The European Securities and Markets Authority published a peer review report on the implementation by national regulators of the Committee of European Securities Regulators' Guidelines on a common definition of European Money Market Funds. The Guidelines specify a common definition of MMFs and establish a list of criteria that funds need to comply with should they wish to be categorized as a "Money Market Fund". The Guidelines aim to improve investor protection and apply both to: (i) collective investment undertakings subject to the Undertakings for the Collective Investment of Transferable Securities Directive; and (ii) non-harmonized collective investment undertakings regulated by the national laws of a Member State, which is supervised and complies with risk-spreading rules. The peer review follows the initial peer review published in April 2013 which identified that numerous regulators had at that time failed to implement the Guidelines. This second review updates the first review and covers 8 out of 30 countries which at the time of the previous review had not fully or in part implemented the guidelines. The 8 countries are Bulgaria, the Czech Republic, Hungary, Liechtenstein, Lithuania, Latvia, Malta and Portugal. The review states that the guidelines are or are about to be fully applied in all these jurisdictions apart from Hungary, where some failings have been identified. 
 
View the Guidelines.
 
View the 2013 peer review report.
 
View the 2016 peer review report.

The European Securities and Markets Authority published a discussion paper on the proposed EU Benchmarks Regulation and its technical implementation. ESMA is seeking views on initial proposals it intends to make in the form of draft Regulatory Technical Standards and Technical Advice. This follows on from the European Commission's mandate sent to ESMA on February 11, 2016, requesting technical advice on potential delegated acts on the Benchmark Regulation. The areas on which ESMA is seeking views include: (i) the definition of benchmarks; (ii) what constitutes administering arrangements for determining a benchmark, taking into account different existing business practices; (iii) what constitutes the issuance of a financial instrument for the purposes of defining the use of a benchmark; (iv) the measurement for the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds for a benchmark within a combination of benchmarks relating to the assessment of benchmarks; and (v) transparency requirements for benchmark methodology. The exact entry into force of the Benchmark Regulation is still unknown, though it is expected to enter into force in June 2016. ESMA has been asked to provide its technical advice four months after the Regulation enters into force. Currently, the Regulation and delegated acts are expected to apply 18 months after the Regulation enters into force. ESMA aims to analyze the responses to the discussion paper before July 2016 and to publish a consultation paper later this year. Comments on the discussion paper are due by March 31, 2016.

View the discussion paper.

The European Banking Authority published final draft Implementing Technical Standards on the mapping of assessments by Credit Rating Agencies for securitization positions under the Capital Requirements Regulation. The CRR establishes that the risk weights under the standardized and internal ratings based approach for securitization positions should be based, if applicable, on the credit quality of the positions. This credit quality is determined by reference to the credit ratings of CRAs. The draft ITS determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to External Credit Assessment Institutions' ratings issued on securitizations. The mapping is backed by the results of an impact analysis as well as quantitative considerations. A securitization-specific systematic mapping methodology is also being considered by the EBA and this would be based on the historical performance of securitization ratings. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions’ capital requirements.
 
View the final draft ITS.

The Prudential Regulation Authority and Financial Conduct Authority jointly published a Policy Statement on the implementation of the Senior Manager and Certification Regimes, Senior Insurance Managers Regime and the requirements of the PRA on regulatory references. The Policy Statement, amongst other things, sets out a first set of PRA rules on the provision of regulatory references by firms under the SM&CR and SIMR, i.e., employment references passed between firms when an individual moves roles. These PRA rules are set out in Appendix 1 of the Policy Statement and will apply from March 7, 2016. The rules are largely a continuation of the existing requirements under the Approved Persons Regime and should be read and applied together with the FCA's equivalent requirements. The FCA's Policy Statement was published on February 4, 2016 and sets out the feedback received on the PRA and FCA's joint consultation on regulatory references. A second set of rules are expected to be published at a later date and will cover the areas on which feedback received by the PRA is still under consideration.
 
View the PRA and FCA's Policy Statement.
 
View the FCA's Policy Statement.

The European Banking Authority published its final Guidelines relating to cooperation agreements between Deposit Guarantee Schemes in accordance with the EU Deposit Schemes Directive. The Guidelines provide the minimum content for cooperation agreements between DGSs. The EBA has also provided a multilateral framework cooperation agreement in an attempt to minimize the need for numerous detailed bilateral agreements to be executed between multiple DGSs. The framework offers scope for DGSs to enter multilateral and bilateral agreements with more detailed terms than those provided for in the Guidelines, if necessary. The Guidelines stipulate minimum specifications to be included in cooperation agreements, including the means for: (i) repayment of depositors by the host DGS at branches of banks established in other Member States; (ii) the transfer of contributions from one DGS to another where a bank ceases to be a member of a DGS and joins another DGS; and (iii) mutual lending between DGSs. The EBA has attempted to cater for depositors in EU branches of firms headquartered in other Member States, so that they are treated in a similar fashion to depositors in home Member States by providing direction on the sequence and timing of events when the host DGS pays out depositors on behalf of the home DGS. The Guidelines will come into effect six months after their publication in all official EU languages.

