HM Treasury published the Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order 2015 which amends the Financial Services and Markets Act 2000. A RAP is a UK institution that, amongst other things is: (i) a credit institution with permissions under FSMA to carry on the regulated activity of accepting deposits; or (b) an investment firm that deals in investments as principal; and (c) is not an insurer. The Order provides for non-UK institutions to be "relevant authorised persons" if they fall into one of two categories and if they are not insurers. The two categories are: (i) a non-UK firm that is a credit institution with a branch in the UK and that is authorised to take deposits; or (ii) a non-UK firm that is an investment firm with a branch in the UK, authorised to deal in investments as principal in the UK and is regulated by the Prudential Regulation Authority for that activity. The Order enters into force on November 9, 2015.
 
View the Order and Explanatory Note.

The Financial Conduct Authority published a consultation paper on proposals for necessary changes to the FCA Handbook that are required to implement the new Market Abuse Regulation. The consultation paper seeks views, amongst other things, on the different options for implementing the new regime in two areas, namely: (i) the requirement for issuers to provide an explanation for a delay in the disclosure of inside information under certain circumstances; and (ii) the threshold for disclosure of managers' transactions, for persons discharging managerial responsibilities within issuers. MAR replaces the Market Abuse Directive and will apply from July 3, 2016. Comments on the consultation are due by February 4, 2016.
 
View the consultation.

HM Treasury published the Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015 which amends the Financial Services and Markets Act 2000. The Order, amongst other things, grants the Financial Conduct Authority with disciplinary powers over individuals working in financial services firms, and when there has been a breach of the Alternative Investment Fund Managers Regulations 2013 by a firm. The Order enters into force on March 7, 2016 (excluding Article 2 and 3(4) of the Order which enter into force on March 7, 2017).
 
View the Order and Explanatory Note.

The European Securities and Markets Authority published a consultation paper on draft Regulatory Technical Standards for Indirect Clearing Arrangements relating to OTC derivatives under the European Market Infrastructure Regulation and on Exchange-Traded Derivatives under the Markets in Financial Instruments Regulation. Indirect clearing is a situation where a person accesses clearing through two or more layers of intermediation, i.e. both a clearing member and another intermediary such as a regional bank or affiliate. The draft RTS on ICAs developed under MiFIR included rules for ETDs and a separate RTS under EMIR applies to OTC derivatives. A draft new RTS under EMIR is proposed. Both RTS aim to resolve well-known market difficulties resulting from the incompatibility of existing RTS with insolvency laws and current market practice. There are proposals for persons using indirect clearing to have a choice of separate net margined or gross margined accounts at clearing house level.  The requirements for "leapfrog" payments to be made by clearing members, bypassing insolvent intermediaries, are to be watered down considerably, due to concerns around conflicts with insolvency laws. New proposals are made for chains involving more than one intermediary. Both sets of draft RTS are included in the annexes of the consultation paper. Following the consultation period and any changes resulting from it, ESMA would submit new RTS to the European Commission. Comments are due by December 27, 2015.  
 
View the consultation paper.  

Janet Yellen, Chair of the Federal Reserve Board, testified before the House Committee on Financial Services on supervision and regulation of financial services. Her testimony consisted largely of a review of the regulatory framework and steps US regulators have taken since the financial crisis to strengthen the regulation and supervision of the largest banking institutions, including instituting capital, liquidity, stress testing and annual resolution planning requirements. Chair Yellen further spoke to the work of the Federal Reserve’s Large Institution Supervision Coordinating Committee, which is responsible for the supervision of the eight largest US G-SIBs. Though noting that the “financial condition of the firms… has strengthened considerably since the crisis…” both from financial stability and corporate governance perspectives, she stated that US G-SIBs continue to have “substantial compliance and risk-management issues”, which the Federal Reserve Board, through the LISCC, is dealing with “directly and comprehensively”. 

View the statement.

The Financial Stability Board published an updated list of banks identified by the FSB and the Basel Committee on Banking Supervision as Global Systemically Important Banks. The list, which is updated on an annual basis, sets out 30 banks that are considered to be G-SIBs. Compared to the list of G-SIBs identified in 2014, China Construction Bank has been added and Banco Bilbao Vizcaya Argentaria has been removed. The next updated list will be published in 2016.
 
View the list of G-SIBs. 

The US Commodity Futures Trading Commission’s Division of Market Oversight extended time-limited no-action relief to Swap Execution Facilities from certain requirements in the definition of “block trade” in CFTC Regulation Section 43.2. Section 43.2 includes in its definition of “block trade,” a publicly reportable swap transaction that “occurs away” from a registered SEF’s trading system and executed according to the SEF’s procedures. The No-Action Letter extends time-limited relief to SEFs from the “occurring away” requirement until November 15, 2016. Overall, the extension will allow the CFTC continued time to monitor and evaluate SEF trading practices, specifically in regards to pre-execution credit checks. It will also allow the CFTC time to evaluate best practices and create a more comprehensive permanent solution for screening block trade orders for compliance with risk-based limits. 

View the press release. 

View CFTC Staff Letter 15-60. 

