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

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

View the Review and related documents.

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

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

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

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

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

View the text of the SEC proposed rule.

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

View the speech.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

View the FAQs in “Clean” Format.

View the FAQs in “Track Changes” Format.

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

View ESMA's press release. 

The Basel Committee on Banking Supervision published a report to the G20 Leaders, providing an update on finalizing its post-crisis reforms, reviewing the work it has carried out to strengthen the international regulatory framework for banks since the global financial crisis. The report states that the Basel Committee has made good progress in finalizing its post-crisis reforms, which include: (i) carrying out a consultation on proposed revisions to the standardized approaches for credit risk, market risk and operational risk as well as on the design of a capital floor based on these standardised approaches; (ii) finalizing the revised Pillar 3 disclosure requirements; and (iii) completing its analysis and monitoring of the drivers of variability of risk-weighted assets in the banking book and trading book. The Basel Committee also published a second report to the G20 Leaders, providing an update on the implementation of Basel III standards since its 2014 progress report to the G20 Leaders. The report states that all member jurisdictions have implemented the Basel III risk-based capital regulations and that almost all member jurisdictions have implemented final rules on the liquidity coverage ratio. Work remains ongoing for the adoption of the Basel III standards for the leverage ratio and the net stable funding ratio. The Basel Committee aims to finalize the remaining core elements of the global bank regulatory reform agenda by the end of 2016.
 
View the reports.

The Prudential Regulation Authority published its Policy Statement, including final rules, and Supervisory Statement on contractual stays in certain financial contracts governed by third-country law. The rules will apply to all UK incorporated PRA-authorized banks, building societies, PRA-designated investment firms and their qualifying parents.  Those firms will need to agree with their counterparties to certain financial contracts governed by the laws of a jurisdiction outside the EEA that any action taken by the UK authorities to stay the termination rights in those contracts or to enforce a security interest would be recognized. Contractual agreement in writing is not required, as initially proposed. Instead, firms must ensure that the counterparty has agreed in an "enforceable manner" that its termination rights and rights to enforce a security interest will be limited according to the UK rules. The PRA states that legal opinions are not required as a matter of course but firms will need to ensure and demonstrate that they are in compliance. The rules will apply to contracts with counterparties that are credit institutions or investment firms from June 1, 2016 and to contracts with all other counterparties from January 1, 2017.
 
View the Policy Statement.
 
View the Supervisory Statement.

The Financial Stability Board published a report to the G20 Leaders on transforming shadow banking into resilient market-based finance. The report sets out the actions taken so far to address concerns raised over the past year associated with financial stability and shadow banking, such as the FSB's annual monitoring exercise to assess global trends and risks in the shadow banking system. This year's monitoring exercise covered 26 jurisdictions, four of which represent around 80% of global GDP and 90% of global financial system assets. The FSB has also taken steps to strengthen the oversight and regulation of shadow banking, in particular in the area of securities financing. The report also sets out the next steps required to transform shadow banking into resilient market-based financing, including on: (i) the implementation of the regulatory framework for haircuts on non-centrally cleared SFTs at the international level; (ii) the implementation of policy recommendations related to structural aspects of the securities financing markets; and (iii) the monitoring of global trends and risks in the shadow banking system. The FSB intends to report further on its progress in September 2016. On the same day, the FSB also published its 2015 global shadow banking monitoring report, regulatory framework for haircuts on non-centrally cleared securities financing transactions as well as its updated roadmap towards strengthened oversight and regulation of shadow banking in 2015.
 
View the FSB's report and related documents.

​The SEC named Marc Wyatt Director of its Office of Compliance Inspections and Examinations and leader of its National Exam Program.

