US Federal Reserve Bank Presidents Esther George (Kansas City) and Dr. Jeffrey Lacker (Richmond) testified before the US House of Representatives Financial Services Subcommittee on Monetary Policy and Trade, in a hearing entitled “Federal Reserve Districts: Governance, Monetary Policy, and Economic Performance.” Addressing the appearance of conflicts of interest arising from the presence of bankers on Reserve Bank boards of directors, President George noted that the Federal Reserve Board in Washington, D.C. is ultimately responsible for bank supervision and that Reserve Bank directors do not participate of bank supervisory matters.  President Lacker noted that Reserve Bank directors have no formal role in crafting banking regulations.  Each president also addressed the structure of the Federal Reserve System in the context of the role played by monetary policy in the economy.

View Details regarding the hearing.

The G20 Leaders published the Communiqué from the Hangzhou Summit. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda, including, for example, finalization of Basel III by the end of 2016, full implementation of the OTC derivatives reforms and removing legal and regulatory obstacles to the reporting of OTC derivatives trades, developing effective cross-border resolution regimes and implementing the total loss absorbing capacity (TLAC) standard. The G20 Leaders also noted the importance of monitoring emerging systemic risks including those derived from shadow banking and asset management. For the continued protection of the global financial system, and with a focus on anti-money laundering, counter terrorism and tax evasion, the G20 have asked the Financial Action Task Force and the Global Forum to prepare initial proposals by October 2016 to improve implementation of transparency standards in the international financial system, including the collection of beneficial ownership information of legal persons and legal arrangements and international information sharing arrangements.

View the Communiqué.

The Federal Reserve Bank of New York named Michael Held executive vice president, head of the Legal Group and general counsel, effective August 15, 2016. He will also serve on the New York Fed’s Management Committee. As head of the Legal Group, Mr. Held will oversee the day-to-day operations of the group, which include Legal, Bank Applications, Compliance, the Corporate Secretary’s Office, Federal Reserve Law Enforcement Unit and Records Management.

View The New York Fed press release.

A Commission Implementing Regulation establishing a list of critical benchmarks used in financial markets under the Benchmark Regulation was published in the Official Journal of the European Union. The Benchmark Regulation provides for different categories of benchmarks depending on the risks involved, imposing additional requirements on benchmarks considered to be critical, including the power of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark. The Commission Implementing Regulation stipulates that the Euro Interbank Offered Rate is a critical benchmark on the basis that it is important for credit loans and mortgages in the EU. EURIBOR is the first benchmark to be listed. The Commission Implementing Regulation entered into force on August 13, 2016. For the most part, the Benchmark Regulation will apply from January 1, 2018. Certain provisions, giving powers to the European Securities and Markets Authority to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016.

View the Commission Implementing Regulation.

The OCC announced the selection of Peggy Sherry to be the agency’s Deputy Chief Financial Officer. In this role, Sherry will oversee the planning and execution of the agency’s annual operating budget and will be responsible for the oversight of the OCC’s financial systems, internal and financial controls program, travel policy and operations and agency records management functions as well as the OCC’s Office of Management’s compliance and strategic planning functions. She assumes these duties in September, succeeding Gary Crane, who is retiring.

View OCC press release.

The Federal Reserve Bank of New York announced that Denise Scott, executive vice president for programs at the Local Initiatives Support Corporation (LISC), has been appointed a Class C director of the New York Fed by the Federal Reserve Board. Starting August 1st, Scott will be filling the remainder of Dr. Marc Tessier-Lavigne’s term, which expires on December 31, 2016. Scott will be eligible for reappointment at that time.

View The New York Fed press release.

The US FDIC requested comments on updates to its guidelines for institutions to appeal certain material supervisory determinations, as well as comments on draft guidance regarding third-party lending. The two items are part of a package issued by the FDIC to improve the transparency and clarity of the FDIC’s supervisory policies and practices, and to ensure that institutions have clear and fair avenues to pursue when there are differences of opinion regarding supervisory matters.