The US Comptroller of the Currency, Thomas J. Curry, once more discussed the issue of increased credit risk confronting the federal banking system during the Risk Management Associations' Annual Risk Management Conference. He argued that credit quality issues are a rising concern because banks are beginning to increase their risk appetite and are taking on additional credit risk. He notes that credit risk is increasing in two forms: relaxed credit underwriting and increased loan concentrations. In his statement, Comptroller Curry recommended that banks take initiative to address concentration risk on their own and also review more closely their loan loss allowance levels to determine whether it is appropriate in relation to the level of credit risk within the bank's loan portfolio.

View Comptroller Curry's remarks.

Mr. David Lewis was appointed Executive Secretary of the Financial Action Task Force as of November 1, 2015.

The US SEC issued final rules providing a framework of regulation to allow companies to offer and sell securities through crowdfunding. Concurrent with the adoption of the final rule, the SEC also proposed amendments to Rule 147 and Rule 504 of the Securities Act of 1933, as amended, to facilitate intrastate and regional offerings. The proposed amendments to Rule 504 of the Securities Act would increase the aggregate amount that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings. The final rules enable individuals to purchase securities in crowdfunding offerings, subject to certain limits. Specifically, the rules: (i) allow a company to raise up to a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period; (ii) permit individual investors to invest in crowdfunding offerings, subject to specified limits over a 12-month period; and (iii) limit the aggregate amount of securities sold to an investor during any 12-month period to an amount not to exceed $100,000. In addition, companies that conduct crowdfunding offerings must, pursuant to the adopted rules, make certain disclosures about their business as well as the offering. The adopted crowdfunding rules and forms will be effective 180 days after publication in the Federal Register and the forms permitting funding portals to register with the SEC will be effective January 29, 2016. Public comments on the proposed amendments to Rule 147 and Rule 504 are open for a 60-day period following their publication in the Federal Register.

View the final rule.

View the proposed rules.

The Farm Credit Administration, the FDIC, the Federal Housing Finance Agency, the Federal Reserve Board and the Office of the Comptroller of the Currency jointly issued a final rule establishing margin requirements for uncleared swaps. The FDIC and OCC had previously approved the final rule on October 22, 2015. The rule will apply to swap dealers, security-based swap dealers, major swap participants and major security-based swap participants supervised by the aforementioned agencies and registered with the US Commodity Futures Trading Commission or the Securities and Exchange Commission. Sections 731 and 764 of the Dodd-Frank Act require the agencies to establish capital and margin requirements for registered swap dealers, major swap participants, security- based swap dealers and major security-based swap participants in order to address the risks to such entities and the financial system from non-cleared derivatives. Specifically, the final rule requires that initial and variation margin be exchanged between covered swap entities and certain counterparties in connection with non-cleared swaps and security- based swaps. The rule also specifies how margin is to be calculated, what types of margin are eligible and how margin is to be held. Additionally, the agencies approved an interim final companion rule to the joint final rule establishing swap margin requirements.

View the final rule.

View the interim final rule.

View the OCC press release.

The US Board of Governors of the Federal Reserve System proposed a rule, in consultation with the US Federal Deposit Insurance Corporation, requiring the largest US Global Systemically Important Banking Organizations (known as G-SIBs) and the US Intermediate Holding Companies of foreign G-SIBs to maintain a minimum amount of unsecured long-term debt and a minimum amount of “Total Loss-Absorbing Capacity” as a percentage of total risk-weighted assets. Generally, TLAC is intended to increase the resiliency of an organization by providing a significant capital buffer comprised of regulatory capital and certain eligible debt, together with related capital buffers. The long-term debt, once converted to equity, is aimed at absorbing losses and recapitalizing the covered entity's subsidiaries in resolution. There are four major components of the proposed rule: (i) external long-term debt and related TLAC requirements applicable to the top holding company of a US G-SIB; (ii) internal long-term debt and related TLAC requirements applicable to covered US IHCs; (iii) clean holding company requirements; and (iv) regulatory capital deductions applicable to certain investments in long term debt of covered G-SIBs. Additionally, the Federal Reserve Board is requesting comment on internal TLAC requirements for US G-SIBs. Once finalized, the rules would apply to 8 US G-SIBs and their related entities as well as IHCs controlled by non-US G-SIBs. Banking organizations covered by the rule would be required to comply with most of the proposed requirements by January 1, 2019. The calibration of the risk-weighted assets component of the external TLAC requirement would be phased in over a three-year period commencing on January 1, 2019.

View the proposed rulemaking.

The Competition and Markets Authority published a provisional report related to its investigation into the supply of Personal Current Accounts and of banking services to Small and Medium-sized Enterprises. The report identifies several competition issues in the PCA and SME banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The report also states that customers that are holders of more expensive accounts are not switching to better value and better quality cheaper accounts, which would be expected in a well-functioning market. The CMA is proposing remedies which include: (i) requiring banks to prompt customers to review the service they receive by receiving individual messages at certain "trigger points"; (ii) encouraging consumers and businesses to compare bank products by using Midata, an industry online tool, that allows consumers to easily access their banking data and compare it with other services; and (iii) creating a price comparison service for SMEs. Responses to the report are invited by November 20, 2015. The CMA also announced that it intends to review the undertakings put in place after the 2002 Competition Commission review into PCA banking in Northern Ireland and into SME banking generally.

