The European Commission published a proposed Regulation which would amend the Capital Requirements Regulation with regards to exemptions for commodity dealers. The CRR currently exempts commodity dealers from large exposures requirements and own fund requirements until December 31, 2017. That date was set on the basis that the Commission would have conducted a review of the prudential regime applicable to commodity dealers and to investment firms by the end of 2015 and, if appropriate, proposed a legislative regime adapted for the risks profile of commodity dealers and investment firms. The Commissions' review is still in progress. The Commission is therefore proposing that the CRR exemptions are extended until December 31, 2020 to allow time for work in this area to be completed and to avoid the need for relevant firms to temporarily comply with the full CRR requirements in 2018 before being subsequently moved to a tailored regime within two to three years.

View the proposed Regulation.

The Prudential Regulation Authority and the Financial Conduct Authority published their Policy Statements and final rules on the application of the UK Senior Managers and Certification regimes and new Conduct Rules to UK branches of EEA and non-EEA banks and PRA-designated investment firms. The PRA also published a related updated Supervisory Statement. Both of the regulators published near-final rules in August this year, pending legislation being adopted by Parliament which would formally extend the SM&CR to UK branches of such firms. That legislation has now come into force, allowing the regulators to publish their final rules. The PRA's final rules are the same as those published in August except for some minor corrections. The FCA's final rules for UK branches of EEA firms remain unchanged. The rules for UK branches of non-EEA firms have been amended following concerns about the wide extraterritorial reach of the FCA's proposed approach. The FCA will only apply the Certification regime and the Conduct Rules to individuals who perform significant harm functions for branches to individuals who are based in the UK. UK clients will no longer automatically be within scope. The FCA intends to keep the territorial scope of its rules under review and may amend the rules in the future if it considers it necessary to meet its objectives (although not before commencement of the regime in March 2016). The FCA has also confirmed that, in line with legislation, EEA firms that accept deposits or deal in investments as principal under a passport and which have a UK branch are caught by the SM&CR even if the firm undertakes deposit-taking a services passport and other (non-deposit-taking) activities through an establishment passport (i.e. if the UK branch does not undertake deposit-taking or proprietary trading).

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HM Treasury published the Payment Account Regulations together with an explanatory memorandum. The Regulations implement the Payment Accounts Directive which sets common standards for payment service providers across EU Member States. The three main policy objectives of the PAD are: (i) to improve transparency and comparability of payment account fees used on a daily basis for payment transactions (i.e. personal current accounts); (ii) to make it less burdensome for consumers to be able to move their current account from one payment service provider to another; and (iii) to ensure that EU residents have access to banking services and that a sufficient number of accounts that offer basic features are available. The new Regulations cover: (i) the obligations on payment service providers to enable consumers to make informed choices when choosing a payment account; (ii) non-discrimination in the provision of and access to payments accounts; and (iii) switching payments accounts and the facilitation of cross-border account opening for consumers. The Regulations will enter into force on September 18, 2016 except for those provisions related to the obligation of the Financial Conduct Authority to publish a list of the most representative services linked to a payment account and subject to a fee which will come into effect six months after the publication of that list.

View the Regulations.

The European Commission published a report on the appropriateness of an extension of the exemption from the Market Abuse Regulation to certain public bodies and central banks of third countries. MAR exempts Member States, members of the European System of Central Banks, ministries and other agencies and special purpose vehicles of one or more Member States or persons acting on their behalf from the application of MAR to transactions, orders or behaviour that are undertaken in pursuit of monetary, exchange rate or public debt management policies. The Commission may extend that exemption to certain public bodies and central banks of third countries after assessing and reporting to the European Parliament and European Council on the appropriateness of such an extension. The Commission intends to extend the exemption under MAR to central banks and debt management offices of Australia, Brazil, Canada, Hong Kong SAR, India, Japan, Mexico, Singapore, South Korea, Switzerland, Turkey and the United States and to the central bank of China.

View the report.

The International Swaps and Derivatives Association, Inc., the Managed Funds Association and the Asset Management Group of the Securities Industry and Financial Markets Association announced that 25 buy-side firms had voluntarily committed to clearing their single-name credit default swap trades through central counterparties. Clearing of such trades will be the priority with existing positions being migrated over time. The firms are: AB, Anchorage Capital Group, Apollo Global Management, LLC, AQR Capital Management, LLC, BlackRock Inc., BlueMountain Capital Management, LLC, Brigade Capital Management, Citadel LLC, Claren Road Asset Management, LLC, Cyrus Capital Partners, LP, DCI, LLC., DW Partners, LP, Eaton Vance Management, Field Street Capital Management, LLC, Gracie Asset Management, Hutchin Hill Capital LP, Kingdon Capital Management, LLC, Marathon Asset Management, LP, MKP Capital Management, LLC, Och-Ziff Capital Management Group, PIMCO, Pine River Capital Management, Saba Capital Management, L.P., UBS O’Connor LLC and Zais Group, LLC.