Read more.
 

The US Federal Reserve Board, the FDIC and the OCC released the results of the Shared National Credit (SNC) review. The review showed that the level of adversely rated assets remained higher than in previous periods of economic expansion, raising the concern that future losses and problem loans could rise considerably in the next credit cycle. The elevated level of risk observed during the recent SNC examination stems from the high inherent risk in the leveraged loan portfolio and growing credit risk in the oil and gas portfolio.

Read more.

On July 25, 2016, the US Office of Financial Research issued its biannual update of the risks to US financial stability. The report finds that, overall, risks to US financial stability remain in the medium range but have been pushed higher by the UK vote to exit the EU. The OFR notes that, “[t]he result surprised financial markets and was a negative shock to investor confidence. It introduces months or years of uncertainty about the rules governing the UK’s investment, financing, and trade relations . . . . Because the UK economy and especially the UK financial system are highly connected with the rest of Europe and the United States, severe adverse outcomes in the UK could pose a risk to US financial stability.” The OFR report observes that the key vulnerabilities addressed in the OFR’s 2015 Financial Stability Report issued last December also persist, adding that: (i) credit risks in US nonfinancial businesses and in some major foreign markets are still elevated; (ii) long-term US interest rates have declined to ultra-low levels, which can motivate excessive risk-taking and borrowing, and many key foreign interest rates are now negative, with uncertain consequences for financial stability; and (iii) uneven resilience persists in the US financial system.

View The OFR Financial Stability Monitor.

The Financial Conduct Authority published the findings of its thematic review of the UK equity marketplace, focusing on dark pools and broker crossing networks. The FCA examined promotional activity and the identification and management of conflicts of interest by dark pool operators, as well as issues of governance, oversight and controls. The report is based on the definition of “dark pool” as a trading venue with no pre-trade transparency, such that all orders, prices and volumes are anonymous. 

Read more.

The CFPB announced that Chris D’Angelo was appointed to serve as the CFPB’s Associate Director for Supervision, Enforcement and Fair Lending, Nellisha Ramdass was appointed to serve as the CFPB’s Deputy Chief Operating Officer and Richard Lepley was appointed to serve as the CFPB’s Principal Deputy General Counsel in the Office of the General Counsel in the CFPB’s Legal Division.

View The CFPB press release.

The OCC released its Spring 2016 Semiannual Risk Perspective, reflecting bank financial data as of December 31, 2015. The report identifies credit, strategic, operational and compliance risks as top concerns from a safety-and-soundness perspective. Specifically, strategic risk remains high as banks struggle to execute their strategic plans and faces challenges in growing revenue, and credit risks have increased as banks search for yield in an environment of strong loan growth and easier underwriting standards. With respect to operational risk, greater cyber security threats and increased reliance on third-party service providers have caused operational risk to remain high. Further, as banks struggle to comply with new rules, such as the integrated mortgage disclosure requirements, and the mandates of the Bank Secrecy Act, compliance risk management also continues to pose challenges. Risk issues identified in the Spring 2016 report are largely consistent with those identified in the Fall 2015 Report.

View The OCC Semiannual Risk Perspective for Spring 2016.

The House of Representatives passed three bills aimed at combatting terrorist financing.

H.R. 5594, the “National Strategy for Combatting Terrorist, Underground, and Other Illicit Financing Act,” would require the President, acting through the Treasury Secretary, to develop and submit to Congress annually a national strategy to combat money laundering and terrorist financing and related report. The bill requires the Treasury Secretary to consult with various heads of state and the Federal banking agencies to develop and integrate this terrorist financing strategy into the broader counter-terrorism strategy of the US.

Read more.

The Financial Conduct Authority launched a call for input into its review of the implementation of its crowdfunding rules. The FCA implemented rules regulating FCA-authorized firms operating crowdfunding services on April 1, 2014 and committed to reviewing these rules in 2016. The FCA is seeking views on changes in the market since the rules were implemented, emerging risks for consumers, and areas where the FCA might consider adapting its rules. 

