The European Banking Authority published proposed Guidelines on compensation policies and procedures related to the sale and provision of retail banking products and services. The EBA is seeking to address the issues arising out of the recent cases on misconduct and mis-selling by staff in financial institutions where poor remuneration policies and practices have been identified as a root cause. The proposed Guidelines apply to the remuneration paid to staff employed by banks, credit intermediaries, payment institutions and electronic money institutions when selling mortgages, personal loans, deposits, payment accounts, payment services and/or electronic money. The proposed Guidelines set out the design of remuneration policies and practices, including prevention of conflicts of interest, using quantitative and qualitative criteria for determining variable remuneration and how the rights and interests of consumers should be taken into account. The EBA also proposes that remuneration policies and practices should be documented, and that such documentation should be retained for five years, be accessible to staff and made available to national regulators on request. Responsibility for complying with the Guidelines would rest with the management body of a firm. The consultation closes on March 22, 2016.
 
View the consultation paper.

The European Banking Authority published final Guidelines on sound remuneration policies and an Opinion on the application of proportionality to the remuneration provisions in the Capital Requirements Directive. The final Guidelines are applicable to banks and investment firms and cover all staff with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines will apply from January 1, 2017, a year later than originally intended. Therefore, firms do not need to amend their existing compensation practices for the 2016 performance year.  The Guidelines set out detailed requirements for remuneration policies, the related governance arrangements and processes for implementing remuneration policies, updating the guidelines on remuneration policies published by the Committee of European Banking Supervisors to take into account changes introduced by the revised CRD IV, technical standards on the identification of staff and on the instruments which can be used for variable remuneration, the EBA's opinion on the use of allowances and industry developments.

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The International Organization for Securities Commissions published a statement on addressing the regulation of crowdfunding and a report on its survey conducted on how crowdfunding is regulated in twenty-three IOSCO jurisdictions. The objectives of the statement and the report are to highlight emerging trends and issues in crowdfunding and to enhance IOSCO's understanding of how jurisdictions have adopted regulations on crowdfunding. Crowdfunding provides an alternative capital raising avenue, particularly for small enterprises and start-ups, which is beneficial in supporting economic growth but which may pose risks for investor protection. IOSCO's survey found that most jurisdictions had implemented regulations to address issues on conflicts of interest, data protection and fraud. IOSCO believes that more attention is required on the risk of default or failure of start-ups, potential failure of crowdfunding platforms, illiquidity, money laundering, fraud and terrorist financing as well as the suitability of any particular platform for an investor. IOSCO urges policy makers and regulators to consider the steps taken in some jurisdictions to address the risks of crowdfunding, including the imposition of registration requirements for funding portals, setting disclosure requirements for issuers and funding portals and requiring the appointment of a third party custodian to hold investor assets. In addition, the cross-border risks involved in crowdfunding should either be addressed by restricting cross-border fundraising or implementing a coordinated approach between relevant jurisdictions.

View the statement.

View the survey.

The European Commission launched a consultation which seeks to collect information on how institutional investors, asset managers and other service providers in the investment chain take into account, for the purpose of investment decisions, sustainability information and performance of companies or assets. The consultation is linked to the Commission's Communication on Long-Term Financing of the European Economy as well as the action plan for building a Capital Markets Union. The consultation is open until March 25, 2016.

View the consultation.

The European Banking Authority launched a consultation on proposed Guidelines on stress testing and supervisory stress testing. The proposed Guidelines cover: (i) internal stress testing by firms, providing detailed guidance for firms when designing and conducting a stress testing program; (ii) the assessment of firms' stress testing by national regulators with the aim of ensuring convergence in the context of the supervisory review and evaluation process; and (iii) supervisory stress testing. The proposed Guidelines provide common organizational requirements, methodologies and processes for firms performing internal stress tests as part of their risk management processes and common methodologies for national regulators when conducting supervisory stress tests but do not set methodologies for the EBA's stress testing in cooperation with national regulators. Once finalized, the Guidelines will replace the current guidelines issued by the Committee of European Banking Supervisors. The consultation is open until March 18, 2016. The EBA aims to publish the final Guidelines in Q2 2016 and expects that they will apply from Q4 2016.

View the proposed Guidelines.