View the CMA's report.

The European Banking Authority published a consultation paper on the draft Guidelines on the disclosure of confidential information in summary or collective form under the Bank Recovery and Resolution Directive. BRRD prohibits the disclosure of confidential information received by national regulators, resolution authorities, the EBA, central banks and government ministries as well as potential acquirers, bridge institutions and others involved in the resolution of a financial institution unless such disclosure is in the exercise of their functions under the BRRD, or is made with the express and prior consent of the authority or institution providing the information or the information is in summary or collective form which does not identify the individual institution or entities. The EBA's proposed Guidelines specify how confidential information in a summary or collective form must be disclosed, requiring that the information is: (i) in an anonymized format; (ii) relates to a minimum of three entities subject to certain exceptions; and (iii) avoids making reference to specific characteristics, distinctive features or other qualitative data that would identify specific firms. The draft Guidelines are expected to apply from February 2016. Comments on the proposed Guidelines are due by January 27, 2016.

View the consultation paper.

HM Treasury published a consultation paper on the proposed amendments to UK legislation required to implement the Undertakings for Collective Investments in Transferable Securities Directive V. UCITS V must be implemented by March 18, 2016. Whilst UCITS V will primarily be implemented through changes to the Financial Conduct Authority rules, legislative changes are also required. HM Treasury's consultation seeks views on such legislative changes whereas the FCA is consulting separately on the FCA rule changes. HM Treasury will be implementing legislative provisions on national sanction regimes and UCITS depositaries. HM Treasury is seeking views on its approach to the implementation of the depositary provisions, in particular: (i) governance practices such as the eligibility to act as a depositary; (ii) liability for safekeeping of a UCITS fund’s assets; and (iii) the delegation of custody of a UCITS fund’s assets. In relation to sanctions, HM Treasury aim to make minor amendments to the relevant sections already in place in the Financial Services and Markets Act, clarifying that breaches of national legislation transposing UCITS V trigger the FCA’s existing sanctions. Comments are due by December 17, 2015.
 
View the consultation paper.
 
View the proposed legislation.

The US Federal Deposit Insurance Corporation approved a final rule and a notice of proposed rulemaking that revise certain provisions of its Securitization Safe Harbor Rule. The final rule pertains to the treatment of financial assets transferred in connection with a securitization or participation. The rule clarifies the requirements of the securitization safe harbor as to the retention of an economic interest in the credit risk of securitized financial assets in connection with the effectiveness of the credit risk retention regulations adopted under Section 15G of the Securities Exchange Act. The final rule will be effective on the date that is the later of (i) 60 days after publication in the Federal Register and (ii) January 1, 2016. The notice of proposed rulemaking intends to align the Securitization Safe Harbor Rule with US Consumer Financial Protection Bureau regulations dealing with the servicing of residential mortgages that became effective in January 2014. Specifically, the proposed rule would clarify that the requirement that a servicer take loss mitigation action within 90 days of delinquency does not necessitate that the securitization documents require a servicer to act contrary to the CFPB's mortgage loan servicing requirements as set forth in Regulation X. Comments on the proposed rule will be due 60 days after the rule is published in the Federal Register.

View the FDIC’s final rule.

The Federal Deposit Insurance Corporation issued for public comment a proposal to increase the reserve ratio of the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. The Dodd-Frank Wall Street Reform and Consumer Protection Act increased the minimum for the reserve ratio from 1.15 percent to 1.35 percent and required the ratio to reach the new minimum by September 30, 2020. Moreover, the Dodd-Frank Act made this increase the responsibility of large banks with $10 billion or more in total assets. In effect, the proposed rule, if finalized, would impose upon banks a quarterly surcharge of 4.5 cents per $100 of their assessment base, with certain adjustments. It is expected that the surcharges will commence in 2016 and the reserve ratio would reach 1.35 percent following approximately eight quarters of payments of such surcharges (i.e. in advance of the required 2020 date). Comments on the proposed rule will be due 60 days after the rule is published in the Federal Register.

View the proposed rule.

View the FDIC Chairman’s statement.

 
The European Securities and Markets Authority published, as part of the preparations for the revised Transparency Directive entering into force on November 26, 2015, the following: (i) a new standard form for issuers to disclose details of their home member state to relevant national regulator; (ii) a new standard form for the notification of major holdings to relevant national regulators; (iii) an updated indicative list of financial instruments subject to notification requirements; and (iv) an update to its Q&As on the Transparency Directive.
 
View the ESMA documents.