Read more.

The Federal Financial Institutions Examination Council approved revisions to the Consolidated Reports of Condition and Income (Call Report) that will take effect on September 30, 2016 and March 31, 2017. The revisions were proposed by the three US federal banking agencies in September 2015 (see FIL-39-2015, dated September 18, 2015), and included certain burden-reducing changes, a number of instructional clarifications and certain new and revised Call Report data items (e.g., a new item on “dually payable” deposits in foreign branches of US banks). After considering comments received on the proposal, FFIEC and the banking agencies are proceeding with most of the proposed reporting changes, with some modifications.

The Call Report revisions are part of an initiative launched by the FFIEC in December 2014 to identify potential opportunities to reduce burden associated with Call Report requirements for community banks, such as the costs arising from the Call Report preparation process.

View summary of the revisions.

The US Federal Reserve Board released its annual determination of the aggregate consolidated liabilities of financial companies as required by section 622 of the Dodd-Frank Act, which prohibits a financial company from combining with another company if the resulting company’s liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies.

Financial companies subject to the limit include insured depository institutions, bank holding companies, savings and loan holding companies, foreign banking organizations, companies that control insured depository institutions and nonbank financial companies designated for Federal Reserve Board supervision by the FSOC.

As of July 1, 2016, aggregate consolidated liabilities equal $21,786,571,865,000, which is the average of the year-end financial sector liabilities of the preceding two years and will be the measure of aggregate consolidated liabilities for purposes of section 622 of the Dodd-Frank Act for the time period from July 1, 2016 through June 30, 2017.

View Federal Reserve Board announcement.

The US FDIC finalized updates to its Frequently Asked Questions regarding identifying, accepting and reporting brokered deposits. In general, brokered deposits are treated less favorably than nonbrokered deposits for various supervisory purposes, including a prohibition on accepting such deposits if an insured depository institution’s capital falls below certain thresholds under the Prompt Corrective Action (PCA) framework.

In November 2015, the FDIC released for comment proposed updates to the FAQs that were originally issued in January 2015. After consideration of the comments received, the agency retained a majority of the proposed updates, with certain clarifications and the addition of new FAQs.

The FAQs are based on the statute, regulation and explanations of the requirements for identifying and accepting brokered deposits provided to the industry through published advisory opinions and the FDIC’s Study on Core Deposits and Brokered Deposits issued in July 2011, as well as on comments received since publication of the FAQs. The FAQs provide plain language information about categorizing brokered deposits.

Key updates since the FAQs were issued in January 2015 address matters related to: (i) business professionals and deposit referral programs; (ii) deposits gathered through “dual hatted,” “dual” and “call center” employees (as explained in the FAQs) or contractors; (iii) deposits underlying government-sponsored prepaid or debit card programs; (iv) whether certain non-maturity deposits are brokered; and (v) actions an insured depository institution should take if it holds certain brokered deposits and falls below “well capitalized” for PCA purposes.

View updated FAQs.

The European Commission published a report on the appropriateness of the inclusion of credit claims as collateral in the Financial Collateral Directive, including the appropriateness of the restriction on member states to require any formal act for the creation of or validity of such collateral unless the formal act was necessary for the purposes of perfection, priority, enforceability or admissibility in evidence against the debtor or third parties. The Commission assessed the laws that member states implemented across the EU and concluded that, although there is not full harmonization on implementation of the option, the option to include credit claims as collateral should not be removed from the Financial Collateral Directive without further work being undertaken to assess the related impacts. In addition, the Commission considers that action taken within the Capital Markets Union to remove barriers to cross-border clearing and settlement will likely improve the current uncertainty in cross-border exchange of collateral.

View the report.

The FSOC announced the rescission of its designation of GE Capital Global Holdings LLC (GE Capital) as a systemically important financial institution (SIFI). The FSOC unanimously decided that GE Capital no longer meets the standards for SIFI designation. Therefore, GE Capital will not be subject to enhanced prudential standards or supervision by the Board of Governors of the Federal Reserve System.