The European Banking Authority published an Opinion, dated December 16, 2015, addressed to national regulators and the European Commission on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions. The EBA considers that national regulators should ensure that the Common Equity Tier 1 capital that is used for calculation of the maximum distributable amount is limited to the amount not used to meet a firm's Pillar 1 and 2 own funds requirements. Also, national regulators should require firms to disclose MDA-relevant capital requirements. The EBA is also of the view that the Commission should review the MDA provisions of the Capital Requirements Directive, aiming to eliminate inconsistencies in the application of the provisions across the EU and should review the prohibition on distribution, in particular, as it relates to Additional Tier 1 instruments when no profits are made in a given year.

View the Opinion.

The Single Resolution Board announced the first members appointed to its Appeal Panel. The nominated members are: Ms Hélène Vletter Van Dort (Chair), Mr Yves Herinckx (Vice-Chair), Mr Kaarlo Jännäri, Mr Marco Lamandini, Mr Christopher Pleister. Ms Eleni Dendrinou-Louri and Mr Luis Silva Morais have been nominated as alternates to the Appeal Panel. The appointments are for a term of five years, starting on January 1, 2016. The Appeal Panel is established to hear appeals brought by individuals or legal persons, including resolution authorities, against a decision of the SRB that is either addressed, or of direct and individual concern, to that person.

View the announcement.

A Commission Implementing Directive on the procedures and requirements for protection of individuals that report an actual or potential infringement of the Market Abuse Regulation to a national regulator was published in the Official Journal of the European Union. The Implementing Directive sets out the procedures for reporting, record-keeping requirements, measures for the protection of whistle blowers that are working under a contract of employment and arrangements for the protection of personal data of whistle blowers. Member States must transpose the requirements of the Implementing Directive into their national laws by July 3, 2016 and apply the new legislation from that date. The Market Abuse Regulation sets out the EU requirements on insider dealing, the unlawful disclosure of inside information and market manipulation and will apply directly across the EU from July 3, 2016.

View the Implementing Directive.

The European Banking Authority published a report on its analysis and market practice assessment of synthetic securitization in Europe. The report makes recommendations for the European Commission's proposed legislative amendments to the Capital Requirements Regulation and proposed securitization regulation, which provide for the preferential regulatory treatment of simple, transparent and standardized securitizations. The EBA's analysis supports the approach taken by the Commission in its proposed securitization framework, which provides for a different regulatory treatment of on-balance sheet synthetic securitization positions retained by originator banks. The EBA concurs that the proposed framework should not be extended to all synthetic securitizations applicable to all investors across asset types. The EBA recommends that certain criteria be met for eligibility of balance sheet synthetic transactions, including requirements that originator banks should meet to transfer the risk of eligible transactions to public or private investors. In particular, the EBA advises the Commission to consider amending its proposal to include transactions in which private investors provide credit protection in the form of cash. The report follows the EBA's report in July 2015 on a qualifying framework for traditional securitization.

View the report.

View the Commission's proposed securitization framework.

The European Banking Authority published a report, dated December 15, 2015, on the necessity for adding stable funding requirements to the EU regulatory capital requirements framework. The Capital Requirements Regulation requires the EBA to report to the Commission on whether and how it would be appropriate to ensure that banks and investment firms use stable sources of funding and to provide an assessment of the impact of a stable funding requirement on the businesses and risk profiles of firms in the EU, the financial markets, the economy and trade financing, as well as potential methodologies for determining the amount of stable funding available to and required by firms. The mandate was included in the CRR in response to the Basel Committee on Banking Supervision's publication in 2010 of a net stable funding ratio (known as the NSFR) to be put in place by 2018. The NSFR requires firms to maintain a stable funding profile in relation to their assets and off-balance-sheet activities over a period of one year.

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The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions published proposed guidance on the Unique Product Identifier which will allow for the identification of OTC derivatives products that authorities require, or may require in the future, to be reported to trade repositories.  The UPI is made up of an OTC derivatives products classification system and an associated code (i.e. how the UPI will be represented in trade reports). A separate consultation will be launched on the code at a later date. Currently, OTC derivative trades are reported to 20 trade repositories authorized for some asset classes. However, in order to properly mitigate systemic risk and protect against market abuse, it is necessary for data across trade repositories to be aggregated so that national regulators have a comprehensive view of the OTC derivatives markets and trading activity. The CPMI and IOSCO have been tasked by the Financial Stability Board with developing global guidance on the harmonization of data elements reported to trade repositories, including a Unique Transaction Identifier and a UPI. The CPMI and IOSCO are proposing principles and high-level business specifications for the UPI as well as two approaches for the granularity of the UPI classification system. In particular, feedback is sought on potential implementation challenges. The consultation closes on February 24, 2016.

