The European Banking Authority published a report on the administrative penalties for breach of national law implementing the Capital Requirements Directive imposed by Member States and published on an anonymous basis. Under the CRD, Member States must publish details of any administrative penalties imposed for breach of the relevant national law except in certain circumstances where the CRD allows the publication to be anonymous. The EBA is required to report on any divergences between member states in their approach to the publication of penalties on an anonymous basis and in the duration of the publication under national law. The EBA makes the following recommendations: (i) the penalties should be published on a dedicated part of the website to enhance accessibility; (ii) the decision should also be published in English or a summary thereof; and (iii) that the grounds for deciding to publish a decision on an anonymous basis should be disclosed, where appropriate.
 
View the report.

​The New York State Department of Financial Services proposed a new anti-terrorism and anti-money laundering regulation, known as the Transaction Monitoring and Filtering Program regulation. The main requirements of the proposed regulation include 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 sets forth additional minimum requirements for each institution’s Transaction Monitoring and Filtering Program and also includes an annual certification requirement, modeled on Sarbanes-Oxley, that senior financial executives must certify that their institutions have necessary systems in place to identify and prevent illicit transactions. The regulation will published in the New York State Register, commencing a 45-day notice and comment period.

View the press release.

View the proposed regulation.

The Bank of England published its Financial Stability Report in which the Financial Policy Committee explains the key risks affecting the UK financial system. The report states that UK banks are now more resilient than they were before the global financial crisis with the result that they are now more willing to make credit available. Risks relating to Greece and its financing needs have fallen significantly since publication of the Bank of England’s Financial Stability Report in July 2015. However, risks originating from advanced economies have moved to emerging market economies and asset prices are deemed to be vulnerable to a crystallization of risks in emerging markets. The FPC states that it is not currently seeking further structural increases in capital requirements for the system as a whole and is also maintaining the UK countercyclical capital buffer rate at 0%. With regards to effective arrangements for bank resolution, the FPC deems that an effective resolution regime has been established in the UK, in part, through ring-fencing, and that new requirements for total loss-absorbing capacity for global systematically important banks will ensure that banks have liabilities that can absorb losses and are able to recapitalize banks in resolution. The report also states that cyber risk continues to be a threat to the UK financial system.

View the report.

A Delegated Regulation which gives effect to the EU clearing obligation for Interest Rate Swaps was published in the Official Journal of the European Union. Under the Delegated Regulation, fixed-to-float IRS, known as plain vanilla IRS derivatives, float-to-float swaps, known as basis swaps, forward rate agreements and overnight index swaps denominated in euro, pounds sterling, Japanese yen or US dollars and entered into with an EU counterparty must be cleared through a CCP. The obligation will be phased in according to counterparty type to allow market participants time to determine if the obligation applies to them and set up procedures to ensure compliance: (i) from June 21, 2016: clearing members for at least one of the relevant classes of IRS of at least one CCP authorized or recognized to clear one of those classes; (ii) December 21, 2016: FCs and alternative investment funds belonging to a group whose group aggregate month end average of outstanding notional amount of non-centrally cleared derivatives for the three months following the Delegated Regulation entering into force is above €8 billion; (iii) from June 21, 2017: FCs and AIFs not in either category (i) or (ii) above; and (iii) from December 21, 2018: NFCs subject to the clearing obligation that are not in any of the above categories.
 
View the Regulation.

You may wish to read our updated client note which is available here.

 
The Joint Committee of the European Supervisory Authorities published a list of identified Financial Conglomerates for 2015. The list indicates that: (i) 78 FCs' heads of group are located in a EU or EEA country; (ii) one FC head of group is located in Australia; (iii) one FC head of group is located in Switzerland; and (iv) two FCs' heads of group are located in the United States. The list is updated and published annually by the ESAs and shows figures as at 31 December 2014.
 
View the list.

The European Parliament issued a press release announcing an extension to the terms of office for the current Chairpersons of the three European Supervisory Authorities. Mr Andrea Enria will enter his second term as Chair of the European Banking Authority, as will Mr Stephen Maijoor as Chair for the European Securities and Markets Authority and Mr Gabriel Bernardino for the European Insurance and Occupational Pensions Authority. All three terms have been extended by five years. The terms of office for the current ESAs' executive directors Mr Adam Farkas and Ms Verena Ross have also been extended.
 
View the press release.

The Decision of the European Central Bank on the procedure to exclude staff members from the presumption of having a material impact on a supervised credit institution's risk profile was published in the Official Journal of the European Union. The Decision relates to the remuneration requirements specified in the Capital Requirements Directive IV. The Decision sets out the procedure that supervised credit institutions should follow for the notification and application to the ECB to exclude members of staff or categories of staff from the presumption of having a material impact on their risk profile. The Decision sets out: (i) the general information required and to be provided to the ECB; (ii) the documentation required to show that a business unit is not material; (iii) the documentation required to show that a staff member's professional activities have no material impact on the risk profile of a material business unit; (iv) the additional documentation required to substantiate applications for staff members awarded a total remuneration of €1,000,000 or more; (v) the period for filing notifications; and (vi) details related to the assessment process of the ECB. The decision entered into force on December 2, 2015.
 
