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

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

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

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

View the press release.

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

View the speech.

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

View the report.

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

View the report.

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

View the guidance.

View our client note on the Government's proposals.

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

View CFTC Staff Letter No. 14-147.

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

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

View the full text of Chairman Gruenberg’s testimony.

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

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

View the consultation paper.

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

View the press release.

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

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

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

The Financial Stability Board published a progress report from the Enhanced Disclosure Task Force on the implementation of the EDTF's recommendations for enhancing risk disclosures of banks. The report, which covers 40 global or domestic systemically important banks, includes updates based on 2014 annual reports as well as self-assessments by banks and assessments made by users of financial disclosures. The report states that the self-assessments provided by banks show disclosure of 82% of the information recommended by the EDTF. This represents an increase of 7% from the previous year. The report also states that there are still significant opportunities for banks to improve credit risk disclosures and that credit risk disclosures vary significantly across different countries, with UK banks having the highest implementation rates.
 
View the report.

The European Union Agency for Network and Information Security published a report on the secure use of cloud computing in the finance sector. ENISA makes recommendations to financial institutions, national regulators as well as cloud service providers that aim to facilitate the secure adoption of cloud services in the finance sector. According to ENISA, the following are key issues that are hampering the adoption of cloud services by financial institutions: (i) financial institutions and their national regulators are unconvinced about the security benefits of cloud computing even though security is considered very important by CSPs and risk assessments have been carried out by various expert bodies, including ENISA; (ii) lack of detailed guidance on the relevance of national regulations for cloud computing; and (iii) guidance from national regulators on meeting regulatory requirements when adopting cloud computing needs to be further developed. ENISA makes several recommendations, including: (i) national regulators, financial institutions and CSPs should develop effective communication and collaboration to assist the cloud market to evolve quicker; (ii) financial institutions should develop a cloud computing strategy, adopting a risk-based approach to moving to the cloud; (iii) CSPs should work to increase the level of transparency about cloud offerings for financial institutions and their regulators; and (iv) the European Commission, European Agencies and industry bodies should work together to improve the understanding of cloud computing.

View the report.

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

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

View the text of the final rule.

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

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

View Mr. Fischer’s speech.

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

View the text of the OCC press release.

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

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.
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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.”
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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.