resolution Board Announces Priorities for 2015
03/25/2015
The Single Resolution Board announced its priorities for 2015 following its first plenary meeting. The SRB is part of the Single Resolution Mechanism in the Eurozone and will have the powers of a resolution authority under the Banking Recovery and Resolution Directive. The SRM is part of the Banking Union and therefore the SRB will only have powers over Eurozone banks or banks in those Member States that opt into the Banking Union. The SRB’s priorities in 2015 will be to (i) establish cooperation with key stakeholders and international partners; (ii) set standards for credible resolution plans; and (iii) focus on resolution planning, including at an international level, to address obstacles to resolution. The SRB will have full powers by 2016 to carry out its resolution powers.
View the SRB announcement.TOPIC : Recovery & Resolution -
Revised International Code of Conduct Fundamentals for Credit Rating Agencies
03/24/2015
The International Organization of Securities Commissions published its revised Code of Conduct Fundamentals for Credit Rating Agencies as part of a report on the issue. IOSCO consulted in 2012 on revisions to the Code to take into account the number of credit rating agencies that have become subject to supervision by national or regional authorities since the recent financial crisis. The updated Code (i) aims to enhance provisions on protecting the integrity of the credit rating process, managing conflicts of interest, providing transparency and safeguarding non-public information; (ii) adds measures on governance, training and risk management; and (iii) adds new definitions for key terms and revising existing definitions and terminology. The revised Code of Conduct Fundamentals for Credit Rating Agencies is intended to synchronize with the national and regional frameworks for supervision and oversight of credit rating agencies whilst remaining the international standard for credit rating agency self-governance.
TOPIC : Credit Ratings -
Regulations on Methodology for Calculation of Fixed Costs by Investment Firms
03/24/2015
A Commission Delegated Regulation was published in the Official Journal of the European Journal, which amends the Delegated Regulation on own funds requirements for investment firms based on fixed overheads. Under the Capital Requirements Regulation certain investment firms are able to use an alternative method based on a quarter of their fixed costs to calculate their total capital requirement. The amending Regulations insert into the Delegated Regulation the methodology for investment firms to calculate fixed overheads. The amending Regulations come into force on April 14, 2015.
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UK Financial Conduct Authority Publishes its Business Plan for 2015/2016
03/24/2015
The Financial Conduct Authority published its business plan for 2015/2016 which indicates upcoming focus areas for the regulator and announces upcoming priorities. Key issues include: (i) conflicts of interest in dark pools; (ii) investor charges in asset management; (iii) the wholesale market study into competition in investment and corporate banking; (iv) poor culture and controls which threaten market integrity; and (v) systems and controls for financial crime.
TOPIC : Financial Services -
Proposed Guidelines on the Assessment of Financial Instruments as Complex under MiFID II
03/24/2015
The European Securities and Markets Authority launched a consultation on proposed guidelines for the assessment of whether debt instruments and structured deposits are complex or not. Under the revised Markets in Financial Instruments Directive II, investment firms are able to provide reception, transmission and execution of orders for clients without carrying out the appropriateness test subject to certain conditions being met, including that the services do not relate to financial instruments that are (i) bonds, other forms of securitized debt and money market instruments incorporating a structure which makes it difficult for a client to understand the risk involved; or (ii) structured deposits incorporating a structure which makes it difficult for a client to understand the risk or return or the cost of exiting the product before term. ESMA is required to develop, by January 3, 2016, guidelines for the assessment of such instruments to help firms and national regulators classify correctly MiFID debt instruments and structured deposits as either complex or non-complex.
View ESMA’s consultation paper.TOPIC : MiFID II -
US Agencies Announce Living Will Results for Three Foreign Banking Organizations
03/23/2015
The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation announced the completion of reviews of annual resolution plans or “living wills” submitted in 2014 by three foreign banking organizations and gave feedback letters to each bank. The FBOs included BNP Paribas, HSBC Holdings plc and The Royal Bank of Scotland Group plc.
The FDIC announced that the living wills were “not credible” and that 2015 plans would be required to demonstrate significant progress. Common shortcomings identified across the FBOs included: (i) unrealistic assumptions about behavior of various parties (i.e., customers, counterparties, investors, or regulators); and (ii) insufficient analysis on the inter-connectedness between banks. The Federal Reserve Board and the FDIC will expect that the annual plans submitted by the three banks on or before December 31, 2015, demonstrate that the banks are making significant progress to address the shortcomings identified, and are taking actions to improve their resolvability under the US Bankruptcy Code.
View the press release.TOPIC : Recovery & Resolution -
UK Regulator Publishes Final Rules on New Senior Managers and Certification Regime
03/23/2015
The Prudential Regulation Authority published its policy statement and first set of final rules on strengthening individual accountability in banking and insurance. The policy statement implements the new Senior Managers Regime and Certification Regime for UK banks and certain investment firms as well as the Senior Insurance Managers Regime under Solvency II. The new SMR is created to support a change in culture for individuals who are subject to regulatory approval and requires firms to assign a variety of responsibilities to those individuals as well as assess their fitness and propriety regularly. The new Certification Regime will require relevant firms to assess the fitness and propriety of certain individuals of the firm who could cause significant harm to the institution or its customers. The rules include the Prescribed Responsibilities of Senior Managers and the scope of the PRA’s Certification Regime. Separately, the PRA and the Financial Conduct Authority are jointly consulting on proposed plans for extending and tailoring the SMR, Certification Regime and Conduct Rules to UK branches of non-EEA institutions, and this consultation is open until May 25, 2015. The new Senior Managers and Certification Regime will apply from March 7, 2016.
View the policy statementTOPIC : Corporate Governance -
European Securities and Markets Authority Publishes Guidelines on Credit Rating Agencies Reporting Requirements
03/23/2015
The European Securities and Markets Authority published a final report including guidelines on the periodic information that is to be submitted by Credit Rating Agencies to ESMA in the context of ESMA’s ongoing supervision. The guidelines detail the kind of information that CRAs should regularly submit to ESMA on a quarterly, semi-annual and annual basis, so that ESMA can carry out its ongoing supervision of CRAs consistently. This includes information related to: (i) financial revenues and costs; (ii) staff turnover, vacancies and key promotions; and (iii) board minutes, court, arbitration and other dispute resolution proceedings. The guidelines will enter into force two months after they have been published on ESMA’s website.
View the guidelinesTOPIC : Credit Ratings -
UK Government Reports on Cyber Risk Insurance
03/23/2015
The UK Government published a report on managing and mitigating cyber security risks with cyber insurance. The report details how insurers and insurance can play a role in reducing cyber security risks. The report notes that there is a lack of awareness that insurance is available for cyber risk and recommends that firms review their cyber risk management to include a board-level assessment for cyber risk, and draw up recovery plans and use stress testing to confirm financial resilience against cyber threats. The report also gives details of its new industry supported scheme, Cyber Essentials, which was developed as part of the UK’s National Cyber Security Program and guides businesses in protecting themselves against cyber threats.
View the reportTOPIC : Cyber Security -
European Central Bank Supervisory Board Code of Conduct Published in Official Journal of the European Union
03/20/2015
The Code of Conduct for the Members of the Supervisory Board of the European Central Bank was published in the Official Journal of the European Union. The code includes the basic principles that members of the board are to abide by, as well as rules on conflicts of interest, private financial transactions and wealth declarations. This follows on from the ECB’s new prudential supervisory role for banks in the Eurozone under the Single Supervisory Mechanism. The ECB assumed this new role in November 2014, and the SSM creates a new system of financial supervision, under which the ECB directly supervises 120 significant banking groups, and sets and monitors supervisory standards for other Eurozone banks by working more closely with national regulators. The code entered into force on March 21, 2015.
View the code of conduct -
UK Government and Regulator Issue Joint Consultation on Transparency Amending Directive
03/20/2015
HM Treasury and the Financial Conduct Authority issued a joint consultation on the Implementation of the Transparency Amending Directive that entered into force on November 26, 2013 and which amends the Transparency Directive, the Transparency Directive Implementing Directive and the Prospectus Directive. The directives aim to harmonize the information disclosure requirements of companies, and the consultation sets out the proposed amendments to be implemented by HM Treasury to the Financial Services and Markets Act and by the FCA to the FCA’s Disclosure and Transparency Rules, including: (i) the extension of the deadline to publish half-yearly reports and the period of time for which financial reports are publicly available; and (ii) changes to the definition of an issuer. The Transparency Amending Directive must be implemented by EU Member States before November 26, 2015. Comments on the consultation may be submitted until May 20, 2015.
View the consultation paperTOPIC : Financial Services -
European Securities and Markets Authority Consults on Extension of Disclosure Requirements for Private and Bilateral Structured Finance Instruments Transactions
03/20/2015
The European Securities and Markets Authority issued a call for evidence on the disclosure obligations required for Structured Finance Instruments under the Credit Ratings Agency Regulations and extending those requirements to private and bilateral SFI transactions. The call for evidence seeks to gather information on whether ESMA should make a distinction between private and bilateral transactions when considering the extension of the requirements, and if so, how the two terms should be defined. ESMA will then seek to ascertain whether the disclosure requirements can be used in their entirety for both private and bilateral SFI transactions or whether any additional issues should be taken into account to adapt the requirements to each type of transaction. An extension of the disclosure requirements would then be phased in for private and bilateral transactions. ESMA will analyze the evidence it has received to revise the current Regulatory Technical Standards under the Credit Ratings Agency Regulations. Comments on the consultation may be submitted until May 20, 2015.
View the call for evidenceTOPIC : Credit Ratings -
Department for Business Innovation & Skills Issues Guidance on Whistleblowing
03/20/2015
The Department for Business Innovation & Skills published guidance for employers and prescribed persons regarding whistleblowing. The documents lay out various policies and procedures for employers regarding whistleblowing. A prescribed person is an organization or individual that a worker may approach outside their workplace to report suspected or known wrongdoing. The Prescribed Persons Order 2014 sets out a list of over 60 such organizations and individuals that have been designated as prescribed persons because they have an authoritative or oversight relationship with the sector, often as a regulatory body.
View the guidance for employers and the code of practice
View the guidance for prescribed personsTOPIC : Financial Services -
German Regulator Imposes Fine on BlackRock Investment Management
03/20/2015
The German Federal Financial Supervisory Authority issued a press release stating that it has imposed a fine of €3.25m on BlackRock Investment Management (UK) Ltd for publishing information late or incorrectly on its holdings of corporate voting rights and financial instruments. The inaccurate and late disclosures are deemed to have happened further to a misinterpretation of German disclosure rules and the German regulator stated that BlackRock had approached BaFin on the matter so that it could be rectified.
View the press releaseTOPIC : Enforcement -
European Banking Authority Issues Consultation and Draft Guidelines on Limits on Exposures to Shadow Banking Entities
03/19/2015
The European Banking Authority launched a consultation and published draft guidelines on setting limits on exposures to shadow banking entities which carry out activities outside of the regulated framework under the Capital Requirements Regulation. The guidelines set out the approaches that institutions should take to develop internal policies for monitoring and setting limits on individual and aggregate levels. The Principal Approach and the Fallback Approach for setting limits on exposures are set out in the guidelines. The Principal Approach proposes that institutions set an aggregate limit to exposures to the shadow banking sector in relation to the institution’s eligible capital. If an institution is not able to apply the Principal Approach, due to, for example, holding insufficient information about the activities of shadow banking entities, the Fallback Approach should be used which would mean that a limit of 25% of the institution’s eligible capital would be applied to its aggregate exposures to shadow banking entities. In addition, institutions would set tighter limits to individual exposures and should take into account matters such as the financial situation and regulatory status of the shadow banking entity, and whether the entity is vulnerable to asset price or credit quality volatility. The draft guidelines also set out the proposed definitions that are to be used for terms that have not been defined or sufficiently defined in the CRR, such as “shadow banking entities”, “exposures to shadow banking entities”, “excluded undertakings” and “credit intermediation activities.” Comments on the consultation may be submitted until June 19, 2015.
View the consultation paper and guidelines -
Comptroller of the Currency Thomas Curry Testimony
03/19/2015
The Comptroller of the Currency discussed the Office of the Comptroller of the Currency’s approach to adapting regulatory and supervisory expectations to the size and complexity of supervised institutions. His remarks were part of testimony before the US Senate Committee on Banking, Housing and Urban Affairs. His testimony provides a brief overview of the key provisions of Section 165 of Dodd-Frank Act as they apply to bank holding companies and how the OCC’s supervisory and regulatory tools complement and support the objectives of these provisions. He also describes that the OCC has tailored its supervisory programs into three distinct portfolios—community banks, midsize banks, and large banks.
View the oral statement
View the written testimony -
UK Government Reports on Payment Systems Subject to Regulation under New Payment Systems Regulator
03/18/2015
HM Treasury published a report detailing the outcome of its consultation on the criteria for the designation of payments for oversight by the Payment Systems Regulator. HM Treasury is responsible for designating the payment systems that will be subject to regulation and proposals in its consultation suggested the designation of seven payment systems: Bacs, CHAPS, Faster Payment Service, LINK, Cheque and Credit Clearing, Northern Ireland Cheque Clearing, MasterCard and Visa. HM Treasury confirms in its outcome report that only those seven payment systems will be subject to regulation at this stage.
View the reportTOPIC : Financial Services -
International Organization of Securities Commissions and Basel Committee on Banking Supervision Delay Phase-in Periods for Final Framework for Margin Requirements for Non-centrally Cleared Derivatives
03/18/2015
The International Organization of Securities Commissions and the Basel Committee on Banking Supervision published a revised version of their policy framework regarding minimum standards for margin requirements for non-centrally cleared derivatives. The new framework contains several substantive changes from the previous policy framework published by the Basel Committee and IOSCO in September 2013. The framework consists of key principles aimed to ensure harmonization across jurisdictions. The requirements apply to financial firms and systemically important non-financial entities (“covered entities”), the definitions for which are left to national regulation. The Basel Committee and IOSCO have no power to impose any mandatory requirements on regulatory authorities, but rather serve as a reference for national regulators as they adopt their respective margin regimes. The main revisions pertain to the phase in period for posting and collecting initial margin which has been delayed from December 1, 2015 to September 1, 2016. Additionally, the phase-in period for required variation margin, originally set to begin on December 1, 2015, will now begin on September 1, 2016 for covered entities belonging to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives exceeds €3 trillion and March 1, 2017 for all other covered entities. There has currently been no formal statement from US or EU regulatory authorities regarding delay to implementation.
View the revised policy framework
View the summary of key revisions to the September 2013 policy frameworkTOPIC : Derivatives -
HM Treasury Publishes Policy Paper on Competition and Choice in Banking
03/18/2015
HM Treasury published a policy paper on competition and choice in banking, announcing a set of processes that aim to improve competition in the banking sector. The proposed plans include: (i) launching the “midata” initiative, which will allow bank customers to access their current account transaction data in a format that can be used to assess which account is best for them; (ii) applying legislation to prevent anti-money laundering relating to UK digital currency exchanges; and (iii) delivering an open standard for Application Programming Interfaces in UK banking, a framework making it easier for customers to determine if they can get a better deal with a different bank.
View the policy paperTOPIC : Consumer Protection -
UK Government Reports on Development of Application Programming Interface Standard
03/18/2015
HM Treasury published a report detailing the outcome to its call for evidence on the benefits of open data and data sharing in banking. The report specifies the actions that will be taken by the government to deliver an open standard for APIs. APIs will allow different pieces of software to interact with each other, making it easier for customers or fintech companies on behalf of customers to determine if customers can, for example, get a better deal with a different bank elsewhere. The report states that the government aims to set out a detailed framework for an open API standard by the end of 2015.