FSOC originally designated GE Capital as a SIFI in 2013 after identifying a number of key concerns, including the company’s reliance on short-term wholesale funding and its leading position in a number of funding markets. Since then, GE Capital made strategic changes to decrease its total assets by over 50%, reduce its interconnectedness with large financial institutions and have more stable funding. In order to become less systemically important, it has undergone a corporate reorganization, a series of divestitures and a transformation of its funding model.

View the public explanation of the basis for the FSOC’s rescission.

View FSOC press release.

The final EU Regulation on Benchmarks was published in the Official Journal of the European Union. The Benchmark Regulation has been introduced in response to the numerous instances of benchmark manipulation that have emerged in recent years. In addition, the Benchmark Regulation is intended to harmonize across the EU the rules that have implemented the International Organization of Securities Commissions Principles for Financial Benchmarks and Principles for Oil Price Reporting Agencies. 

The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third country entities, requirements for governance and control of administrators, provides for different categories of benchmarks depending on the risks involved and imposes additional requirements on benchmarks considered to be critical, powers of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.

Read more.

US Federal Reserve Board Governor Jerome Powell delivered remarks to the Chicago Council on Global Affairs, highlighting the impact of Brexit on the outlook for the US economy.

Governor Powell voiced concern that the Brexit vote has the potential to create new headwinds for economies around the world, including the United States. He noted that while it may be “far too early to judge the effects of the Brexit vote,” it will be important to assess implications for the US economy, and for the stance of policy to foster continued progress towards the objectives of maximum employment and price stability in the United States.

Governor Powell noted that for some time, the principal risks to the US labor market recovery and economic growth have been from abroad. Due to the high and continuously appreciating trade-weighted value of the US dollar, the economy inevitably “imports” trading partners’ weak economic performances and financial volatility. Powell stated that to successfully contain the impact of the British referendum, the Federal Reserve Board is “prepared to provide dollar liquidity through existing swap lines” with central banks to address pressures in global funding markets. Powell also noted that while financial conditions have “tightened” since the Brexit vote, markets have continued to function in an “orderly” manner and the US financial markets remain resilient.

View Governor Powell’s speech.

The US Supreme Court elected not to review a Second Circuit decision that found debt purchased from a national bank by a non-national bank entity to be subject to state usury laws.

Read more.
 

The OCC announced that Beverly F. Cole will become its Deputy Comptroller for Compliance Supervision. In this new role, Ms. Cole will serve as the operational executive responsible for developing and promulgating compliance operational protocols, examination strategies and schedules. She will oversee a staff implementing bank supervision policy for compliance and establish programs to ensure efficient bank supervision for compliance. She will report to the Senior Deputy Comptroller for Compliance and Community Affairs. She took on these duties in July 2016.

View The OCC press release.

The FSOC released its 6th annual report to Congress. The FSOC reports annually to Congress on a range of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States and the activities of the FSOC. The report also makes recommendations to promote market discipline, maintain investor confidence and enhance the integrity, efficiency, competitiveness and stability of US financial markets.

This year, in particular, the report focused on cyber security, as well as risks associated with asset management products and activities, capital and liquidity, central counterparties and reforms of wholesale funding markets. The report also made recommendations about promoting market discipline, maintaining investor confidence and enhancing the competitiveness and efficiency of the US financial markets.

View the Report.

Director of the US Office of Financial Research (OFR) Richard Berner spoke about financial resilience, including how to define, measure and monitor financial stability or resilience. He noted that resilience has two key aspects: the system’s shock-absorbing capacity and incentives that are aligned to limit excessive risk taking. He noted that the OFR has helped promote financial stability by developing tools to assess and monitor threats to financial resilience and improving the scope and quality of data to measure such threats, including, for example, the Financial Stability Monitor, a tool the OFR uses to measure macroeconomic, market, credit, funding and liquidity, and contagion risk. While in the OFR’s assessment, overall threats to financial stability remain at a moderate level, Berner highlighted macro risks (i.e., low growth rate and inflation), cybersecurity and credit risk as key areas of vulnerability. 