View the Decision.

The Bank of England published the results of the 2015 UK banking system stress tests. The 2015 stress test was the BoE's second concurrent stress test of the UK banking system and covered seven major UK banks and building societies. The BoE's Financial Policy Committee will not be taking any macroprudential actions on bank capital in response to the results, considering that the banking system is sufficiently capitalised to support the real economy in a severe global stress scenario. The Prudential Regulation Authority determined that the stress test showed that five of the seven participating firms did not have any capital inadequacies (Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society and Santander UK) but that both The Royal Bank of Scotland Group and Standard Chartered had not met their individual capital requirements. However, the PRA had not required those two firms to submit revised capital plans on the basis that certain steps had already been taken by the firms. As per the BoE's Approach to Stress Testing the UK Banking System published in October 2015, the BoE will run its first annual cyclical scenario concurrent stress test in 2015, the results for which will be published in Q4 2016.
 
View the results.

The US Federal Reserve Board approved a final rule detailing its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act limited the Federal Reserve Board’s emergency lending authority to programs and facilities with “broad-based eligibility” established with the approval of the US Secretary of Treasury and prohibited lending to entities that are insolvent, among other things. The final rule clarifies the Federal Reserve Board’s implementation of these and other statutory requirements. Some of the changes from the proposed rule include additional limitations to the definition of “broad-based” to support the revisions made by the Dodd-Frank Act that a program should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution. The final rule also broadens the definition of insolvency to cover situations where a company has not yet entered formal bankruptcy or resolution proceedings, but may be insolvent from an accounting or other perspective. Under the final rule, all lending programs under Section 13(3) must be approved by the Secretary of the Treasury, though the Federal Reserve Board must still find that “unusual and exigent circumstances” exist as a pre-condition to authorizing emergency credit programs. 

View the press release.

View the final rule. 

The Financial Action Task Force published a report on money laundering through physical transportation of cash. The report, dated October 2015, analyzes input received from over 60 countries which identifies methods used by criminals to transport funds across borders. The report sets out real examples illustrating such methods and identifies the challenges that national law enforcement entities face to discover money laundering via the physical transportation of cash.
 
View the report.

The European Securities and Markets Authority published a final report setting out 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 and ESMA has developed Guidelines to identify the complex products for which execution-only services may not be provided. The Guidelines appear in Annex V of the report and set out a non-exhaustive list of examples of such products. The final report also includes feedback received by ESMA on its earlier consultation launched in March 2015. The Guidelines will be translated into all official languages of the EU and national regulators will have two months from the date of publication of the translated versions to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
 
View the Guidelines.

HM Treasury published a policy paper on boosting competition in the UK which, amongst other things, states that the UK government aims to boost competition with the establishment of a New Bank Start-Up Unit which will make it easier for new banks to enter the market. The new unit will be launched by the Prudential Regulation Authority and Financial Conduct Authority on January, 20 2016 and will provide firms with named case officers at both regulators that will be able to assist new banks wishing to enter the market and through the early stages of authorization.
 
View the policy paper.

The Committee on Payments and Market Infrastructures and International Organization of Securities Commissions published a report on the implementation of the Principles for Financial Market Infrastructures. The Principles are the international standards for payment, clearing and settlement systems as well as trade repositories aiming to ensure that the infrastructure supporting global financial markets is resilient enough to endure financial shock. The Principles consist of five general responsibilities for the relevant national regulators for FMIs: (i) regulation, supervision and oversight of FMIs; (ii) regulatory, supervisory and oversight powers and resources; (iii) disclosure of policies relating to FMIs; (iv) application of the Principles for FMIs; and (v) cooperation with other regulators. The report covers the implementation of the Principles in 28 participating jurisdictions and states that most jurisdictions have achieved a high level of observance of the responsibilities: 16 jurisdictions fully observed all responsibilities for all FMI types and two jurisdictions either fully or broadly observed each of the five responsibilities for all FMI types. Annex 3 of the report sets out the findings for each jurisdiction.
 
View the report.

The Council of the European Union published a press release announcing that a sufficient number of EU Member States have ratified an Intergovernmental Agreement (known as an IGA) on the Single Resolution Fund. This means that the Single Resolution Mechanism, which aims to ensure the orderly resolution of failing banks without any recourse to taxpayers' funds, will enter into force on January 1, 2016, as envisaged. The full resolution powers of the Single Resolution Board will therefore apply as of this date and the SRF will begin to be credited with funds from national resolution funds in the euro area. The IGA sits alongside the SRM Regulation and, as a treaty, required the ratification of national parliaments by November 30, 2015.
 
View the press release.