View the Guidelines.

The Commission Implementing Regulation on the disclosure of leverage ratios by financial institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The Regulation provides that firms must disclose relevant information concerning leverage ratios in the form of an approved template. Firms will be under an obligation to disclose a breakdown of the leverage ratio total exposure measure, a reconciliation of the leverage ratio for a firm's published financial statements and qualitative information on the risk of excessive leverage and the factors impacting the leverage ratio. The Regulation applies directly across the EU from February 16, 2016.

View the Regulation.

The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight provided no-action relief clarifying that the exemption from registration in Rule 3.10(c)(3) for persons located outside the United States who act as Introducing Brokers, Commodity Trading Advisors or Commodity Pool Operators on behalf of persons located outside of the United States is available in connection with swaps that are not submitted for clearing if such swaps are not subject to a CFTC clearing requirement.

View the CFTC no-action letter.
 

The US Office of the Comptroller of the Currency issued two revised booklets of the Comptroller’s Handbook: the “Country Risk Management” booklet and the “Installment Lending” booklet. Each revised booklet updates and replaces the previous versions of the respective booklets. The “Installment Lending” booklet provides updated guidance to examiners regarding the administration of installment lending practices and the controls and processes necessary to manage the risks associated with those practices as well as updated guidance for assessing the quantity of risk associated with installment lending activities.

The “Country Risk Management” booklet provides updated guidance to examiners regarding country risk management, based on lessons learned from the financial crisis of 2008 as well as the European banking and debt crises. The booklet also updates descriptions of the risks associated with international activities and contains a more detailed discussion of the effects of country risk, cross-border risk and sovereign risk on the OCC’s 8 risk categories (credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation).

View the “Installment Lending” booklet.

View the “Country Risk Management” booklet. 

 

The Southwark Crown Court ordered Mr. Alex Hope and Mr. Raj Von Badlo to return around £2.9 million to investors who were defrauded by a collective scheme that Mr. Hope established and operated without regulatory authorization to do so. The Court made a confiscation order against Mr. Hope, pursuant to the Proceeds of Crime Act 2002, for an amount of £166,696. Mr. Hope's co-defendant, Mr. Von Badlo, was also subject to a confiscation order made at a hearing on December 18, 2015, in which he was ordered to pay £99,819. The Orders follow a prosecution by the Financial Conduct Authority.  The scheme, which was closed down by the FCA in April 2012, had a significant impact on over 100 investors. Mr. Hope had represented himself as a talented and skilful trader however he only actually traded around 12% of the total money his investors had given him and spent the majority of his investors' funds on himself. Mr. Hope was found guilty of fraud for operating an investment scheme without authorization in September 2015. Mr. Badlo pleaded guilty in July last year to recklessly making false representations to investors and promoting a collective investment scheme without authorization. Both individuals were sentenced to seven and two years’ imprisonment respectively in January 2015. Failure by Mr. Hope or Mr. Von Badlo to comply with the Court’s orders could result in their current prison sentences being extended.

View the FCA’s press release.

The European Commission published a joint statement following a meeting that took place on February 3, 2016 between the participants of the US-EU Financial Market Regulatory Dialogue. The group met to discuss key regulatory topics including recent developments in bank capital and liquidity measures, bank resolution, cross-border bank supervision, CCP resolution, derivatives reforms and benchmarks reforms. Amongst other things, US and EU participants outlined the progress made on: (i) the common approach on requirements for central clearing counterparties and the equivalence of US trading platforms under the EU Markets in Financial Instruments framework; (ii) the proposed European Benchmark reform; and (iii) resolution frameworks for CCPs. The participants included representatives from the European Commission, European Central Bank, US Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and the Securities and Exchange Commission. The next meeting will be taking place in Brussels in July 2016.
 
View the joint statement.

The US Board of Governors of the Federal Reserve System announced that, as part of the transfer of certain consumer protection rulewriting authority to the US Consumer Financial Protection Bureau under the Dodd–Frank Act, the Federal Reserve Board was repealing Regulation AA (Unfair or Deceptive Acts or Practices). Among other things, Regulation AA contained the Federal Reserve Board’s “credit practices rule,” which prohibited banks from engaging in certain practices to enforce consumer credit obligations and from including these practices in consumer credit contracts. Separately, the Federal Reserve Board announced the proposal to repeal Regulation C (Home Mortgage Disclosure), which has been superseded by CFPB rules.

View the Federal Reserve Board press release.

View the text of the final rule repealing Regulation AA.

View the text of the proposed rule to repeal Regulation C.
 