View the announcement.

The Regulation setting out Implementing Technical Standards for currencies with constraints on the availability of liquid assets under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR sets out a Liquidity Coverage Requirement which requires firms to hold liquid assets to maintain adequate levels of liquidity buffers to face any possible imbalances between liquidity inflows and outflows. The CRR allows firms to apply derogations where justified needs for liquid assets exist owing to the Liquidity Coverage Requirement, which exceed the availability of those liquid assets in certain currencies. The Regulation identifies the Norwegian Krone as a currency with constraints on the availability of liquid assets. The Regulation enters into force on January 5, 2016.

View the Regulation.

The UK Chancellor of the Exchequer, George Osborne, announced that Dame Clara Furse and Richard Sharp had been re-appointed as external members to the Financial Policy Committee at the Bank of England. Their terms of appointment will now run until March 31, 2019.

View the announcement.

The European Banking Authority published final Guidelines on requirements for banks and certain investment firms to have sufficient information about, and to set limits on, their individual and aggregate exposure to shadow banking entities which carry out certain banking-like activities, such as lending, outside a regulated framework. The EBA is mandated to produce the Guidelines under the Capital Requirements Regulation which limits the exposure a firm can have to a single client or group of connected clients (more generally known as limits to large exposures). In order to prepare the Guidelines, the EBA collected data from 148 EU firms on their exposures to shadow banking entities, the results of which are published in a separate report. Both the Report and the Guidelines will help inform the European Commission's report on the appropriateness and impact of imposing such limits, which may be accompanied by a legislative proposal. The EBA Guidelines will apply from January 1, 2017.

View the Guidelines.

View the EBA's report.

The Financial Conduct Authority published proposals for implementing certain aspects of the revised Markets in Financial Instruments Directive, which together with the Markets in Financial Instruments Regulation is known as MiFID II. The revised MiFID must be transposed into the national laws of Member States whereas MiFIR is directly applicable across the EU. MiFID II is currently due to apply from January 3, 2017 although there have been discussions between the European authorities about possibly delaying this date. On the existing timeline, Member States must transpose the revised MiFID into their national laws by July 3, 2016.

Read more.

The Payment Systems Regulator published its first annual report on access and governance of payment systems. The report sets out the progress of operators of designated payment systems in achieving more open and flexible direct access to payment systems and making the governance of payment system operators more inclusive and transparent. The report states that operators could do more to enable access for smaller banks and non-bank payment service providers and must ensure that the views of those that rely on payment systems are represented in the decision making of operators. The PSR also reports that progress has been made so far on clearer and fairer requirements for direct access, transparency of payment system operator decisions and better representation of payment systems' users' views.

View the report.

The European Banking Authority launched a consultation on proposed draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the proposed draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. The proposed draft RTS are consistent with the RTS on the conditions for assessing materiality of extensions and changes to use market internal models, adopted by the European Commission in June 2015. Comments are due by March 13, 2016.

View the consultation paper.

The European Securities and Markets Authority appointed Mr. Giuseppe Vegas as chair of its Market Integrity Standing Committee for a period of two years, starting on December 10, 2015.
 
View the press release.

The European Securities and Markets Authority published a consultation paper on a review of the Regulatory Technical Standards for CCPs on the time horizons for the liquidation period for margin held by CCPs for exchange-traded derivatives. The RTS currently specify a two-day time horizon as the liquidation period used in the time horizons for margin calculations, across all CCP accounts for exchange-traded products.  The original RTS use this two-day liquidation period but based on net margin models, where offsetting positions of different customers cancel one another out. A key economic difference has been noted between the US and EU regimes for CCP margins, in that the US only requires a one day liquidation period but is calculated on a gross basis across all customer positions. A degree of harmonization of the two regimes is proposed to assist the EU in adopting a long-awaited equivalence decision for US CCPs under EMIR, with proposed adoption of the alternative of a “one day gross” model for European CCP customer accounts. The two-day standard for clearing members' house accounts and the five-day liquidation period for OTC products would be retained. The consultation follows on from ESMA's discussion paper published in August 2015. Comments are due by February 1, 2016.
 
View the consultation paper.

The Federal Reserve Board published a final rule to revise certain elements of its “Banking Organization Systemic Risk Report” (Form FR Y‑15) that will become effective as of December 31, 2015. However, the new requirement to file the form on a quarterly basis has been extended until June 30, 2016, and the effective date of the new requirements for reporting short‑term wholesale funding (Schedule G) has been extended to December 31, 2016. While the preamble to the final rule notes that reporting requirements for Intermediate Holding Companies that foreign banking organizations are required to designate or establish under Dodd‑Frank Act Section 165 have not yet been proposed, under current requirements IHCs with a US bank subsidiary and $50 billion or more in total consolidated assets would be required to file the FR Y‑15 beginning with the next filing date following its establishment. Commenters requested an extension for IHCs, but the Federal Reserve Board indicated it would invite comment on this issue when reporting requirements for IHCs are proposed.