The European Banking Authority published a consultation paper including draft Guidelines on the treatment of Credit Valuation Adjustment risk further to the Supervisory Review and Evaluation Process under the Capital Requirements Regulation. The draft Guidelines implement the recommendations of the EBA's report on CVAs published in February 2015 and aim to form a common and proportionate approach to determine: (i) the materiality of CVA risk for an institution; (ii) material CVA risk under the SREP; and (iii) adequate additional own fund requirements where risks aren't sufficiently covered. The EBA has also published a data collection exercise for a Quantitative Impact Study to ensure the appropriate calibration of threshold values. The Guidelines will be finalized once the consultation process and QIS are complete. National regulators will then have two months from the date of publication of the translated versions of the guidelines on the EBA website to report whether or not they comply with the Guidelines. Comments on the consultation are due by February 12, 2016. It is expected that the data collection exercise will be completed by January 28, 2016.
 
View the consultation paper and draft Guidelines.

UK Regulations amending primary and secondary legislation to give effect to the EU Regulation on European Long-term Investment Funds, known as ELTIFs, was published. ELTIFs are a new type of alternative investment fund managed by authorized Alternative Investment Fund Managers.  The Regulations come into force on December 3, 2015.
 
View the Regulations.

The European Banking Authority published a report on the use by banks of the possibility to increase the maximum ratio between variable and fixed remuneration up to 200% with shareholder approval. Under the Capital Requirements Directive, the ratio is limited to 100% unless a Member State allows firms to increase the ratio provided certain criteria are met. All Member States, except for Belgium, Romania, Slovenia and Sweden, have allowed firms the ability to increase the ratio. Only firms in 15 Member States have used that ability. The report also notes that firms have made use of the increase in Member States where remuneration levels are higher.
 
View the report.

The European Banking Authority published a report on the steps taken by national authorities to ensure that firms that had introduced role-based allowances as fixed remuneration had taken or were taking steps to revise their remuneration policies. Role-based allowances were introduced by some firms following the introduction of the EU bonus cap, a limit of the ratio between the variable and fixed parts of remuneration of 100%. The EBA published an Opinion in October 2014 in which it stated that role-based allowances that are not predetermined, transparent to staff, permanent and that provide incentives to take risks are not compliant with the requirements under the Capital Requirements Directive. The EBA had asked national regulators to ensure that remuneration policies complied with its Opinion by December 31, 2014. The EBA's report confirms that national regulators have taken such measures although some of those will only be effective for remuneration awarded for the performance year 2015. The EBA intends to include criteria on classifying remuneration as either fixed or variable in its guidelines on sound remuneration policies. It is also working with the European Commission to review whether the CRD requires further reinforcement in this area.
 
View the report.

The International Swaps and Derivatives Association re-launched the ISDA Resolution Stay Protocol. The new Protocol, called the ISDA 2015 Universal Resolution Stay Protocol, was developed in coordination with the Financial Stability Board. The ISDA 2015 Universal Resolution Stay Protocol includes an annex covering securities financing transactions, developed by ISDA with the International Capital Market Association (ICMA), the International Securities Lending Association (ISLA) and the Securities Industry and Financial Markets Association. 21 financial institutions have adhered to the new Protocol and ISDA expects more to do so. By adhering to the Protocol, relevant parties are able to amend the terms of Protocol Covered Agreements and opt in to existing and forthcoming resolution regimes, ensuring that cross-border derivatives and securities financing transactions are caught by statutory stays on cross-default and early termination rights under the US Bankruptcy Code, should a counterparty enter into resolution.
 
View the Protocol.

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 two final draft Implementing Technical Standards on the mapping of credit assessments to risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation and Solvency II Directive. The ITS aim to ensure sound credit assessments to encourage financial stability in the EU and determine an objective approach for attributing risk weights to the assessment of ECAIs. The final ITS will replace the Committee of European Banking Supervisors' guidelines on the recognition of ECAIs as well as the existing mappings of ECAIs' credit assessments issued by national regulators. The final draft ITS have been submitted to the European Commission for endorsement.
 
View the final draft ITS.