View the speech.

FDIC Chairman Martin Gruenberg provided remarks on the improvements to the US financial system and the economy as a result of the regulatory reforms that have been implemented since the financial crisis. He noted that there has been strong loan growth at US banks, and that it is outpacing GDP growth and other measures of household and business credit, suggesting that banks would be better positioned to extend credit in the event of economic distress.  Gruenberg further noted that bank earnings have improved since the financial crisis and that almost two-thirds of all institutions reported higher earnings in 2015 as compared to 2014, despite economic challenges that the industry has faced, suggesting an improvement in bank profitability. Despite changes in the way corporate and Treasury bond trading is conducted, Gruenberg suggested that post-crisis market liquidity for such bonds has not declined and that liquidity conditions are strong. Gruenberg insisted that bank loan growth suggests the relative importance of banks as the ultimate holder of the credit risk associated with loans despite the increase in nonbank lending activity. He stated that banks are better capitalized and better able to absorb losses, and thus that the financial system is more resilient and more stable than before the crisis.

View the speech.

The European Securities and Markets Authority published its 2015 annual report. The report reviews ESMA’s mission and objectives for 2015 and measures its achievements against its 2015 objectives.  The report also provides information on ESMA's operations, budget and structure. ESMA is charged with enhancing the protection of investors and promoting stable and orderly financial markets, with various roles under legislation such as EMIR and MiFID. The report states that ESMA has made significant steps in realizing its mission by assessing risks to investors, markets and financial stability, completing a single rulebook for EU financial markets, promoting supervisory convergence and supervising credit rating agencies and trade repositories.
 
View the report.

The European Commission published a proposal for a Regulation to provide funding for two financial expertise non-profit organizations: Finance Watch and Better Finance.  The Commission initiated at the end of 2011 a pilot project aimed at providing grants to support the development of a financial expertise center to the benefit of consumers and other end-users and to enhance their capacity to participate in EU financial services policy making. As part of these efforts, operating grants were awarded to Finance Watch and Better Finance. Finance Watch seeks to defend the interests of civil society in the financial sector and Better Finance focuses on the interests of consumers, individual investors and shareholders, savers and other end users in the financial sector. 
 

The US Securities and Exchange Commission approved a final rule, implementing a provision of the Fixing America’s Surface Transportation Act, amending Form 10-K disclosure requirements. The interim final rule allows Form 10-K filers to provide a summary of business and financial information contained in the annual report, provided that the summary also contains hyperlinks to the more detailed disclosure in the form. 
The SEC also requested comment on whether the interim rule should provide more guidance on the form and content of the summary as well as the applicability of the amended rule to other annual reporting forms. 

Comments on the interim final rule must be received on or before 30 days after publication in the Federal Register.
 
View the full text of the interim final rule.  

The European Securities and Markets Authority launched a consultation on its proposed technical advice to the European Commission on delegated acts due under the EU Benchmarks Regulation. ESMA consulted in February this year on its initial approach to the technical advice and the draft technical standards that it is required to prepare. The consultation on draft technical standards will be held separately in the second half of 2016. ESMA’s advice will cover: (i) certain definitions, including the definition of benchmarks and “use”; (ii) criteria for the identification of critical benchmarks; (iii) endorsement of a benchmark or family of benchmarks provided in a third country; (iv) the measurement of the use of critical and significant benchmarks; and (v) transitional provisions. 

Read more.

On May 27, 2016, the Financial Conduct Authority announced that Megan Butler had been appointed to the role of Director of Supervision for the Investment, Wholesale and Specialists team. Ms. Butler has been on secondment at the FCA from the Prudential Regulation Authority as Temporary Head of Supervision. Ms. Butler was previously Executive Director of the International Banks Directive at the PRA and has also worked at the Financial Services Authority and the London Stock Exchange.

View the FCA announcement.