View the consultation paper.

The Basel Committee on Banking Supervision launched a consultation on the identification, assessment and measurement of step-in risk. The proposed framework would form the basis for identifying, assessing and addressing step-in risk that is potentially embedded in banks' relationships with shadow banking entities. The Basel Committee refers to step-in risk as the risk that a bank may provide financial support to an entity that is under financial stress beyond or without any contractual obligations to do so to protect itself from any adverse reputational risk that may result from its connection to the entity. The proposals only apply to unconsolidated entities (i.e. entities that are outside of the regulatory scope of consolidation). The proposed framework includes descriptions of the relationships and indicators that characterize such relationships between banks and shadow banking entities, such as capital ties, sponsorship, provision of financial facilities, decision-making and operational links. The Basel Committee proposes that any step-in risk that is identified could be addressed through prudential measures, such as through quantitative requirements or by bringing the relevant entity within regulatory consolidation. The consultation closes on March 17, 2016.

View the consultation paper.

The International Organization for Securities Commissions published a report on the existing tools available to fund managers for liquidity management in collective investment schemes. The report, which covers the frameworks in 26 jurisdictions, provides a global view of the tools available to fund managers, particular in extreme situations, and the funds to which those tools apply, including the availability of tools in particular jurisdictions, their use and effectiveness and any system-wide implications that the tools pose. The report is part of IOSCO's work on the collection of data about asset management activity. IOSCO is considering developing guidance on liquidity risk management that would go beyond its 2013 Principles of Liquidity Risk Management for Collective Investment Schemes, which would include stress testing.

View the report.

View the IOSCO Principles.

The UK Government launched a consultation on further proposals for implementing the Bank Recovery and Resolution Directive into UK law following the identification of a few changes that the Government believes will clarify and strengthen the UK's transposition of the BRRD. The proposals would amend the Banking Act 2009, the Financial Services and Markets Act 2000 and certain secondary legislation and a draft Order was published with the consultation paper.

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An amending Order was published which stops certain provisions of the Senior Manager & Certification Regime from coming into effect on March 7, 2016, the date from which the SM&CR becomes effective for banks, building societies, credit unions and investment firms designated by the Prudential Regulation Authority.  The provisions that will not come into effect on March 7, 2016 are: (i) the obligation on firms to notify the PRA or Financial Conduct Authority when it knows or suspects that a senior manager or certified person has failed to comply with the conduct rules; and (ii) the presumption of responsibility for senior managers. Certain changes to the regime have been proposed by the UK Government, including extending the regime to all financial services firms and replacing the presumption of responsibility with a duty of responsibility. It remains to be seen whether Parliament will approve those changes. In the meantime, the PRA advises firms to prepare for implementation of the regime on the basis that the above two provisions will not come into effect in March 2016.

View the Order.

View the PRA's related statement.

The European Securities and Markets Authority published a final report and final guidelines on the assessment of knowledge and competence of individuals providing investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of investment firms. Under the revised Markets in Financial Instruments Directive, an investment firm is required to ensure that individuals giving investment advice or providing information about financial instruments, investment services or ancillary services to clients on its behalf have the necessary knowledge and competence to do so and to satisfy the firm's obligations on suitability, appropriateness and reporting and provision of information to clients. An investment firm may be requested to demonstrate that the requirements are met on request by its national regulator. National regulators must publish the criteria that will be used to assess such knowledge and competence. ESMA's guidelines, which apply to national regulators and investment firms, specify the criteria for the assessment of knowledge and competence, establishing the minimum standards that staff providing the relevant services should meet. The guidelines will come into effect on January 3, 2017.

View the guidelines.

The European Banking Authority published final draft Regulatory Technical Standards on the valuation of derivatives for the purpose of bailing in derivative liabilities. Under the Bank Recovery and Resolution Directive, a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine a value of those derivative liabilities at the moment of exercise of the resolution power. The EBA's final draft RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives. The EBA has submitted the final draft RTS to the European Commission for endorsement. Member states are required to implement the bail-in tool by January 1, 2016.