The European Central Bank published a consultation on harmonizing the exercise of Options and Discretions (O&Ds) available to EU member state national supervisory authorities under the Capital Requirements Regulation and Capital Requirements Directive, together known as CRD IV. Alongside the consultation, the ECB also published a draft Regulation on the exercise of O&Ds, a draft Guide on available O&Ds, an Explanatory Note as well as Q&As. An Option can allow a member state or a national regulator to choose how to comply with a given provision of CRD IV, selecting from a range of alternatives set out in such legislation. A Discretion can allow a national regulator or a member state to choose whether or not to apply a certain provision in CRD IV. The aim of the Regulation is to encourage the harmonization of supervision of significant banks in the Euro area, with the aim of safeguarding the financial stability and integration of the EU banking system. Comments on the consultation are due by December 16, 2015.
 
View the consultation and related documents.

The Prudential Regulation Authority published an updated Supervisory Statement on the Internal Ratings Based approaches to credit risk under the Capital Requirements Regulation. This is the approach under which certain banks and investment firms with sophisticated risk management systems are allowed to calculate capital requirements based on internally produced parameters. Amongst other things, expectations that have been superseded by decisions or technical standards adopted by the European Commission have been deleted, including on third country equivalence, and expectations for the notification of changes to IRB rating systems have been amended.
 
View the updated Supervisory Statement. 

The European Securities and Markets Authority published a final report setting out additional final draft Regulatory Technical Standards on the clearing obligation, in particular, the central clearing of interest rate OTC Derivatives in additional currencies. The additional final draft RTS propose a clearing obligation for fixed-to-float Interest Rate Swaps as well as forward rate agreements denominated in Norwegian Krone (NOK), Polish Zloty (PLN) and Swedish Krona (SEK). ESMA considers that because substantial trading volumes exist in these currencies, such contracts are of significant systemic relevance for the EU as well as to specific local markets and the addition of these classes to the clearing obligation will play an important role in reducing systemic risk. ESMA has already deemed IRS denominated in Euros (EUR), Great British Pounds (GBP), Japanese Yen (JPY) and United States Dollars (USD) eligible for mandatory clearing, for which RTS have already been endorsed by the European Commission and central clearing is expected to begin in mid-2016. ESMA has submitted the additional final draft RTS to the European Commission for endorsement.
 
View the final report.

The International Organization of Securities Commissions published its final report on standards for the custody of Collective Investment Schemes' assets. The report seeks to develop guidance for the custody of CIS assets consistent with the IOSCO Objectives and Principles of Securities Regulation. The report sets out standards that aim to identify core issues that require consistent review to ensure investors' assets are well protected. The key risks identified by the report are: (i) operational risk; (ii) misuse of CIS assets; (iii) risk of fraud or theft; and (iv) information technology risk. The report sets out the role and responsibilities of custodians and examines the ways in which key risks associated with the custody of CIS assets can be managed and mitigated.
 
View the report.

The Basel Committee on Banking Supervision published proposals for the capital treatment of simple, transparent and comparable securitizations which will amend the revised securitization framework published in December 2014. The proposals should be read with the criteria for identifying simple, transparent and comparable securitizations released in July 2015 by the Basel Committee and the International Organization for Securities Commissions. The proposals include the additional criteria that a STC securitization would need to meet in order for lower regulatory capital requirements to apply. Asset-backed commercial paper programmes and synthetic securitizations are excluded from the proposals. Responses to the consultation are due by February 5, 2016. The Basel Committee intends to publish the final standard in 2016. The implementation date will take into account that the revised securitization framework is to be implemented by 2018.
 
View the consultation paper.

View the press release.

The Financial Stability Board published its fourth progress report on implementing the FSB's principles for sound compensation practices and their implementation standards. The progress report states that almost all FSB jurisdictions have fully implemented the principles and standards for banks which were issued in 2009. The FSB report also states that: (i) the oversight of compensation practices has been embedded in bank supervisory frameworks in most jurisdictions; (ii) several jurisdictions have shown an increase in the fixed portion of remuneration in 2014 compared to 2011; and (iii) compensation and risk governance frameworks are increasingly linked.
 