On December 2, 2015, the Federal Reserve Board proposed certain new line items to its “Annual Report of Foreign Banking Organizations” (Form FR Y‑7) to collect information from foreign banking organizations required to comply with the enhanced prudential standards for foreign banking organizations prescribed by Section 165 of the Dodd‑Frank Act. 

View the The final rule for Form FR Y‑15.

View the proposed revisions to Form FR Y‑7. 

​The US Securities and Exchange Commission issued a proposed rule for public comment that would limit the use of derivatives and require new risk management measures by registered investment companies, including mutual funds, exchange-traded funds, closed-end funds, and business development companies. The proposed rule would require a fund to comply with one of two portfolio limitations, that would cap the amount of leverage a fund may obtain  from derivatives and other specified transactions. Specifically, the rule would limit a fund’s aggregate derivatives exposure to 150 percent of the fund’s net assets, or up to 300 percent of the fund’s net assets provided that the fund satisfies a risk-based test based on value-at-risk. A formal derivatives risk management program overseen by a designated derivatives risk manager would be required if a fund engages in more than the limited amount of derivatives transactions or if it uses complex derivatives. In addition, a fund would have to manage the risks related to their use of derivatives by segregating certain assets, generally cash and cash equivalents, in an amount sufficient to ensure that the fund meets its obligations. Funds would also be required to segregate certain assets to cover its obligations related to certain financial commitment transactions, such as reverse repurchase agreements and short sales. The proposed rule will be open for public comment for 90 days following its publication in the Federal Register.

View the SEC press release.

View the proposed rule.

The European Banking Authority published a consultation paper on draft Regulatory Technical Standards on the framework for cooperation and exchange of information between national regulators for passporting under the revised Payment Services Directive (known as PSD2). The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The RTS aim to ensure that: (i) information about those entities that carry out business in EU Member States is exchanged between national regulators in a consistent way; (ii) there is clarity for payment institutions about their regulatory requirements; and (iii) the information that is to be shared between national regulators is specified. Comments are due by March 11, 2016.
 
View the consultation paper.

The Bank of England published proposals on its approach to setting a Minimum Requirement for own funds and Eligible Liabilities (known as MREL).  This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the Bank Recovery and Resolution Directive and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL.  MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. 

Read more.

The Implementing Regulation on the extension of the transitional periods for own funds requirements for exposures to CPPs as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. The Implementing Regulation extends the transitional period for regulatory capital requirements for EU banks’ exposures to CCPs from December 15, 2015 to June 15, 2016. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. This is linked to the current consultation on margin holding period for exchange-traded derivatives, published by ESMA on December 14, 2015, which should result in technical standards paving the way for recognition in the new year.  The provision aims to minimize disruption to financial markets and to prevent institutions from being penalized through higher own funds requirements during the processes of authorization and recognition of existing CCPs. The Implementing Regulation comes into effect on December 12, 2015.
 
View the Regulation.
 
View ESMA's consultation on margin holding period. 

The International Organization of Securities Commissions published its third survey on hedge funds. The survey gathers information received from hedge fund managers on trading activities, leverage, funding and the hedge fund market generally, capturing data from around 1,500 funds. The findings of the survey include that: (i) the hedge fund industry is mainly based in the US, is largely US dollar based and principally invested in North American assets; (ii) hedge funds across all jurisdictions with the exception of Japan use financial leverage; and (iii) a large proportion of direct investments are made by institutional investors and the remaining share is led by funds of funds. The survey also states that assets that are managed by hedge funds appear to be growing at a rate of 34% since the last survey was published in 2013 and that the Cayman Islands hold a larger number of new funds and remain the tax domicile of choice. The hedge fund survey assembles data from regulatory returns on hedge fund activities and aims to facilitate IOSCO to gain insight into the global hedge fund industry, encourage global cooperation on the risks arising in the hedge fund sector and creating a forum for the consideration of any potential regulatory requirements where necessary. The study is the only such exercise that is carried out on a global level.
 
View the report.

The European Banking Authority published a consultation paper on draft Guidelines for the collection of information for the Internal Capital Adequacy Assessment Process and the Internal Liquidity Adequacy Assessment Process under the Capital Requirements Directive. The consultation forms part of the Supervisory Review and Evaluation Process and follows on from the criteria and methodologies specified in the EBA Guidelines on common procedures and methodologies for SREP. The Guidelines aim to facilitate the assessment of ICAAP and ILAAP as well as to create a consistent approach to the ICAAP and ILAAP frameworks and to the assessment of reliability of the own capital and liquidity estimates of financial institutions. The draft Guidelines set out, amongst other things, the general criteria for national regulators for the collection of ICAAP and ILAAP information from institutions and will be finalized following the completion of the consultation. The Guidelines are expected to apply from June 30, 2016. Comments are due by March 11, 2016.
 