The European Commission asked the European Securities and Markets Authority for technical advice on potential delegated acts due under the proposed European Benchmark Regulation. The proposed Benchmark Regulation aims to ensure that benchmarks produced and used in the EU are robust, reliable, fit for purpose and free from manipulation. The Commission's mandate requests technical advice from ESMA on matters including: (i) what constitutes administering arrangements for determining a benchmark, taking into account different existing business practices; (ii) what constitutes the issuance of a financial instrument for the purposes of defining the use of a benchmark; and (iii) the conditions under which a national regulator may decide that there is an objective reason for the provision of a benchmark or family of benchmarks in a third country. In response to the Commission's request, ESMA published a discussion paper on the Regulation and its technical implementation. The proposed Regulation is expected to enter into force in June 2016. ESMA has been asked to provide its technical advice four months after the Regulation's entry into force. Currently, the Benchmark Regulation and delegated acts are expected to apply 18 months after the Regulation enters into force.
 
View the Commission's request for technical advice.
 
View the Commission's covering letter to ESMA.
 
View ESMA's discussion paper.

The Bank of England, Prudential Regulation Authority and Financial Conduct Authority jointly published a consultation paper on how complaints about them are reported and responded to. The regulators operate a Complaints Scheme that investigates complaints against them. The scheme has recently been revised. The revisions require the Complaints Commissioner, which is the investigator of complaints against the regulators, to produce an annual report on such investigations and send a copy of the report to the regulators as well as the Treasury. If the Complaints Commissioner makes recommendations or criticisms about the handling of a complaint against a regulator, the regulator must respond to such recommendations or criticisms and send its response to both the Complaints Commissioner and Treasury. The Regulators are seeking views on the proposed revisions to the Complaints Scheme, following the legislative amendments. The regulators are also obliged to review the operation of the scheme after three years, which may lead to a further consultation in 2016. Responses to the consultation are due by March 8, 2016.
 
View the consultation paper.

The US Securities and Exchange Commission adopted rules applicable to non-US firms engaging in cross-border security-based swap activities.  Under the final rules, a non-US company that arranges, negotiates or executes a security-based swap transaction in connection with its dealing activity using personnel located in a US branch or office must count that transaction when determining eligibility for the de minimis exception to the security-based swap dealer registration requirement. A non-US firm must include such transactions in its de minimis threshold calculation together with security-based swap transactions connected with its dealing activity where its counterparty is a US person. Compliance with the rules is not required until the latest of either 12 months following publication in the Federal Register or the “SBS Entity Counting Date,” as specified in the SEC’s SBS Entity Registration adopting release.

View the SEC press release. 

View the final rules. 

Janet Yellen, the Chair of the US Board of Governors of the Federal Reserve System submitted before Congress the Federal Reserve Board’s semiannual Monetary Policy Report. In her remarks, Chair Yellen discussed the current economic situation and outlook of the US economy since July 2015, including strong gains in the job market along with continued moderate expansion in economic activity. Chair Yellen further discussed monetary policy and emphasized that the Federal Open Market Committee continues to monitor the federal funds rate, but anticipates that economic conditions will warrant only gradual increases in the federal funds rate.

VIew Chair Yellen’s testimony. 
 

The European Commissioner for Financial Stability, Financial Services and Capital Markets Union and the US Commodity Futures Trading Commission jointly announced the adoption of a common approach regarding requirements for transatlantic central clearing counterparties. The common approach is intended to resolve an impasse that had prevented recognition of US CCPs under EMIR. Under the common approach, the European Commission is expected to determine that CFTC regulation of central counterparties is equivalent to EU requirements, subject to certain conditions. The CFTC is also expected to propose a determination of comparability with respect to certain EU requirements in order to permit EU CCPs that are or seek to be registered as derivatives clearing organizations to comply with such EU requirements in lieu of US requirements. The CFTC staff also committed to streamlining the registration process for EU CCPs wishing to register with the CFTC. In statements, CFTC Chairman Timothy Massad and Commissioner Jonathan Hill applauded the adoption of the common approach as an important step toward stable and uniform regulation of the global derivatives market.

View the Shearman & Sterling publication on the common approach. 

View the statement of CFTC Chairman Timothy Massad regarding the common approach.

View the statement of Commissioner J. Christopher Giancarlo regarding the common approach. 
 

Stanley Fischer, the Vice Chairman of the US Board of Governors of the Federal Reserve System gave a speech at a conference sponsored by the Committee on Capital Markets Regulation discussing the function of the Federal Reserve as a lender of last resort in the United States. In his remarks, Vice Chairman Fischer noted that, despite recent developments that have placed limitations on the Federal Reserve’s actions as a lender of last resort, the Federal Reserve, when necessary and appropriate, has the authority to act as lender of last resort in several ways. Vice Chairman Fischer noted that the Federal Reserve retains the power to extend discount window loans, either to individual institutions or more generally in order to address broader financial stresses, to insured depository institutions, including commercial banks, thrift institutions, credit unions, or US branches and agencies of foreign banks.  Further, the Federal Reserve is also permitted, with the approval of the Secretary of the Treasury, to lend to non-bank institutions through the use of broad-based facilities to provide liquidity to financial markets.