The European Commission published a consultation on the possible impact of the maximum remuneration ratio rule for variable and fixed remuneration required by the Capital Requirements Directive. The consultation also addresses the overall efficiency of the remuneration rules as set out in the CRD and Capital Requirements Regulation, together known as CRD IV. The consultation aims to obtain views on the remuneration provisions of CRD IV, including on: (i) the efficiency, implementation and enforcement of the principle of proportionality, as well as the identification of any gaps arising from the application of the principle; (ii) compliance with the maximum ratio rule for variable and fixed remuneration as prescribed by the CRD; and (iii) the impact of the maximum ratio rule on competitiveness, financial stability and staff in non-EEA countries. The Commission must report back to the European Parliament and Council by June 30, 2016. Responses are due by January 14, 2016.
 
View the European Commission's consultation page.

View the consultation.

The European Commission announced that it had 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.  The BRRD was due to be transposed by all EU Member States by December 31, 2014. The referral follows a request in May 2015 by the Commission to eleven Member States, including the above six Member States, to fully implement the BRRD.

View the press release.

The European Banking Authority published translations of its final guidelines on the application of simplified obligations under the Bank Recovery and Resolution Directive. The EBA's guidelines set out: (i) criteria for considering whether a firm can be subject to simplified obligations; (ii) entitlement for national regulators to attribute certain weightings to such criteria; and (iii) creation of mandatory indicators which must be used and optional indicators which may be used, in assessing application criteria. The BRRD allows national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Such obligations will not apply to globally systemically important institutions and other systemically important institutions. The Guidelines are addressed to national regulators and national resolution authorities and will apply from December 17, 2015.

View the Guidelines.

The Comptroller of the Currency, Thomas J. Curry, in a speech before the Exchequer Club, discussed the increasing credit risk in the federal banking system. Comptroller Curry believes the financial system is currently at a point in the market cycle where loan underwriting standards are weakening and credit risk is becoming an increasing point of focus. He stated, “...we should be asking whether banks have the appropriate risk management processes and structures in place to measure, monitor and control the increased credit risk they are taking on.”  In his remarks, the Comptroller mentioned leveraged lending and auto lending as two specific products of concern.

View the  press release.

View the Comptroller’s remarks.

The Abu Dhabi Global Market announced that it was officially open for business and that the Financial Services Regulatory Authority was ready to accept applications for a license from financial institutions. The ADGM is the newest international financial centre and it has adopted English common law by applying it in its jurisdiction for civil and commercial law. The application of English common law will govern matters such as contracts, tort, trusts, equitable remedies, unjust enrichment, damages, conflicts of laws, security and personal property.

Shearman & Sterling helped develop ADGM's world-class legal and regulatory regime to be in line with international standards to provide the sophistication and certainty found in the world’s top financial centres. The firm drafted all the Financial Services and Markets Regulations and Financial Services Regulatory Authority Rules as well as legislation governing matters such as companies, insolvency, interpretation, commercial licensing, arbitration, courts, employment, limited liability partnerships, real property and strata title.

View the ADGM press release.

The European Supervisory Authorities published two consultations on proposed joint guidelines for: (i) financial institutions on the factors for financial institutions to consider when assessing money laundering and counter terrorist financing risks associated with individual business relationships or occasional transactions and the extent to which a firm's customer due diligence can be adjusted based on the risk identified; and (ii) national regulators on the supervision of AML/CFT on a risk sensitive basis. The guidelines are required to be prepared by the ESA's by the Fourth Anti-Money Laundering Directive, also known as 4AMLD, which Member States must transpose into national law by June 26, 2017. The proposed guidelines would apply to banks, investment firms, insurers, insurance intermediaries, money brokerage firms, collective investment undertaking marketing its units or shares and to branches of those firms (regardless of whether their head office is located in an EU Member State or a third country) and to national regulators of those financial institutions. The consultations are open until January 22, 2016 and the ESA's expect to finalise them in Spring 2016. The final guidelines will apply from June 26, 2017.

View the proposed Risk Factors Guidelines.

View the proposed Risk-based Supervision Guidelines.

The Bank of England published its approach to stress testing and evaluating the resilience of the UK banking system and set out its plans in this regard for the next three years. The BoE's approach will include the introduction of an annual cyclical scenario, assessing risks to the banking system that derive from financial cycles, taking into account domestic, global and markets elements. This annual cyclical scenario will include all PRA-regulated banks and building societies with total retail deposits greater than £50 billion, on an individual or consolidated basis, at a firm's financial year end date. Currently, this means the following firms will be included: Barclays plc, HSBC Holdings Group, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland Group, Santander UK plc and Standard Chartered Bank Group. UK subsidiaries of foreign-owned investment banks will be excluded. Every other year, the BoE will also biannually explore scenarios that are unrelated to the financial cycle and for which risks to financial stability and individual banks are deemed to be emerging. Therefore, in 2016, there will be a European Banking Authority stress test and a UK cyclical scenario test. In 2017, there will be both a UK cyclical and exploratory scenario test (for the first time). In 2018, the BoE intends to only run a UK cyclical scenario test. The results of the 2015 UK stress test are expected to be published on December 1, 2015.

View the BoE's approach to stress testing.