The European Commission published a proposed Prospectus Regulation as part of the EU Capital Markets Union initiative. The proposed Prospectus Regulation would replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The key changes include: (i) increasing the threshold for when a prospectus would be required for offers with a total consideration from €100,000 to €500,000; (ii) removing the option for Member States to require a prospectus below that minimum threshold; (iii) giving Member States the option to give an exemption from the prospectus requirement for capital raisings with a total consideration of between €500,000 and €10 million for domestic offers for which no passport notification to other Member States is required; (iv) aligning the definition of SMEs with that under the new Markets in Financial Instruments Directive (MiFID II) so that the SME-specific regime is also available to SMEs with an average market capitalisation of less than €200 million, (increased from €100 million) not listed on a regulated market; (v) creating a system for frequent issuers using an annual "Universal Registration Document"; (vi) providing for a simplified disclosure regime for secondary issuances by listed firms; and (vii) establishing a single access point, provided by the European Securities and Markets Authority, for all prospectuses approved within the European Economic Area, although approvals will remain the responsibility of national listing agencies.

View the Proposed Regulation.

The European Parliament issued a press release announcing that it has informed the European Commission that it is ready to accept a one-year delay to MiFID II entering into force. The European Parliament also published two letters addressed to Lord Jonathan Hill, Commissioner for Financial Stability and the Commission, on the same date. The first letter states that such a delay would be subject to two conditions. The Commission would have to: (i) finalize the implementing legislation as soon as possible, taking into account the European Parliament’s comments on content (which are set out in the European Parliament's second letter); and (ii) regularly report to the European Parliament on the progress related to MiFID II implementation, timelines and key objectives.
 
View the European Parliament's press release.
 
View the first letter to Commissioner Hill.
 
View the second letter to Commissioner Hill.

The European Banking Authority published its first annual assessment on the Pillar 3 reports of a sample of European banks for the 2014 financial year. The report evaluates the compliance of banks against the disclosure requirements set out in the Capital Requirements Regulation. The report states there has been an increase in the quality of disclosures, in particular relating to clear disclosure indices and information on risk model parameters. Areas that could be improved further include: (i) the breakdown of capital requirements by exposure classes; (ii) the breakdown of internal ratings-based risk parameters by exposures and geography; and (iii) the assessment of the status, remuneration and asset encumbrance of global systemically important institutions. The report also includes a comparison of the revised Basel Pillar 3 requirements published by the Basel Committee on Banking Supervision in January 2015 against the current disclosure requirements set out in the CRR.
 
View the Report.

The Regulation on Implementing Technical Standards for closely correlated currencies as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. Closely correlated currencies are currencies that meet specific criteria set out in the CRR, which states that firms may provide lower own funds requirements against foreign exchange risk for positions in relevant closely correlated currencies. The pairs of currencies that meet such criteria are set out in the Annex to the Regulation. The list of closely correlated currencies will be updated yearly.
 
View the Regulation.

​The US Board of Governors of the Federal Reserve System approved a final rule to modify its capital plan and stress testing rules, which would take effect for the 2016 capital plan and stress testing cycle. Largely similar to the proposed rule, the final rule modifies the timing for certain regulatory requirements that have not yet been incorporated into the capital plan and stress testing framework. Firms subject to the supplementary leverage ratio would begin to incorporate it into their 2017 capital plan and stress testing cycle. All firms would continue to use the generally applicable risk-based capital framework for stress-testing exercises. However, firms with at least $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures would continue to be subject to the advanced approaches risk-based capital framework for their regulatory capital ratios. The common equity tier 1 capital requirement in the Federal Reserve Board’s revised regulatory capital rules will be fully phased in over the nine-quarter planning horizon of the 2016 capital plan and stress testing cycles. The final rule eliminates the requirement for firms to calculate a tier 1 common ratio.

View the press release.

View the final rule.

The US Commodity Futures Trading Commission approved proposed rules, known collectively as Regulation Automated Trading (or otherwise known as Regulation AT), that aim to implement risk controls, transparency measures, and other safeguards to enhance regulation of automated trading on US Designated Contract Markets. The proposed risk controls, including maximum order message and size parameters, standards for development, testing and monitoring of algorithmic trading systems, among other requirements, would apply to: (i) market participants using algorithmic trading systems, referred to as “AT Persons” in the proposed rules; (ii) clearing member Futures Commission Merchants with respect to their AT Person customers; and (iii) DCMs executing AT Person orders. Regulation AT would require submission of reports on risk controls, as well as maintenance of books and records regarding such risk controls and other algorithmic trading procedures, by AT Persons and clearing member FCMs for review by DCMs. The proposed rules would also require registration of persons engaged in significant proprietary algorithmic trading in key products through direct electronic access to a DCM who are not currently registered with the CFTC. Regulation AT is intended to include greater transparency around DCM trade matching platforms and promote use of self-trade prevention tools by market participants on DCMs. 