View the final draft RTS.

The European Banking Authority published final draft Regulatory Technical Standards and final guidelines on the business reorganization plans that a firm that has been recapitalized using the bail-in tool is required to produce. Under the Bank Recovery and Resolution Directive, a firm that has been recapitalized through a bail-in must: (i) produce a reorganization plan that sets out how the firm will be restored to long-term viability; (ii) submit progress reports twice annually throughout the reorganization period. The BRRD requires the EBA to develop RTS on the minimum content of the business reorganization plans and progress reports and to issue guidelines for national regulators and resolution authorities to assess the reorganization plan. The final draft RTS require a business plan to identify and address the cause of the firm's failure, demonstrate that the firm can operate viably in the long-term, address shortcomings in the firm's business model (even if not related to the firm's failure), include financial performance projections with relevant milestones and indicators. The progress report should report on implementation of the reorganization plan and include proposed amendments to the plan, if necessary. The EBA's guidelines provide national regulators and resolution authorities with the means to assess whether the business reorganization plan is credible and realistic and consistent with other business plans prepared by the firm in parallel. Verification by independent entities, such as auditors, should be possible, where necessary.

View the final draft RTS and guidelines.

The European Banking Authority published final draft Regulatory Technical Standards specifying the information on financial contracts that a firm may be required to maintain. The Bank Recovery and Resolution Directive gives resolution authorities the power temporarily to suspend the termination rights of any counterparty to a contract with a firm that is under resolution. Both national regulators and resolution authorities may require a firm to maintain detailed records of financial contracts (generally, these are securities contracts, commodities contracts, futures and forwards contracts, swap agreements, inter-bank borrowing agreements) on whether or not they include suspensory provisions. The EBA's final draft RTS set out the minimum set of information on financial contracts that should be included in the detailed records held by a firm which includes information such as whether a contract includes contractual recognition of resolution powers, information on value and valuation, collateral, termination rights, maturity and netting arrangements. The RTS also prescribe the circumstances in which the requirement to hold such records should be imposed and take a wide approach by including all firms or entities that might be subject to resolution actions. The EBA considers that firms that would be placed into an insolvency procedure need not be included but the European authority does not prohibit national regulators or resolution authorities from imposing similar requirements on such firms, or any other firms.

View the final draft RTS.

The International Organization of Securities Commissions announced it appointed Paul Andrews as its new Secretary General, replacing David Wright from March 2016 for a three-year term.

View the press release.

The European Banking Authority published final draft Regulatory Technical Standards which set out the prudential regime for central securities depositories under the Central Securities Depositories Regulation. A distinction is made in CSDR between CSDs that offer banking-type ancillary services and which are also authorised as credit institutions (i.e. banks) and CSDs that are not permitted to offer ancillary banking services. The final draft RTS cover: (i) the capital requirements applicable to all CSDs; (ii) the additional risk-based capital surcharge which takes into account the risks, including intra-day credit and liquidity risks, that arise from the ancillary banking services of CSDs; and (iii) the framework and tools for monitoring, measuring, managing, reporting and disclosing the above-mentioned credit and liquidity risks. CSDs that carry out ancillary banking services will also need to comply with the Capital Requirements Regulation and the final draft RTS impose stricter requirements than those in CRR in some respects. The final draft RTS have been sent to the European Commission for endorsement. The CSDR, which introduces common standards for settlements across the EU, will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities.

View the final draft RTS.

The Basel Committee on Banking Supervision published its third progress report on the adoption by banks of its Principles for effective risk data aggregation and risk reporting. The Principles must be implemented by global systemically important banks by January 1, 2016, and aim to strengthen risk data aggregation and risk reporting at banks so that risk management and decision-making practices are improved. The report details the progress that G-SIBs have made in order to comply with the Principles. The Basel Committee recommends that: (i) banks and national regulators should continue to promote understanding of the Principles; (ii) national regulators should conduct more in-depth/specialised examinations on data aggregation requirements to evaluate weaknesses; (iii) banks should clearly articulate risk data aggregation and risk reporting expectations, in line with their risk appetite in both normal and stress periods; (iv) banks should have appropriate governance arrangements in place to oversee manual processes; (v) banks should consider reducing the complexity of their systems to meet the data aggregation requirements; (vi) auditors should undertake an independent assessment of each bank's compliance with the Principles in early 2016, reporting any necessary remedial action to the bank's board; and (vii) banks that are unable to comply by the deadline should agree plans to do so with their national regulator. The Basel Committee also recommends that national regulators apply the Principles to domestic systemically important banks (known as D-SIBs) from three years after they have been identified as such.