View the consultation paper.

A Commission Delegated Regulation, in the form of Regulatory Technical Standards, was published setting out criteria for the assessment of intra-group transactions and risk concentrations under the EU Financial Conglomerates Directive. The RTS provide national regulators and coordinators with criteria for assessing whether intra-group transactions and risk concentrations are significant and provide for more harmonized reporting of information by financial conglomerates. The Financial Conglomerates Directive provides for the supplementary prudential supervision on a group-wide basis of groups including banks, insurance undertakings and investment firms which are part of a financial conglomerate which provide services and products in different sectors of the financial markets. The Directive covers, amongst other things, the solvency position and risk concentration at the level of the conglomerate, intra-group transactions, internal risk management processes at conglomerate level and regulations on the fit and proper character of the conglomerate's management.
 
View the Delegated Regulation.

The European Securities and Markets Authority launched a consultation on revised Regulatory Technical Standards on data access and operational standards for comparison and aggregation of data under the European Market Infrastructure Regulation. ESMA is proposing to revise the existing RTS to take into account both practical developments and international developments.  It will also address certain structural deficiencies in data access which have resulted in an inability of regulators to perform adequate systemic risk assessments.  Particular targets of concern are low quality data, limited capabilities for data querying and for access to large datasets, difficulties in aggregating and comparing data across trade repositories due to lack of standardization and difficulties in obtaining real direct and immediate access to trade repository data. ESMA is therefore proposing: (i) common provisions for operational standards for aggregation and comparison of data; (ii) common output formats; and (iii) common provisions for operational standards for access to data and data exchange procedures between trade repositories and national regulators. The consultation closes on February 1, 2016.

View the consultation paper.

The European Securities and Markets Authority published further final draft Implementing Technical Standards due under the revised Markets in Financial Instruments Directive, or MiFID II. The ITS cover: (i) cooperation arrangements between national regulators for supervision of a trading venue of substantial importance in a host and home Member State; (ii) the format and timing of the communications and the publication of the suspension and removal of financial instruments from trading on a regulated market, a multilateral trading facility or an organized trading facility; (iii) notification or provision of information for application for authorization of data reporting service providers; (iv) format of the reports of position reports by position holders; (v) format and timing of weekly position reports; (vi) cooperation between national regulators in supervisory activities, on-site verifications, and investigations and for the exchange of information; (vii) consultation of other national regulators prior to granting an authorization for certain types of investment firms; and (viii) submission of information on sanctions and measures. The final draft ITS have been sent to the European Commission for endorsement.
 
View the final draft ITS.

The Prudential Regulation Authority published its proposed approach setting regulatory buffers in light of a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) requirement as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. MREL is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. The proposals are relevant to PRA-regulated banks, building societies and PRA-designated investment firms. The PRA-proposed approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's approach is in line with the Financial Stability Board's TLAC standards. The proposals should be read in conjunction with the Bank of England's consultation on setting MREL. Responses to the PRA's consultation are due by March 11, 2016.
 
View the PRA's consultation paper.
 
View the BoE's consultation paper.
 
View the FSB's TLAC term sheet. 

The Bank of England published its Statement of Policy and feedback to its consultation on its proposed approach to exercising its power to direct firms to address impediments to resolvability. As the UK resolution authority, the BoE must, in preparing the resolution plan for a firm, assess the resolvability of a firm. If any substantive impediments are identified during that assessment or otherwise, the BoE has the power to require the firm to remove any such obstacle, including requiring the amendment of a group financial support agreement, the disposal of certain assets or a change to its legal or operational structure. The BoE's power of direction applies to UK incorporated and authorized banks, building societies and PRA-designated investment firms, any UK incorporated parents of those firms that are financial holding companies and to UK incorporated and authorized subsidiaries of such firms. The final Statement of Policy sets out the BoE's approach to and process for using the power of direction and includes illustrative examples of scenarios in which the BoE may consider exercising its power of direction.
 
View the Statement of Policy and responses to the consultation.

The Prudential Regulation Authority published an addendum to its October 2015 consultation paper proposing the creation of a new framework that would require firms to ensure operational continuity of shared services that are considered critical to the economy in the event of failure of a firm, recovery action, resolution or post-resolution restructuring. The PRA released its initial proposals in October 2015, stating that the exact scope of firms that would be subject to the proposed rules would be set once the Bank of England had completed its calibration work for setting a Minimum Requirement for own funds and Eligible Liabilities (known as MREL, which is the European equivalent of Total Loss Absorbing Capacity or TLAC). The BoE published its MREL proposals on December 11, 2015. The PRA proposes that banks, investment firms and building societies meeting the following criteria on January 1 of any year, would be subject to the new rules on operational continuity if: (i) the firm's total assets averaged over the previous 36 months exceeds £10 billion; (ii) the total value of safe custody assets the firm holds averaged over the previous 36 months exceeds £10 billion; or (iii) the total value of sight deposits (i.e. able to be withdrawn immediately, without notice) the firm holds averaged over the previous 36 months exceeds £350 million. The consultation closes on March 11, 2016. The PRA intends to publish its Policy Statement, final rules and supervisory rules in mid-2016. The new rules would apply from January 1, 2019.
 