The European Securities and Markets Authority published translations of its Guidelines on the application of the definition of commodity derivatives under the Markets in Financial Instruments Directive (known as MiFID I). The guidelines aim to provide a common, uniform and consistent application of the definition of commodity derivatives. There is no commonly adopted definition of derivatives in the EU under MiFID I and ESMA was concerned that this would lead to the inconsistent application of the European Market Infrastructure Regulation where it refers to the MiFID commodity derivatives definition. The Guidelines are also relevant to the reporting obligations under the Regulation on wholesale energy market integrity and transparency, known as REMIT.  The Guidelines also aim to ensure continuity when MiFID II replaces MiFID I from January 3, 2017. The Guidelines were initially published on May 6, 2015 with ESMA's final report and feedback and applied from August 7, 2015.

View the Guidelines.

The US Securities and Exchange Commission named Wenchi Hu and Christian Sabella as Associate Directors in the SEC’s Division of Trading and Markets. As Associate Director of Risk and Supervision, Ms. Hu will be responsible for supervising registered clearing agencies including those firms that clear securities-based swaps. Mr. Sabella will become Associate Director of Regulation, for which he will spearhead a team issuing recommendations for SEC policy and rulemaking focused on financial market infrastructure including clearing agencies, transfer agents and security-based swap data repositories. Ms. Hu joined the SEC in 2011 as a senior special counsel in the Office of Compliance Inspections and Examinations before moving to the Office of Derivatives Policy in the Division of Trading and Markets. Mr. Sabella joined the SEC in 2011 as a branch chief in the Office of Trading Practices.

View the SEC press release.

The European Commission published its report to the European Parliament and the Council on the capital requirements for covered bonds as incorporated in the Capital Requirements Regulation. Under CRR, for banks investing in covered bonds that meet certain criteria a preferential risk weights is applied. The Commission is required to report on the appropriateness of: (i) the preferential risk weights taking into account types of cover assets, level of transparency on the cover pool and the impact of the covered bond issuance on the issuer's unsecured creditors; (ii) extending the preferential risk weights to covered bonds secured by certain aircraft loans; (iii) including covered bonds guaranteed by residential loans as eligible assets; (iv) the derogation for covered bonds backed by securitization instruments; and (v) the derogation for covered bonds backed by other covered bonds. The Commission considers the European Banking Authority's recommendations on the EU covered bond framework published in 2014 and sets out where it agrees with those recommendations and its proposed steps to implement them, including consulting with stakeholders on proposed changes to the legislative requirements. The Commission's recent consultation on the EU's covered bond framework under the Capital Markets Union initiative is also relevant and will impact on how the capital treatment for covered bonds is revised.

View the Commission's Report.

View the EBA's Report.

 
The Prudential Regulation Authority launched a consultation on its proposed criteria and methodology for identifying other systemically important institutions, i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system. According to the Capital Requirements Directive, national regulators are required to identify O-SIIs that are banks, investment firms or mixed financial holding companies incorporated in their jurisdiction. That requirement derives from the Basel Committee on Banking Supervision framework for domestic systemically important banks or D-SIBs. In developing its proposals, the PRA states that it has to take into account the relevant EBA Guidelines on the assessment of O-SIIs. The PRA must identify as O-SIIs those firms whose distress or failure would have a systemic impact on the UK or EU economy or financial system due to size, importance, complexity, cross-border activity and interconnectedness. Firms that are designated as O-SIIs by the PRA will be subject to enhanced supervision by the PRA. However, the PRA considers that O-SIIs are likely to be those firms that are currently subject to PRA supervision as a Category 1 firm and therefore there will be minimal impact on the firms. The PRA intends to publish the first list of O-SIIs in Q1 2016 and thereafter annually by December 1, each year. The consultation is open until January 18, 2016. The PRA will publish its final Statement of Policy in Q1 2016.
 
View the PRA consultation paper.

The Regulatory Oversight Committee launched a consultation on its proposed approach to incorporating data on branches into the Global Legal Entity Identifier System, known as GLEIS. The ROC is proposing that only branches that meet the following conditions would be eligible for an LEI: (i) the branch is an international branch; (ii) the branch is registered in a publicly accessible local business registry or local regulatory registry in its host country; and (iii) the head office of the branch already has an LEI so that the two entities could be linked through their respective LEIs. Responses to the consultation are due by November 16, 2015.

View the consultation paper.

The US Securities and Exchange Commission published a report of private fund industry statistics and trends. The SEC aggregated and anonymized data private fund advisors have submitted to the SEC on Form ADV and Form PF. The report, which the SEC intends to update periodically, reflects information reported from the first calendar quarter of 2013 through the fourth calendar quarter of 2014. Among other things, the report includes statistics about the distribution of borrowings, an analysis of hedge fund gross notional exposure to net asset value, information regarding beneficial ownership and a comparison of average hedge fund investor and hedge fund portfolio liquidity.

View the report.