The Bank for International Settlements published the Phase 1 materials for a global Code for the FX market. The Code is a set of principles providing common guidelines to promote the integrity and effectiveness of the global wholesale FX markets and has been prepared as a result of the recent spate of misconduct cases in the FX markets. The Code covers governance, risk management and compliance, ethics, information sharing, execution and confirmation and settlement processes. The final Code is expected to be published in May 2017. In the meantime, the authors hope that market participants will begin to embed the Code into their day-to-day activities. The Code does not impose any legal or regulatory obligations on market participants and is intended to supplement local laws, rules and regulations by identifying global good practices and processes.

View the Code.

View the update on adherence to the Code.

An Order was published implementing provisions in the Banking Act 2009, providing powers to HM Treasury to make regulations about financial collateral arrangements. The relevant provisions come into force on May 25, 2016.  Financial collateral arrangements are arrangements under which financial collateral is used as security in respect of a loan or other liability, such as cash and securities. The scope of regulation HM Treasury can make is not restricted purely to provisions required in order to implement the Financial Collateral Directive. This is presumably a prelude to restating the Financial Collateral Arrangements (No. 2) Regulations 2003 in light of recent Supreme Court decision, The United States of America v Nolan, expressing doubt as to its enforceability owing to such regulations arguably going beyond EU laws in some respect and therefore not being made validly under the European Communities Act 1972. The relevant provisions of the Banking Act provide that HM Treasury can make any provision it deems necessary or desirable for the purpose of enabling financial collateral arrangements, whether or not with an international element, to be commercially useful and effective. The regulations may in particular make provision for the enforcement of financial collateral arrangements, and includes matters relating to the rule of law about formalities or evidence, insolvency, administration and receivership. 

View the Order.

View the Supreme Court Decision. 

The Office of the Comptroller of the Currency issued a bulletin to highlight actions that national banks and federal savings associations should take and factors that banks should consider based on the US Securities and Exchange Commission's revised money market fund rules. Although these rules directly apply only to MMFs, the rules indirectly affect: (i) banks that make MMFs available to their customers through their fiduciary and custody activities; (ii) bank programs that automatically sweep funds between deposit accounts and MMFs; and (iii) banks that invest in MMFs. The MMF rules were revised in 2010 and again in 2014, and the 2014 rules are currently being phased in with a final compliance date of October 14, 2016.

The bulletin describes how the SEC's MMF rules are likely to affect banks and addresses the product and process changes that affected banks should consider. The bulletin also highlights how banks that are involved in any of these activities will likely be affected by compliance, liquidity, operational and strategic risks related to the SEC's revised rules.

View the OCC bulletin.

The International Organization of Securities Commissions announced that Mr. Ashley Alder had been appointed as the new Chair of the IOSCO board. Mr. Adler replaces Mr. Greg Medcraft, who has been chair for three years. Mr. Jean-Paul Servais will succeed Mr. Alder in his current position of Vice Chair.  Mr. Alder is also the Chief Executive Officer of the Securities and Futures Commission (SFC) Hong Kong.

View the announcement.

The SEC approved amendments to revise the rules related to the thresholds for registration, termination of registration and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. These amendments implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act (FAST Act). 

To implement the JOBS Act, the SEC proposed amendments to Exchange Act Rules 12g-1 through 4 and 12h-3 to reflect the new thresholds. The SEC also proposed to establish thresholds for savings and loan holding companies consistent with those for bank holding companies, as well as to revise the definition of “held of record” in Exchange Act Rule 12g5-1. 

Subsequent to the SEC’s proposed amendments, the FAST Act revised the thresholds for savings and loan holding companies and the statutory changes were effective upon enactment of the Act. The final rules will become effective 30 days after publication in the Federal Register.

View the SEC press release. 

View the final rule. 