View the reportTOPIC : Financial Services -
European Securities and Markets Authority Publishes Report on Implementation of Automated Trading Guidelines
03/18/2015
The European Securities and Markets Authority published a report reviewing how national regulators across the EU have implemented its guidelines on automated trading. The guidelines aim to increase levels of supervision on automated trading activities. ESMA’s review found that the majority of EU national regulators have integrated the guidelines into their supervisory practices. However, the report also identified areas for improvement such as the need for regulators to: (i) increase their IT expertise; (ii) allow sufficient resources to be available so that proper supervision can take place; and (iii) coordinate between themselves so that ring fencing programs can be set up to prevent cyber-attacks.
View the reportTOPIC : Financial Services -
HM Treasury Publishes Report on Digital Currency Standards
03/18/2015
HM Treasury published a report detailing the outcome to its call for information on digital currencies. The report states that UK Government intends to improve standards and clarity around digital payments, and the initiatives that it will undertake will include: (i) applying anti-money laundering regulations to digital currency exchanges; (ii) developing a set of standards to enhance consumer protection; and (iii) ensuring that law enforcement bodies are able to prosecute criminal activity and confiscate digital currency funds where transactions are carried out for criminal purposes.
View the reportTOPIC : Consumer Protection -
European Banking Authority Publishes Final Draft Implementing Technical Standards on Supervisory Reporting
03/18/2015
The European Banking Authority published its final draft Implementing Technical Standards on supervisory reporting to amend the current ITS on supervisory reporting for institutions under the Capital Requirements Regulations. The draft ITS include minor amendments to several templates that are to be used by financial institutions in the supervisory reporting process as well as corrections to clerical errors and legal references. The ITS set out the standards that financial institutions must meet for the purposes of supervisory reporting.
View the final draft ITS and annexes -
Agency for the Cooperation of Energy Regulators Updates Designated REMIT Website Portal
03/17/2015
The Agency for the Cooperation of Energy Regulators published the European register of market participants on its designated portal together with its list of standard contracts and the fourth edition of ACER’s Q&As on the Regulation on Energy Market Integrity and Transparency. This is further to ACER finalizing its preparatory work on supporting documentation under REMIT, the EU Regulation that aims to prevent market manipulation and trading on inside information in the wholesale energy market, and more generally improves integrity in this market. On March 20, 2015, ACER also published a recommendation to the European Commission on wholesale energy derivative contracts that must be physically settled under Markets in Financial Instruments Directive II. ACER’s recommendation states that wholesale energy products that must be physically settled and that are in the scope of REMIT include futures, options on futures, options on swaps and any other type of derivative that must be physically settled. ACER also proposes, amongst other recommendations, that the Commission clarifies in its delegated acts that a wholesale energy derivative contract traded on an Organized Trading Facility must be physically settled if it cannot be settled in cash.
View the ACER’s designated REMIT portal, Q&As and recommendation.
TOPIC : Financial Services -
UK Regulator Bans Former Trader Following LIBOR Related Conviction in US
03/17/2015
The Financial Conduct Authority issued a press release and final notice announcing that it has banned a former Rabobank trader, Paul Robson, from the UK financial services industry further to his guilty plea and criminal conviction in the US for fraud and conspiracy to manipulate Rabobank’s Yen LIBOR submissions. In January 2014 Mr Robson was criminally charged along with two others by the US Justice Department for wire fraud that took place between 2006 and 2011. Mr Robson’s sentencing is due to take place in June 2017.
View the FCA’s press release and final noticeTOPIC : Enforcement -
Consumer Financial Protection Bureau Seeks Public Comment on Review of Credit Card Market
03/17/2015
The US Consumer Financial Protection Bureau announced a public inquiry on the status of the credit card market and the impact of credit card protections on consumers and issuers, including issues such as credit card terms, the use of consumer disclosures, credit card debt collection practices and rewards programs. This inquiry is being conducted pursuant to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which required that the CFPB conduct a review of the consumer credit market every two years. To assist with its inquiry, the CFPB is seeking public comment and information in connection with the credit card market and the impact that various credit card regulations have had on consumers. The CFPB will publish a public report of its findings with Congress on the state of the consumer credit card market. Results of the inquiry will also inform future CFPB regulations on the consumer credit card market.
View the CFPB Request for InformationTOPIC : Consumer Protection -
UK Government Creates New Type of Regulated Activity in Relation to Advising on Pensions Benefits Transfers or Conversions
03/17/2015
HM Treasury published the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015 together with a corresponding explanatory memorandum. The Order amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to create a new type of regulated activity of advising on the conversion or transfer of pension benefits which are safeguarded benefits. Safeguarded benefits are defined to mean any benefits other than money purchase benefits and cash balance benefits. This means that the activity cannot generally be carried on in the UK except by an authorised person or pursuant to an exemption. Concurrently, HM Treasury published the Financial Services and Markets Act 2000 (Regulated Activities) (Transitional Provisions) Order 2015, which makes transitional provision in connection with this new regulated activity. This instrument provides that advisors previously permitted to advise on an equivalent class of transfer are automatically authorised to advise under the new activity. Both Orders enter into force on April 6, 2015.
View the Orders and explanatory memoranda
View the Orders and explanatory memoranda 2
View the Orders and explanatory memoranda 3
View the Orders and explanatory memoranda 4TOPIC : Financial Services -
The US Commodity Futures Trading Commission Approves Final Rule on Residual Interest Deadline for Futures Commission Merchants
03/17/2015
The US Commodity Futures Trading Commission approved a final rule amending CFTC Regulation 1.22 by removing December 31, 2018 as the automatic termination date of the phased-in compliance period for the Residual Interest Deadline for Futures Commission Merchants. Regulation 1.22 concerns the posting of collateral. In the event that a customer’s account has insufficient margin, an FCM must commit its own capital—often referred to as “residual interest” — to make up the difference. Previously, the Residual Interest Deadline was set at 6pm Eastern Standard Time and would automatically occur, without any CFTC action or opportunity for public input. In November 2014, the CFTC proposed to amend the rule so that the Residual Interest Deadline would not occur earlier than 6pm without an affirmative CFTC action and an opportunity for public comment. The current action by the CFTC is to finalize this change.
View the Final RuleTOPIC : Derivatives -
UK Regulator Publishes Guidance on Risks Posed to Consumers by Inappropriate Performance Management Practices
03/16/2015
The Financial Conduct Authority published its guidance consultation on risks to customers from performance management at firms. This report is aimed at trade associations as well as all financial firms that deal with retail customers directly. The report discusses performance management practices and acknowledges that poorly executed performance management can lead to mis-selling for various reasons, including pressure to meet individual targets and corporate objectives. The report recommends that firms manage these risks, and identifies poor practices that can create undue 3 pressure on staff. The guidance recommends that controls should be put in place to mitigate the increased risk of misselling adequately. Comments on the consultation may be submitted until May 15, 2015.
View the guidance consultationTOPIC : Consumer Protection -
European Banking Authority Updates Periodic Risk Dashboard
03/16/2015
The European Banking Authority updated its periodic risk dashboard setting out the principal risks and vulnerabilities in the EU banking sector. The dashboard analyses the evolution of risk indicators among a sample of 55 banks across the EU. The dashboard shows that the capital position trends of EU banks are positive and that CET 1 ratios are at their highest levels since 2009. It also shows that levels of profitability tend to be unstable but that balance sheet structures are shifting towards lower loan-to-deposit ratios, and therefore less debt.
View the risk dashboard -
US Federal Reserve Board Proposal Requiring Banking Organizations to Include Legal Entity Identifiers on Reporting Documents
03/16/2015
The US Board of Governors of the Federal Reserve System announced a proposal requiring banking organizations to include their existing Legal Entity Identifiers on certain regulatory reporting forms as of June 30, 2015. The LEI is a unique reference code that enables easier identification of a firm’s legal entities. Comments on the proposal are requested within 60 days of publication in the Federal Register.
View the Proposal -
UK Regulators Consult on Extending Rules to UK Branches of Non-EEA Institutions
03/16/2015
The Prudential Regulation Authority and Financial Conduct Authority jointly published a consultation paper on strengthening accountability in banking, setting out the PRA and FCA’s proposed plans for extending and tailoring the Senior Manager’s Regime, Certification Regime and Conduct Rules to UK branches of nonEEA institutions. The proposals include: (i) incoming non-EEA branches to have their most senior individual approved by the PRA; (ii) senior managers of incoming branches to be subject to a set of PRA responsibilities which reflect areas subject to UK regulation; and (iii) for the scope of the PRA’s certification regime for incoming non-EEA branches to be identical to that of UK firms. The new Senior Managers and Certification Regime will apply from March 7, 2016. Comments on the consultation may be submitted until May 25, 2015.
View the consultationTOPIC : Corporate Governance -
Launch of New UK Payments System Regulator
03/13/2015
The Financial Conduct Authority published a press release relating to its November 2014 consultation paper on the Payment Systems Regulator, which is the new UK regulator that will regulate the largest UK payment systems. The press release states that any of the directions mentioned in the consultation that were to come into force on April 1, 2015 will not come into force until April 30, 2015. This is so that stakeholders have more time to consider the FCA’s final directions and views that are to be published in the FCA’s PSR policy statement before the end of March 2015.
View the FCA press releaseTOPIC : Financial Market Infrastructure -
Federal Reserve Board and Other Agencies Announce Civil Money Penalty and Cease and Desist Order Against Commerzbank
03/12/2015
The Federal Reserve Board announced a $200 million civil money penalty and issued a cease and desist order against Commerzbank AG due to violations of the Bank Secrecy Act and other anti-money laundering laws, as well as certain US sanctions requirements. Commerzbank, along with its US branch, will be required to implement an enhanced global compliance program going forward. The Federal Reserve Board order is issued in conjunction with actions from the US Department of Justice, the US Department of Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office, and the New York Department of Financial Services, with total fines totaling $1.71 billion.
View the Federal Reserve Board press releaseTOPIC : Enforcement -
UK HM Treasury Publishes Revised Special Resolution Regime Code of Practice
03/12/2015
HM Treasury published its revised “Banking Act 2009 Special Resolution Regime Code of Practice”. The Code aims to encourage financial stability by resolving institutions such as banks, building societies and certain investment firms that are failing, and protecting depositors, taxpayers and the wider economy from the consequences of such failure. The Code has been amended to take into account the provisions of the Bank Recovery and Resolution Directive, and provides guidance on how special resolution tools are to be used by the relevant resolution authority. Section 1 of the Code sets out guidance relating to banking institutions whose failure has become highly likely, and includes: (i) five stabilization options including transfers of business to private sector purchasers or bridge entities; (ii) the bank’s insolvency procedure, facilitating prompt payouts to depositors via the Financial Services Compensation Scheme; and (iii) the bank administrative procedure, where a partial transfer of the business of a failing institution takes place. Section 2 of the Code deals with the Special Resolution Regime for CCPs, which are outside the scope of the BRRD. This section sets out guidance on how the relevant resolution authority can apply stabilization powers to CCPs, including powers to transfer: (i) some or all of the business of a CCP to a commercial purchaser or to a bridge CCP; and (ii) the ownership of the CCP to any person.
View the SRR code of practiceTOPIC : Recovery & Resolution -
Federal Reserve Board Releases Results for Dodd-Frank Annual Stress Tests
03/11/2015
The Board of Governors of the Federal Reserve System recently released results for the Dodd-Frank Annual Stress Tests for the 31 largest bank-holding companies. This is the third round of stress tests required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the press release, all of the largest US-based bank holding companies have passed the test and have been building capital levels at a sufficient level to withstand severe recession and financial market volatility. The quantitative results from these tests are one part of the Federal Reserve Board’s annual exercise to evaluate the capital planning and adequacy of large financial institutions. Comprehensive Capital Analysis and Review results will be released on March 11, 2015.
View the Federal Reserve Board press release
View the 2015 Supervisory Stress Test Methodology and Results -
Federal Reserve Board Releases Results for 2015 Comprehensive Capital Analysis and Review
03/11/2015
The US Board of Governors of the Federal Reserve System announced that it has not objected to the capital plans of 28 bank holding companies participating in the Comprehensive Capital Analysis and Review. However, Bank of America Corporation is required to submit a new capital plan to address weaknesses in its capital planning processes. The Federal Reserve Board did object to the capital plans of Deutsche Bank Trust Corporation and Santander Holdings USA due to qualitative concerns. There were no objections based on quantitative grounds. Goldman Sachs Group, Inc., JPMorgan Chase & Co., and Morgan Stanley needed to submit adjusted capital actions to meet the minimum post-stress minimum capital requirements.
View the Federal Reserve Board press release
View the CCAR results -
Review of CCP Stress Testing
03/11/2015
The International Organization of Securities Commissions and Committee on Payments and Market Infrastructures jointly announced that they have begun a review of CCP stress testing. The aim of the review is to identify how the Principles for Financial Market Infrastructures standards published jointly by IOSCO and the CPMI in 2012 are being implemented, and whether any further guidance is needed.
View the joint press releaseTOPIC : Financial Market Infrastructure -
Bank of England Publishes Annual Report on Supervision of Financial Market Infrastructures
03/11/2015
The Bank of England published its annual report on the supervision of Financial Market Infrastructures which sets out the way in which the BoE has exercised its responsibilities in relation to recognized payment systems, CCPs and securities settlement systems over the past year. The report discusses the progress that has been achieved on issues including: (i) credit and liquidity risk; (ii) recovery and resolution; (iii) operational risk management; (iv) governance; and (v) disclosure. The report lists the forward-looking priorities that the bank intends to focus on in the next year, such as: (i) assessing the UK CCPs’ stress-testing practices; (ii) evaluating proposals on CCP recovery and resolution that may extend to other types of FMI; (iii) addressing the root causes of excess operational risk; and (iv) improving resilience against cyber-attacks.
View the reportTOPIC : Financial Market Infrastructure -
Revised List of Validation Rules Issued by European Banking Authority for Supervisory Reporting
03/11/2015
The European Banking Authority published a revised list of validation rules for submitting supervisory reporting data. The rules detail the standards and formats that are to be used for submissions of data by national regulators under the Capital Requirements Directive IV. The revised list displays the rules that have been deactivated due to technical issues or incorrectness.
View the EBA press release and updated validation rules -
US Commodity Futures Trading Commission Solicits Public Comment in Response to the US District Court Order Regarding Cross-Border Litigation
03/10/2015
The US Commodity Futures Trading Commission requested public comment on the US District Court of DC’s remand order in Securities Industry and Financial Markets Association, et al. v. CFTC (“Cross-Border Litigation”). The CFTC release expands on its consideration of costs and benefits of 10 swaps rules regarding the treatment of overseas swaps subject to the order and requests comment on the application of the costs and benefits of the rules in the context of extraterritoriality. In Cross-Border Litigation, three trade associations challenged the CFTC’s 2013 Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations and requested the court to release 14 swap regulations in terms of overseas applications issued in July 2013. On September 16, 2014, the court granted summary judgment in favor of the CFTC and denied the plaintiffs relief; however it required the CFTC to supplement the 10 swaps regulations with a detailed analysis of associated costs and benefits. Comments are due by May 11, 2015.
View the CFTC press release
View the CFTC request for commentTOPIC : Derivatives -
UK Regulator Publishes Timetable for Implementation of Markets in Financial Instruments Directive and Regulation
03/10/2015
The FCA published an updated timetable relating to the implementation of the Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation. The timetable sets out the key dates for the implementation and transposition of the Directive and Regulation into domestic law. The deadline for transposing MiFID II into domestic law is July 3, 2016. MiFID II and MiFIR enter into force on January 3, 2017. The FCA aims to publish its main consultation paper on the implementation of MIFID II and MIFIR in December 2015. The final rules are to be published in June 2016.