View the press release.

View the proposed rulemaking.

The US Federal Reserve Board announced the implementation of several recommendations to enhance the supervision of large and complex banking organizations. These recommendations followed a comprehensive review of Reserve Bank procedures for supporting sound supervisory decisions as well for resolving differing staff opinions related to the supervision of large and complex organizations. Among other issues, the review identified inconsistencies in practices by Reserve Banks as well as in documentation generated by supervisory teams. The review also noted that a formal process for raising divergent staff views had not been established. As a result, the Operating Committee of the Large Institution Supervision Coordinating Committee (known as LISCC), which coordinates the supervision of the largest, most systemically important financial institutions in the US, will oversee the establishment of minimum operating and documentation standards for all supervisory activities. The Federal Reserve System will also work to develop policies and practices to encourage the exchange of differing staff views on all supervisory matters. Additionally, the Federal Reserve System will be developing a curriculum specifically designed for the supervision of large financial institutions for its examiner commissioning and training program.

View the press release.
​
View the review.

​The US Federal Reserve Board issued a proposed rule that would require large banking organizations to publicly disclose certain measures of their liquidity profile, including, for the first time, quantitative liquidity risk metrics. The proposed rule would require large banking organizations to disclose, on a quarterly basis, their consolidated Liquidity Coverage Ratios based on averages over the prior quarter. In addition, firms would have to disclose their consolidated High-Quality Liquid Asset amounts, organized by HQLA category, as well as their projected net cash outflow amounts, including retail inflows and outflows, derivatives inflows and outflows as well as various other measures. The required disclosures are based generally on a template approved by the Basel Committee on Banking Supervision with enhancements to reflect US implementation of LCR requirements.

View the press release.

View the proposed rule.

The European Banking Authority published a report setting out the results of its 2015 EU-wide transparency exercise. The results provide data on capital positions, risk exposure amounts and asset quality on a bank-by-bank basis for 105 banks from 21 EEA countries. The report is based on existing supervisory reporting data submitted to the EBA and shows that capital levels have strengthened through banks raising additional equity and retaining earnings. The report also shows that quality of assets and levels of profitability have improved since 2014 and that there has been a general increase in the resilience of the EU banking sector since December 2014.
 
View the results.

The European Commission published a legislative proposal together with a press release on the establishment of a new European Deposit Insurance Scheme. The EDIS would be a euro area-wide insurance scheme for bank deposits, strengthening the EU's economic and monetary union, setting out measures to reduce risk in the banking sector and amending the Single Resolution Mechanism Regulation. The scheme would initially consist of a reinsurance scheme for participating national Deposit Guarantee Schemes in the first three years, after which co-insurance schemes would be put into place for four years, whereby contributions to the EDIS would increase. The EDIS would be funded by contributions made by banks established in the Single Supervisory Mechanism and a full European scheme would be in place by 2024. National schemes would only be able to access EDIS funds if clear conditions are met. The EDIS would encourage national schemes to manage any possible risks cautiously and would be mandatory for member states covered by the SSM. The scheme would also be open to those member states who are not covered by the SSM but who would like to join the Banking Union. National DGSs already provide protection at a national level. The EDIC would back these with a common European scheme.
 
View the press release.
 
View the legislative proposal.

The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions published a consultation paper related to guidance on cyber resilience for Financial Market Infrastructures. The guidance aims to encourage FMIs to pre-empt and respond rapidly to cyber-attacks and deals with five primary risk management categories that are significant for the cyber resilience of FMIs: (i) governance; (ii) identification; (iii) protection; (iv) detection; and (v) response and recovery. The guidance states that continuous improvements to systems must be made to maximize cyber resilience, that it is imperative for FMIs to resume operations rapidly and safely after a successful cyber-attack and that senior management attention is critical to cyber resilience strategy. Comments on the consultation are due by February 23, 2016.
 
View the consultation.

Federal Reserve Bank of New York Executive Vice President Alberto G. Musalem delivered remarks regarding the New York Fed’s initiatives to endorse a positive banking culture. Mr. Musalem explained that the New York Fed’s interest in reforming culture is a product of events since the financial crisis, including recent incidents of misconduct such as the manipulation of LIBOR. In his speech, Mr. Musalem offered three messages to the banking industry: (i) cultural problems are the banking industry’s responsibility to solve; (ii) a bank’s implicit norms – especially those reinforced through incentives – must align with the public purpose of banking; and (iii) the aim of reforming bank culture should be to restore trust. Mr. Musalem delivered his remarks at an event hosted by the Goethe University of Frankfurt’s Institute for Law and Finance titled “Towards a New Age of Responsibility in Banking and Finance: Getting the Culture and the Ethics Right.”
​
View the speech.