HM Treasury announced that certain amendments would be made to the Senior Manager and Certification Regime and that the SM&CR would be extended to all UK authorized firms. Amendments include: (i) removal of the presumption of responsibility for a senior manager when a breach of regulatory provisions occurs in the area that he is responsible for; and (ii) granting the regulators specific powers to take enforcement action against all non-executive directors of firms for their misconduct. The extension of the SM&CR follows from the recommendations of the Fair and Effective Markets Review in June 2015 that the regime should be extended to wholesale participants in the fixed income, currency and commodity markets.  Both the amendments and the extension will be effected through primary legislation in the form of the Bank of England and Financial Services Bill that has been laid before Parliament. However, secondary legislation will also be amended to ensure that the reverse burden of proof and the notification requirements for breach of regulatory rules do not come into effect when the SM&CR comes into effect, which will be on March 7, 2016. It is currently expected that the extension of the SM&CR to all other UK financial institutions will be implemented during 2018. 

View the policy paper.

You may wish to review our related client note.

The Prudential Regulation Authority published a consultation paper proposing the creation of a new framework that would require firms to ensure operational continuity of shared services that are considered critical to the economy. This would mean that in the event of failure of a firm, recovery action, resolution or post-resolution restructuring would be facilitated. This consultation is relevant to banks, building societies and PRA-authorised investment firms and follows the PRA's previous discussion paper on this topic, published in October 2014, which includes draft rules and a supervisory statement. The consultation paper does not define the size of firms that are intended to be in scope, but notes that those firms that are deemed to perform functions critical to the economy as well as ring-fenced bodies and global systemically important banks are likely to be included. Similarly, the EU Bank Recovery and Resolution Directive would also preserve critical functions of firms by allowing authorities to place them into resolution, and in light of this, the PRA is consulting on such proposals. The PRA aims to publish an addendum to the consultation which will define the scope of the requirements together with a Bank of England consultation on the calibration of the minimum requirement for own funds and eligible liabilities. The PRA invites respondents to provide comments on the proposals but notes that respondents may wish to wait for the publication of the addendum before doing so. The addendum will set the closing date for the consultation period.
 
View the consultation. 

The Prudential Regulation Authority published a consultation paper on the implementation of ring-fencing for core UK financial services and activities, as required under the Financial Services and Markets Act 2000. Core activities are defined as: (i) facilities for accepting deposits or other payments into an account and provided in the course of carrying on the core activity of accepting deposits; (ii) facilities for withdrawing money or making payments from such an account; and (iii) overdraft facilities in connection with such an account. In this consultation, the PRA sets out new proposals for ring-fencing policies, including on: (i) prudential requirements for subsidiaries of Ring-Fenced Bodies; (ii) prudential requirements for other potential affiliates that would not necessarily be regulated by the PRA; (iii) intragroup prudential arrangements for groups containing RFBs; and (iv) the use of financial market infrastructures including inter-bank payment systems, Central Securities Depositories and CCPs. The proposals are relevant to all firms that are required to ring-fence their core activities before the implementation date of January 1, 2019 (which are firms, broadly speaking, with at least £25 billion of core deposits) and to growing firms that expect to meet this threshold by 2019. The PRA expects firms that currently meet the core deposits threshold of £25 billion to submit near-final plans to their PRA and FCA supervisors, taking into consideration the proposals in this consultation paper, by January 29, 2016. The PRA intends to publish a policy statement, final rules and supervisory statements by mid-2016 setting out the feedback to this consultation. Comments on the consultation paper are due by January 15, 2016.

View the consultation.

A corrigendum was published in the Official Journal of the European Union correcting the date of entry into force of Article 4(6) of the Markets in Financial Instruments Regulation. Under Article 4(6), the European Securities and Markets Authority must develop Regulatory Technical Standards on national regulators' powers to waive the pre-trade transparency requirements under which market operators and investment firms operating a trading venue must make public information such as current bid and offer prices for shares, exchange-traded funds and other similar financial instruments traded on a trading venue. In particular, the RTS should specify, amongst other things, the range of bid and offer prices to be made public for each class of instrument, as well as the depth of trading interest at those prices and the negotiated transactions that do not contribute to price formation. This provision should have been applicable from the date MiFIR entered into force, July 2, 2014, however Article 55 did not include the cross-reference.

View the corrigendum.

The US Consumer Financial Protection Bureau issued a final rule intended to streamline the process of reporting residential mortgage market information for financial institutions. Regulation C implements the Home Mortgage Disclosure Act and requires lenders to report certain information regarding home loans for which they receive applications or that they originate or purchase. The final rule amends current Regulation C requirements by calling for more specific information from lenders, such as property value, term of the loan, and the duration of any teaser or introductory interest rates. In addition, financial institutions will be obligated to deliver certain information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan.

Aside from requiring lenders to report more detailed information, the final rule also attempts to simplify the reporting process by easing reporting requirements for some small banks and credit unions and aligning reporting requirements more closely with industry standards.   The rule also provides guidance on compliance with both new and existing requirements under Regulation C.

View the CFPB press release.

View the Final Rule.

The US Commodity Futures Trading Commission’s Division of Market Oversight extended existing time-limited no-action relief for swaps executed as part of certain package transactions  that currently receive relief from the requirement that such swaps be executed on a Designated Contract Market or Swap Execution Facility under CFTC Letter 14-137, which was issued in November 2014.