View the FCA’s timetableTOPIC : Financial Services -
The US Commodity Futures Trading Commission Provides Notice of the Reopened Comment Period for its Rulemaking Proposals on Position Limits
03/09/2015
The European Securities and Markets Authority published a revised opinion on its draft RTS on the clearing obligation for interest rate swaps. ESMA has revised its original opinion to take account of the notification it received from the European Commission that the Commission intended to adopt the draft RTS with amendments. The opinion annexes revised RTS which clarify certain points and propose further revisions to the Commission’s amendments, including that: (i) for a period of three years, financial counterparties will be able to apply for the intragroup transaction exemption for their transactions with any third-country entity in the absence of decisions on equivalence; and (ii) the €8 billion clearing obligation threshold applies at individual fund level when the counterparties are UCITS or alternative investment funds.
View the ESMA’s opinionTOPIC : Derivatives -
European Banking Authority Consults on Business Reorganization Plans Under the Bank Recovery and Resolution Directive
03/09/2015
The European Banking Authority published a consultation paper on draft Regulatory Technical Standards and Guidelines on business reorganization plans under the Bank Recovery and Resolution Directive. Under the BRRD, a financial institution that has been resolved by a resolution authority must prepare a business reorganization plan that sets out the measures the financial institution will take to restore its viability and operability. The draft RTS set out the minimum requirements that must be included in the institution’s business reorganization plan, such as the identification of the causes of failure and financial performance projections. The Guidelines set out the criteria that resolution authorities must take into account when assessing and approving business reorganization plans, such as assessing the credibility and strategies of those plans. Comments on the consultation paper may be submitted until June 9, 2015.
View the consultation paperTOPIC : Recovery & Resolution -
European Banking Authority Advice to European Commission on the EU Resolution Framework for Banks
03/06/2015
The EBA published three sets of technical advice to the European Commission on the resolution framework for EU banks and a related comparative analysis of the recovery plans of 27 European cross-border banking groups. The technical advice covers (i) the definition of critical functions and core business lines; (ii) the deferral of ex-post contributions to the resolution fund; and (iii) rules for the exclusion of liabilities from the application of the bail-in tool for which the EBA states that resolution authorities should assess each case for suitability for exemption to avoid motivating bank structures for the purpose. The technical advice will assist the European Commission to prepare secondary legislation on these issues that are required under the Banking Recovery and Resolution Directive.
View the EBA documentsTOPIC : Recovery & Resolution -
European Banking Authority Consults on Information to be Held by Firms on Financial Contracts
03/06/2015
The European Banking Authority launched a consultation on proposed Regulatory Technical Standards on the detailed records of financial contracts that banks and relevant investment firms will need to maintain. Under the Bank Recovery and Resolution Directive, resolution authorities may temporarily suspend the termination rights of any party to a contract with a firm that is under resolution. The proposed draft RTS set out the minimum information on financial contracts which a firm will be obliged to keep detailed information of. Member states would be able to impose additional requirements if appropriate. The consultation closes on June 6, 2015.
View the consultation paperTOPIC : Recovery & Resolution -
UK Completes Bank Structural Reform Legislation
03/05/2015
The UK Government announced that the legislation to implement the bank ring-fencing regime has been enacted. The Banking Reform Pensions Regulations, enacted on March 4, 2015, will require a ring-fenced bank to ensure that it cannot be liable for the pension liabilities of other group entities by giving powers to the trustees of a ring-fenced bank’s pension scheme to amend the pension scheme, with the consent of employers of the scheme, to achieve ring-fencing of the bank. A ring-fenced bank will be able to seek a court order for release from a shared liability arrangement if the terms of the release cannot be agreed by the parties to the arrangement. The Prudential Regulation Authority, responsible for making the detailed rules applicable to ring-fenced banks, will continue to put those rules in place. The Government expects the ring-fencing regime to be in place by 2019, however, ring-fenced banks have until 2021 to separate their pension schemes.
View the Announcement.
View the Legislation.TOPIC : Bank Structural Reform -
UK Legislation Enacted to Implement the EU Deposit Guarantee Schemes Directive
03/05/2015
The US Commodity Futures Trading Commission reopened comment periods for two position limit draft rulemakings for an additional 30 days, in order to accommodate questions and comments that may have arisen from the Energy and Environmental Markets Advisory Committee meeting, which took place on February 26, 2015. The original positional limits proposed rule was overturned in September 2012 based on the US district judge of Washington’s determination that the CFTC was not able to prove the rule was “necessary to diminish, eliminate, or prevent” excessive speculation. The comment period for the two rulemakings will now close on March 28, 2015.
View the notice in the Federal RegisterTOPIC : Consumer Protection -
HM Treasury Publishes Legislation in Preparation for Newly Formed Payment Systems Regulator Becoming Fully Operational
03/05/2015
HM treasury published the Banking Act 2009 (Inter-Bank Payment Systems) (Disclosure and Publication of Specified Information) (Amendment) Regulations 2015. These Regulations widen the remit of information-sharing between the Bank of England and the Payment Systems Regulator, allowing the BoE to share information that it has obtained through its oversight of interbank payment systems with the PSR. The BoE will therefore no longer be limited to only share information with the PSR that is relevant to financial stability. On the same day, HM Treasury also published the Payment Services (Amendment) Regulations 2015. These regulations amend the Payment Services Regulations 2009 and transfer the supervision and enforcement functions on access to payment systems from the Competition Markets Authority to the newly formed PSR. Both regulations enter into force on April 1, 2015, the date on which the PSR becomes fully operational.
View the Regulations and Explanatory Memoranda
View the Regulations and Explanatory Memoranda 2
View the Regulations and Explanatory Memoranda 3
View the Regulations and Explanatory Memoranda 4TOPIC : Financial Market Infrastructure -
European Banking Authority Publishes Opinion on Eligibility Conditions for Covered Bonds and Risk Weight Preferential Treatment Further to Swedish Waiver
03/05/2015
The European Banking Authority published an opinion on the Capital Requirements Regulation provision that deals with eligibility conditions for covered bonds in relation to risk weight preferential treatment, including the assets by which eligible covered bonds can be collateralized. Under the CRR, eligible covered bonds can be collateralized by exposures to institutions that qualify for the credit quality step 1, which must not exceed 15% of the nominal amount of outstanding covered bonds of the issuing institution. Exposures to institutions in the EU with a maturity not exceeding 100 days have no CQS 1 requirement, but must at least qualify for CQS 2. After consulting the EBA, national regulators may partially waive these specifications and allow CQS 2 for up to 10% of the total exposure of the nominal amount of outstanding covered bonds of the issuing institution. This would only apply if significant potential concentration problems in the specific member state are due to the application of the CQS 1 requirement. In December 2014, the Swedish Financial Supervisory Authority submitted a proposal to the EBA for such a waiver. The EBA has assessed the proposal, taking into account factors such as the nature and magnitude of exposures to institutions that covered bonds assume in that jurisdiction. The EBA is of the opinion that sufficient evidence was submitted by the Swedish Regulator to document that the significant potential concentration problem derives from the application of the CQS 1 requirement specified in the CRR. The EBA has stated therefore that the establishment of a partial waiver is justified.
View the EBA opinion. -
EU General Court Finds Against the European Central Bank’s CCP Location Policy
03/04/2015
The EU General Court delivered its judgment on the UK Government’s challenge of the European Central Bank’s CCP location policy set out in the ECB’s Eurosystem Oversight Policy Framework. The EU General Court has annulled the Eurosystem Oversight Policy Framework in so far as it sets a requirement for CCPs involved in the clearing of securities to be located within the Eurozone. The policy’s aim was to prevent CCPs in the European Union but outside the Eurozone from being able to have access to ECB Euro settlement facilities. The outcome is that UK CCPs will have access to Euro settlement facilities with the ECB, as generally required under EMIR, without being forced to relocate their businesses.
View the judgmentTOPIC : Financial Market Infrastructure -
European Banking Authority Launches Discussion Paper on Future of Internal Ratings-Based Approach
03/04/2015
The European Banking Authority launched a discussion paper on the future of the internal ratings-based approach under the Capital Requirements Regulation. This is the approach under which certain banks and investment firms with sophisticated risk management systems are allowed to calculate capital requirements based on internally produced parameters. The paper discusses the compromised comparability of capital requirements under the IRB approach due to the framework’s high level of flexibility. The EBA believes that a review of the regulatory framework for the IRB approach is required to ensure a higher level of comparability going forward. Comments on the discussion paper may be submitted until 5 May 2015.
View the discussion paper -
European Banking Authority Consults on Guidelines on Sound Remuneration Policies
03/04/2015
The European Banking Authority launched a public consultation on its guidelines on sound remuneration policies. The guidelines specify the criteria for allocation of remuneration components into either fixed or variable remuneration, clarify the way in which the remuneration rules in Capital Requirements Directive should be interpreted by regulators and generally aim to ensure compliance with the bonus cap requirements introduced by CRD. The consultation period ends on June 4, 2015.
View the consultation paper. -
UK Regulator Imposes Fines and Ban on Bank of Beirut (UK) Ltd
03/04/2015
The Financial Conduct Authority imposed a fine of £2.1 million on Bank of Beirut (UK) Ltd for repeatedly providing misleading information to the FCA on the bank’s financial crime systems and controls. The FCA also banned the bank from securing new customers from high-risk jurisdictions for 126 days, and imposed fines on the bank’s internal auditor and former compliance officer of £9,600 and £19,600 respectively for failing to deal with the FCA in an open and cooperative way when asked about steps taken by the bank to mitigate the risk of financial crime. The bank also provided the FCA with false assurances on the improvements made to its processes.
View the FCA’s final noticesTOPIC : Enforcement -
The Financial Stability Board and the International Organization of Securities Commissions Propose Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions
03/04/2015
The Financial Stability Board and the International Organization of Securities Commissions published for second public consultation Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions. The proposed methodologies for identifying NBNI G-SIFIs take into consideration the responses received to the first consultative document issued in January 2014. These methodologies contain a high-level framework and an operational framework for identifying G-SIFIs that would apply across NBNI financial entities, as well as detailed NBNI sector-specific methodologies for finance companies, market intermediaries, investment funds and asset managers. The proposed methodologies provide for a more supervisory judgment compared to the Global Systemically Important Banks and Global Systemically Important Insurers methodologies to counter limitations in data availability and the range of business models of different types of NBNI G-SIFIs. The consultative document does not propose any specific entities for designation, nor any policy measures that would apply to NBNI G-SIFIs. It is intended that the policy measures will be developed once the methodologies are finalized. Comments should be submitted by May 29, 2015.
View the second public consultationTOPIC : Shadow Banking -
UK Senior Managers and Certification Regime Application Date Set – March 7, 2016
03/03/2015
The UK Government published its response following the consultation to extend the Senior Managers and Certification Regime to UK branches of non-UK firms. The response announces that the Senior Managers and Certification Regime will apply from March 7, 2016 and be extended to apply to UK branches of banks and insurers established outside of the UK. On March 4, 2015, related secondary legislation was enacted which implements the extension and other provisions of the regime more generally. Relevant firms will need to notify the PRA and the FCA by February 8, 2016 of the approved persons who are to be senior managers under the new regime. The regulators consulted on proposed rules for the Senior Managers and Certification Regime in 2014 as it applied to UK banks and insurers but have waited to implement final rules pending the decision on whether the regime would be extended to UK branches.
View the response document
View the secondary legislation part 1
View the secondary legislation part 2TOPIC : Corporate Governance -
European Banking Authority Press Release on 2015 EU-wide Stress Test
03/02/2015
The European Banking Authority issued a press release stating that it will not carry out an EU-wide stress test in 2015, but will instead be preparing for the next exercise in 2016. The EBA will however carry out a transparency exercise in 2015 which will provide data on the balance sheets and portfolios of EU banks.
View the EBA Press Release -
European Banking Authority Publishes Final Draft Standards on Benchmarking Portfolio Assessment
03/02/2015
The European Banking Authority published final draft regulatory technical standards on benchmarking portfolio assessment standards and assessment sharing procedures under the Capital Requirements Directive, together with final draft implementing technical standards on benchmarking portfolios, templates, definitions and IT solutions. These final drafts specify the framework for EU institutions and national regulators on annual supervisory benchmarking. The EBA simultaneously published its technical advice, for the purposes of the report. All documents have now been submitted to the European Commission for adoption.
View the report.
View the technical advice. -
European Banking Authority Consults on Technical Standards for Prudential Requirements for CSDs
02/27/2015
The European Banking Authority launched a consultation on proposed draft Regulatory Technical Standards on the prudential requirements for central securities depositories. The EBA is required to prepare the RTS under the EU Regulation on Settlement and Central Securities Depositories, which aims to increase the safety and efficiency of securities settlement and settlement infrastructures. The EBA is consulting on three proposed draft RTS which cover: (i) capital requirements for CSDs; (ii) the additional risk-based capital surcharge applicable to CSDs carrying out ancillary banking activities; and (iii) the framework and tools for monitoring, measuring, managing and reporting of the credit and liquidity risks related to any ancillary banking activities offered by a CSD. The consultation closes on April 27, 2015. The EBA must submit the draft RTS to the Commission by June 18, 2015.
View the consultationTOPIC : Financial Market Infrastructure -
New Volcker Frequently Asked Question 13 Clarifies the Scope of the Covered Funds Marketing Restriction
02/27/2015
The Volcker Inter-Agency Group posted a new frequently asked question (“FAQ 13”) clarifying the scope of the marketing restriction under the Solely Outside the US (“SOTUS”) covered fund exemption. FAQ 13 adopts the position that the marketing restriction applies only to the activities of a foreign banking entity (including its affiliates) that seeks to rely on the SOTUS covered fund exemption and does not apply to where the foreign banking entity seeks to invest in a covered fund that is sponsored and marketed by a third party. As defined in the FAQ, “third-party covered fund” means a covered fund in which “the foreign banking entity (including its affiliates) does not sponsor, or serve, directly or indirectly, as the investment manager, investment adviser, commodity pool operator or commodity trading advisor to, the covered fund.” This view is consistent with limiting the extraterritorial application of section 13 to foreign banking entities while seeking to ensure that the risks of covered fund investments by foreign banking entities occur and remain solely outside of the United States.
View the Volcker Rule FAQTOPIC : Funds -
ISDA Principles for Derivatives Reporting
02/26/2015
The International Swaps and Derivatives Association published a set of principles for improving regulatory transparency of the global derivatives markets through standardizing, aggregating and sharing data. The principles are: (i) regulatory reporting requirements for derivatives transactions should be harmonized within and across borders; (ii) policy makers should adopt the use of standards to aid improved quality and consistency of compliance with reporting requirements; (iii) market participants and regulators should collaborate to improve consistency in the absence of global standards; (iv) laws and regulations preventing access by authorities to data across borders should be amended or repealed; and (v) reporting progress should be benchmarked to provide incentives to progress reporting.
View the ISDA principlesTOPIC : Derivatives -
European Banking Authority Recommends Clarification for Lending-based Crowdfunding
02/26/2015
The European Banking Authority published its opinion on lending-based crowdfunding, recommending that the applicability of existing EU law to the activity be clarified. The EBA considers that such clarification is necessary to avoid regulatory arbitrage across the EU and to ensure a level playing field as EU Member States have adopted different approaches to regulating lending-based crowdfunding. The opinion is addressed to the European Commission, the European Parliament and the EU Council.
