The European Commission launched a consultation on the possible impact of the Capital Requirements Regulation and the Capital Requirements Directive on bank financing of the economy. Under the CRR, the European Commission must conduct an analysis of how the CRR may impact the ability of banks to provide lending to the wider economy. The consultation aims for a better understanding of the impact of the CRR requirements on the availability of financing, particularly for infrastructure and other investments that support long-term growth as well as corporate borrowers, including small and medium enterprises. Responses to the consultation will form part of the Commission’s report to the European Parliament and the Council of the EU. The report will also consider the analysis being conducted by the European Banking Authority on SME lending and independent research. The consultation is open until October 7, 2015.
 

View the consultation paper.

The EBA published a draft list of banks that would be participating in the EU-wide transparency exercise at the end of 2015, together with draft templates showing the type of data that will be disclosed covering composition of capital, leverage ratio, risk weighted assets by risk type, sovereign exposures, credit risk exposures and asset quality, market risk and securitization exposures as of December 2014 and June 2015. The EBA also announced certain features of the 2016 EU-wide stress test, which is expected to launch in the first quarter of 2016. The assessment and quality checks of the 2016 stress tests are expected to be concluded by the third quarter of 2016 which is when the results of individual banks will also be published.

View the EBA’s announcement.

The EBA published final guidelines on product oversight and governance arrangements for financial institutions as manufacturers of retail banking products and for distributors of retail banking products – mortgages, personal loans, deposits, payment accounts, payment services and electronic money. The guidelines will apply from January 3, 2017 to all products brought to market after that date as well as to existing products that are significantly changed after that (the EBA does not clarify the meaning of "significantly changed"). The guidelines are addressed to EU national regulators and financial institutions and require the establishment of product oversight and governance arrangements for the design, bringing to market and review of retail banking products over their lifecycle. The guidelines supplement the EBA’s 2011 guidelines on internal governance but do not cover the suitability of products for individual consumers.

View the final guidelines.

View the guidelines on internal governance.
 

The UK Payment Systems Regulator announced that Ruth Evans had been appointed as chair of the Payments Strategy Forum and would take up her role on July 27, 2015. The Payments Strategy Forum will be responsible for identifying and developing initiatives that the industry can work together to deliver innovation. A call for members of the Forum was also issued on the same day as the announcement.

The European Commission launched a consultation on the possible impact of the Capital Requirements Regulation and the Capital Requirements Directive on bank financing of the economy. Under the CRR, the European Commission must conduct an analysis of how the CRR may impact the ability of banks to provide lending to the wider economy. The consultation aims for a better understanding of the impact of the CRR requirements on the availability of financing, particularly for infrastructure and other investments that support long-term growth as well as corporate borrowers, including small and medium enterprises. Responses to the consultation will form part of the Commission’s report to the European Parliament and the Council of the EU. The report will also consider the analysis being conducted by the European Banking Authority on SME lending and independent research. The consultation is open until October 7, 2015.

View the consultation paper.

The Financial Conduct Authority launched a consultation on proposed rules requiring information to be provided to customers by a non-ring-fenced body. The FCA is proposing that a NRFB be required to provide information about its investment and commodities trading activities to individuals with financial assets of at least £250,000 who are account holders or who have applied to open an account. The information is intended to inform customers of the implication of banking with a NRFB entity in a group which includes a ring-fenced bank. The ring-fencing regime is set to apply from January 1, 2019. The FCA’s proposed rules would require a NRFB to provide the information in good time before the regime enters force. A NRFB will also be required to publish the information on its website. Responses to the FCA consultation are due by November 13, 2015. The FCA intends to publish final rules in Q1 2016.

The FCA’s consultation paper.

The US Department of Treasury, the Federal Reserve Board, the Federal Reserve Bank of New York, the US Securities and Exchange Commission and the US Commodity Futures Trading Commission issued a joint report analyzing the significant volatility in the US Treasury market on October 15, 2014. The joint report provides insight and detailed analysis of the market conditions and offers a number of developments which may help explain the conditions that likely contributed to the volatility. Specifically, the report finds that among other things, changes in global risk sentiment and investor positions, a decline in order book depth and changes in order flow and liquidity provision together provide important insight into the developments of that day. The report also highlights the changing structure of the US Treasury market and proposes next steps to further enhance the public and private sectors’ understanding of changes to the structure of the US Treasury market and their implications. The report recommends continued analysis of US Treasury market structure and functioning, focusing on trading and risk management practices, the availability of public data and continued efforts to strengthen monitoring and inter-agency coordination related to trading across the US Treasury cash and futures markets.
 