View the text of Vice Chairman Fischer's speech.
 

The European Commission and US Commodity Futures Trading Commission announced they had reached agreement on a common approach to requirements for central clearing counterparties. The Commission is expected to adopt an equivalence decision affirming that the CFTC requirements for US CCPs are equivalent to those under the European Market Infrastructure Regulation. US CCPs recognised under EMIR will be able to continue to provide services in the EU whilst complying with CFTC requirements, although this will likely be subject to US CCP compliance with certain aspects of EU rules on collateral calculations.

Read more.

The European Commission proposed a one-year extension to the effective date of the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation, collectively known as MiFID II. The proposal, if approved, would mean that national regulators would have an additional year to comply with MiFID II. The new effective date would be January 3, 2018 instead of January 3, 2017.

Read more.

The Financial Conduct Authority issued a Call for Input on its approach to the current payment services regime further to the revised Payment Services Directive (known as PSD2) which is to be transposed into national law by January 2018. PSD2 will affect the way payments services providers (such as banks, building societies and money transmission firms) are regulated. The FCA expects to revise certain sections of its Handbook in light of the revised directive and is seeking views on whether any issues exist that should be addressed when the updates are made. Responses to the Call for Input are due by March 23, 2016.
 
View the Call for Input.

The Federal Deposit Insurance Corporation released the economic scenarios for use by certain covered financial institutions in the 2016 stress tests required under the Dodd-Frank Act. Generally, those financial institutions with total consolidated assets of more than $10 billion are required to conduct stress tests. The released scenarios include key variables that reflect economic activity, such as unemployment, exchange rates, prices, income, interest rates and other economic and financial factors. The FDIC coordinated with the Federal Reserve Board and the OCC, which released the scenarios in late January, in developing and distributing the scenarios. 

View FDIC stress test scenarios.
 

The European Banking Authority published its Opinion expressing its disagreement with certain of the European Commission's proposed amendments to the final draft Regulatory Technical Standards on the criteria for setting the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL is the European equivalent of US TLAC. The EBA submitted the draft RTS to the Commission in July 2015. The Commission proposed a number of amendments in December 2015. The EBA disagrees on, amongst other things: (i) the removal of the reference to a minimum contribution to loss absorption and recapitalization of 8% of total liabilities and own funds; (ii) the removal of the test for downward adjustments to the recapitalization amount and peer group reference for systemic institutions; and (iii) the removal of the upper limit (48 months) on the transitional compliance period, instead making reference to a transitional period that is "as short as possible". The EBA has resubmitted a further revision of the draft RTS to the Commission as an Annex to the Opinion.
 
View the Opinion.

The Treasury Select Committee published three of the Financial Conduct Authority's internal audit reports dated October 2014. The Treasury Committee, on behalf of Parliament, has committed to scrutinize the FCA more rigorously since the financial crisis. In 2014, the Committee decided that its scrutiny would also extend to reviewing the FCA’s internal audit reports, to ensure that the audit reports are of a reasonable standard. The Treasury Committee published the FCA's audit reports from the first half of 2014 in October 2015. The latest audit reports are on: (i) the identification, handling and management of market sensitive information; (ii) the FCA’s incident response and crisis management capability; and (iii) the design and effectiveness of the FCA’s external communications strategy. Whilst the Treasury Committee is of the view that the FCA's processes are improving overall, it believes that there is still work to be done.
 
View the Treasury's February 2016 press release.
 
View the Treasury's October 2015 press release.

The Financial Conduct Authority published a Policy Statement on Fair, Reasonable and Non-Discriminatory access to regulated benchmarks, setting out the feedback it received to its consultation last year. The Policy Statement includes the FCA's final rules which affect the administrators of eight regulated benchmarks: the ICE London Inter Bank Offered Rate (ICE LIBOR), the Sterling Overnight Index Average (SONIA), the Repurchase Overnight Index Average (RONIA), the WM/Reuters London 4pm Closing Spot Rate, the ICE Swap Rate, the LBMA Gold Price, the LBMA Silver Price and the ICE Brent Index. The rules go beyond the general competition powers of the FCA and include specific requirements on benchmark administrators in relation to access. The FCA rules are changed from those in the initial consultation in being limited to users that are exchanges, clearing houses and multilateral trading facilities, consistent with EU regulations, in particular the Markets in Financial Instruments Regulation (which is due to apply from January 3, 2017). The FCA's final rules enter into force on April 1, 2016.
 
View the Policy Statement.