View the October consultation and Addendum consultation papers. 

The European Banking Authority published an Opinion and Report on cooperation and information sharing between EU and non-EU national regulators, as required under the Capital Requirements Directive. The EBA identifies areas of improvement and proposes legislative changes to encourage better prudential supervision of international banks and investment firms. The Opinion states that there is a need for more clarity in the equivalence assessment processes of non-EU supervisory and regulatory regimes, confidentiality regimes within and outside supervisory colleges as well as in the supervision of institutions on a consolidated basis. The EBA states that the establishment of clear instructions on equivalence assessments in the CRD and Capital Requirements Regulation would facilitate coordinated and consistent equivalent assessments. The EBA also proposes, amongst other things, to align the CRD with the Bank Recovery and Resolution Directive so that specific references to the status of "observers" are provided for non-EU national regulators that participate in supervisory colleges.

View the Opinion and Report.

The Basel Committee on Banking Supervision published a second consultation on revisions to the Standardized Approach for credit risk. The consultation seeks to address concerns raised during the first consultation which proposed that references to external ratings for exposures to banks and corporates be removed and that those exposures should be assigned risk weights based on two risk drivers. The Basel Committee is therefore proposing that different approaches should be adopted, depending on whether a jurisdiction prohibits the use of external ratings for regulatory purposes. For exposures to banks: (i) in jurisdictions that allow the use of ratings for regulatory purposes, ratings would be the primary source to determine risk weights for rated exposures, subject to due diligence requirements; and (ii) in jurisdictions that do not allow the use of ratings for regulatory purposes and for unrated exposures in all jurisdictions, exposures would be classified into three different buckets, subject to certain criteria being met. The Basel Committee is also proposing revised approaches for exposures to corporates, secured by real estate, multilateral development banks, retail and defaulted exposures and off-balance sheet items. Responses to the consultation are due by March 11, 2016.
 
View the consultation.

The Financial Conduct Authority published its thematic review on flows of confidential and inside information, presenting the results of an evaluation into how a sample of investment banks manage the confidential and inside information that they receive and generate. The review outlines good and poor practices mainly in the Debt Capital Markets and Mergers & Acquisitions departments of small to medium investment firms and is aimed at all FCA-regulated firms, to assist them in considering how efficient their procedures, systems and controls are. The review is aimed at senior managers as well as front office staff and all staff that make up the first, second and third lines of defense at UK firms that are FCA-regulated. Ultimate responsibility however remains with senior management and the FCA expects senior managers to be aware of their obligations and of the risks of handling confidential and inside information in an inappropriate way. The review states that all UK FCA-regulated firms should ensure that their arrangements are fit for purpose so that they meet the standards of the review, and make suitable improvements where necessary. These arrangements should be consistently reviewed from both a market abuse and conduct of business viewpoint, taking into account any new risks that may arise due to external factors such as market practices or macroeconomic issues.
 
View the review.

The Board of Supervisors of the European Banking Authority elected its Alternate Chairperson and members of its Management Board. Mr. Pedro Duarte Neves has been elected Alternate Chairperson of the EBA Board of Supervisors and Mr. Andrzej Reich has been elected Management Board member. Both were re-elected for a second term. Mr. Édouard Fernández-Bollo and Mr. David Rozumek have been elected as new members of the EBA Management Board.
 
View the press release.

The European Banking Authority published a revised list of validation rules for submitting supervisory reporting data. The rules detail the standards and formats that are to be used for submissions of data by national regulators under the Capital Requirements Directive IV. The revised list displays the rules that have been deactivated due to technical issues or incorrectness.
 
View the revised list.

The European Commission announced that it had formally requested 10 EU countries to fully implement the EU Deposit Guarantee Schemes Directive which was due to be implemented into national law by July 3, 2015. The countries - Belgium, Cyprus, Estonia, Greece, Italy, Luxembourg, Poland, Romania, Slovenia and Sweden - must implement the DGSD within two months. If any of these countries fails to do so, the Commission may refer them to the Court of Justice of the EU. In October, the European Commission referred the Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden to the Court of Justice of the EU for failing to transpose the Bank Recovery and Resolution Directive into national legislation in time.

View the press release.

​
The Director of FinCEN, Jennifer Shasky Calvery, delivered a speech regarding FinCEN’s efforts to gather financial intelligence data and mitigate cyber threats. Director Calvery discussed methods by which FinCEN gathers data through its Bank Secrecy Act reporting stream and then uses such data to combat cyber threats. She also discussed FinCEN’s recent analytical enhancements and efforts to work alongside foreign Financial Intelligence Units in order to identify information that could be helpful in preventing cyber incidents. Finally, she stressed the importance of information sharing among law enforcement, the private sector, government and international counterparts to recognize and cope with threats to the financial system.