The European Commission announced that it would not, at this stage, be proposing legislation to regulate crowdfunding. The Commission pledged to report on whether crowdfunding should become regulated at EU-level as part of its Capital Markets Union Action Plan. The CMU aims, amongst other things, to broaden funding sources for small and medium sized enterprises as crowdfunding has become an important source for such funding. The European Commission has assessed national regimes and best practice across the EU and found that the crowdfunding sector is currently fairly small and is concentrated locally. Some Member States have implemented local rules to regulate the sector. However, the European Commission found that the outcomes are generally aligned and that national regimes aim to protect investors whilst allowing the development of this source of funding. However, the Commission noted that the sector is changing rapidly so it will continue to monitor the sector and assess whether regulation is required in the future to harmonize the approaches taken across the EU and ensure investor protection. 

View the Commission’s press release.

View the Commission’s report.

The Financial Conduct Authority, in its capacity as securities listing authority, published a report on proposed changes to improve the UK’s wholesale debt listing regime.  The report comes following an initiative launched by the FCA, the UK Debt Market Forum, where a series of meetings were held stakeholder groups of the UK primary debt capital markets. The purpose of the Forum was to seek expert feedback to assist the FCA in developing practical measures to increase the effectiveness of the UK’s primary listed debt markets without negatively impacting current standards. The report outlines proposed measures that the FCA has implemented following the feedback received. The FCA has proposed an extension of its “Wholesale Debt Approach”.
 

The SEC released a plan for a proposed national market system that would create a single database, the Consolidated Audit Trail, to track all US activity in the equity and options markets. The establishment of the CAT will allow regulators to be better positioned to identify and investigate market misconduct, and will increase the effectiveness of market research and monitoring. The CAT would be conducted through a Delaware limited liability company that the self-regulatory organizations would own jointly, and participating self-regulatory organizations and the SEC would have access to the data in the CAT for regulatory and oversight purposes. The plan sets out the record keeping and reporting information that SROs and broker-dealers would be required to submit at various stages in the lifecycle of an order or transaction. Public comments on the plan are due within 60 days of the plan’s publication in the Federal Register.
 

Jennifer Shasky Calvery announced that she will step down as Director of the US Treasury Department’s Financial Crimes Enforcement Network at the end of May. She has served as FinCEN Director since September 2012. FinCEN has not announced her successor.

The European Commission published a status report on progress made since the adoption of the Capital Markets Union Action Plan. The European Commission's Action Plan, published in September 2015, set out the steps for the medium and long term in five priority areas: (i) providing more funding choices to EU businesses; (ii) ensuring an appropriate regulatory framework for long term investment and financing of Europe's infrastructure; (iii) increasing investment and choices for retail and institutional investors; (iv) improving bank lending capacity; and (v) removing cross-border barriers and developing more harmonized capital markets for all Member States. The Commission's Status Report details the actions taken to date, the key steps planned for the rest of 2016 and measures that will be delivered in 2017-18. 

View the Status Report.

View the Action Plan. 

The Financial Conduct Authority published a consultation paper on its proposed rules and guidance for the secondary annuity market due to start in April 2017. The consultation is aimed at parties interested in pensions and retirement issues, including providers and distributors of annuities, retirement income and planning products, sponsors of occupational Defined Benefit and Defined Contribution Schemes and firms providing advice in this area. The consultation discusses how consumers will be able to sell their annuity incomes on the secondary market. The changes proposed will primarily affect consumers who hold or will hold annuities in their name and contingent beneficiaries with an interest in such annuities.  