View the EBA opinionTOPIC : Financial Services -
The US Federal Reserve Board Extends Comment Period for Global Systemically Important Banks Surcharge
02/26/2015
The Federal Reserve Board extended until April 3, 2015 the comment period for its proposed rule to implement capital surcharges for global systemically important banks. Comments were originally due by March 2, 2015. The Federal Reserve Board extended the comment period to allow relevant parties more time to analyze the proposed rule and prepare comments. The proposal would establish a methodology to identify if a firm is a G-SIB as well as establish the size of a firm’s risk-based capital surcharge. The rule is expected to strengthen the capital positions of these financial institutions and if finalized as proposed, would be higher than international standards.
View the The Federal Reserve Board press release
View the The Shearman & Sterling Publication on the G-SIB Surcharge proposed rule -
European Securities and Markets Authority Recommendations to National Regulators on Best Execution Requirements
02/25/2015
The European Securities and Markets Authority published the results of its peer review of supervision and enforcement of the best execution provisions in the Market in Financial Instruments Directive by national regulators. Investment firms are required to provide best execution for their clients when executing their client’s orders. ESMA’s review found that implementation of the best execution provisions in MiFID I varied across the EU. To address the issue, ESMA recommends several improvements, including: (i) prioritization of best execution by national regulators; (ii) the allocation of supervisory resources; and (iii) the adoption of a proactive approach to monitoring compliance with best execution requirements, including through onsite inspections. ESMA intends to work with national regulators to give effect to the recommendations.
View the peer reviewTOPIC : Financial Services -
European Banking Authority Publishes Opinion and Report on Credit Valuation Adjustment
02/25/2015
The European Banking Authority published an Opinion addressed to the European Commission on Credit Valuation Adjustment. The Opinion deals with several aspects of the calculation of own funds requirements for CVA risk. Sixteen recommendations are listed in the Opinion, including: (i) clarifying by means of an amendment to the Capital Requirements Regulations that exchange-traded derivatives are included in the scope of CVA risk charge; (ii) harmonising the treatment of securities financing transactions in the EU; and (iii) clarifying the standardised method for CVA. The Opinion was published by the EBA simultaneously alongside a Report and Review on CVA and the application of CVA charges to non-financial counterparties established in a third country under the CRR. The documents have now been submitted for consideration by the European Commission.
View the Opinion
View the Report and Review -
Amending Legislation on Application of the Banking Act 2009 to UK-based CCPs and Clearing Houses
02/24/2015
Secondary legislation was enacted which amends the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013. The amending regulations correct the original legislation and ensure that the special resolution regime under the Banking Act 2009 applies to UK-based CCPs regardless of whether or not they are authorized under the European Market Infrastructure Regulation, from March 18, 2015 until such time as the CCP becomes authorized. The amending regulations come into force on March 18, 2015. The special resolution regime under the Banking Act 2009 will apply to all EMIR authorized CCPs upon that authorization.
View the amending regulationsTOPIC : Recovery & Resolution -
UK Regulator Fines Aviva Investor Global Services Ltd
02/24/2015
The Financial Conduct Authority imposed a fine of £17.6 million on Aviva Investor Global Services Ltd for failing to manage conflicts of interest fairly between its customers, and between itself and its customers. Aviva used a “side-by-side” approach in the management of some of its desks, which meant that the same desks were used in the management of funds paying out different levels of performance fees. This structure created conflicts of interest, as traders were incentivized to favor certain funds over others. Weaknesses in the Aviva systems and processes were found which meant that traders were able to delay recording the allocation of executed trades for several hours. Traders who managed funds on a side-by-side basis could evaluate trade performance during the course of the day and, when recorded, allocate trades with favorable intraday price movements to one fund, and trades with unfavorable movements to others, which amounted to an abusive practice generally known as “cherry picking.” Compensation in the sum of £132,000,000 has already been made by Aviva to the eight funds it identified as possibly having been adversely affected by its failings.
View the FCA’s final noticeTOPIC : Enforcement -
US Financial Regulators Issue Guidance Encouraging Youth Savings Programs
02/24/2015
The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency, as members of the Financial Literacy and Education Commission (“FLEC”), together with the Financial Crimes Enforcement Network for the US Department of the Treasury, jointly issued guidance to encourage federally insured depository institutions to offer youth savings programs to develop the financial aptitude of young people. The guidance also provides answers to frequently asked questions related to the establishment of these programs. The guidance does not create any new regulatory policy or establish new industry expectations. This effort is consistent with the “Starting Early for Financial Success” focus of the FLEC. Congress created FLEC in 2003 to improve financial capability and education in the United States.
View the guidanceTOPIC : Financial Services -
The US Consumer Financial Protection Bureau Seeks to Improve Process for Industry Submission of Consumer Credit Card Agreements
02/24/2015
The US Consumer Financial Protection Bureau issued a proposal to suspend for one year credit card issuers’ obligations to submit their credit card agreements to the CFPB. The suspension is intended to give the CFPB time to develop a simplified and automated electronic submission system. In designing the new system, the CFPB intends to introduce improved reporting formats and faster posting of information. Credit card agreement submissions that would otherwise be due to the CFPB by the first business day on or after April 30, July 31, and October 31 of 2015, and January 31, 2016 would be suspended. Credit card issuers would resume submitting credit card agreements on a quarterly basis starting on April 30, 2016. During the temporary suspension period, the CFPB will collect consumer credit card agreements from the largest card issuers’ public websites and post the agreements to its online consumer credit card agreements database.
View the proposed ruleTOPIC : Consumer Protection -
UK Legislation Implementing the EU Regulation on Settlement and Central Securities Depositories
02/24/2015
UK legislation implementing part of the EU Regulation on Settlement and Central Securities Depositories was enacted. The Financial Markets and Insolvency (Settlement Finality) (Amendment) Regulations 2015 amend relevant UK legislation to reflect the change brought in by the EU Regulation that requires national regulators to notify the European Securities and Markets Authority of any designation of a payment or securities settlement system. In the past, such notifications were made to the European Commission. The UK designated national regulators for these purposes are the Bank of England and the Financial Conduct Authority.
View the UK legislationTOPIC : Financial Market Infrastructure -
UK Regulators Consult on Approach to Non-Executive Directors and Senior Managers
02/23/2015
The Prudential Regulation Authority and Financial Conduct Authority published a joint consultation paper on: (i) the approaches to non-executive directors in banking and certain insurance firms; and (ii) the application of the presumption of responsibility to senior managers in banking firms. The consultation revises the proposed approach of the regulators to NEDs in UK banks, PRA-designated investment firms as well as certain insurance firms, such that only certain specified NEDs are subject to pre-approval and inclusion in the Senior Managers Regime. The specified NEDs would be: (i) chairman; (ii) chair of the risk committee; (iii) chair of the audit committee; (iv) chair of the remuneration committee; (v) chair of the nomination committee; and (vi) senior independent director. This narrows down the scope of the SMR, the new system that aims to better define the lines of responsibility at financial institutions so that senior individuals in banks can be held to account more easily. The paper also consults on a draft PRA supervisory statement, with the aim of clarifying the responsibilities of NEDs that are in scope of the SMR and explaining how the presumption of responsibility will be applied in cases of non-compliance with regulatory requirements. The consultation closes on April 27, 2015.
View the consultation.TOPIC : Corporate Governance -
UK Regulators Consult on Proposed Whistleblowing Procedures in Banking and Insurance Sectors
02/23/2015
The Prudential Regulation Authority and Financial Conduct Authority jointly proposed measures seeking to formalize procedures for whistleblowing in the banking and insurance sectors. The proposals aim to encourage employees to blow the whistle when misconduct is suspected without fear of personal repercussions. The proposed new rules include: (i) ensuring that whistleblowing procedures are in place; (ii) encouraging employers to inform employees that they are able to blow the whistle; and (iii) ensuring that whistleblowers are protected from victimization. The consultation closes on May 22, 2015.
View the consultation.TOPIC : Corporate Governance -
Additional Benchmarks Brought Within UK Regulatory Perimeter
02/23/2015
UK legislation was enacted to bring additional benchmarks within the UK regulatory perimeter. The additional benchmarks are ISDAFIX, Sterling Overnight Index Average, also known as SONIA, Repurchase Overnight Index Average, also known as RONIA, WM/Reuters London 4 p.m. Closing Spot Rate, London Gold Fixing, LBMA Silver Price and ICE Brent Index. The LIBOR benchmark was already subject to regulation. Bringing the additional benchmarks within the regulatory perimeter are a result of the initial recommendations on benchmarks of the Fair and Effective Markets Review. A Policy Statement was also published by the Financial Conduct Authority on March 10, 2015, on the seven new benchmarks it will be regulating and supervising. This includes the FCA's final rules amending Chapter 8 of the Market Conduct Sourcebook (Mar 8), which was originally designed for benchmarks determined through a submission process, such as LIBOR. The rules have now been adapted to the new benchmarks being brought into regulation, and in particular to benchmarks without submitters. The new rules also introduce perimeter guidance to identify persons that carry out the regulated activity of acting as benchmark submitters. The new legislation and FCA rules enter into force on April 1, 2015.
View the legislation and FCA Policy Statement -
Implementing Technical Standards under CRR
02/20/2015
Amendments to the Implementing Technical Standards for the supervisory reporting of financial institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The ITS set out the standards that financial institutions must meet for the purposes of supervisory reporting. The amendments include the replacement of several templates that are to be used by financial institutions in the supervisory reporting process. The purpose of the amendments is to increase clarity and provide further instructions and definitions to financial institutions for the purposes of supervisory reporting. The amended ITS entered into force on February 21, 2015.
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US Banking Regulators Request Comments on Reducing Regulatory Burden
02/20/2015
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency announced that they are seeking comment on banking operations regulations, capital regulations and the Community Reinvestment Act to identify “outdated or unnecessary regulations” that apply to insured depository institutions. Comments are due by May 14, 2015. Over the coming year, the regulators will publish requests for comments for nine additional categories of regulation.
View the Federal Reigster notice. -
UK Financial Conduct Authority Reports on Wholesale Sector Competition Review
02/19/2015
The Financial Conduct Authority published a feedback report on its wholesale sector competition review, announcing that it will be launching a wholesale market study into investment and corporate banking to assess whether there is adequate competition within this sector. The FCA wholesale sector competition review found that a lack of transparency and clarity in price and quality of services is preventing clients from being able to tell whether they are getting good value for their money. The review also found that the cross-selling and bundling of services may be making it difficult for smaller firms to compete with larger more established firms. The FCA intends to launch the market study and publish the terms of reference in the second quarter of 2015.
View FCA feedback report.TOPIC : Consumer Protection -
UK Prudential Regulation Authority Statement on Extension of Liquidity Modifications
02/18/2015
The Prudential Regulation Authority issued a statement on extending the duration of whole-firm liquidity modifications, intragroup liquidity modifications and permissions under the Capital Requirements Regulation. Following the European Commission's adoption of a Delegated Act on the Liquidity Coverage Requirement which will become the binding liquidity standard in the EU from October 1, 2015 (according to its provisions), a number of liquidity modifications granted by the PRA under its Prudential Sourcebook for Banks, Building Societies and Investment Firms and the CRR expire between now and October 1, 2015. Given that the time period between these expirations and the LCR becoming binding is relatively short, the PRA will allow firms to extend modification periods. The PRA statement sets out the process that is to be followed to apply for an extension.
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UK Financial Conduct Authority Report on Asset Management Firms and Risk of Market Abuse
02/18/2015
The Financial Conduct Authority published a report on asset management firms and the risk of market abuse. The report sets out the findings from the FCA's thematic review on how asset management firms manage the risk of insider dealing, improper disclosure, market manipulation and market abuse. The report found that firms have procedures in place to control such risks, but that further work is required to cover all material risks as comprehensive procedures were found to be in place only in a minority of firms. Only a small number of firms were found to have appropriate controls on post-trade surveillance, and further steps to manage such risks, and the risks of receiving inside information during the investment process, are recommended.
View the report.TOPIC : Funds -
European Central Bank Appointment
02/18/2015
Luc Coene, currently Governor of the Nationale Bank van België, has been appointed as one of four European Central Bank representatives to the Supervisory Board of the Single Supervisory Mechanism. The other ECB representatives are Sirkka Hämäläinen, Julie Dickson and Ignazio Angeloni.TOPIC : People -
Chief Risk Officer for the Federal Reserve Bank of New York to Retire
02/18/2015
Sandra C. Krieger, executive vice president of the Risk Group and chief risk officer of the Federal Reserve Bank of New York, announced her intention to retire from the bank in the second quarter of 2015.
View the notice.TOPIC : People -
US Commodity Futures Trading Commission Announces Members of the Market Risk Advisory Committee
02/18/2015
The US Commodity Futures Trading Commission announced the members of the CFTC’s Market Risk Advisory Committee. MRAC, first chartered in 2014, is intended to support the CFTC’s efforts to identify and mitigate risks within the market to industry participants, consumers and the broader financial community.
View the full list of MRAC members.TOPIC : People -
Federal Deposit Insurance Corporation Extends Deadline for “Living Wills” for Nonbank Systemically Important Financial Institutions
02/18/2015
The Federal Deposit Insurance Corporation extended the submission deadline for resolution plans for three non-bank financial companies including American International Group, Inc., General Electric Capital Corporation, Inc., and Prudential Financial, Inc. Originally due July 1, 2015, the “living wills” are now due on December 31, 2015. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires non-bank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve Board to submit plans describing their resolution strategy in the case of material distress. The extension is consistent with extensions to other firms and will give the companies additional time to prepare their resolution plans.
View the FDIC press release.TOPIC : Recovery & Resolution -
European Commission Consults on Capital Markets Union, Prospectus Directive and Standardized Securitization
02/18/2015
The European Commission published a green paper on building a Capital Markets Union. This was published alongside two complementary consultation papers on: (i) a EU framework for simple, transparent and standardized securitization; and (ii) the review of the Prospectus Directive. These publications form part of a wider initiative to develop a single market for capital across the EU. The green paper consults on the establishment of the CMU, which aims to lower the costs of funding within the EU and increase sources of funding for businesses. The paper identifies five priority areas for early action: (i) reducing barriers to accessing capital markets; (ii) widening the investor base to small and medium-sized enterprises; (iii) building sustainable securitization; (iv) boosting long-term investment; and (v) developing European private placement markets. The Prospectus Directive consultation seeks views on making it easier for companies to raise capital throughout the EU whilst effective investor protection is maintained and information to be included in prospectuses is simplified. The consultation on the EU framework for simple, transparent and standardized securitizations aims to increase high-quality securitization, through higher standards of process, legal certainty and comparability across securitization. The green paper and two consultations close for comments on May 13, 2015.
View the Green Paper.
View the Prospectus Directive consultation.
View the consultation on the EU framework for simple, transparent and standardized securitization.TOPIC : Financial Services -
European Securities and Markets Authority Consults on Transparency Requirements for Non-Equity Instruments
02/18/2015
The European Securities and Markets Authority published an addendum consultation paper complementing the transparency section of its previous consultation paper published in December 2014 on the implementation of the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation. The addendum seeks views on transparency requirements for non-equity instruments not covered in the previously published consultation paper, namely foreign exchange derivatives, credit derivatives, other derivatives and contracts for difference. The draft regulatory technical standards on transparency requirements of bonds, structured finance products, emission allowances and derivatives previously referred to in the December 2014 consultation are completed in this addendum, and therefore the addendum should be read alongside the previously published consultation. MiFID II and MiFIR are applicable from January 3, 2017. The consultation closes on March 20, 2015.