The US Board of Governors of the Federal Reserve System published a notice of proposed rulemaking to collect financial information from US intermediate holding companies of foreign banking organizations. The proposal would require all IHCs to commence reporting of the FR Y 9C (Consolidated Financial Statements for Holding Companies), FR Y 9LP (Parent Company Only Financial Statements for Large Holding Companies), FR Y 11 (Financial Statements of US Nonbank Subsidiaries of US Holding Companies), FR 2314 (Financial Statements of Foreign Subsidiaries of US Banking Organizations), FR Y 12 (Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies) and FR Y 15 (Banking Organization Systemic Risk Report) as of September 30, 2016, reporting of the FR Y 14A/M/Q (Capital Assessments and Stress Testing), FR Y 6 (Annual Report of Holding Companies) and FR Y 9ES (Financial Statements for Employee Stock Ownership Plan Holding Companies) as of December 31, 2016, and Reg Y 13 (Recordkeeping and Reporting Requirements Associated with Regulation Y (Capital Plans)) as of January 1, 2017. The notice of proposed rulemaking is open for comments until April 5, 2016.

View the final draft ITS.  
 

The European Securities and Markets Authority published a report providing an overview of its 2015 supervisory work relating to Credit Rating Agencies and Trade Repositories and setting out its workplan for 2016. ESMA's focus for 2016 includes: (i) improving the quality of credit ratings; (ii) improving trade repository quality data and data access; (iii) improving CRA governance and strategy; (iv) devoting resources to its enforcement work where it is aware of facts that may be infringing regulatory requirements; and (v) enhancing international cooperation with third country supervisors.
 
View the report.

The European Securities and Markets Authority published translations of its Guidelines for complex debt instruments and structured deposits under the Markets in Financial Instruments Directive II. MiFID II allows investment firms, under certain circumstances only, to provide clients with investment services that consist of execution, reception and transmission of orders only (known as execution-only orders), without the investment firm having to obtain any relevant client information to assess whether the service or product provided is appropriate for a particular client. Such products must be non-complex. ESMA's Guidelines identify those complex products for which execution-only services may not be provided, setting out a non-exhaustive list of examples of such products. National regulators have two months to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
 
View the Guidelines.

The European Banking Authority published an Opinion on the implementation of the regulatory review of the Internal Ratings-Based approach to calculating risk-weighted exposure amounts for credit risk. The Opinion sets out the general principles and timelines for implementation and aims to provide clarity for national regulators and relevant firms. The EBA has also published a report on the future of the IRB approach. Both the Opinion and Report aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms as well as identify the main drivers of variability in the implementation of IRB models. The IRB framework will be made up of Regulatory Technical Standards and Guidelines which will be introduced in 2016 and 2017 in four phases: (i) the IRB assessment methodology will be introduced in the first quarter of 2016; (ii) a definition of "default" will be introduced by mid-2016; (iii) estimation of risk parameters and treatment of defaulted assets will be introduced by mid-2017; and (iv) credit risk mitigation will be introduced by the end of 2017. The EBA expects that the effective implementation in all areas will be finalized by the end of 2020.
 
View the EBA's Opinion and Report.

The Financial Conduct Authority published a Policy Statement and final rules on the application of the Senior Manager and Certification Regimes to wholesale market activities, such as algorithmic and high-frequency trading. The SM&CR enters into force on March 7, 2016. The rules apply to banks, building societies, and investment firms designated by the Prudential Regulation Authority. The new rules extend the Certification regime to individuals who carry out two new significant harm functions: (i) the new "client dealing" function, which includes advising on investments other than non-investment insurance contracts and any associated dealing and arranging, acting as an investment manager or acting as a bidder's representative (this new function is subject to the FCA's new definition of "client" which aims to capture all clients including traditional retail clients); and (ii) "algorithmic trading". Under transitional rules, the Certification regime requires firms to identify the staff members that fall into the two new functions and train them on the new conduct rules by September 7, 2016. The commencement date for the requirement for firms to certify all staff that carry out significant harm functions remains March 7, 2017. 

Read more.

The US Board of Governors of the Federal Reserve System released a report providing an update on its progress in implementing efforts to improve the US Payments System as set out in its 2015 Strategies for Improving the US Payments System. The report also outlines additional steps the Federal Reserve anticipates taking going forward. Two task forces comprised of more than 500 industry participants have been formed and they have created a list of 36 criteria that describe the attributes of an enhanced payment system. Work has been done with respect to standards, directories and business to business improvements to enhance payment system efficiency. The report also notes that joint efforts with industry participants recently culminated in a plan to implement the financial messaging standard ISO 20022 for US wire transfer systems and advanced plans to implement widespread same day Automated Clearing House settlement.

View the progress report.
 

The European Securities and Markets Authority published a document comprising a set of Opinions on certain UK pension schemes that are to be exempt from centrally clearing OTC derivatives contracts under the European Market Infrastructure Regulation. The Opinions have been requested by the UK Financial Conduct Authority and relate to 16 different kinds of pension schemes. Transitional exemptions from the clearing obligation can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must seek an Opinion from ESMA before making a final exemption decision. ESMA, in turn, must consult with the European Insurance and Occupational Pensions Authority before issuing its Opinion. The FCA has now granted exemptions and ESMA will publish the list of the types of entities that have been given exemptions in the near future. This follows on from the transitional exemption period for pension funds from the clearing obligation having been extended to August 16, 2017. Pension funds must comply with the EU clearing obligation by this date under EMIR.
 