HM Treasury published a consultation paper on the UK Government’s proposed secondary market due to be introduced in April 2017. The market would extend the recently introduced pension freedoms and flexibilities to individuals, who retired prior to April 2015. In December 2015, the Government announced that tax changes would come into effect from April 2017 which would allow individuals to receive all of the proceeds following the sale of an annuity as a taxable lump sum, arrange for the buyer to pay all of the proceeds into a flexi-access drawdown fund, or arrange for the proceeds to be used to buy a new ‘flexible’ annuity. The consultation invites comment on the draft secondary legislation which creates (i) new specified activities for firms intending to purchase annuities or act as intermediaries in the secondary market; and (ii) a new specified activity for annuity providers who are intending to buy back annuities that have been issued. The consultation also discusses proposed amendments to the Appointed Representative Regulations which would exempt appointed representatives, acting under the responsibility of an authorized principal, from needing regulatory authorization to act as intermediaries in the secondary market and to buy back annuities. The consultation also proposes amendments to the By Way of Business Order to make clear that those buying rights to annuity income streams will be subject to the requirements to be authorized or exempt under the Financial Services and Markets Act 2000 and the Regulated Activities Order. HM Treasury stated that regulation of the specified secondary market activities will enhance the Financial Conduct Authority’s supervisory oversight in this area. Responses to the consultation are due by June 2, 2016. 

View the consultation paper. 

The Federal Reserve Board named Matthew J. Eichner as the director of its Division of Reserve Bank Operations and Payment Systems, effective May 1, 2016. Eichner has served as deputy director of the division since January 2015.

The Financial Conduct Authority published an Occasional Paper which assesses whether high frequency traders, on a systematic basis, foresee when trading orders are going to arrive at different trading venues and trade in advance of other traders by using their speed to their advantage. The FCA used a novel dataset with full order-book data on 120 stocks traded on lit venues in the UK in 2013. The results show that HFTs cannot systematically trade ahead of other market participants at a millisecond frequency but that HFTs are able to anticipate order flow over longer time periods (seconds and tens of seconds). However, it is uncertain whether HFTs are able to react quicker to new information due to their lower latency, or are able to better anticipate order flow (because, for example, other market participants are predictable when placing orders).

View the Occasional Paper.

Federal Reserve Board Governor Lael Brainard, in a speech given at the Institute of International Finance Blockchain Roundtable, discussed the key challenges involved in the use of distributed ledger technologies in payment, clearing and settlement. In her comments, Governor Brainard discussed some key concerns inherent in distributed ledger technologies, including the challenge of balancing confidentiality and security of firm and client records with the effort to effectively manage access to transaction records for faster and more efficient clearance and settlement, and stressed the importance of fully understanding how different distributed ledger technologies interoperate with each other and with legacy systems.

View the full text of Governor Brainard’s speech.

The Financial Conduct Authority published its interim report on the investment and corporate banking market study, which includes proposed remedies to the deficiencies identified. The FCA proposals include removing the practice of banks using contractual clauses to restrict client choice, reducing barriers to entry for non-universal banks without undermining the efficiency benefits of cross-selling and improving the credibility of league tables for investment and corporate banking. The FCA also intends to investigate further whether individual banks whether there are any issues in conflicts management in the allocation of Initial Public Offerings. 

A form of information statement for usage by collateral takers was jointly published by five industry associations.  This is aimed at facilitating compliance with disclosure requirements under the European Union's Securities Financing Transaction Regulation. The relevant industry associations are the Association for Financial Markets in Europe, the International Capital Market Association, the International Swaps and Derivatives Association and the International Securities Lending Association. The SFTR will affect all existing and future title transfer and security collateral arrangements from July 13, 2016 and require disclosure to collateral providers where a collateral taker uses title transfer or has a right of use, with respect to a security financing transaction, such as a repo or margin loan. The purpose of the statement is to outline the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding title transfer arrangements.
 
View the information statement. 

The Financial Conduct Authority announced that acting Chief Executive Officer, Tracey McDermott, would leave the regulator on July 1, 2016. Andrew Bailey, currently Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive Officer of the Prudential Regulation Authority, will take up the position of CEO of the FCA from July 1, 2016. 

View the FCA's announcement.

Sam Woods was appointed Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority. Mr. Woods will succeed Andrew Bailey on July 1, 2016.  Mr. Bailey will move to the Financial Conduct Authority as Chief Executive when Mr. Woods takes on the role of Deputy Governor. Mr. Woods, who previously worked for HM Treasury and in the private sector for Diageo and McKinsey & Company, will take up a renewable term of five years as Deputy Governor.  

View the press release.