View the report.

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

View the proposed Regulation.

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

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

View the Regulations.

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

View the report.

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

View the announcement.

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

View the Regulation.

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

View the announcement.

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

View the Guidelines.

View the EBA's report.

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

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

View the report.

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

View the consultation paper.

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

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

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

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

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

View the proposed revisions to Form FR Y‑7. 

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

View the SEC press release.

View the proposed rule.

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

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

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

The International Organization of Securities Commissions published its third survey on hedge funds. The survey gathers information received from hedge fund managers on trading activities, leverage, funding and the hedge fund market generally, capturing data from around 1,500 funds. The findings of the survey include that: (i) the hedge fund industry is mainly based in the US, is largely US dollar based and principally invested in North American assets; (ii) hedge funds across all jurisdictions with the exception of Japan use financial leverage; and (iii) a large proportion of direct investments are made by institutional investors and the remaining share is led by funds of funds. The survey also states that assets that are managed by hedge funds appear to be growing at a rate of 34% since the last survey was published in 2013 and that the Cayman Islands hold a larger number of new funds and remain the tax domicile of choice. The hedge fund survey assembles data from regulatory returns on hedge fund activities and aims to facilitate IOSCO to gain insight into the global hedge fund industry, encourage global cooperation on the risks arising in the hedge fund sector and creating a forum for the consideration of any potential regulatory requirements where necessary. The study is the only such exercise that is carried out on a global level.
 
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The European Banking Authority published a consultation paper on draft Guidelines for the collection of information for the Internal Capital Adequacy Assessment Process and the Internal Liquidity Adequacy Assessment Process under the Capital Requirements Directive. The consultation forms part of the Supervisory Review and Evaluation Process and follows on from the criteria and methodologies specified in the EBA Guidelines on common procedures and methodologies for SREP. The Guidelines aim to facilitate the assessment of ICAAP and ILAAP as well as to create a consistent approach to the ICAAP and ILAAP frameworks and to the assessment of reliability of the own capital and liquidity estimates of financial institutions. The draft Guidelines set out, amongst other things, the general criteria for national regulators for the collection of ICAAP and ILAAP information from institutions and will be finalized following the completion of the consultation. The Guidelines are expected to apply from June 30, 2016. Comments are due by March 11, 2016.
 
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A Commission Delegated Regulation, in the form of Regulatory Technical Standards, was published setting out criteria for the assessment of intra-group transactions and risk concentrations under the EU Financial Conglomerates Directive. The RTS provide national regulators and coordinators with criteria for assessing whether intra-group transactions and risk concentrations are significant and provide for more harmonized reporting of information by financial conglomerates. The Financial Conglomerates Directive provides for the supplementary prudential supervision on a group-wide basis of groups including banks, insurance undertakings and investment firms which are part of a financial conglomerate which provide services and products in different sectors of the financial markets. The Directive covers, amongst other things, the solvency position and risk concentration at the level of the conglomerate, intra-group transactions, internal risk management processes at conglomerate level and regulations on the fit and proper character of the conglomerate's management.
 
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The European Securities and Markets Authority launched a consultation on revised Regulatory Technical Standards on data access and operational standards for comparison and aggregation of data under the European Market Infrastructure Regulation. ESMA is proposing to revise the existing RTS to take into account both practical developments and international developments.  It will also address certain structural deficiencies in data access which have resulted in an inability of regulators to perform adequate systemic risk assessments.  Particular targets of concern are low quality data, limited capabilities for data querying and for access to large datasets, difficulties in aggregating and comparing data across trade repositories due to lack of standardization and difficulties in obtaining real direct and immediate access to trade repository data. ESMA is therefore proposing: (i) common provisions for operational standards for aggregation and comparison of data; (ii) common output formats; and (iii) common provisions for operational standards for access to data and data exchange procedures between trade repositories and national regulators. The consultation closes on February 1, 2016.

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

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

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

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

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

View the Opinion and Report.

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