View the consultation paper.TOPIC : Derivatives -
UK Government Publishes Final Draft Regulations on Pension Liabilities of Ring-Fenced Bodies
02/17/2015
HM Treasury published the final draft Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations together with its response to its consultation on the draft Regulations. The aim of the Regulations is to impose requirements on the pension liabilities of ring-fenced banks to ensure they are not liable for pension schemes of other group entities (except in cases that are specifically prescribed by the Treasury). The draft Regulations provide a framework in which existing pension arrangements can be restructured so that they are aligned with the requirements. In the consultation response, HM Treasury sets out its policy decisions and addresses concerns raised by the respondents, stating that banks would now have to apply for a clearance statement from the Pension Regulator only if changes are likely to be materially detrimental to the scheme and its members. The consultation response also states there is no general provision for transitional tax protections for employees in the Regulations at present but it commits to addressing such issues once it has a better understanding of how banks will implement the ring fence and the nature of any detrimental impact on individuals as a result of scheme changes. The final draft Regulations have now been put before Parliament.
View the consultation response.
View the final regulations.TOPIC : Bank Structural Reform -
European Banking Authority Opinion on Definition of Eligible Capital
02/17/2015
The European Banking Authority published its opinion on the appropriateness of the definition of “eligible capital” under the Capital Requirements Regulation. The term “eligible capital” has been used since January 2014, replacing the earlier “own funds” term for defining large exposures and setting large exposure limits. Under the “eligible funds” definition, the amount of Tier 2 capital recognized as eligible capital must not exceed one third of Tier 1 capital. Under the “own funds” definition, there was no limit for Tier 2 capital. The EBA opinion
states that it has not found any evidence to show that the new stricter regime would impact firms detrimentally and recommends that a review of the EU large exposures regime is carried out so that it can be further aligned with the final standard of the Basel Committee on Banking Supervision that was published in April 2014.
View the opinion. -
European Securities & Markets Authority Sets Out Work Plan for Supervision of Credit Rating Agencies
02/16/2015
The European Securities and Markets Authority published its annual report on its supervision of credit rating agencies and trade repositories. In the report, ESMA sets out its work plan for credit rating agencies in 2015 which will focus on credit rating agency’s governance, risk management and internal decision making processes and their business development processes. ESMA aims to gain a better understanding of how these processes influence the process of issuing credit ratings. ESMA also intends to continue with the thematic and individual investigations that it is already conducting such as the review and validation of rating methodologies and IT internal controls and information security.
View ESMA's report.TOPIC : Credit Ratings -
European Securities & Markets Authority Advice under the European Social Entrepreneurship Funds and European Venture Capital Funds Regulation
02/16/2015
The European Securities and Markets Authority published its technical advice (dated February 3, 2015) to the European Commission on certain aspects of secondary legislation to be adopted under the EU Regulations on European Social Entrepreneurship Funds and European Venture Capital Funds. The advice covers: (i) the types of goods and services, methods of production for goods and services and financial support representing a social objective; (ii) conflicts of interest of European Social Entrepreneurship and European Venture Capital fund managers; (iii) methods for the measurement
of social impact; and (iv) information that European Social Entrepreneurship fund managers should provide to investors. The European Commission will use the technical advice to develop the required secondary legislation.
View ESMA's advice.TOPIC : Funds -
European Securities & Markets Authority Sets Out Work Plan for Supervision of Trade Repositories
02/16/2015
The European Securities and Markets Authority published its annual report on its supervision of credit rating agencies and trade repositories. In the report, ESMA sets out its work plan for trade repositories for 2015. Trade repositories are authorized and supervised by ESMA under EMIR. ESMA’s 2015 work plan focuses on: (i) monitoring the action and improvement plans of trade repositories, including the data quality action plan; (ii) monitoring system operation and changes deployment; (iii) thematic reviews relating to the inter-TR reconciliation process, business continuity planning and cost relatedness of fees; (iv) trade repository’s systems software development lifecycle; (v) data availability; (vi) regulators’ access to trade repositories; and (vii) confidentiality of trade repository data.
View ESMA's report.TOPIC : Derivatives -
Implementing Technical Standards under CRR
02/14/2015
Implementing technical standards for currencies in which there is an extremely narrow definition of central bank eligibility were published in the Official Journal of the European Union. The Capital Requirements Regulation requires firms to report assets as liquid assets where they meet certain conditions, one of which is that the assets are eligible collateral for standard liquidity operations of a central bank in a Member State or a third country. The condition is waived for liquid assets held to meet liquidity outflows in a currency in which there is an extremely narrow definition of central bank eligibility. The ITS establish that the Bulgarian Lev is the only such currency to date.
View the legislation. -
Federal Deposit Insurance Corporation Releases Additional Technical Assistance Video on Consumer Financial Protection Bureau Mortgage Rules
02/13/2015
The US Federal Deposit Insurance Corporation announced the release of the third technical assistance video developed to assist bank employees in meeting regulatory requirements. This is the final release in a series of three technical assistance videos which address compliance with certain mortgage rules issued by the US Consumer Financial Protection Bureau. The first video, released on November 19, 2014, covered the Ability to Repay and Qualified Mortgage Rule. The second video, released on January 27, 2015, covered the Loan Officer
Compensation Rule. The third video covers the Mortgage Servicing Rules.
View the third video.
View all FDICs technical assistance videos.TOPIC : Consumer Protection -
European Central Bank Recommends Dividend Distribution Policies for Significant Eurozone Banks
02/13/2015
A European Central Bank Recommendation on dividend distribution policies was published in the Official Journal of the European Union. The ECB Recommendation is addressed to significant supervised entities and significant supervised groups, which are subject to supervision by the ECB under the Single Supervisory Mechanism.
View the recommendation. -
Regulatory Capital Tool for Securitization Exposures
02/13/2015
The Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency announced that they have developed an automated tool to aid financial institutions subject to the agencies’ regulatory capital rules in calculating risk-based capital requirements for individual securitization exposures. This tool is not a part of the regulatory capital rules or a component of regulatory reporting, and financial institutions may use the tool solely at their own discretion. Specifically, institutions that use the rules’ Simplified Supervisory Formula Approach to calculate risk-based capital requirements for securitization exposures may use the tool to calculate capital requirements for such exposures. The SSFA is a formula-based approach intended to apply relatively higher capital requirements to the more risky junior tranches of securitizations that are the first to absorb losses, and relatively lower requirements to the most senior tranches. -
Pamela C. Dyson named SEC Chief Information Officer
02/12/2015TOPIC : People
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Securities and Exchange Commission Publishes Final Rules Regarding Security-Based Swap Data Repositories
02/11/2015
The Securities and Exchange Commission published final rules regarding security-based swap data repository registration and security-based swap reporting in accordance with Section 763 and Section 766 of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules establish (i) a registration process for swap data repositories; and (ii) certain policies and procedures for the reporting and dissemination of security-based swap transactions by registered swap data repositories. The goal of the regulation is to improve transparency in security-based swap reporting and is a part of the overall regulatory agenda to improve transparency in the OTC dervatives markets.
Additionally, the SEC issued two security-based swap proposed rules regarding the physical reporting and public availability of security-based swap data. The SEC also proposed new rules, rule amendments and guidance to Regulation SBSR regarding the reporting duties for cleared and platform-executed security-based swap transactions.
View the final rule on the SEC site.
View the SEC Open Meeting notice.TOPIC : Derivatives -
Heather Seidel named Chief Counsel in SEC’s Division of Trading and Markets
02/11/2015TOPIC : People
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G20 Communiqué and FSB Update on Financial Reforms
02/10/2015
The G20 Finance Ministers and Central Bank Governors issued a draft communiqué which was adopted in a meeting at the Turkish G20 Presidency on February 9-10, 2015. The communiqué highlighted the risk of prolonged low inflation, slow growth, and demand weakness in some advanced economies. G20 members will keep fiscal policy flexible to reflect near-term economic realities.
Additionally on February 10, 2015, the Chairman of the Financial Stability Board published a letter to the G20 Finance Ministers and Central Bank Governors titled, Financial Reforms – Finishing the Post-Crisis Agenda and Moving Forward. This letter sets out the FSB’s priorities in the next phase of reform which include: consistent and prompt implementation of agreed reforms, finalizing the design of remaining post-crisis reforms and addressing new risks and vulnerabilities.
The FSB plans to publish its first annual report on the implementation of agreed reforms and their effects this year. In addition, implementation will be supported through peer reviews which will cover: implementation of the G20 policy framework for ‘other shadow banking entities’, effective supervisory frameworks for global systemically important banks; bank resolution powers and recovery and resolution planning requirements and the effectiveness of reporting of OTC derivatives transactions to trade repositories. Additionally, the FSB will focus efforts to address two explicit emerging vulnerabilities: market-based finance and misconduct.
View The Communiqué.
View the FSB Chairman's Letter.TOPIC : Financial Services -
Commodity Futures Trading Commission Issues No-Action Relief from Electronic Reporting Requirements in the Ownership & Control Final Rule
02/10/2015
The US Commodity Futures Trading Commission issued a no-action letter (“CFTC Letter 15-03”) that provides additional time for reporting parties to comply with certain reporting requirements of the ownership and control final rule (“OCR Final Rule”). CFTC Letter 15-03 letter extends certain relief provided under CFTC Letter No. 14-95, a no-action letter issued July 23, 2014 that extended time-limited no-action relief from certain reporting obligations under the OCR Final Rule. The OCR Final Rule requires the electronic submission of trader identification and market participant data reporting forms. CFTC Letter 15-03 provides time-limited no-action relief for reporting parties from the requirement to file the forms electronically and provide certain additional information required by the OCR Final Rule. The relief is extended to dates ranging from September 30, 2015 to February 13, 2017.
View the CFTC Letter 15-03.TOPIC : Derivatives -
European Banking Authority Reports on Implications of Regulatory Reforms for Banks’ Business Models
02/09/2015
The European Banking Authority published an overview of the potential implications of regulatory measures for banks’ business models. The report focuses on the impact of regulation for business models after the recent financial crisis, including the implementation of regulatory capital requirements, the leverage ratio, the liquidity coverage ratio, net stable funding ratio, reforms on banking structures, recovery and resolution regimes and the obligations under European Market Infrastructure Regulation for the derivatives markets.
View the EBA report. -
US Securities and Exchange Commission Proposes Rules for Hedging Disclosure
02/09/2015
The US Securities and Exchange Commission approved the issuance of amendments that would increase corporate disclosure of company hedging policies for directors and employees. The proposed rules, mandated by the Dodd-Frank Act, would require directors, officers and other employees to disclose any hedges or offsetting transactions which would decrease their exposure to equity securities granted by the company as compensation or held, directly or indirectly, by directors or employees.
According to the SEC, the proposed rules, if finalized as proposed, would enhance transparency into corporate governance practices and provides additional information to investors to understand the alignment of employee/directors interests with shareholder interests.
View the proposed rule.TOPIC : Derivatives -
Joint Forum Proposes Recommendations on Credit Risk Management Across Sectors
02/05/2015
The Joint Forum (made up of the Basel Committee on Banking Supervision, the International Organization of Securities Commissions and the International Association of Insurance Supervisors) launched a consultation on developments in credit risk management across the banking, securities and insurance sectors. The consultation document includes an analysis of responses to a survey conducted in 2013 which included supervisors and firms on credit risk management and four recommendations to supervisors: (i) supervisors should be cautious against over-reliance on internal models for credit risk management and regulatory capital; (ii) supervisors should be aware of the growth of risk-taking behaviors, for example, in the syndicated leveraged loan market, and the need for firms to have appropriate risk management processes; (iii) supervisors should be aware of the growing need for high-quality liquid collateral for margin requirements in derivatives trading; and (iv) supervisors should consider whether firms are accurately capturing CCP exposures as part of their credit risk management. Comments on the paper are requested by March 4, 2015.
View the Joint Forum consultation paper.TOPIC : Financial Services -
European Securities & Markets Authority Halts Clearing Obligation for NDFs
02/04/2015
The European Securities and Markets Authority published its Feedback Statement on its consultation on the clearing obligation for non-deliverable forwards. ESMA confirmed that it has decided against moving forward, at this time, with mandatory clearing requirements for NDFs following the concerns raised by industry participants during the consultation which include: (i) the timing of entry into force of the proposed clearing obligation particularly when participants are currently dealing with implementing processes for compliance with the clearing obligation for interest rate swaps and credit default swaps; (ii) that only one EU CCP is authorized to clear NDFs; (iii) the lack of experience globally of NDF clearing; (iv) the importance of international consistency in implementation of the proposed clearing obligation; and (v) the lack of a consistent definition for FX derivatives across the EU. ESMA originally proposed regulatory technical standards for clearing NDFs with an implementation schedule beginning in Q4 2015. ESMA is of the view that more time is needed to properly consider those concerns, but stressed that its current position did not exclude the possibility of it proposing a clearing obligation for NDFs in future.
View ESMAs feedback statement.TOPIC : Derivatives -
International Organization of Securities Commissions Seeks Information on Other Products Provided by Credit Rating Agencies
02/04/2015
The International Organization of Securities Commissions announced the launch of a project aiming to obtain greater understanding of the credit rating industry and certain other products or services available other than traditional credit ratings publicly disclosed by credit rating agencies. The project will consider products such as other ratings provided by credit rating agencies (for example, private, one-time or regional ratings), scoring, credit and rating assessments and research. Relevant parties are requested to respond to the request for information by March 23, 2015.
View the announcement.TOPIC : Credit Ratings -
US Financial Stability Oversight Council Adopts Supplemental Procedures for Nonbank Financial Company Designations
02/04/2015
The US Financial Stability Oversight Council (“FSOC”) adopted certain changes relating to the process of reviewing nonbank financial companies for systemically important financial institution (“SIFI”) designation to make the process more transparent and collaborative. Section 113 of the Dodd-Frank Wall Street and Consumer Protection Act (“Dodd-Frank Act”) enables the FSOC to identify a nonbank financial company for supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and be subject to enhanced prudential standards. The changes belong in three categories: (i) improved communication and engagement with companies under consideration by the Council; (ii) better transparency with the public in regards to the designations process, while still protecting sensitive, nonpublic company information; and (iii) improved engagement during the FSOC’s annual reevaluations process.
View the FSOC supplemental procedures.
View the updated Frequently Asked Questions. -
European Commission Intends to Extend Exemption Period from the Clearing Obligation under EMIR for Pension Schemes
02/03/2015
The European Commission published a report on the progress made by CCPs in developing technical solutions for the transfer by pension schemes of non-cash collateral as variation margin. Under the European Market Infrastructure Regulation pension schemes that meet certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. The exemption period may be extended under EMIR to provide CCPs with further time to develop solutions. The Commission’s report assesses the progress made by CCPs to develop solutions and concludes that not enough progress has been made and that imposing the clearing obligation on pension schemes would adversely effect the retirement benefits of future pensioners. The Commission therefore intends to extend the exemption period for a further two years by adopting a Delegated Act.
View the Commission's report.TOPIC : Derivatives -
European Securities & Markets Authority Publishes Final Technical Advice under New EU Market Abuse Regulation
02/03/2015
The European Securities and Markets Authority published its final technical advice on delegated acts under the new Market Abuse Regulation. The European Commission requested the advice from ESMA to assist it in developing the required Delegated Acts under MAR. ESMA’s advice covers: (i) clarification of the indicators of market manipulation; (ii) minimum thresholds for the exemption of certain participants in the emission allowance market from the requirement to publicly disclose inside information; (iii) ways for determining the relevant national regulator for notification of delays in public disclosure of inside information; (iv) clarification on the enhanced disclosure regime for managers’ transactions; and (v) reporting of
infringements. The European Commission must adopt Delegated Acts on these issues so that they enter into force 24 months after MAR entered into force, which was on July 2, 2014.