View the report. 

The European Banking Authority published a consultation paper on draft Implementing Technical Standards for common procedures that national regulators in the EU should use when consulting with each other about prudential assessments for proposed acquisitions and increases of qualifying holdings in credit institutions. The draft ITS set out the proposed process and timeframes for requests of information and includes proposed templates and forms that are to be used by national regulators. Comments on the consultation are due by February 10, 2016.
 
View the consultation paper.

The Financial Stability Board published a report on removing remaining obstacles to resolvability. The report states that significant work is still to be carried out to make resolution plans fully operational and recognizes that not all FSB jurisdictions have a bank resolution regime that is in line with the FSB's key attributes of effective resolution regimes for financial institutions, which were last updated in October 2014. The FSB intends, amongst other things, to develop guidance to implement the Total Loss-Absorbing Capacity standard and undertake work on CCP resolution and resolution planning, including possibly making a proposal for draft guidance.
 
View the report.

The Basel Committee on Banking Supervision published a consultation paper on Total Loss Absorbing Capacity holdings, setting out the proposed prudential treatment of investments in TLAC-qualifying instruments by both Global Systemically Important Banks and non-G-SIBs that are subject to the Basel Committee's standards. The consultation proposes that banks deduct their holdings of TLAC instruments from their regulatory capital, subject to certain thresholds, and seeks to limit contagion within the financial system, should a G-SIB enter into resolution. The consultation also sets out revisions that are required to the text of Basel III, specifying how G-SIBs must take on board TLAC requirements when calculating regulatory capital buffers. Comments are due by February 12, 2016.

View the consultation paper.

The US Board of Governors of the Federal Reserve System, together with the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation, issued guidance entitled Deduction Methodology for Investments in Covered Funds, in order to reconcile the regulatory capital rule and the Volcker Rule with respect to the capital treatment for investments in certain hedge funds and private equity funds (i.e. covered funds under the Volcker Rule). The Methodology provides banking organizations with guidance on reporting deductions of covered funds under the Volcker Rule as well as a step-by-step process to reconcile the treatment of overlapping tier 1 capital deductions for investments in covered funds required by the Volcker Rule with any regulatory capital rule’s deductions for investments in the capital of unconsolidated financial institutions. 

View the press release and guidance.

The Financial Stability Board published a progress report on measures to reduce misconduct in the finance industry. The report, amongst other things, sets out the next steps that the FSB will take to address such misconduct. The FSB's aims include: (i) establishing a working group so that outlooks and good practices can be exchanged with a view to create possible necessary guidelines; (ii) examining the use of compensation tools for addressing misconduct, with a view to making recommendations on better practices if needed; and (iii) organizing a workshop so that national experiences can be shared on the role of enforcement powers of bank regulators in addressing misconduct by individuals.
 
View the report.

HM Treasury and the Financial Conduct Authority jointly published a policy statement on the implementation of the directive amending the Transparency Directive, setting out final rules and summarizing feedback received on their previous joint consultation on proposed amendments to the Financial Services and Markets Act 2000 and Disclosure Rules and Transparency Rules (known as DTRs) for such implementation. The policy statement sets out the responses to the previous consultation, including on the requirement to disclose voting rights arising from holdings of financial instruments that have a similar economic effect to holding shares, as well as on the extension of deadlines for the publication of half-yearly reports and the period of time for which financial reports are publicly available. The policy statement also includes the FCA's new DTRs Sourcebook (Transparency Directive Amending Directive) Instrument 2015, implementing the changes as set out in the policy statement. The new rules enter into force on November 26, 2015.
 