View the speech.

The Financial Conduct Authority published a report on the outcomes of its thematic review of the suitability of retail investment portfolios provided by wealth management and private banking firms. The aim of the review was to assess whether the relevant firms had taken steps to address concerns that had been highlighted to them during previous thematic reviews. The FCA review concluded that: (i) some firms have taken steps to improve and demonstrate the suitability of customer investment portfolios; (ii) firms still need to make substantial improvements in gathering, recording and regularly updating customer information; (iii) firms need to take steps to ensure that the composition of the portfolios they manage reflect the investment needs and risk appetites of their customers, in particular those customers with a limited capacity for capital loss or that do not want to be exposed to such risks; and (iv) firms must ensure that their governance, monitoring and assessment frameworks meet the regulatory requirements on suitability. The FCA expects firms, in particular senior managers, to assess their own processes and practices and to take any necessary action.

View the report.

The European Banking Authority published a comparative report on recovery plan scenarios used by firms across the EU. The EBA aims to provide national regulators and firms with an overview of developments in recovery plan scenarios as well as identify best practices and areas where improvement is needed. Under the EU Bank Recovery and Resolution Directive, banks must prepare recovery plans which include a range of scenarios of severe macroeconomic and financial stress relevant to a bank's specific conditions. The recovery plan must be assessed and approved by a banks relevant national regulator. The EBA's analysis is that while some banks' recovery plans comply with the requirements of the BRRD and the secondary legislation and guidelines, other do not. The EBA identifies key areas for improvement, including: (i) recovery plans should make clear the relevance of each scenario to the individual bank; (ii) the scenario and its impacts need to be explained so that the severity of the scenario is clear; (iii) the recovery plans should depict events as a sequence, not as point-in-time, so that a complete assessment of the recovery capacity of a firm can be made; and (iv) the link between a scenario and its indicators and options must be apparent so that an assessment of the adequacy of the framework of indicators and the recovery capacity is possible.

View the report.

The Financial Conduct Authority published its Policy Statement setting out guidance on how it intends to enforce the new individual accountability rules under the Senior Managers Regime, the Certification Regime and the new Conduct Rules. The FCA's guidance, which will apply from March 7, 2016 when the new rules come into force, amends the Enforcement Guide and the Decision Procedure and Penalties Manual. The Policy Statement includes the FCA's feedback to responses to its proposed guidance, including a confirmation that the FCA does not intend to add any additional guidance on the types of conduct it would consider as falling far below what would reasonably be expected of a senior manager when assessing whether to bring criminal proceedings against an individual alleging that his decision caused a firm to fail or to refer the matter to another prosecuting authority. The FCA considers that the FCA Handbook already contains enough guidance on the standards expected of senior managers. The FCA guidance does not include guidance on the presumption of responsibility for senior managers because the FCA intends to wait for the outcome of the Parliamentary debate on whether to approve the Government's proposal to replace the presumption of responsibility with a duty of responsibility.

View the guidance.

View our client note on the Government's proposals.

​The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight and Division of Market Oversight issued a no-action letter extending relief previously issued in CFTC Staff Letter No. 14-147. CFTC Staff Letter No. 14-147, which was set to expire on December 31, 2015, provides that commodity trading advisers that are registered with the CFTC, and are members of designated contract markets or swap execution facilities, are not required to record oral communications under CFTC Rule 1.35(a). In addition, the no-action letter exempts market participants covered by Regulation 1.35 from having to link records of oral and written communications that lead to the execution of a transaction with any particular transaction. The extended relief will continue until the effective date of any CFTC action with respect to the CFTC’s pending proposal to amend Rule 1.35(a).

View CFTC Staff Letter No. 14-147.

The Chairman of the FDIC, Martin J. Gruenberg and the Comptroller of the Currency, Thomas J. Curry, testified before the Committee on Financial Services in the US House of Representatives on the progress achieved by the US Financial Stability Oversight Council in fulfilling its mandate. Both Chairman Gruenberg and Comptroller Curry discussed the actions taken by the FSOC toward (i) identifying risks to financial stability arising from entities designated as systemically important financial institutions; and (ii) identifying and addressing systemic risk in the US financial system. On the issue of SIFI designation, both Chairman Gruenberg and Comptroller Curry noted the final rule and guidance issued by the FSOC, setting forth the formal process used by the FSOC in making such a determination. Comptroller Curry noted further the final rule and interpretive guidance issued by the FSOC for identifying and designating systemically important financial market utilities.

On the issue of identifying and addressing systemic risk, Chairman Gruenberg pointed to the FSOC Annual Reports, which provides the basis for analysis of potential emerging risks to US financial stability.