View ESMA's press release and Opinions.

The European Securities and Markets Authority issued a statement, addressed to investors and fund managers, on some European collective investment funds that may potentially be "closet index tracking funds". Closet indexing can occur when fund managers claim to manage portfolios actively, but in reality, the fund stays close to its benchmark index. Such practices can mislead investors as they may not receive the service or risk/return profile that they expect, whilst possibly paying higher fees than those usually charged for passive management. ESMA carried out research using a sample of around 2,600 funds between 2012 and 2014 and found that 5% to 15% of Undertakings for the Collective Investment of Transferable Securities equity funds could potentially be closet indexers. ESMA recommends that UCITS management companies re-evaluate whether they provide accurate information to investors on the performance objectives of relevant funds so that investors can make informed investment decisions. ESMA has stated that it will take an active role in coordinating further analysis at national level and will assess whether any further steps are necessary to ensure that market participants wholly comply with disclosure obligations.  
 
View ESMA's statement.

The Financial Conduct Authority published a Policy Statement and final rules on the Implementation of the Undertakings for Collective Investment in Transferable Securities Directive V. The Policy Statement sets out final rules, guidance and changes made to the FCA Handbook that affect managers and depositaries of UCITS and Alternative Investment Funds. The Policy Statement also sets out comments on the feedback received to the FCA's Part I consultation on the implementation of UCITS V published in September 2015, including: (i) remuneration principles and requirements applicable to managers, including details on payments of proportions of variable remuneration in non-cash instruments; (ii) the applicable transparency obligations towards investors; and (iii) changes for depositaries including eligibility criteria and capital requirements for firms acting as depositaries of UCITS. The rules and guidance enter into force on March 18, 2016, the date on which the FCA is required to implement the UCITS V Directive. Certain requirements however are subject to transitional provisions. For example, UCITS managers will only have to comply with some of the remuneration requirements after the start of the first full performance period, post-March 18, 2016. Also, non-bank depositaries appointed before March 18, 2016 may continue to provide depositary services to UCITS clients until March 18, 2018, even if they have not yet met all new operational and prudential requirements applicable to them.
 
View the Policy Statement.
 
View the Consultation Paper.

The US Federal Deposit Insurance Corporation published “A Framework for Cybersecurity” as part of the agency’s Winter 2015 issue of “Supervisory Insights”. The article addresses the current state of cyber threats and how financial institutions’ information security programs can be modified to meet evolving cybersecurity risks. The publication also provides a summary of actions taken by the FDIC individually and with other regulators in response to the increase in cyber threats.

The latest issue of “Supervisory Insights” also includes articles on marketplace lending, recent lending conditions and risks as reported through the FDIC’s Credit and Consumer Products/Services Survey, and an overview of recently released FDIC regulations and supervisory guidance. 

View the journal. 

The European Securities and Markets Authority published a final report setting out draft Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism, and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails such as a mechanism for cash penalties and a buy-in process. ESMA has submitted the final draft RTS to the European Commission for endorsement.
 
View the Final Report and RTS.

The European Court of Auditors published a report on the role of the European Securities and Markets Authority as the single supervisor of Credit Rating Agencies in the European Union. The report covers the period from when ESMA took over the role of supervisor for CRAs from national regulators in July 2011 until September 2015.  It aims to assess whether ESMA has effectively established itself as the CRA supervisory body for the EU. The report states that ESMA has set good foundations in a short amount of time, but that significant risks still need to be addressed in the future. The ECA recommends, amongst other things, that ESMA should: (i) document its assessment of all regulatory requirements for credit rating methodologies throughout the registration process; (ii) update its supervisory manual and handbook on a regular basis so as to take into account the knowledge and experience it has gained; (iii) contemplate developing further guidance on disclosure requirements to improve the methods of disclosure of CRAs; (iv) examine certain possible conflicts of interest in a structured manner, regarding rating analysts’ trading activities and financial transactions, so as to mitigate the risk of insider trading; and (v) enhance the traceability of the risk identification process, documenting changes to risk level as well as the prioritization of risks and following up on high-risk areas that could benefit from further supervisory attention.
 
View the report.

The US Board of Governors of the Federal Reserve System extended the comment period to March 21, 2016, for the proposed policy statement describing the Federal Reserve Board’s framework in setting the Countercyclical Capital Buffer. The original deadline for submission of comments was February 19, 2016. The Federal Reserve Board first announced it was soliciting public comment on the proposed policy statement on December 21, 2015. The CCyB is a macro-prudential tool that raises capital requirements on internationally active banking institutions when the risk of above-normal losses in the future is elevated. The proposed policy statement describes various financial-system vulnerabilities as well as issues for Federal Reserve Board consideration in setting the buffer. 