View ESMA advice.TOPIC : Financial Services -
UK Financial Conduct Authority Reviews Regulatory Regime for Crowdfunding Platforms
02/03/2015
The UK Financial Conduct Authority published its review of the regulatory regime for crowdfunding. The document sets out the FCA’s approach to regulating loan-based and investment-based crowdfunding platforms, including the new rules introduced in March 2014. The FCA does not, at this stage, intend to amend its rules or approach to supervision of the market but will undertake a full review of the crowdfunding market and regulatory framework in 2016.
View the FCA review document.TOPIC : Financial Services -
European Securities & Markets Authority Seeks Evidence on the Credit Rating Industry
02/03/2015
The European Securities & Markets Authority published a call for evidence on the impact of the EU Credit Rating Agencies Regulation on the credit rating industry and the development of markets for structured finance instruments. ESMA is seeking evidence of how the Credit Rating Agencies Regulation is achieving the objectives of stimulating competition between credit rating agencies, improving the choice of credit rating agencies available and minimizing conflicts of interests in the industry. The evidence received will be analyzed by ESMA in its development of technical advice to the European Commission as required under the Credit Rating Agencies Regulation. Evidence is required by March 31, 2015 and ESMA must provide its advice by September 2015.
View documents relating to call for evidence.TOPIC : Credit Ratings -
US Securities and Exchange Commission Names New Head of Investment Management Division
02/03/2015
The SEC named David Grim as Acting Director of the Division of Investment Management, replacing Norm Champ.TOPIC : People -
UK HM Treasury Publishes Outcome of its Consultation on Leverage Ratio Framework
02/02/2015
HM Treasury published the outcome to its consultation on the leverage ratio framework. The Financial Policy Committee previously recommended that HM Treasury enable the FPC to give directions to the Prudential Regulation Authority to set leverage ratio requirements and buffers for PRA-regulated institutions. HM Treasury’s consultation paper sought views on how to implement the FPC’s recommendations and grant the FPC such powers of direction, and also included draft legislation. The FPC stated that the directions should include a power for the FPC to set a minimum leverage ratio requirement, a supplementary leverage ratio buffer to apply to global systemically important banks and major UK institutions, as well as a countercyclical ratio buffer. The outcome sets out the Government's position in light of the consultation responses, stating that the Government believes the FPC is well-placed to consider the level of leverage in the UK financial system which is prudent, whilst the systm continues to conribute to economic growth. The Government also intends to grant the FPC a power to set supplementary ratio buffers. As for the countercyclical ratio buffer, the Government states that the FPC is required to act proportionally when exercising this power, and that this requirement to act proportionally justifies the granting of this power to the FPC.
View the Outcome. -
UK Government to Proceed with Giving Financial Policy Committee Powers for Leverage Ratio Framework
02/02/2015
The UK Government announced that it would be proceeding with the recommendations of the UK Bank of England’s Financial Policy Committee to give the FPC powers of direction over the housing market and the leverage ratio for UK banks. The new powers will enable the FPC to direct the Prudential Regulation Authority and Financial Conduct Authority to require regulated lenders to place limits on residential mortgage lending (owner-occupied only) and direct the PRA to set: (i) a minimum leverage ratio requirement; (ii) a supplementary leverage ratio buffer that will apply to globally systemically important banks and other major domestic UK banks and building societies, including ring-fenced banks; and (iii) a countercyclical leverage ratio buffer. Draft legislation providing for the new FPC powers has been put before the UK Parliament. On February 4, 2015, the FPC published draft policy statements detailing the specific tools, the firms subject to the requirements, timelines for implementation, how the tools might affect financial stability and economic growth, how the FPC intends to take decisions over setting the countercyclical leverage ratio buffer and the proposed calibration of the tools.
View the announcement here.
View the FPC papers. -
Opinion on Draft RTS on Clearing Obligation for Interest Rate Swaps under EMIR
01/30/2015
The European Securities and Markets Authority published an Opinion on the draft of Regulatory Technical Standards on the clearing obligation for itnerest rate swaps under the European Market Infrastructure Regulation. The draft RTS specify details such as the class of OTC derivatives that should be subject to the clearing obligation and the dates from which the clearing obligation takes effect. ESMA’s Opinion follows on from the Commission’s recent communication to ESMA of its intention to endorse the draft RTS with amendments. The amendments proposed by the Commission include postponing the starting date of the frontloading requirement (which is the obligation to clear OTC derivative contracts after a central counterparty has been authorized under EMIR and before the date of application of the clearing obligation), clarifying the calculation of the threshold for investment funds and excluding non-EU intragroup transactions from the clearing obligation. In the Opinion, ESMA addresses the changes made by the Commission to the RTS and, in articular, states that the processes that would exempt non-EU intragroup transactions from the clearing obligation are not appropriate. ESMA states that it can provide technical advice on the issue if requested, so that an alternative solution can be found and delays to the implementation of the clearing obligation can be avoided.
View the Opinion.TOPIC : Derivatives -
UK Regulator Consults on New Rules for Depositor, Dormant Account and Policyholder Protection
01/30/2015
The Prudential Regulation Authority published a consultation paper proposing transitional provisions and new rules to the PRA Rulebook, and amendments to the PRA Handbook arising out of rules previously proposed in the Depositor Protection and Policyholder Protection consultation papers published by the PRA in October 2014. The measures proposed under the consultations aim to minimize any possible adverse impact that could be caused to UK financial stability through the failure of a PRA-deposit taker, dormant account fund operator or PRA-authorized insurer. It also aims to ensure an effective compensation system to eligible depositors, dormant account holders and policyholders. The consultation includes new rules on compensation arrangements related to dormant account protection as well as a statement of policy on the PRA's expectations of the Financial Services Compensation Scheme when dealing with dormant accounts. The consultation period ends on February 27, 2015.
View the consultation paper.TOPIC : Financial Services -
US Security and Exchange Commission Chair’s Chief Counsel to Leave
01/29/2015
Robert E. Rice, Chief Counsel to the US Securities and Exchange Commission (“SEC”) Chair Mary Jo White, announced he will leave the SEC at the end of February.TOPIC : People -
US Consumer Financial Protection Bureau Issues Proposed Amendments to Mortgage Rules
01/29/2015
The CFPB proposed amendments to its mortgage rules to better accommodate responsible lending by small creditors, particularly in rural and underserved areas. If the rules are finalized as proposed, a greater number of financial institutions would be able to offer certain types of mortgages in rural and underserved areas. Among other things, the amendments would: (i) expand the definition of a small creditor; (ii) include mortgage affiliates in the calculation of smallcreditor status; (iii) expand the definition of “rural” areas; and (iv) provide grace periods for small creditor status. The proposed rules will be open for public comment until March 30, 2015.
View the proposal.TOPIC : Consumer Protection -
US Federal Reserve Board Issues Interim Final Rule Raising Threshold for Regulatory Capital Requirements for Qualifying Small Bank Holding Companies
01/29/2015
The Board of Governors of the Federal Reserve System (“Federal Reserve Board”) issued a proposed rule expanding the applicability of the Small Bank Holding Company Policy Statement (“Policy Statement”) and reducing reporting requirements for certain bank holding companies and savings and loan holding companies. The Federal Reserve Board further adopted an interim final rule excluding savings and loan companies with less than $500 million in consolidated assets that meet certain qualitative requirements in the Policy Statement from regulatory capital requirements.
View the Interim Final Rule.
View the Policy Statement. -
European Commission Launches Plans to Establish Capital Markets Union
01/28/2015
The European Commission stated in a press release that it had launched plans to establish a Capital Markets Union by holding an orientation debate at the College of Commissioners. The establishment of the single market for all 28 EU member states will aim to lower the costs of funding within the EU, remove barriers to cross-border investment and increase sources of funding for businesses. In a separate press release dated January 30, 2015, the European Commission stated that a consultation on the CMU will be launched on February 18, 2015, and that a plan of action will be released during the third quarter of 2015.
View the press release.
View the other press release.TOPIC : Financial Services -
Basel Committee on Banking Supervision Final Standard for Revised Pillar 3 Disclosure Requirements
01/28/2015
The Basel Committee on Banking Supervision issued its final standard for revised Pillar 3 disclosure requirements. The revised requirements aim to enhance the transparency of the approaches taken by banks in calculating their minimum regulatory capital requirements and allow market participants to access key information and compare banks’ disclosures of risk-weighted assets. In aiming to improve the comparability and consistency of disclosures, new templates are introduced, and five guiding principles for disclosures have been agreed. The disclosures should be: (i) clear; (ii) comprehensive; (iii) meaningful to users; (iv) consistent over time; and (v) comparable across banks. The new requirements will supersede the existing Pillar 3 requirements from the end of 2016.
View the final standards. -
International Organization of Securities Commissions’ Final Report on Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives
01/28/2015
The International Organization of Securities Commissions published its final report on risk mitigation standards for non-centrally cleared OTC derivatives, setting out nine standards to help strengthen the non-centrally cleared OTC derivatives market. The standards include risk mitigation techniques relating to trade confirmation, valuation with counterparties, dispute resolution and cross-border transactions, and aim, amongst other issues, to enhance legal certainty over the terms of non-centrally cleared OTC derivatives transactions and shorten the amount of time it may take to resolve disputes.
View the final report.TOPIC : Derivatives -
Securities and Exchange Commission Announces New Regional Director
01/28/2015
Erin Schneider was named Associate Regional Director in the San Francisco Office of the SEC.TOPIC : People -
US Federal Deposit Insurance Corporation Releases Second Video on CFPB Mortgage Rules
01/27/2015
The FDIC announced the release of the second in a series of three technical assistance videos intended to help bank employees meet regulatory requirements. These videos address compliance with certain mortgage rules issued by the CFPB. The first video, released on November 19, 2014, covered the Ability to Repay and Qualified Mortgage Rule, and the second video covers the Loan Originator Compensation Rule. The third video, expected to be released in February, will cover mortgage servicing rules. The servicing rules address servicers’ obligations to consumers.
View the first video.
View the second video.TOPIC : Consumer Protection -
Enforcement Powers over Auditors and Actuaries Granted to UK Regulators
01/27/2015
HM Treasury published the Financial Services and Markets Act 2000 (Regulation of Auditors and Actuaries) (PRA Specified Powers) Order 2015 together with an explanatory memorandum. The Order gives effect to enforcement powers previously granted to the Prudential Regulation Authority over auditors and actuaries under the Financial Services Act 2012. The PRA was not able to use these powers until HM Treasury granted effect to those powers under this Order. The Order allows the PRA to apply dissuasive sanctions such as monetary fines or disqualification measures on auditors and actuaries that breach PRA rules or statutory duties. The PRA intends to issue further guidance on the use of these enforcement powers following a consultation. The Order enters into force on February 20, 2015.
View the Order.
View the Explanatory Memorandum.TOPIC : Enforcement -
Bank of England Announces New Appointments to Executive Team
01/27/2015
The Bank of England announced the appointment of two new directors to its executive team. Alex Brazier is appointed as Executive Director for Financial Stability, Strategy and Risk from March 16, 2015 and will also be a member of the Financial Policy Committee from April 1, 2015. Sam Wood is appointed as Executive Director for Insurance Supervision from April 7, 2015.TOPIC : People -
US Consumer Financial Protection Bureau Releases Bulletin on Treatment of Confidential Supervisory Information
01/27/2015
The US Consumer Financial Protection Bureau (“CFPB”) issued a compliance bulletin on the treatment of confidential supervisory information (“CSI”). The bulletin is intended to remind persons in possession of confidential information, including confidential supervisory information, that they may not, except for certain exceptions, disclose confidential information to third parties. The bulletin defines CSI, reviews certain disclosures of CSI and discusses in detail that private confidentiality and non-disclosure agreements do not alter the legal restrictions on the disclosure of CSI.
View the bulletin.TOPIC : Consumer Protection -
European Central Bank Addresses Significant Banks on Practices under New Supervisory Framework
01/27/2015
A letter from the Chair of the Supervisory Board of the Single Supervisory Mechanism at the European Central Bank, addressed to the management of significant banks, discussing the practices that apply in the new supervisory setting of the SSM was published by the ECB. The ECB assumed its new prudential supervisory role for banks in the Eurozone under the SSM in November 2014. The SSM creates a new system of financial supervision, under which the ECB directly supervises 120 significant banking groups, and sets and monitors supervisory standards for other Eurozone banks by working more closely with national regulators. The letter states that written clarification has been requested by banks on the processes and practices that apply within the new supervisory framework. The Board recognizes that a broad variety of practices relating to the supervision of significant banks exist across member states, and confirms that the existing process under the SSM Regulation will apply until further notice. In the meantime, the ECB will proactively assess the merits of
various other approaches.
View the ECB letter. -
Launch of Global Legal Entity Identifier Foundation Website
01/26/2015
The Global Legal Entity Identifier Foundation announced the launch of its new website. GLEIF was created by the Financial Stability Board and established the Legal Entity Identifier, a 20-digit alphanumeric code which is a common standard and a unique key made public that is to be used unambiguously to identify legal entities in the course of various activities such as financial transactions across different markets, products and regions.
View the new Website.TOPIC : Financial Market Infrastructure -
US Office of the Comptroller of the Currency Announces New Deputy Comptroller for Special Supervision
01/26/2015
Michael Brickman was named Deputy Comptroller for Special Supervision at the Office of the Comptroller of the Currency.TOPIC : People -
Federal Reserve Bank of New York
01/26/2015
The Federal Reserve Bank of New York announced the appointment to its Community Depository Institutions Advisory Council of Martin K. Birmingham, president and chief executive officer of Five Star Bank and Financial Services Inc. in Warsaw, New York.TOPIC : People -
US Federal Reserve Issues "Strategies for Improving the US Payment System"
01/26/2015
The US Federal Reserve issued "Strategies for Improving the US Payment System" which introduces a plan for collaborating with payment system stakeholders. The plan aims to enhance the efficiency of the US payment system and caters to large and small businesses, emerging payments firms, card networks, payment processors, consumers and financial institutions. The paper outlines the Federal Reserve’s intent to create a task force to identify a more effective approach to safer and faster payment capabilities. To further clarify the details on payment system improvement the Federal Reserve will host a webcast at 1:00 PM Eastern Time on January 29, 2015. The webcast will share views on the Federal Reserve’s vision for the future US payment system and plans for collaborating with stakeholders to achieve shared goals. In addition, a subsequent series of FedForum teleseminars on February 4 and 10 will present an overview of the strategies and a question-and-answer session.
Access to the webcast.
Registration for the FedForum events.
View the US Federal Reserve paper.TOPIC : Financial Market Infrastructure -
ISDA Proposes CCP Recovery and Continuity Framework
01/26/2015
The International Swaps and Derivatives Association published a proposed recovery and continuity framework for CCPs. The framework focuses on losses caused to a CCP by the default of one of its clearing participants and not on other losses that a CCP may incur due to, for example, liquidity shortfalls or non-default losses. CCPs are already required to prepare recovery and resolution plans in many jurisdictions. The ISDA recovery and continuity framework sets out proposals for: (i) recovery measures that should be available to a CCP which include portfolio auction of a defaulting clearing member's portfolio, limited cash calls, loss-allocation mechanisms and consideration of a partial contract tear-up to assist a CCP to re- establish a matched book; (ii) transparency and timing requirements so that recovery measures are clearly defined in the clearing rule book, providing clearing members with certainty about the maximum time frame for the default management process to run before it is considered to have failed as well as the applicable legal construct, source and utilization of resources; (iii) considerations for the use of recovery measures beyond pre-funded resources such as cash calls or loss allocation to clearing members; (iv) requirement for CCPs that offer several clearing services to segregate those services so that there is limited recourse between the services to limit contagion; (v) considerations for either partial or full contract tear-up if measures to re-establish a matched book fail; (vi) compensation by the CCP to clearing members for loss allocation or partial contract tear-up measures through pro-rata shares in the CCP's claims against the estate of defaulting clearing members and future CCP revenues or profits; and (vii) conditions for entry into resolution of a CCP.