The Committee on Payments and Market Infrastructures published a report on digital currencies. The report aims to address the various impacts that digital currencies may have on financial markets and the wider economy, such as potential disruptions to business models and the creation of new economic interactions. The report, amongst other things, deals with regulatory issues and approaches for digital currencies such as: (i) consumer protection; (ii) prudential and organisational rules for different stakeholders; and (iii) specific operating rules as payment mechanisms. The report states that coordinated approaches for regulation at a global level may be important in addition to ones taken at national level, and lists five possible categories of actions: (i) to highlight the risks towards users and investors and influencing the market through moral suasion; (ii) to regulate specific entities; (iii) to assess whether existing regulatory arrangements can be applied to digital currencies; (iv) to seek a broader approach to regulation, for example, by national regulators making consumer protection arrangements that apply to other payment methods used by consumers also apply to transactions conducted with digital currencies; and (v) national regulators banning the use of digital currencies in their respective jurisdictions.
 
View the report.

The US Federal Reserve Board, Office of the Comptroller of the Currency, FDIC, Securities and Exchange Commission and Commodity Futures Trading Commission (collectively, the Agencies) released two new Frequently Asked Questions in respect of the Volcker Rule. FAQ 19 relates to a banking entity’s residual marketmaking positions following termination of its market-making business. FAQ 20 clarifies the applicability of the Volcker Rule’s so-called “Super 23A” provisions to covered transactions entered into before and after the Volcker Rule’s conformance period. FAQ 19 refers to situations where a banking entity terminates its market-making business and holds residual positions from its prior market-making activities. The FAQ states that the banking entity may hold and dispose of such residual market-making positions, provided that: (i) the banking entity hedges the risks of any such positions in accordance with the requirements of the Volcker Rule’s risk-mitigating hedging exemption; and (ii) the banking entity sells or unwinds the residual market-making positions as soon as commercially practicable. In the event that a banking entity holds residual market-making positions but does not hedge the risks of such positions, the subsequent sales of those residual positions would generally be considered proprietary trading under the Volcker Rule. 

View the Volcker FAQs.

The Financial Conduct Authority published proposals to amend its guidance on when an issuer can delay disclosure of inside information under the FCA's Disclosure and Transparency Rules. Under the UK market abuse regime, which includes the transposition of the EU Market Abuse Directive, an issuer can delay disclosing inside information to protect its legitimate interest subject to certain conditions being met. FCA guidance on when an issuer might have a legitimate interest states that there are unlikely to be other circumstances where a delay would be justified except in relation to impending developments, the provision of liquidity by a central bank to the issuer or a member of its group and the non-exhaustive list of examples included in the DTR, which are taken from MAD. The FCA is proposing to delete that guidance. As a result of recent case law, stakeholders have highlighted to the FCA that issuers are concerned that more information should be considered inside information than was previously thought to be the case. However, the ability of the issuer to delay disclosure of that information is constrained by the FCA's guidance which goes further than the EU requirements. Under the Market Abuse Regulation, which comes into effect in the UK on July 1, 2016, the European Securities and Markets Authority must issue guidelines on an issuer's legitimate interest, including a non-exhaustive indicative list of examples. The FCA therefore does not intend to define a list of legitimate interests at this time. Responses to the FCA's consultation are due by February 20, 2016.
 
View the consultation paper.

The final Review on the failure of HBOS plc was published by the Prudential Regulation Authority and the Financial Conduct Authority. The Review assesses the strategy adopted by HBOS, how HBOS failed (focusing on asset quality, reliance on wholesale funding and capital), the role of management, governance and the culture of HBOS and the Financial Services Authority's (the UK regulator at the time of the failure of HBOS) regulatory approach. The HBOS group was formed by the merger of the former Halifax Building Society and Bank of Scotland. Recommendations include: (i) a bank's Board is responsible for ensuring a firm has a sustainable business model and for embedding the principle of safety and soundness in a firm's culture. The Review notes that directors will have specific accountabilities for this under the Senior Managers Regime from March 7, 2016; (ii) the non-executive directors of a bank must have diverse  experience and the capacity to challenge key business issues; (iii) senior managers should proactively seek to identify threats to the safety and soundness of their firm and notify the regulators when issues arise; (iv) regulators must be willing and able to intervene where necessary, free from undue influence; (v) the UK regulators should understand the scope of oversight provided by a local regulator for globally active banks to understand the extent of the reliance that they can place on local regulatory authorities; and (vi) UK regulators should be aware of potential conflicts of interest arising from the composition of their boards.  

View the Review and related documents.

The European Securities and Markets Authority announced that it was not going to further extend the exemption for non-financial counterparties from the obligation to provide collateralized bank guarantees for their energy derivatives cleared by EU CCPs. Therefore, from March 15, 2016, CCPs authorized under the European Market Infrastructure Regulation must fully collateralize commercial bank guarantees used to cover transactions in derivatives relating to electricity or natural gas produced. Non-financial counterparties have had a three year grace period to ensure that they will be able to comply with the collateral obligations under EMIR which requires CCPs to only accept highly liquid collateral with minimal credit and market risk.  
 