View the proposed policy statement.

View the appendix to the proposed policy statement.

The US Board of Governors of the Federal Reserve System extended the comment period to February 19, 2016, for its proposed rule to strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. The original deadline for submission of comments was February 1, 2016. The proposed rule requires US Global Systemically Important Banks and the US operations of foreign GSIBs to meet a long-term debt requirement, a “Total Loss-Absorbing Capacity” requirement and a requirement that the parent holding company of a domestic GSIB avoid entering into various financial arrangements that would create obstacles to an orderly resolution. These requirements would strengthen the ability of those banks to withstand financial stress and failure without imposing losses on taxpayers. The proposed rule also includes regulatory capital deductions for firms regulated by the Federal Reserve Board that hold unsecured debt of the parent holding companies of domestic GSIBs.

View the Federal Register notice. 

The Competition and Markets Authority announced that it is likely to extend the timetable for its investigation into the retail banking market. A decision on the extension is expected to be taken in March 2016, when a timetable for publication of the final report will also be published. The report was originally scheduled for publication in February 2016. A provisional report, published in October 2015, identified several competition issues in the Personal Current Accounts and Small and Medium-sized Enterprises banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA states that, further to its provisional findings, a number of new suggestions have been made for achieving better outcomes for current account customers and that it wishes to ensure that there is enough time to hear from interested parties so that all of the proposals can be considered properly.
 
View the press release.
 
View the CMA's provisional report.

The Prudential Regulation Authority published final rules amending the Pre-Issuance Notification regime. The PIN regime applies to banks, building societies, insurers and PRA-designated investment firms. Under the amended rules, banks, building societies and PRA-designated investment firms will have to give the PRA one month's notice before issuing a Common Equity Tier 1 instrument and complete the CET1 Compliance Template, which may be used instead of providing a legal opinion on the quality of capital requirement. The advance notification requirement will not apply where certain capital instruments are issued on substantively similar terms to prior issued instruments. Insurers will be required to submit legal opinions for instruments issued, other than ordinary share capital, on the quality of capital requirement and must also provide the PRA with one month's notice prior to amending capital instruments. Insurers will also be subject to certain conditions in the event that they make use of the advance notification exemption for drawdowns from note issuance programs. All relevant firms will be required to submit accounting opinions when issuing Additional Tier 1 Capital instruments or Restricted Tier 1 Capital instruments, as applicable.
 
View the PRA's Policy Statement and final rules.

The Bank of England's Financial Policy Committee published its proposed framework for the UK Systemic Risk Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk. 
 
The FPC is proposing that the SRB rate would be calibrated according to a firm's total Risk-Weighted Assets so that firms with RWA: (i) less than £175 billion will have a 0% SRB; (ii) between £175 and £320 billion will have a 1% SRB; (iii) between £320 and £465 billion will have a 1.5% SRB; (iv) between £465 and £610 billion will have a 2% SRB; (v) between £610 and £755 billion will have a 2.5% SRB; and (vi) over £755 billion will have a 3% SRB.
 
Firms subject to the SRB will also be subject to a 3% minimum leverage ratio requirement as well as an additional leverage ratio buffer of 35% of the applicable SRB rate. The Prudential Regulation Authority will apply the SRB to individual firms from 2019, which is when the ring-fencing rules will become applicable. Comments to the consultation are due by April 22, 2016. The FPC intends to finalize the rules by May 31, 2016.
 
View the FPC's consultation paper.

The European Securities and Markets Authority published its Opinion on draft Implementing Technical Standards on Main Indices and Recognized Exchanges under the Capital Requirements Regulation. The Opinion sets out proposed updates to the draft ITS further to requirements under the CRR to define main indices and recognized exchanges. The definitions are required because the terms have been used in the specification of eligible collateral which is used for the calculation of credit risk by banks and investment firms subject to the CRR. ESMA provided the final draft ITS to the Commission in January 2015 for endorsement. The Commission notified ESMA that it intended to endorse the ITS with amendments by adding the Hang Seng Composite Index and the Russell 3000 Index. In ESMA's Opinion, the Hang Seng Composite Index and the Russell 3000 Index should not be added to the list of main equity indices. Instead, ESMA suggests adding the Russell 1000 Index, the Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and the FTSE Nasdaq Dubai UAE 20 Index to that the list. ESMA also undertook a full review of the ITS and suggests replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA recommends that the European Commission consider amending the current procedure used to update the list of indices and exchanges to a less burdensome and more speedy process, as the long timeframes required to update a legislative instrument such as an ITS are not appropriate for the frequency with which indices or exchanges are created or merged.
 
View the Opinion.