View the full text of Chairman Gruenberg’s testimony.

View the full text of Comptroller Curry’s written testimony.

The European Banking Authority published a discussion paper on strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2), which is expected to enter into force in January 2016 and apply from January 2018. Under PSD2, the EBA must deliver Regulatory Technical Standards on strong customer authentication and secure communication by January 2017. The aims of these standards are to enhance consumer protection, promote innovation and improve the security of payment services across the EU. The draft RTS, once developed in conjunction with the European Central Bank, will set out: (i) the requirements for strong customer authentication; (ii) the exemptions from these requirements; (iii) measures that would protect security credentials of users; (iv) requirements for communications that are common and secure; and (v) security measures between the various types of providers in the payments sector. Comments are due by February 8, 2016.

View the consultation paper.

The UK Payment Systems Regulator issued a press release on the provisional determination of card schemes that are subject to domestic interchange fee caps in the UK under the EU Regulation on Interchange Fees for Card-Based Payment Transactions. The IFR introduces caps on interchange fees for debit and credit card transactions where the issuer and acquirer are both located in the EEA. The caps became applicable on December 9, 2015. The IFR  applies to the following payment card schemes: MasterCard, Visa Europe, American Express, Diners Club International, JCB International and Union Pay International. Following the responses to the PSR's information request published in November 2015 on the value of UK domestic debit and credit card transactions, and the possibility of American Express potentially qualifying for an exemption from the interchange fee caps on domestic transactions, the PSR's provisional conclusion is that the market share of American Express is above the 3% threshold and American Express and any payment service providers participating in the American Express Scheme must comply with the interchange fee caps for UK domestic transactions. The PSR will issue its final guidance as well as an announcement to specify the schemes that will be exempt from the domestic interchange fee caps for the period to 31 March 2016 at an unspecified later date.

View the press release.

HM Treasury published a consultation on the implementation of the Central Securities Depositories Regulation. The CSDR introduces common standards for settlements across the EU, such as the harmonization of the rules governing central securities depositories which operate the infrastructures enabling settlement, and the timing of securities settlement in the EU. The consultation seeks views on proposed changes to domestic legislation so that provisions of domestic law which overlap with the CSDR are disapplied and changes and enforcement powers are provided for. The CSDR will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities. Certain provisions will only apply from the date of entry into force of any delegated acts adopted by the Commission under the CSDR.
 
View the consultation.

The European Banking Authority published Draft Implementing Technical Standards amending the Implementing Regulation on the supervisory reporting of institutions with regard to financial reporting (known as FINREP). This follows on from the changes made to the International Accounting Standards that were issued in July 2014. The new standards supersede the reporting standard for financial instruments in force in the EU since 2005 and change the way that financial instruments are accounted for. The changes require significant amendments to the FINREP reporting templates and instructions. The new standards will apply to: (i) banks that are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards; (ii) banks that are required to use the IFRS for the determination of own funds; and (iii) certain investment firms. Comments are due by March 8, 2016.
 
View the consultation and related documents.

The Prudential Regulation Authority published a policy statement on the implementation of the UK's Leverage Ratio Framework, providing feedback to responses to its previous consultation paper. The Financial Policy Committee directed the PRA, on July 1, 2015, to implement a UK LRF applying: (i) a minimum leverage requirement of 3% to major UK banks and building societies on a consolidated basis; (ii) a supplementary Leverage Ratio Buffer of 35%; and (iii) a countercyclical LRB of 35% of a firm’s institution-specific countercyclical capital buffer rate.  The PRA’s policy statement applies to PRA-regulated banks and building societies with retail deposits of £50 billion or more. The PRA is implementing the FPC's requirements as proposed, except that it is extending its proposed transition period for daily averaged leveraged ratio requirements by 12 months, ending on December 31, 2017, while maintaining the 12 month transitional period for implementing the daily averaging reporting requirement. This would allow firms additional time to improve the comparability and accuracy of averaged numbers without compromising the monitoring of the UK leverage framework. The PRA has also published supervisory statements on the UK leverage ratio, instructions for completing data items and on the capital requirements for major UK banks and building societies.
 
View the policy statement and supervisory statements.

The Financial Stability Board published a progress report from the Enhanced Disclosure Task Force on the implementation of the EDTF's recommendations for enhancing risk disclosures of banks. The report, which covers 40 global or domestic systemically important banks, includes updates based on 2014 annual reports as well as self-assessments by banks and assessments made by users of financial disclosures. The report states that the self-assessments provided by banks show disclosure of 82% of the information recommended by the EDTF. This represents an increase of 7% from the previous year. The report also states that there are still significant opportunities for banks to improve credit risk disclosures and that credit risk disclosures vary significantly across different countries, with UK banks having the highest implementation rates.
 