View ESMA's announcement. 

The final Report into the Financial Services Authority's enforcement actions following the failure of HBOS plc, prepared by Andrew Green Q.C., was published by the Prudential Regulation Authority and the Financial Conduct Authority. The Report assesses the reasonableness of the scope of the FSA's enforcement investigations in relation to the failure of HBOS from October 1, 2008 to September 12, 2012 and concludes that the scope was not reasonable, that the FSA's decision-making process was materially flawed and that the FSA should have conducted a wider investigation or series of investigations into the conduct of the HBOS Corporate Division and Mr Cummings, CEO of the Corporate Division at the relevant time. Recommendations include: (i) the regulators should have a system for pre-referral decision-making through which they identify and record the potential individuals that could be the subject of enforcement action related to an event/s, including reasons. One individual at the regulator/s should be made responsible for the pre-referral decision-making process; (ii) there should be an ongoing dialogue between Supervision and Enforcement, including discussions on the appropriateness of the scope of the investigation and any decisions should be recorded; (iii) the Memorandum of Appointment of Investigators issued to individuals by the regulators should include a summary of the potential breaches and an explanation of the matters that give rise to those alleged breaches; and (iv) the minutes of a regulators' Executive Committee meetings should be subject to review and approval. The Report also recommends that the PRA and FCA consider whether to investigate other former senior managers at HBOS with a view to prohibition proceedings.
 
View the report.

US Federal Reserve Bank of New York President, William C. Dudley, and US Federal Reserve Bank of Cleveland President, Loretta Mester, delivered speeches at The Clearing House annual conference. Dudley noted that much progress has been made toward eradicating the notion that firms are “too big to fail” but work remains to be done to ensure large institutions will fail in an orderly manner without necessitating taxpayer bailout. He touted the Federal Reserve Board’s recent issuance of a proposed rule to establish long-term debt and total loss-absorbing capacity requirements for US global systemically important banks, but remarked that institutions need to further simplify legal structures in order to ensure that they remain operational in times of stress. Mr. Dudley also justified the Federal Reserve Board’s history of implementing rules that are more restrictive than international standards, citing that the US financial system is typically more complex, thereby requiring greater oversight. Ms. Mester’s speech focused on initiatives aimed at improving the US payment systems speed, efficiency and security. She stressed the importance of collaboration between the Federal Reserve Board and the private-sector industry players in order to foster payment-system improvement. She also discussed the roles of two new task forces created by the Federal Reserve, one focused on faster payments and the other on the security of payments.

View Mr. Dudley’s speech.
​
View Ms. Mester’s speech. 

The SEC proposed rules that would require Alternative Trading Systems that trade stocks listed on national securities exchanges, including “dark pools”, to make certain detailed disclosures regarding their operations and the activities of their broker-dealer operators and affiliates. The proposed Form ATS-N would, among other things, require disclosure of: (i) information regarding trading by the broker-dealer operator and its affiliates on the ATS; (ii) 7 FINANCIAL REGULATORY DEVELOPMENTS FOCUS November 25, 2015 Issue 44/2015 the types of orders and market data used on the ATS; and (iii) the ATS’ execution and priority procedures. The proposed rules would make Form ATS-N disclosures publicly available on the SEC’s website. The SEC will accept public comment on the proposal for 60 days after its publication in the Federal Register.

View the text of the SEC proposed rule.

US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at The Clearing House annual conference regarding progress the FDIC has made in implementing the Dodd-Frank Act’s framework for the orderly failure of large, complex, Systemically Important Financial Institutions. With respect to providing feedback to the largest financial institutions on their living will submissions, the Chairman described certain specific actions that firms have been asked to address in their resolution plans, including requiring firms to place a greater focus on reducing the interconnectedness between legal entities and provide greater detail in the public portions of the resolution plans. He also discussed the progress the FDIC has made in: (i) facilitating the orderly resolution of a SIFI under its Title II Orderly Liquidation Authority; and (ii) cross-border coordination on resolution. The Chairman echoed similar remarks made in his speeches at the Peterson Institute for International Economics in May 2015 and at the FDIC Banking Research Conference in September 2015.

View the speech.

The Basel Committee on Banking Supervision published an interim impact analysis of its fundamental review of the trading book. The analysis used data from 44 banks and assesses the impact of the revisions proposed in previous consultations carried out in 2013 and 2014. The analysis found, amongst other things, that: (i) change in market risk capital charges would produce an increase of 4.7% in the overall Basel III minimum capital requirement; (ii) that such change leads to a 2.3% increase when the bank with the largest value of market risk-weighted assets is excluded from the sample; and (iii) in comparison with the current market risk framework, the standard proposed would result in a weighted average increase of 74% in aggregate market risk capital. The Basel Committee expects to finalize the review before the end of 2015.
 
View the analysis.