The European Systemic Risk Board published Recommendations and Decisions relating to setting Countercyclical Buffer Rates for exposures to third countries and the assessment of cross-border effects of and voluntary reciprocity for macro-prudential measures. The ESRB is responsible for macro-prudential oversight within the European Union. In respect of CBRs, the ESRB recommends that national designated authorities: (i) inform the ESRB as soon as a third county sets a CBR in excess of 2.5%; (ii) identify material third countries on an annual basis taking into account the ESRB Decision on the assessment of materiality of third countries for recognizing and setting CBRs; and (iii) consider and coordinate on whether a lower CBR should be set for exposures to a third country in the event that the third country authority sets a lower CBR. In respect of the assessment of cross-border effects of macro-prudential measures, the ESRB recommends that national designated authorities: (i) assess the cross-border effects, prior to adoption, of the implementation of their own macro-prudential measures on other Member States and on the Single Market, including the risk of regulatory arbitrage; (ii) reciprocate the macro-prudential measures adopted by other Member States where such reciprocation is recommended by the ESRB; and (iii) notify the ESRB of any macro-prudential measure implemented, including an assessment of the effect of the measure and whether any reciprocation by other Member States may be necessary. The ESRB has also established a website which sets out the CRB rates set by national designated authorities.
 
View the ESRB Recommendations and Decisions.
 
View the CBR rate website.

The New York State Department of Financial Services announced that it is extending the comment period to March 31, 2016, for its proposed anti-terrorism and anti-money laundering regulation, known as the Transaction Monitoring and Filtering Program.
The regulation, proposed on December 1, 2015, requires maintenance by each regulated institution of: (i) a transaction monitoring program for the purpose of monitoring transactions after their execution for potential BSA/AML violations and suspicious activity reporting; and (ii) a watch list filtering program to prevent transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists and internal watch lists. The proposed regulation also includes an annual certification requirement under which senior financial executives must certify that their institutions have necessary systems in place to identify and prevent illicit transactions.

View the proposed Transaction Monitoring and Filtering Program regulation. 

The US Office of the Comptroller of the Currency released economic and financial market scenarios to be used by certain financial companies, including national banks and federal savings associations with total consolidated assets of more than $10 billion, to conduct upcoming stress tests. The supervisory scenarios include baseline, adverse and severely adverse scenarios, as described in the OCC’s final rules that implement annual stress test requirements under Section 165(i)(2) of the Dodd-Frank Act.

View the OCC press release.

View the 2016 scenario information. 

The US Board of Governors of the Federal Reserve System released supervisory scenarios for the 2016 Comprehensive Capital Analysis and Review and Dodd-Frank Wall Street Reform and Consumer Protection Act stress test exercises. The Federal Reserve Board also issued instructions to firms participating in CCAR. CCAR assesses the capital planning processes and capital adequacy of the largest US-based bank holding companies, including the firms’ planned capital actions. The Dodd-Frank Act stress tests are a forward-looking component to help evaluate whether firms have sufficient capital. Firms are required to use the supervisory scenarios in both the stress tests conducted as part of CCAR and those required by the Dodd-Frank Act. The outcomes are measured under three scenarios: severely adverse, adverse and baseline. This year, CCAR will include 33 bank holding companies with $50 billion or more in total consolidated assets, all of which are required to submit their capital plans and stress testing results to the Federal Reserve Board on or before April 5, 2016. The Federal Reserve Board will announce the results of its supervisory stress tests by June 30, 2016, with the exact date to be announced later.

View the Federal Reserve Board press release.

View the CCAR summary instructions. 

View the Dodd-Frank Act stress exercises.

View the 2016 macro scenario tables. 

 
The European Securities and Markets Authority announced that it appointed Ms. Anneli Tuominen as its Vice Chair, replacing Mr. Carlos Tavares, who has completed his term.
 
View the press release.

 
The European Banking Authority published a letter dated December 18, 2015 addressed to the European Commission in which the EBA requests delays to the dates by which the EBA is required to prepare technical standards and reports under the Capital Requirements Directive, the Capital Requirements Regulation, the EU Bank Recovery and Resolution Directive, the European Market Infrastructure Regulation and the Credit Rating Agencies Regulation. The EBA states that for the most part it has not been able to deliver its mandates according to deadlines due to a persistent shortage in resources and the need to prioritize other workstreams. The EBA invites the Commission to request the EBA to fulfil its mandates  within new time limits.
 
View the EBA's letter.

The European Securities and Markets Authority published proposed Guidelines under the Market Abuse Regulation. The consultation paper covers proposed Guidelines addressed to persons receiving a market sounding and Guidelines for issuers and emission allowance market participants on delaying disclosure of inside information. The MAR will apply directly across the EU from July 3, 2016.

Read more.

Regulatory Technical Standards and Implementing Technical Standards on the operational functioning and general conditions for the functioning of colleges of supervisors under the Capital Requirements Directive were published in the Official Journal of the European Union. Colleges bring together different national and European regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The Regulations deal with matters including: (i) the mapping of group institutions; (ii) the designation of members and observers of a college; and (iii) participation in college meetings and activities. The Regulations enter into force on February 17, 2016.
 
View the RTS.
 
View the ITS.