In the CFTC no-action letter, the CFTC found that requiring certain package transactions be executed on a SEF or DCM still presents challenges to both counterparties as well as to SEFs and DCMs. Because many of the challenges previously necessitating no-action relief for certain package transactions have still not yet been resolved, the CFTC is extending relief from the trade execution requirement to enable market participants to continue to execute certain package transactions in a flexible manner.

In a statement issued concurrently with the no-action letter, CFTC Commissioner J. Christopher Giancarlo criticized this fourth extension of no-action relief, noting that the need for repeated extensions proves that the CFTC’s efforts to force certain complex package transactions to trade via a SEF’s limited execution methods is “simply not workable.” In the statement, Commissioner Giancarlo expressed support instead for allowing SEFs flexibility to implement the execution methods currently used to trade package transactions in global markets.

View the press release. 

View CFTC Staff Letter 15-55.

The Federal Reserve Board issued SR Letter 15-10/CA 15-8 to announce the expansion of its Emergency Communications System – a service that maintains a database of emergency contacts to allow the Federal Reserve System staff to communicate with financial institutions in case of a natural disaster or operational emergency. The expansion will require supervised institutions to identify and register "designated cyber emergency contact(s)" that Federal Reserve staff may contact in the case of cyber emergencies. The Federal Reserve will periodically test the system to verify the contact’s business telephone number and e-mail address and the confirmation of delivery of test messages.

View the Federal Reserve Board press release.

View the SR Letter 15-10/CA 15-8.

The US Board of Governors of the Federal Reserve System issued guidance intended to clarify the criteria and process used by the Federal Reserve Board in determining whether to waive or to conduct pre-membership safety-and-soundness and consumer compliance examinations of insured depository institutions that are looking to either: (i) become state chartered member banks of the Federal Reserve System; or (ii) merge with another institution where a state member bank would be the surviving entity, including those with $10 billion or less in total consolidated assets. Specifically, the Federal Reserve Board stated that a state nonmember bank, national bank, or savings association seeking to convert its status to a state member bank will not generally be required to complete a safety-and-soundness or consumer compliance examination prior to the conversion if the institution seeking membership meets the criteria for "eligible bank," as set forth in the Federal Reserve Board’s Regulation H, together with certain additional safety and soundness criteria set forth in the guidance (collectively, the "eligibility criteria"). Under circumstances where an insured depository institution is looking to merge with another institution where a state member bank would be the surviving entity, a safety-and-soundness or consumer compliance examination of the insured depository institution will not be required so long as the state member bank meets all of the eligibility criteria on an existing and pro-forma basis.

View the guidance.

The UK Supreme Court considered the case of United States of America v Nolan. The case gave thought to whether a statutory instrument made under section 2 of the European Communities Act 1972 could effectively be deemed to amend a UK Act of Parliament. It was held that the ECA was wide enough for a statutory instrument to be effective in this way, however the Court found that the question was “difficult and borderline”. The EU Financial Collateral Directive was implemented in the UK via the Financial Collateral Regulations 2003, a statutory instrument, that was also made under the same section of the ECA. The Directive relates to title transfer financial collateral arrangements and security financial collateral arrangements made between certain classes of qualifying persons. Lord Mance considered previous case law on section 2 of the ECA, and in particular the decision taken in Cukurova Finance International Ltd v HM Treasury which related to the FCR. Lord Mance considered that Cukurova's unsuccessful challenge was "greatly underestimated", suggesting that it may have been wrongly decided, casting doubts on the enforceability of certain aspects of the FCR.  In our view, these remarks are obiter dicta, given that the particular situation of these regulations was not at issue in the case.
 
View the decision in USA v Nolan.

The US Federal Deposit Insurance Corporation announced the appointment of Lawrence Gross, Jr., as the new Chief Information Officer. As CIO, Mr. Gross will advise senior leaders at the FDIC on a number of information technology-related issues including governance, investment, program management, strategic planning, and security. Mr. Gross has over 25 years of experience in technology-related roles both in the federal government and in military service.

View the FDIC press release.

The SEC announced that Michael Liftik will replace Erica Williams as deputy chief of staff of the agency. Since April 2013, Mr. Liftik has been a Senior Advisor to SEC Chair Mary Jo White, counseling on enforcement policy matters and cases. He has worked with the SEC staff and other agencies to address issues such as the asset management industry, cybersecurity, and macroeconomic trends. He also serves as the representative of Chair White on the Deputies Committee of the Financial Stability Oversight Council.

View the SEC press release.

The Federal Reserve Bank of New York announced that Kevin Stiroh has been named executive vice president in the New York Federal Reserve’s Integrated Policy Analysis Group as well as head of its Financial Institution Supervision Group, effective October 26, 2015. In his new roles, Mr. Stiroh will lead the teams responsible for supervising financial institutions in the Federal Reserve’s Second District. Mr. Stiroh has over 15 years of experience at the New York Federal Reserve and holds a Ph.D. in economics from Harvard University.

View the New York Federal Reserve press release.

The European Stability Mechanism appointed Andrew Harkness and Jean Guill to its Board of Auditors for a period of three years.

View the press release.