The European Banking Authority launched a consultation on draft Regulatory Technical Standards to specify additional criteria for preferential treatment in calculating the Liquidity Coverage Requirement for cross-border intragroup liquidity flows, as required under the Capital Requirements Regulation. The CRR observes that there can at times be a need for intra-group financial support in a case where an institution experiences liquidity difficulties and finds itself under conditions of stress. The draft RTS, amongst other things, specify how liquidity providers and receivers can display a low liquidity risk profile, by for example, a liquidity provider monitoring the liquidity position of the receiver on a daily basis. The draft RTS also detail the binding agreements and commitments that are required for credit and liquidity between group entities. Comments on the consultation are due by January 13, 2016.
 
View the consultation and draft RTS.

The Financial Conduct Authority launched its market study into asset management by publishing the Terms of Reference for the study. The FCA announced its intention to conduct the study in its 2015/2016 business plan following feedback it received during the wholesale sector competition review. The Terms of Reference state that the FCA will investigate three core areas: (i) how asset managers compete to deliver value; (ii) are asset managers willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA will also be looking at whether there are any barriers to innovation that prevent investors from obtaining better results. The Terms of Reference are not being formally consulted on but the FCA will accept comments received by December 18, 2015 on them and the issues raised. An interim report is expected to be published in summer 2016 setting out preliminary conclusions and possibly remedies to address any identified issues. The final report is expected in early 2017.
 
View the Terms of Reference. 

The Financial Stability Board published its finalized standards and processes for global securities financing data collection and aggregation. The report sets out the data that national regulators are to report as aggregates to the FSB, for financial stability purposes. The standards, amongst other things, define the data elements for repurchase agreements, securities lending and margin lending that national regulators will be asked to report to the FSB. The report also sets out recommendations for national regulators on the collection of data from market participants, so that timely and comprehensive visibility into trends and developments in these markets can be obtained.
 
View the FSB's standards and processes.

US Federal Reserve Board Governor, Daniel K. Tarullo, delivered a speech at the Brookings Institution discussing the need to carefully regulate nonbank financial intermediation activities. He emphasized the importance of having a non-uniform, multi-dimensional approach to the regulation of the various forms of nonbank intermediaries, given the “constantly changing and largely unrelated set of intermediation activities pursued by very different types of financial market actors”. He also stated that regulators should identify and assess the specific risks applicable to each particular institution, noting that not all nonbank financial entities or activities pose material threats to financial stability. Although Governor Tarullo noted that the growth of shadow banking in recent years has been modest, he cautioned specifically about the risks to financial stability that could result from heavy reliance on short-term credit providers and the use of “highly volatile funding structures outside of the regulated sector”.
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View the speech.

US Federal Reserve Board Governor, Jerome H. Powell, delivered a speech at The Clearing House annual conference discussing progress made in strengthening CCPs and expanding central clearing for repurchase agreement markets. Governor Powell touted global regulatory efforts to strengthen CCP resiliency, but noted that there is still work to be done due to the concentrated risks inherent to CCPs. His remarks focused largely on repurchase agreement transactions, where he enumerated the benefits of executing these transactions through a CCP. He noted that the use of a CCP provides market participants with greater transparency into potential risks by aggregating and standardizing market data. Additionally, CCPs may stabilize the financial system in the event of a defaulting counterparty by transferring defaulting positions to solvent parties, or otherwise managing such defaults, thereby reducing the risk of “fire sales” by non-defaulting counterparties. Finally, Governor Powell noted the risk-sharing benefits of utilizing CCPs. He concluded by urging regulators to consider implementing greater clearing solutions in markets with highly liquid assets, such as repurchase agreement trading for government and agency securities.
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View the speech. 

US Deputy Secretary of the Treasury, Sarah Bloom Raskin, delivered a speech at The Clearing House annual conference discussing cybersecurity and resiliency in the financial services sector. Raskin emphasized the need for greater cooperation among financial sectors and governments globally in order to mitigate cybersecurity threats. She also stressed the importance of financial institutions embedding cybersecurity into their risk management and control procedures, practicing basic “cyber hygiene” by bolstering the resiliency of computer systems and preparing a recovery playbook for significant cyber incidents.
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View the speech.

The European Securities and Markets Authority published a discussion paper seeking views on the validation and review of Credit Rating Agencies methodologies and on quantitative and qualitative techniques used as part of the validation of CRA methodologies, as required under the Credit Rating Agency Regulation. The CRA Regulation requires CRAs to use rigorous, systematic and continuous methodologies based on historical experience. The discussion paper sets out validation practices in the credit rating industry and notes the good practices perceived by ESMA in its recent supervisory investigation on validation. The discussion paper also seeks views on how CRA methodologies are deemed to be good predictors of credit worthiness and what CRAs should do to meet the requirements under the CRA Regulation to ensure that systemic credit rating anomalies identified through back-testing are addressed in the appropriate way. Responses are due by February 19, 2016.
 