View the joint report.

The International Swaps and Derivatives Association published an "EMIR Classification Letter" and related guidance. The Letter is intended to help counterparties to determine and communicate their classification under the European Market Infrastructure Regulation. Under EMIR, the obligations of counterparties to a derivatives transaction are dependent on the classification of each counterparty as either a financial counterparty or a non-financial counterparty. The Letter aims to facilitate that determination by asking a series of questions.

View the Letter and guidance.

The Prudential Regulation Authority published proposed rules on the implementation of the UK leverage ratio framework. The Financial Policy Committee directed the PRA on July 1, 2015, to implement a UK leverage ratio framework applying: (i) a minimum leverage requirement immediately to UK Global Systemically Important Institutions, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA-regulated investment firms; (ii) a supplementary leverage ratio buffer of 35 percent. of corresponding risk weighted systemic buffer rates to UK G SIIs, phased in from 2016, and to domestically systemically important banks, building societies and PRA regulated investment firms from 2019, referred to as the additional leverage ratio buffer or ALRB; and (iii) a countercyclical leverage ratio buffer of 35 percent. of a firm’s institution-specific countercyclical capital buffer rate which will apply immediately to UK G SIIs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA regulated investment firms, including any ring fenced banks, large building societies and any other banks that become subject to a countercyclical capital buffer. The PRA’s consultation sets out how it intends to implement that framework and includes proposed rules, templates for reporting, a supervisory statement on which firms would be expected to report leverage ratio information and a supervisory statement on the PRA’s expectations on the application of the UK leverage ratio framework. Responses to the consultation must be submitted by October 12, 2015. 
 

View the PRA’s consultation paper.

The European Securities and Markets Authority approved the registration of modeFinance S.r.l., as a credit rating agency under the Credit Rating Agencies Regulation. ModeFinance is based in Italy, and its credit ratings may now be used for regulatory purposes within the European Union.
 

View the ESMA press release.

The Board of IOSCO published a report titled SME Financing through Capital Markets, which provides recommendations for regulators to facilitate capital-raising by Small and Medium Enterprises in emerging markets. The report recognizes the obstacles facing SMEs in accessing market-based financing, and examines some of the successful measures applied by regulators to aid SMEs in accessing capital markets. Successful regulatory frameworks and measures include establishing separate equity and fixed income markets with regulatory requirements tailored to SMEs, establishing market advisor and market-making systems and introducing alternative methods of financing such as private equity, venture capital and securitization. The IOSCO Board will have a roundtable on the issue of SME access to market-based finance at its next meeting in Toronto in October 2015.

View the report.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions announced that they had begun the first Level 3 assessment of the implementation of the Principles for Financial Market Infrastructures. The review aims to assess the consistency of outcomes achieved through implementation of the PFMIs and will focus on requirements for financial risk management by CCPs by considering the outcomes achieved by a number of globally and locally active CCPs clearing exchange-traded and OTC derivatives. The results of the assessment are intended to be published in 2016.

View The announcement.

The Financial Stability Board published an interim progress report on reforms to existing interest rate benchmarks and on the construction and implementation of alternative near risk-free interest rate benchmarks. This follows the FSB’s recommendations for reforms in this area, published in July 2014. The report examines the progress made towards achieving those recommendations. The FSB’s recommendations in the July 2014 report called for a strengthening in existing interest rate benchmarks, such as LIBOR, EURIBOR and TIBOR, collectively coined “IBORs,” and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transaction data. In addition, the FSB proposed steps to develop alternative near risk-free interest rate benchmarks, given that there are certain financial transactions, including many derivatives transactions, that it considers better suited to such reference rates.

Read more.

The EBA published final guidelines on conditions for group financial support under the BRRD, together with final draft Regulatory Technical Standards, specifying the conditions for group financial support and final draft RTS on the form and content of disclosure of financial support agreements. The EBA’s guidelines enhance the means through which one member of a banking group may provide support to another member of the same group, which is in financial difficulty. This overcomes the current lack of a comprehensive group support mechanism across the EU, ensuring that such support may be enforced between cross-border institutions forming part of the same banking group. The RTS outline the factors to be considered when ascertaining whether the conditions for the provision of group financial support are satisfied. National regulators are also required to consider the possible reasons for the financial distress of the relevant entity (e.g., whether this is due to its business model, the current market situation or other circumstances). The guidelines and RTS also confirm that group support may be enforced in certain instances, even where prudential requirements have not been met.
 