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The European Securities and Markets Authority announced it had elected three members to its management board, replacing outgoing members whose terms expire in November 2015. Lourdes Centeno and Elisabeth Roegele are both new members, whilst Klaus Kumpfmüller has been re-elected for another term. All three members will serve a term of two and half years starting December 1, 2015.
 
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The Board of Governors of the Federal Reserve System, the FDIC and OCC released results from the annual Shared National Credit review. The SNC review has been conducted by the banking agencies since 1977 to assess risk in the largest and most complex credits shared by numerous financial institutions. A SNC generally includes large loans or formal loan commitment extended to borrowers by a federally supervised institution, its subsidiaries and certain affiliates and is shared by three or more unaffiliated supervised institutions. According to the release, leveraged lending continues to be a key issue in the SNC portfolio. Specifically, the agencies noted that leveraged transactions originated over the past year continue to show structural deficiencies, an issue that has persistently been cited by US regulators as problematic, including the 2013 interagency guidance on leveraged lending. The release notes that there seems to be a discrepancy between industry practices and safe and sound banking expectations when looking at leveraged transaction structures. The review also pointed out weaknesses related to oil and gas credits. 

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View the SNC Review. 

US FDIC Vice Chairman Thomas M. Hoenig spoke at the Annual International Banking Conference regarding “Post-crisis risks and bank equity capital”. Vice Chairman Hoenig’s remarks focused on the comparison of capitalizing banks with debt or equity capital. Specifically, he pointed out the key risks of using debt capital, as required by the recent TLAC proposal by the Federal Reserve. He noted that costly debt may put earnings pressure on firms and may even accelerate failure in the case of financial distress. Moreover, debt rules essentially require regulators to “predict what activities and investments might cause future crises”. Vice Chairman Hoenig suggested that equity rules would allow well capitalized institutions to withstand shocks and crises in the financial system and would not require any “extraordinary insight” from financial regulators. He argued that the overall economic benefits will be higher than the related costs, and points to the current outperformance of well-capitalized US institutions as compared to less well-capitalized European institutions as an example. According to Vice Chairman Hoenig, “…our goal to prevent failure should be every bit as important as resolving failed firms” and increased equity capital would be a stronger deterrent as compared to debt. 

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Federal Reserve Board Governor, Daniel K. Tarullo, spoke at the 18th Annual International Banking Conference on “Shared Responsibility for the Regulation of International Banks”. He spoke about the benefits of international banking, including diversification and improved efficiencies, and the associated risks including contagion risk. Governor Tarullo also made recommendations encouraging further cross-border coordination including: (i) greater information sharing between countries; (ii) encouraging financial regulators to fully understand the risks and standards in other jurisdictions when considering substituted compliance; and (iii) regular contact between top country officials. In his conclusion, Governor Tarullo encouraged a “strong set of international prudential standards” and “good institutional relationships” in order to establish an improved environment for internationally active banks. 

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William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, made opening remarks at the Reforming Culture and Behavior in the Financial Services Industry: Workshop on Progress and Challenges. In his remarks, he reiterated certain points from his previous speeches, noting that there still remain “deep-seated cultural and ethical failures” in the financial services industry that need to be handled from the inside out. He continued to encourage the industry to focus not just on banning specific examples of misconduct, but rather to try to find the underlying causes. “I think our focus should be less on the search for bad apples and more on how to improve the apple barrels.”

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The European Banking Authority published the details of its 2016 EU-wide stress test exercise that will be launched in the first quarter of 2016. The names of the 53 EU banks that will take part in the exercise have been published, of which 39 fall under the jurisdiction of the Single Supervisory Mechanism. The stress test will cover broadly more than 70% of the EU banking sector and will assess the ability of EU banks to meet relevant supervisory capital ratios in the event of adverse economic conditions. The EBA also published its draft methodological note for discussion together with a draft template to be used as part of the stress test exercise.  The results of the stress tests will be published in the third quarter of 2016.

View the press release.