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

  • 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.

    Read more.
  • 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.

    Read more.
  • 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. 

    Read more.
  • 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.

    Read more.
  • 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.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.
  • 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.

    Read more.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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. 

    Read more.
  • 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.

    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.

    Read more.
  • 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.

    Read more.
  • 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.
  • 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.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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.

    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.
  • 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.
  • 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.
  • 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 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.
  • 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.
  • 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.
  • 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.
  • 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 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.
  • 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.

    Read more.
  • 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.

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

    Read more.
  • 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.

    Read more.
  • 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.

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

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

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

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

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

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

    Read more.
  • 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.

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

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

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

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

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

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