View the discussion paper.

The G20 Leaders published a communiqué about their recent summit in Antalya. The press release, amongst other things, refers to enhancing the resilience and stability of financial institutions and systems, noting that core elements of the financial reform agenda have been completed, such as the finalization of the Total Loss-Absorbing Capacity for Global Systemically Important Banks. Further work is however going, in particular on: (i) CCP resilience; (ii) recovery planning and resolvability; (iii) the decline in correspondent banking services; and (iv) the implementation of OTC derivatives reforms. The G20 leaders will next meet in Hangzhou, China, in September 2016.
 
View the communiqué.

The European Securities and Markets Authority published a Protocol on the operation of its online Market in Financial Instruments Directive database. The database publishes the results obtained from calculations made by national regulators in connection with shares admitted to trading on a regulated market. The calculations relate to, amongst other things, average daily turnovers and number of transactions. The information aims to provide market participants with appropriate information enabling them to recognize liquid shares and make determinations on waivers for pre-trade transparency requirements and delayed post-trade publication. The information must be made available by national regulators under MiFID and forms part of the MiFID market transparency regime. The Protocol sets out the responsibilities and tasks to be carried out by ESMA and national regulators and also provides practical and technical guidance as to how calculations should be made.
 
View the MiFID database.
 
View the Protocol.

The European Central Bank announced the outcome of its 2015 Comprehensive Assessment of nine banks - Banque Degroof S.A. (Belgium), Sberbank Europe AG (Austria), Unicredit Slovenia (Slovenia), VTB Bank (Austria) AG (Austria), Novo Banco SA (Portugal), Agence Française de Développement (France), J.P. Morgan Bank Luxembourg S.A. (Luxembourg), Medifin Holding Limited (Malta) and Kuntarahoitus Oyj (Municipality Finance plc) (Finland). All banks that become or will become subject to direct prudential supervision by the ECB under the Single Supervisory Mechanism are subject to a Comprehensive Assessment. Capital shortfalls were identified at five of the nine banks: Agence Française de Développement, Medifin Holding Limited, Novo Banco SA, Sberbank Europe AG and VTB Bank AG. Four of these banks have already covered the shortfall. In addition, certain failings in systems and processes were also identified.  
 
View the announcement and results.

Five equivalence decisions on the regulatory regimes for CCPs under the European Market Infrastructure Regulation were published in the Official Journal of the European Union. These relate to Canada, Mexico, South Korea, South Africa and Switzerland. The legal and supervisory arrangements of these jurisdictions are considered to be equivalent to the requirements set out in EMIR. Equivalence decisions for CCP regimes have previously been given only for Australia, Hong Kong, Singapore and Japan. A decision for the US is still outstanding due to the differing margin requirements for exchange-traded derivatives.
 
View the equivalence decision for Canada.
 
View the equivalence decision for Mexico.
 
View the equivalence decision for South Korea.
 
View the equivalence decision for South Africa.
 
View the equivalence decision for Switzerland.

The SEC named Sanket J. Bulsara as the Deputy General Counsel for Appellate Litigation and Adjudication.

The FDIC updated its Frequently Asked Questions regarding brokered deposits. FDIC regulations typically prohibit the acceptance of brokered deposits by FDIC-insured depository institutions that are not well capitalized. The updated FAQs contain revised responses on various topics relating to identifying, accepting and reporting brokered deposits, including but not limited to: (i) the circumstances under which certain business professionals that refer clients to a bank will be considered deposit brokers; (ii) examples of programs that would not be considered brokered deposit programs; and (iii) situations in which contract and dual employees would not be classified as deposit brokers by the FDIC. The FDIC is soliciting comments on the updated document until December 28, 2015. 

View the FAQs in “Clean” Format.

View the FAQs in “Track Changes” Format.

The European Securities and Markets Authority published proposed draft technical standards that will amend the existing Commission Delegated Regulation on the minimum details of data to be reported to trade repositories and the Implementing Regulation on the format and frequency of trade reports to trade repositories. ESMA consulted on these changes in November 2014. ESMA considers that the current standards should be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under the European Market Infrastructure Regulation since 2013. The changes are mainly related to clarifying data fields and/or their description, amending existing fields so that they reflect reporting logic in existing Q&As and introducing new fields to reflect market practice. ESMA has also aimed to align reporting requirements under EMIR with those under the Markets in Financial Instruments Regulation, so as to minimize the burden on those entities that are required to report under both regimes. The changes include: (i) allowing the use of multiple reports for the reporting of complex derivatives provided that counterparties agree the number of reports to be submitted; (ii) adding a definition for the notional amount of a derivative; and (iii) amending the fields for reporting of collateral to, amongst other things, split the value field into initial margin posted and variation margin posted. The proposed draft technical standards have been sent to the European Commission for endorsement. ESMA proposes that the standards would only apply nine months after they come into force.

View ESMA's press release.