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The European Union Agency for Network and Information Security published a report on the secure use of cloud computing in the finance sector. ENISA makes recommendations to financial institutions, national regulators as well as cloud service providers that aim to facilitate the secure adoption of cloud services in the finance sector. According to ENISA, the following are key issues that are hampering the adoption of cloud services by financial institutions: (i) financial institutions and their national regulators are unconvinced about the security benefits of cloud computing even though security is considered very important by CSPs and risk assessments have been carried out by various expert bodies, including ENISA; (ii) lack of detailed guidance on the relevance of national regulations for cloud computing; and (iii) guidance from national regulators on meeting regulatory requirements when adopting cloud computing needs to be further developed. ENISA makes several recommendations, including: (i) national regulators, financial institutions and CSPs should develop effective communication and collaboration to assist the cloud market to evolve quicker; (ii) financial institutions should develop a cloud computing strategy, adopting a risk-based approach to moving to the cloud; (iii) CSPs should work to increase the level of transparency about cloud offerings for financial institutions and their regulators; and (iv) the European Commission, European Agencies and industry bodies should work together to improve the understanding of cloud computing.

View the report.

The US Board of Governors of the Federal Reserve System issued a final rule clarifying the application of the revised capital framework, originally issued in June 2013, to depository institution holding companies that are organized as non-stock entities, such as limited liability companies and partnerships. The final rule illustrates how capital instruments that are issued by firms that are not organized as traditional stock corporations may qualify as regulatory capital under the revised regulatory capital framework. The final rule, which is substantively similar to the proposed rule issued in December 2014, goes into effect January 1, 2016.

Separately, the final rule notes the Federal Reserve Board’s intention to issue separate regulatory capital rules to clarify how (i) depository institution holding companies that are employee stock ownership plans and (ii) savings and loan holding companies that are personal or family trusts, rather than business trusts, in each case, will be treated under the capital rules.

View the text of the final rule.

The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published a discussion paper on automation in financial advice. The paper addresses the various ways in which consumers can use automated tools, mainly websites, without human intervention to receive financial guidance. The discussion paper aims to assess what regulatory or supervisory action may be required to mitigate the risks associated with automation whilst still being able to harness its potential benefits. Potential benefits of automation are a decrease in the costs of providing advice, provision of more consistent advice and potentially wider market access for consumers. However, the potential risks include consumers possibly misunderstanding advice provided to them through automated tools, consumers receiving unsuitable advice and the potential for errors in automated tools. The discussion paper seeks views on the ESAs observations on automation in financial advice across EU jurisdictions. Comments on the discussion paper are due by March 4, 2016.
 
View the discussion paper.

US Federal Reserve Board Vice Chairman, Stanley Fischer, delivered remarks at the “Financial Stability: Policy Analysis and Data Needs” 2015 Financial Stability Conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. In his speech, Mr. Fischer discussed vulnerabilities of the US financial system and risks posed by shadow banking. While he praised steps taken by banking regulators to strengthen financial stability generally, including requirements for more and higher-quality capital and other loss-absorbing capacity for banks, liquidity buffers and stress testing for banks, new margin requirements for uncleared derivatives transactions, mandated clearing of certain derivatives to central counterparties, and the designation of systemically important nonbank financial institutions, Mr. Fischer still believes that regulators’ views of developments in the shadow banking sector remain incomplete. Mr. Fischer noted that the lack of data available regarding nonbank financial institutions can impair the development of regulations in this sector and thereby pose a threat to the financial system. He calls for policymakers to improve data collection efforts and focus on modeling interconnectedness between shadow banking, banks and the larger financial system in order to better understand the interdependencies between the banking system and nonbank financial institutions.

View Mr. Fischer’s speech.

The US Office of the Comptroller of the Currency issued updated guidance regarding its risk assessment system. Specifically, the updated guidance (i) clarifies the relationship between the RAS and CAMELS; (ii) revises the definition of banking risk in order to apply across all risk categories, and broadens the concept of risk to include potential impacts from losses, reduced earning, and market value of equity; (iii) expands the “quality of risk management” assessment to include a new category of “insufficient” between satisfactory and weak in order to better categorize and communicate concerns; and (iv) expands the assessment of strategic and reputation risks to include both quantity of risk and quality of risk management.

View the text of the OCC press release.

The Payment Systems Regulator published a consultation paper on the application of the Interchange Fee Regulation in the UK. The European Regulation which was published in the Official Journal of the European Union on May 19, 2015 is directly applicable in the UK. The Regulation introduces caps on interchange fees on debit and credit card transactions where the issuer and acquirer are both located in the EEA. The consultation, which will be conducted in two phases, seeks views on how the monitoring of compliance with the IFR provisions should be approached. The PSR has therefore published draft guidance alongside the consultation paper, setting out the proposed approach to the provisions of the IFR that come into force on December 9, 2015. The second phase of the consultation will follow in due course and will cover the remaining provisions that come into force on June 9, 2016. Comments on the consultation paper are due by January 29, 2016.
 
View the consultation paper.
 
View the draft guidance.