TOPIC : Recovery & Resolution -
European Banking Authority Amends Final Draft Regulatory Technical Standards on Prudent Valuation
01/23/2015
The European Banking Authority published draft amended final Regulatory Technical Standards on prudent valuation of fair-valued positions under the Capital Requirements Regulation. The draft RTS, initially published in March 2014, specified the conditions under which prudent valuation requirements should be applied and introduced a methodology to calculate additional valuation adjustments in the form of two approaches: the simplified approach and the core approach. The revised draft RTS contain small amendments replacing all occurrences in Articles 9 and 10 of the word "volatility" to the word "variance." This affects institutions using the core approach only, and relaxes the calibration of the volatility test, giving more flexibility in the implementation of the prudent valuation framework. The EBA suggests that the calibration of the volatility test should be revised within the first two years of implementation.
View the revised RTS. -
UK Regulator Publishes Updated Version of Supervisory Statement on Third-Country Equivalence Aspects of Credit Risk Provisions
01/23/2015
The UK’s Prudential Regulation Authority published an updated version of its supervisory statement on the approach it will take under the Capital Requirements Regulation on credit risk treatments of exposures to third country counterparties, and for recognized exchanges. Initially, the supervisory statement set out the approach that was to be taken by the PRA on certain credit risk treatments under the CRR, where relevant third country equivalence determinations had not yet been made by the European Commission. It also set out the individual markets and exchanges that qualified as recognized exchanges under the CRR in the absence of a determination by the European Commission. Further to the binding decision of the European Commission that came into effect on January 1, 2015 (which published the names of third countries that apply supervisory and regulatory arrangements at least equivalent to those applied in the EU), the section in the supervisory statement dealing with this topic no longer applies and has therefore been deleted.
View the updated supervisory statement.
View the European Commission’s Decision. -
US Consumer Financial Protection Bureau
01/23/2015The CFPB announced the addition of several new members to leadership positions.
- Anthony Alexis will serve as the CFPB’s Assistant Director of Enforcement.
- Leandra English is returning to the CFPB to serve as the Deputy Chief Operating Officer.
- Agnes Bundy Scanlan is joining the CFPB to serve as the Northeast Regional Director of Supervision Examinations.
- Jeffrey Sumberg is joining the CFPB to serve as the Chief Human Capital Officer.
TOPIC : People -
Basel Committee Second Progress Report on Adoption of Principles for Effective Risk Data Aggregation and Risk Reporting
01/23/2015
The Basel Committee on Banking Supervision published its second progress report on the adoption by banks of its Principles for effective risk data aggregation and risk reporting. The Principles are to be implemented by global systemically important banks by 2016, and aim to strengthen risk data aggregation and risk reporting at banks so that risk management and decision-making practices are improved. The report details the progress that G-SIBs have made and the measures that they have taken to comply with the Principles. Fourteen out of the thirty-one G-SIBs have stated that they will not be able to comply with the principles by the 2016 deadline. The report also states that national regulators are recommended to apply the Principles to domestic systemically important banks (known as D-SIBs) from three years after they have been identified as such.
View the report. -
Amendment to Regulation on Notification of Significant Net Short Positions in Sovereign Debt
01/23/2015
A Delegated Regulation correcting the Regulation on notification of significant net short positions in sovereign debt (which supplements the Short Selling Regulation) was published in the Official Journal of the European Union. The amended article of the Regulation originally only referred to the notification threshold on significant net short positions in shares, but should also have referred to the notification threshold on significant net short positions in sovereign debt. The correcting Delegated Regulation rectifies this omission, to avoid legal uncertainty. The Delegated Regulation enters into force on February 12, 2015.
View the Delegated Regulation.TOPIC : Financial Services -
US Commodity Futures Trading Commission Issues No-Action Relief to Introducing Brokers
01/23/2015
The US Commodity Futures Trading Commission ("CFTC") issued no-action relief for CFTC Regulations 1.10 and 1.17, respectively. The relief pertains to certain introducing brokers ("IB") regarding net capital and financial reporting requirements. The no-action relief allows foreign-domiciled IBs to file audited and unaudited form 1-FR-IBs, utilizing local accounting principles in effect where the IB is located in lieu of US Generally Accepted Accounting Principles or International Financial Reporting Standards.
View the CFTC Staff Letter.TOPIC : Derivatives -
US Office of the Comptroller of the Currency Releases Community Reinvestment Act Evaluations
01/23/2015
The US Office of the Comptroller of the Currency released a list of Community Reinvestment Act ("CRA") performance evaluations that became public during the period of December 1, 2014 through December 31, 2014. The CRA requires each federal bank regulatory agency to assess each federally insured institution's record of helping to meet the credit needs of its entire community, consistent with safe and sound lending. The list only includes national banks, federal savings associations and insured federal branches of foreign banks. The possible rating categories are as follows: outstanding, satisfactory, needs to improve and substantial noncompliance. Of the thirty evaluations made public, two were rated outstanding and twenty-eight were rated satisfactory.
View list of evaluations. -
UK Financial Conduct Authority Takes Further Action for Misconduct relating to LIBOR
01/22/2015
The UK Financial Conduct Authority imposed a fine on two former senior executives of Martin Brokers (UK) Ltd and banned them from performing significant influence functions at financial services firms. The sanctions relate to compliance and cultural failings that contributed to misconduct relating to the London Interbank Offered Rate. The FCA found that David Caplin and Jeremy Kraft contributed to a culture that allowed LIBOR manipulation to take place. They were also found to have enabled the misconduct to continue unnoticed over an extended period of time. David Caplin was fined £300,000 and Jeremy Kraft was fined £150,000. Both individuals settled at an early stage of the investigation and qualified for a 30% discount under the FCA’s settlement discount scheme. These are the first fines issued by the FCA to individuals holding significant influence functions for failings that contributed to LIBOR misconduct.TOPIC : Enforcement -
UK Government Publishes Draft Legislation on Criminal Sanctions for Insider Dealing and Market Manipulation in the Wholesale Energy Markets
01/22/2015
The UK Department of Energy & Climate Change published its response to the consultation to strengthen the regulation of wholesale energy markets through criminal offences together with draft legislation to implement new criminal sanctions for insider dealing and market manipulation. The new sanctions will give more power to the relevant regulators (in Great Britain, Ofgem and in Northern Ireland, the Northern Ireland Authority for Utility Regulation) to address market abuse in the wholesale energy markets. The new powers implement the EU Regulation on Energy Market Integrity and Transparency requirement for Member States to create penalties for breach of REMIT that are proportionate, effective and dissuasive. REMIT applies to spot trading in the electricity and natural gas market. The DECC consider that criminal sanctions are more dissuasive than civil sanctions alone. UK legislation implementing the civil sanction regime came into force on June 29, 2013. The DECC acknowledges that it may be necessary to review the UK criminal sanctions regime to align the penalties with UK financial markets legislation for similar offences.
View the DECC response.
View the draft legislation.TOPIC : Financial Services -
Financial Conduct Authority Finalised Guidance on Retail Investment Advice
01/22/2015
The Financial Conduct Authority issued its Finalized Guidance on retail investment advice, which aims to explore and clarify the barriers and boundaries affecting market development. The guidance follows on from the FCA's two consultations on the topic and focuses on what may constitute a personal recommendation for retail investments. The guidance also discusses how firms should communicate with customers so that required information is passed on to customers in an accessible and understandable format, and deals with the concept of regulated advice, generic advice, focused advice and personal advice, and well as what amounts to investment advice under Markets in Financial Instruments Directive.
View the Finalized Guidance.TOPIC : Financial Services -
Regulation Implementing Conditions for Contributions to the EU Single Resolution Fund Published
01/22/2015
The Council Implementing Regulation specifying uniform conditions for implementing the obligation of the Single Resolution Board to calculate the contributions of individual institutions to the Single Resolution Fund under the Single Resolution Mechanism was published in the Official Journal of the European Union. The Single Resolution Fund is intended to be used following exercise of resolution powers, for example as a shareholder for a "good bank" created on a good bank/bad bank split. It will be contributed to by banks potentially subject to the resolution regime. The Single Resolution Mechanism applies to banks in Eurozone and to banks in EU Member States participating in the Single Supervisory Mechanism. The Regulation will apply from January 1, 2016 or such time as the available financial means of the Single Resolution Fund, as set out under the Single Resolution Mechanism, are met.
View the Regulation.TOPIC : Recovery & Resolution -
US Federal Deposit Insurance Corporation Issues Proposal Amending Regulations Related to “Fair Credit Reporting”
01/21/2015
The FDIC issued a proposed rule amending regulations related to “Fair Credit Reporting.” The three proposed amendments are as follows: (i) rescinding and removing the provisions of FDIC’s Part 334; (ii) rescinding and removing 12 CFR Part 391 Subpart C and amending 12 CFR Part 334 of the FDIC’s existing Rules and Regulations; and (iii) amending the definition of “creditor” in the Red Flag Identity Theft rule to implement the Red Flag Program Clarification Act of 2010. Overall, the revisions would streamline FDIC rules and eliminate unnecessary regulations.
View the Federal Register notice. -
US Federal Deposit Insurance Corporation Issues Proposal Revising Provisions of Securitization Safe Harbor Rule
01/21/2015
The US Federal Deposit Insurance Corporation (“FDIC”) issued a proposed rule revising certain provisions of the Securitization Safe Harbor rule regarding the treatment of financial assets transferred in the process of a securitization or participation in a FDIC receivership. The rule, if finalized as proposed, would clarify the retention of economic interest in the credit risk of securitized financial assets. The amendment would be effective on the same timeline as the credit risk retention rule adopted under Section 15G of the Securities Exchange Act.
View the Federal Register notice. -
Amendment to Regulation on Supervisory Reporting of Institutions on Asset Encumbrance, Single Data Point Model and Validation Rules
01/21/2015
The EU Implementing Regulation which amends the Regulation laying down Implementing Technical Standards on supervisory reporting of institutions regarding asset encumbrance, single data point model and validation rules under the Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV, was published in the Official Journal of the European Union. The amendments include changes on: (i) the format and frequency of reporting on asset encumbrance on an individual and consolidated basis; (ii) first reporting reference dates; and (iii) validation rules. The Implementing Regulation enters into force on February 10, 2015.
View the Implementing Regulation. -
Basel Committee Work Program for 2015 and 2016
01/21/2015
The Basel Committee on Banking Supervision published its work program for 2015 and 2016. The program is based around four themes: (i) policy development; (ii) the balance between simplicity, comparability and risk sensitivity across the regulatory framework; (iii) monitoring and assessing implementation of the Basel framework; and (iv) improving the effectiveness of supervision. The Basel Committee’s work program states its objectives, which include restoring confidence in capital ratios, continuing to revise existing methods of measuring risk-weighted assets, assessing the role of stress testing, reviewing the regulatory treatment of sovereign risk as well as assessing the interaction of reform policies overall.
View the report. -
US Securities and Exchange Commission Announced Leave of Director of the Division of Investment Management
01/21/2015
The US Securities and Exchange Commission announced that Norm Champ, Director of the Division of Investment Management, will leave later this month after five years serving in senior leadership positions.TOPIC : People -
Federal Reserve Bank of New York Announced Board of Director Appointments
01/21/2015
The Federal Reserve Bank of New York announced following appointments to its Board of Directors:
- Emily K. Rafferty, president of the Metropolitan Museum of Art, has been re-appointed a Class C director.
- Paul P. Mello, president and chief executive officer of Solvay Bank, has been re-elected a Class A director representing Group 3 which consists of banks with capital and surplus of less than $30 million.
- Terry J. Lundgren, chairman and chief executive officer of Macy’s Inc., has been re-elected by the Group 3 shareholders as a Class B director representing the interests of the public.
TOPIC : People -
US Consumer Financial Protection Bureau Finalizes Minor Changes to "Know Before You Owe" Mortgage Rules
01/20/2015
The Consumer Financial Protection Bureau finalized two minor modifications to the "Know Before You Owe" mortgage disclosure rules. The changes, which were originally proposed in October 2014, identify when consumers will receive updated disclosures after locking in an interest rate and address how consumers receive information regarding certain construction loans. Under the finalized rule, creditors are required to provide a revised loan estimate within three business days after a consumer locks in a floating interest rate, as opposed to the original rule which required a revised loan estimate on the date a rate was locked. The second change creates a space on the loan estimate form where creditors could include language informing consumers that they may receive a revised loan for a construction loan that is expected to take more than 60 days to settle. The rule will be effective on August 1, 2015.
View the final rule.TOPIC : Consumer Protection -
Prudential Regulation Authority Consultation on Capital Adequacy under CRD IV
01/19/2015
The Prudential Regulation Authority published a consultation paper on assessing Pillar 2 capital adequacy under the Capital Requirements Regulation and the Capital Requirements Directive, together known as CRD IV. Pillar 2 aims to ensure that firms have sufficient capital to cover potential risks not sufficiently addressed in the prescriptive Pillar 1 requirements. The consultation paper sets out proposed changes to the current framework, rules and supervisory statements, focusing on: (i) new proposed methodologies for determining Pillar 2A capital (which aims to strengthen the relationship between an institution’s risk profile, risk management and risk mitigation systems); (ii) the buffer and the form it would take; (iii) governance and risk management; and (iv) disclosure. The consultation period closes on April 17, 2015. The PRA plans to publish its policy statement and final rules together with a supervisory statement in July 2015. It is expected that the new rules would apply from January 1, 2016.
View the consultation paper. -
Delegated Regulation under the Bank Recovery and Resolution Directive Published in Official Journal of the European Union
01/17/2015
The Delegated Regulation on ex ante contributions to resolution financing arrangements supplementing the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The Delegated Regulation deals with issues including the determination of annual contributions, risk adjustments and annual contributions of small institutions. The Delegated Regulation enters into force on February 6, 2015.
View the Delegated Regulation.TOPIC : Recovery & Resolution -
Delegated Regulations under CRD IV Published in Official Journal of the European Union
01/17/2015
The following Delegated Regulations supplementing the Capital Requirements Regulation and the Capital Requirements Directive, together known as CRD IV, were published in the Official Journal of the European Union:
1. Delegated Regulation on the liquidity coverage requirement for credit institutions covering matters such as stress scenarios, the composition of the liquidity buffer and the general requirements for liquid assets. This Delegated Regulation will enter into force on February 6, 2015.
2. Delegated Regulation on the leverage ratio covering matters such as the calculation of the leverage ratio and the exposure value of derivatives. This Delegated Regulation entered into force on January 18, 2015.
View Delegated Regulation 1
View Delegated Regulation 2 -
Memorandum of Understanding between European Securities and Markets Authority and Hong Kong Securities and Futures Commission
01/16/2015
The European Securities and Markets Authority published the Memorandum of Understanding it entered into with the Hong Kong Securities and Futures Commission on December 19, 2014. The MoU was established further to the European Markets Infrastructure Regulation, under which ESMA is required to set out cooperation arrangements between ESMA and non-EU authorities whose legal and supervisory framework for CCPs are deemed to be equivalent to the European requirements. The MoU provides ESMA with the tools to monitor the ongoing compliance of CCPs with the recognition conditions under EMIR and deals with topics such as requests for information, on-site inspections and confidentiality. The MoU is effective from December 19, 2014.