The European Parliament announced that it adopted the revised Directive on Payment Services known as PSD2, which will repeal the current PSD. The aims of PSD2, which focuses on electronic payments and payment services within the EU, include making payments between Member States as secure, easy and efficient as those made within a Member State, regulating new types of payment services and payment services providers which are currently unregulated and stimulating competition in the electronic payments market. The Directive is expected to be formally adopted by the EU Council of Ministers and will then be published in the Official Journal of the European Union. Member States will then have two years to introduce PSD2 into national law.

View the text of the revised Directive.

View the press release.

A Delegated Regulation correcting the text of the Regulatory Technical Standards on requirements for investor, sponsor, original lenders and originator institutions for exposures to transferred credit risk under the Capital Requirements Regulation was published in the Official Journal of the European Union. Minor errors were made in the RTS published in various languages of the EU, and the revisions correct such errors, including clarifying that materially relevant data does not have to be provided to investors at an individual loan level in all circumstances and that it may be sufficient to provide such data on an aggregate basis in certain circumstances. The Delegated Regulation enters into force on October 28, 2015.
 
View the Delegated Regulation.

The US Board of Governors of the Federal Reserve System announced the approval of the applications by Royal Bank of Canada and its subsidiary, RBC USA Holdco Corporation, to acquire City National Corporation and its wholly owned subsidiary, City National Bank, under section 3 of the Bank Holding Company Act. City National is a $33 billion banking organization. The Federal Reserve Board’s approval comes approximately seven months after submission of the application, which was the subject of comments opposing the application. On the same day, the Federal Reserve Board approved the application by Royal Bank of Canada to establish a limited federal branch in New Jersey. As a limited federal branch, it will only take deposits permitted to be taken by an Edge corporation under section 25A of the Federal Reserve Act.

View the press release announcing the approval of the acquisition.

View the Federal Reserve Board order approving the acquisition.

View the Federal Reserve Board press release approving the limited branch.

View the Federal Reserve Board order approving the limited branch.

The European Banking Authority published final translations of its Guidelines on the management of interest rate risk arising from non-trading activities, also known as interest rate risk in the banking book or IRRBB, which is the risk to firms arising from adverse movements in interest rates. Under the Capital Requirements Directive, national regulators must require a firm to take measures if its economic value declines by more than 20 per cent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points which is termed supervisory "standard shock". National regulators must also take steps when a change occurs, as defined by the EBA in these Guidelines. The Guidelines set out the definition of such change and the methods for the calculation of the outcome of the supervisory "standard shock", which is the shock applied to a firm's portfolio to determine the impact on the economic value of the firm, as well as specify the identification, management and mitigation of IRRBB. The Guidelines apply from January 1, 2016. They will repeal the Guidelines of the Committee of European Banking Supervisors published in 2006. The Guidelines are addressed to national regulators and relevant credit institutions and investment firms. National regulators must notify the EBA by December 7, 2015 as to whether they comply or intend to comply with the Guidelines.
 
View the Guidelines.

The Prudential Regulation Authority and Financial Conduct Authority jointly published a consultation paper on proposals for regulatory references that are employment references passed between firms when an individual moves roles. The proposals form part of the wider reforms aiming to strengthen accountability in the banking and insurance sectors and are relevant to candidates applying for new roles, including senior management functions under the Senior Managers Regime, significant harm functions under the Certification Regime and other roles within insurance firms and credit unions. The proposals include: (i) a requirement for firms to request regulatory references covering a period of six years from former employers; (ii) specific disclosures for inclusion in regulatory references, such as whether the firm has ever concluded that a candidate was at any point in the last six years deemed not fit and proper to perform a function, the details and basis of any disciplinary action taken and details of any other roles performed by a candidate within a firm whilst working as an employee of that firm; and (iii) a requirement for firms not to enter into any arrangements that would prevent them from disclosing relevant information. Final rules are expected to be in place for the start of the accountability regime on March 7, 2016. Comments on the consultation are due by December 7, 2015. 

View the consultation paper.

The Prudential Regulation Authority and Financial Conduct Authority published Policy Statements and final rules on whistleblowing. The rules require firms to implement internal whistleblowing procedures, to inform employees of the internal procedures and the whistleblowing services provided by the PRA and FCA and to ensure that employment contracts and settlement agreements do not deter employees from whistleblowing. The rules will apply to UK banks, building societies and credit unions with assets of £250 million or greater, PRA-designated investment firms, insurance and reinsurance firms within the scope of Solvency II and the Society of Lloyd's and managing agents. UK branches of overseas firms are not in scope but the regulators will consider this further once the effectiveness of these new rules can be properly assessed. The scope of the new rules therefore captures those UK firms that fall within the Senior Manager and Certification Regimes which come into effect on March 7, 2016. Firms will have until September 7, 2016 to implement the new whistleblowing rules. However, firms will have to assign a senior manager who is a non-executive director as the whistleblowers' champion by March 7, 2016 and that individual will be responsible for overseeing the firm's implementation of the new whistleblowing rules.   

View the PRA Policy Statement.
 
View the FCA Policy Statement.