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

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

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

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

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

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

    Read more.
  • 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 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.
  • 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.
  • 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
  • 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.
  • 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.
  • EU Agrees Final EMIR Refit
    02/05/2019

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

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

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

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

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

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

    View ESMA's statement.
    TOPIC: Derivatives
  • 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:
     
    1. A temporary and conditional equivalence decision for CCPs already established and authorized in the U.K. CCPs established in third countries (which the U.K. will become on exit day) whose supervisory and legal regimes have been deemed to be equivalent to the EU regime may provide clearing services to clearing members or trading venues established in the EU. Such a CCP must be recognized by the European Securities and Markets Authority in accordance with the processes outlined in the European Market Infrastructure Regulation. The adopted decision would grant equivalence to the regulatory and legal regimes of the U.K. and Northern Ireland in relation to CCPs. The Commission's equivalence decision would apply for 12 months from exit day. ESMA remains to designate various U.K. CCPs.

    Read more.
  • US 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
  • 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.
    TOPICS: DerivativesFinTech
  • 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.

    Read more.
  • ​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:
     
    1. The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (SI 2018/1318).

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

    These Regulations establish: (i) a temporary registration regime to enable U.K. and EU trade repositories to benefit - on complying with certain requirements - from temporary registration while the FCA considers their application; and (ii) a conversion regime that will allow U.K. trade repositories that are currently registered with the European Securities and Markets Authority to be registered as authorized U.K. trade repositories by the FCA from exit day.

    Read more.
  • UK 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.

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

    The European Securities and Markets Authority has proposed the introduction of a 12-month exemption from the clearing obligation to facilitate the novation of uncleared OTC derivative contracts to EU counterparties in the event of a "no deal" Brexit. The European Market Infrastructure Regulation imposes a clearing obligation on EU firms that are counterparties to certain OTC derivatives contracts. The clearing obligation applies to Interest Rate Swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swap indices (iTraxx Europe Main and iTraxx Europe Crossover). The obligation to clear OTC IRS denominated in all seven currencies is in force for clearing members of EU CCPs as well as large financial counterparties and alternative investment funds. The IRS clearing obligation for IRS denominated in the G4 currencies will apply to small financial counterparties and AIFs from June 21, 2019 and to non-financial counterparties from December 21, 2018, and for IRS denominated in CZK, DKK, HUF, NOK, SEK and PLN, from August 9, 2018. The CDS clearing obligation is in force only for clearing members of EU CCPs. The CDS clearing obligation for large financial counterparties, AIFs and NFCs will apply from August 9, 2019. It will apply to small financial counterparties and AIFs from June 21, 2019.

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

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

    EMIR provides an exemption from the clearing obligation for intragroup transactions with a third-country group entity where one of the counterparties is a third-country group entity and there is an equivalence decision in respect of the third country in which it is situated. An equivalence decision would enable parties that are subject to both the EU and a third country's clearing obligation to comply only with one jurisdiction's requirements, but no equivalence decisions have been made to date for these purposes.

    Read more.
    TOPICS: DerivativesMiFID II
  • 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
  • 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.
  • 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.

    Read more.
  • 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.

    Read more.
  • 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
  • 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.
    TOPICS: DerivativesMiFID II
  • 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.
  • 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.
  • 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.
  • 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
  • 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
  • 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.
  • 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.
  • 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.
  • 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
  • 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.
  • 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.
  • 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.
    TOPICS: DerivativesMiFID II
  • 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.
    Read more.
    TOPIC: Derivatives
  • 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.
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