View the MoU.TOPIC : Derivatives -
The US Office of the Comptroller of the Currency Issues Revised Comptroller’s Handbook Booklet
01/16/2015
The OCC issued the "Litigation and Other Legal Matters" booklet of the Comptroller’s Handbook which replaces the booklet of the same title issued in February 2000. The revised booklet provides guidance to examiners assessing a bank’s litigation exposures, associated risks, and risk management practices.
View the booklet titled "Litigation and Other Legal Matters".TOPIC : Financial Services -
UK Regulators Publish Final Rules Implementing the Bank Recovery and Resolution Directive
01/16/2015TOPIC : Recovery & Resolution
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Proposals to Reform the UK Financial Services Trade Association Published
01/16/2015
A consultation paper was published setting out proposals to reform the UK financial services trade association landscape. The proposals emerge from a steering committee set up to assess the UK trade association framework. The steering committee is made up of ten retail and commercial banks in the UK — Barclays, Clydesdale Bank, HSBC, Lloyds Banking group, Nationwide Building Society, Santander UK, The Co-operative bank, The Royal Bank of Scotland, TSB Bank and Virgin Money. The key proposal is for a single trade association representing the payments, mortgage, retail, wealth, SME and commercial banking sectors to be formed to ensure more effective and efficient service to the industry. Trade associations that would contribute to this effort include the Asset Based Finance Association, Association for Financial Markets in Europe, British Bankers’ Association, Council of Mortgage Lenders, Finance & Leasing Association, Intermediary Mortgage Lenders Association, Investment Management Association, Payments Council, Tax Incentivized Savings Association, TheCityUK, UK Cards Association and Wealth Management Association. Responses to the consultation are due by April 10, 2015 following which recommendations and a proposed action plan for implementing the changes will be published. A final recommendation is expected in May 2015.
View the consultation paper.TOPIC : Financial Services -
European Banking Authority’s Second Report on Impact of Liquidity Coverage Ratio
01/15/2015
The European Banking Authority published its second impact assessment report for the liquidity coverage ratio requirements under the Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV. The report is based on data provided by 322 European banks and concludes that the LCR is not expected to have a material detrimental impact on the business and risk profile of EU-established institutions. This is mainly because EU institutions have significantly improved their compliance with LCR requirements and the potential for making adjustments to balance sheets to meet LCR requirements.
View the report. -
US Securities and Exchange Commission Fee Rate Advisory #3 for Fiscal Year 2015
01/15/2015
The SEC announced that beginning on February 14, 2015, the rates applicable to most securities transactions will be set at $18.40 per million dollars. Each self-regulatory organization will continue to pay the SEC a rate of $22.10 per million for transactions occurring on charge dates through February 13, 2015 and will begin paying the new quoted rate on charge dates on or after February 14, 2015. The assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction.
View the SEC order.TOPIC : Financial Services -
US Agencies Release Public Sections of Resolution Plans
01/15/2015
The US Federal Reserve Board and the US Federal Deposit Insurance Corporation made portions of resolution plans, for firms with generally less than $100 billion in qualifying nonbank assets, publically available. Certain banking organizations with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council are required to periodically submit resolution plans to the Federal Reserve Board and the FDIC. A resolution plan contains both a public and confidential section describing the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. The FDIC also released the public sections of the recently filed resolution plans of 22 insured depository institutions, the majority of which are subsidiaries of bank holding companies. The insured depository institution plans are mandated by a separate regulation issued by the FDIC requiring a covered insured depository institution with assets greater than $50 billion to submit a plan under which the FDIC might resolve the institution under the Federal Deposit Insurance Act.
View the public portions of resolution plans required by the Federal Reserve Board.
View the public portions of resolution plans required by the FDIC.TOPIC : Recovery & Resolution -
New US Federal Deposit Insurance Corporation General Counsel
01/15/2015
The FDIC announced the appointment of Charles Yi as the agency’s new general counsel.TOPIC : People -
European Banking Authority Consults on Procedures, Forms and Templates under the Bank Recovery and Resolution Directive
01/14/2015
The European Banking Authority published for consultation draft Implementing Technical Standards which set out the procedures, forms and templates for the preparation of resolution plans by resolution authorities. To obtain the information needed to prepare a resolution plan for a particular firm, the EBA is proposing that resolution authorities first request the information from the firm’s national regulator. If the national regulator does not have the relevant information or the information is not available in the required format, then the resolution authority may approach the firm directly for the information. When a firm provides the information to the resolution authority, it must do so using the proposed forms and templates. The forms and templates are in Excel format and cover organizational structure, governance and management, critical functions and core business lines, critical counterparties, structure of liabilities, funding sources, off-balance sheet, payment systems, information systems, interconnectedness, authorities and legal framework, in line with the required information under the Bank Recovery and Resolution Directive. The forms and templates will be the minimum set of harmonized information which group-level resolution authorities must share with the EBA, relevant EU resolution authorities and national regulators, as required under the BRRD. Responses to the consultation are due by April 14, 2015.
View the consultation paper.TOPIC : Recovery & Resolution -
The US Office of the Comptroller of the Currency Issues Revised Comptroller’s Handbook Booklets
01/14/2015
The Office of the Comptroller of the Currency ("OCC") issued the "Retail Nondeposit Investment Products" booklet of the Comptroller’s Handbook which replaces a similarly titled booklet issued in February 1994. This revised booklet provides updated guidance to examiners on national banks and federal savings associations regarding the recommendation or sale of nondeposit investment products to retail customers. It includes an overview of bank delivery channels and the regulatory structure and requirements supplementary with banks offering these products. The revised booklet describes the risks inherent in offering such products and offers a framework for managing such risks.
The OCC issued the "Conflicts of Interest" booklet of the Comptroller’s Handbook which replaces a booklet of the same title issued in June 2000. This booklet has been revised to include the supervision of federal savings associations and includes updated guidance for examiners on risks and expected controls over conflicts of interest that may arise in asset management activities. The booklet explains the risks inherent in such conflicts and provides a structure for managing those risks.
View the booklet titled "Retail Nondeposit Investment Products".
View the booklet titled "Conflicts of Interest".
TOPIC : Financial Services -
US Securities and Exchange Commission Adopts Final Rules Concerning Security-Based Swap Data Repositories
01/14/2015
The US Securities and Exchange Commission ("SEC") adopted final rules regarding security-based swap data repository ("SDR") registration, duties and core principles in accordance with Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which authorizes the SEC to regulate security-based swaps and to take steps to encourage accountability and transparency in this market. Adopted under the Securities Exchange Act of 1934, the final rule establishes a registration process for SDRs and requires SDRs to comply with certain duties and core principles regarding maintaining data and when and how a repository’s data could be accessed. It also establishes a requirement for SDRs to have a Chief Compliance Officer and other governance requirements. The SEC’s rules require all swaps to be reported within twenty-four hours until more study is done to refine the timing.
View the press release on the FDIC website.
View the related SEC Open Meeting Agenda.TOPIC : Derivatives -
Three New Heads of Department Appointed by UK Payment Systems Regulator
01/14/2015
The UK Payment Systems Regulator announced three new senior appointments: Carole Begent as head of legal from April 1, 2015; Mark Falcon as head of regulatory policy and strategy from March 2, 2015; and Louise Buckley as head of stakeholder engagement and communications from January 26, 2015.TOPIC : People -
Capital Buffers and Macro-prudential Measures Amendment Regulations Published
01/13/2015
HM Treasury published the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 ("the Amending Regulations") together with an explanatory memorandum. The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014, which implemented all of the capital buffers under the Capital Requirements Directive except for the Systemic Risk Buffer and the Other Sysemically Important Institutions buffer. The Amending Regulations introduce the SRB for banks and investment firms. Capital buffers require firms to hold additional amounts of capital on top of their minimum capital requirements. Under CRD, member states are able to decide which firms should meet the SRB and must notify the European Commission, European Systemic Risk Board, European Banking Authority and national regulators of the reasons for use of the SRB. The SRB would apply to banks and building societies with deposits of more than £25 billion (i.e. it will apply to ring-fenced banks under the bank structural reform requirements), The Financial Policy Committee of the Bank of England will be responsible for setting the SRB and the Prudential Regulation Authority will apply the SRB on an entity-by-entity basis. The SRB is applicable from January 1, 2019.
View the Regulations.
View the explanatory memorandum. -
New CEO for UK Banking Standards Review Council
01/13/2015
The UK Banking Standards Review Council appointed Alison Cottrell as its first Chief Executive from April 2015.TOPIC : People -
US-EU Financial Market Regulatory Dialogue Meeting
01/12/2015
The participants of the US-EU Financial Market Regulatory Dialogue met to discuss key regulatory topics including the implementation of Basel III capital, leverage, derivatives reforms, benchmarks and developments on cross-border resolution. Amongst other issues, the Financial Stability Board’s proposals for an international minimum standard on total loss absorbing capacity were welcomed and EU participants raised concerns about the Volcker Rule’s effect on foreign funds. The participants included representatives of the European Commission, the European Securities and Markets Authority, the Securities Exchange Commission, US Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Commodity Futures Trading Commission. The next meeting will take place in Brussels, Belgium in July 2015.
View the joint US-EU Financial Market Regulatory Dialogue statement.TOPIC : Financial Market Infrastructure -
Conviction of Unauthorized Forex Trader
01/09/2015
Alex Hope was found guilty in the UK of fraud for operating an investment scheme without authorization. Mr Hope claimed to be making large returns for investors by trading their money on the foreign exchange market. He was found to have taken over £5 million of investor money and to have used over £2 million of it for personal expenditure. He appeared to be a successful trader whilst in reality he was making heavy losses. Raj Von Badlo, Mr Hope’s co-defendant, pleaded guilty in July last year to recklessly making false representations to investors and promoting a collective investment scheme without authorization. Both individuals will be sentenced on January 16, 2015.TOPIC : Enforcement -
European Securities and Markets Authority Report on Central Counterparties Colleges under European Market Infrastructure Regulation
01/08/2015
The European Securities and Markets Authority issued a report on its involvement with the supervisory colleges established under the European Market Infrastructure Regulation for the authorization and supervision of EU-based central counterparties. Supervisory colleges are the channels through which information between home and host authorities is exchanged and through which supervisory activity is coordinated. ESMA is required under EMIR to maintain a coordinating role between national regulators and colleges so as to encourage consistent supervisory practices.
View the report.TOPIC : Derivatives -
SEC Appoints New Regional Director
01/08/2015
The SEC named Walter Jospin Regional as Director of its Atlanta Office.TOPIC : People -
Qualified Financial Contracts Recordkeeping Related to Orderly Liquidation Authority
01/07/2015
The US Department of the Treasury (“US Treasury”), acting for the US Financial Stability Oversight Council (“FSOC”), issued a proposed rulemaking aimed to implement the Qualified Financial Contract (“QFC”) recordkeeping requirements of the Dodd-Frank Act. The proposed rules would apply to financial companies with $50 billion or more in consolidated assets, financial companies designated by the FSOC, as well as financial affiliates of these companies and would require recordkeeping of positions, counterparties, legal documentation and collateral. This information is needed to help the Federal Deposit Insurance Corporation (“FDIC”) as receiver to, among other things, decide whether to transfer QFCs, evaluate the consequences of decisions to transfer, disaffirm or permit the termination of QFCs with one or more counterparties, and conclude whether any financial systematic risks are posed by the transfer, disaffirmation or termination of such QFCs in the case of a distressed situation. The deadline for comments is April 7, 2015.
View the US Treasure press release.
View the Federal Register notice of proposed rulemaking. -
US Federal Deposit Insurance Corporation Appoints New Regional Director
01/06/2015
The FDIC named Michael J. Dean as Atlanta Regional Director.TOPIC : People -
US Federal Reserve Board Appoints New Director of Monetary Affairs
01/06/2015
The Federal Reserve Board appointed Thomas Laubach as director of the Division of Monetary Affairs.TOPIC : People -
Regulatory Technical Standards under EU Credit Ratings Agencies Regulation Published in Official Journal of the European Union
01/05/2015
Three Delegated Regulations of Regulatory Technical Standards required under the Credit Ratings Agencies Regulation were published in the Official Journal of the European Union:
1. Delegated Regulation for the periodic reporting on fees charged by credit rating agencies for the purpose of ongoing supervision by the European Securities and Markets Authority. This applies from January 26, 2015.
2. Delegated Regulation for the presentation of the information that credit rating agencies make available to ESMA. This applies from June 21, 2015.
3. Delegated Regulation on disclosure requirements for structured finance instruments. This applies from January 1, 2017.
The objectives of the CRA Regulation include strengthening the existing EU legislation on credit rating agencies, reducing financial institution reliance on external credit ratings and improving competition in the credit ratings industry.
View the Regulations.TOPIC : Credit Ratings -
Commodity Futures Trading Commission Provides Notice and Clarification of the Reopened Comment Period
01/05/2015
Pursuant to a notice published in the Federal Register on January 5, 2015, the US Commodity Futures Trading Commission reopened the comment period, and issued a clarification regarding the reopened comment periods, for two position limit rulemakings. On December 9, 2014, the CFTC Agricultural Advisory Committee convened to discuss, among other things, deliverable supply exemptions for hedging positions. To allow commenters enough time to respond to questions raised at the meeting, the CFTC extended the comment periods for an additional 45 days. The CFTC clarified that, in addition to commenting on agenda issues pertaining to agricultural commodities, comments may also include the issues raised at the meeting or in the associated materials posted to the CFTC’s website. The comment period closes January 22, 2015.
View the CFTC press release.TOPIC : Derivatives -
US Federal Deposit Insurance Corporation Issues List of Banks Examined for Community Reinvestment Act Compliance
01/05/2015The FDIC issued a list of state non-member banks which were evaluated for compliance with the Community Reinvestment Act. The list relates to evaluation ratings that the FDIC assigned to institutions in October 2014. All of the banks rated received either satisfactory or outstanding ratings. The CRA was instituted in 1977 in order to encourage insured banks and thrifts to meet local credit needs, including those of low-income neighborhoods. Included in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, Congress mandated that the public disclosure of the results of each bank and thrift that undergoes a CRA examination.
View the monthly list of banks examined for CRA compliance.
View the January 2015 list of banks examined for CRA compliance.TOPIC : Financial Services -
Further UK Legislation Implementing EU Bank Recovery and Resolution Directive Published
01/05/2015TOPIC : Recovery & Resolution
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US Securities and Exchange Commission Announces Program to Facilitate Analysis of Corporate Financial Data
12/30/2014
The SEC introduced a pilot program intended to simplify investor analysis and comparisons of public company financial statement data. The new program will organize data provided by companies into structured data sets which can be used for bulk downloads on the SEC’s website by investors. The SEC anticipates that such data sets will be expanded in 2015 to contain data in footnotes to the financial statements.
View examples of financial statement structured data sets.TOPIC : Financial Services -
Volcker Rule FAQs Updated
12/23/2014
The Board of Governors of the Federal Reserve along with other regulatory agencies responsible for implementing the Volcker Rule added an additional question under the Volcker Rule Frequently Asked Questions page relating to metrics reporting and confidentiality under the Freedom of Information Act. The updated FAQs indicate that the agencies will maintain the confidentiality of the reported information to the extent permitted by law and encourages entities subject to Appendix A of the Volcker Rule to evaluate potential exemptions and ask for confidential treatment if appropriate, including under Exemption 4 of the FOIA, which exempts confidential trade secrets and commercial information from disclosure.
View the updated Volcker Rule FAQs.TOPIC : Bank Structural Reform