The final guidelines and draft RTS.

The Basel Committee on Banking Supervision published final updated Guidelines on Corporate Governance Principles for Banks. The Guidelines replace the guidance published by the Basel Committee in 2010 which had been produced as a result of the lessons learnt since the recent financial crisis. The revised guidance has been issued because the thematic review on risk governance that the Financial Stability Board undertook in 2013 showed that banks still need to improve risk governance frameworks, including enhancing the authority and independence of chief risk officers, and that national regulators need to improve their ability to assess the effectiveness of a bank’s risk governance and engage more frequently with the bank’s board and risk and audit committees.

View the revised Guidelines.

George Osborne, Chancellor of the Exchequer, wrote to Mark Carney, Governor of the Bank of England, specifying the remit and recommendations for the FPC in the coming year. Once a year, the Chancellor is required to set out the economic policy of the Government and make recommendations to the FPC about matters that the FPC should consider as relevant to BoE’s financial stability objective and the FPC’s responsibility for achieving that objective. In the letter, the FPC is requested to consider a broad range of risks to the UK financial system, including identifying, monitoring and addressing systemic non-financial risks such as cyber risks. The Chancellor’s recommendations included that the FPC: (i) should support the Government’s strategy for making the UK’s financial services sector the best regulated and most competitive in the world, including taking into account the promotion of competition and innovation in all sectors of the industry and retaining the UK’s position as a leading international financial center; (ii) should consider whether there is a risk of public funds being required and should seek to minimize such risks; and (iii) should note in its public documents how it has had regard to the policy settings and forecasts of the Monetary Policy Committee.

View the letter.

The FCA announced that it has appointed Jonathan Davidson as its new Director of Supervision for retail and authorizations beginning in the third quarter of 2015.

The European Banking Authority published an Opinion on the establishment of a European framework for qualifying securitizations. The Opinion is addressed to the European Commission, which issued a call for advice in January 2014 to identify the most appropriate characteristics in relation to categories of underlying assets and certain structural and transparency features for “high-quality” transactions. The EBA was asked to assess whether it would be appropriate to grant preferential treatment to high-quality securitizations, so as to boost EU securitization markets. The Opinion makes five recommendations, namely to: (i) conduct an all-inclusive review of the regulatory framework for securitizations and other investment products such as covered bonds and whole loan portfolios; (ii) create a framework for qualifying securitizations; (iii) establish criteria defining qualifying term securitizations; (iv) establish criteria defining qualifying asset-backed commercial paper securitizations; and (v) re-calibrate the Basel Committee on Banking Supervision 2014 securitization framework applicable to qualifying securitization positions. The Opinion states that these recommendations on the implementation of a qualifying securitization framework should be reconsidered subject to any progress made by the Basel Committee on Banking Supervision and International Organization of Securities Commission on the definition of a simple transparent and comparable securitizations framework. An accompanying report on qualifying securitization was also published by the EBA and describes the analysis carried out in order to reach the recommendations.

View the Opinion.

The PRA and Financial Conduct Authority published further Policy Statements, including feedback to proposals and final rules for the Senior Manager and Certification Regime which comes into effect next year. The PRA and FCA have now issued final rules on all aspects of the regime except for: (i) rules on regulatory references (the PRA will consider the recommendations made by the Fair and Effective Markets Review before making final rules before March next year); (ii) rules applicable to UK branches of non-EEA firms; and (iii) rules applicable to UK branches of EEA firms for which final legislation is required before the rules can be made. The FCA is also consulting on the extension of the certification regime to individuals involved in wholesale activity, responses to which are due by September 6, 2015. The regulators also intend to provide final guidelines on enforcement matters and senior management responsibility regarding whistleblowing. The Senior Manager and Certification Regime is due to come into effect from March 7, 2016.
 

View the PRA’s Policy Statement.

View the FCA’s Final Rules and Consultation Paper.

View the PRA simultaneously published a Supervisory Statement.

View Statement of Policy.
 

The EBA published a final report, including final guidelines and final draft Implementing Technical Standards on the eligibility of institutions for simplified obligations in the context of recovery planning, resolution planning and resolvability assessments under the Bank Recovery and Resolution Directive. The EBA also published final draft ITS on the procedures, forms and templates for submitting information on resolution plans. 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 EBA’s final 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 technical standards specify general reporting procedures, including further instructions for completing the reporting form. National regulators retain the power to select which form a particular firm is required to complete. Authorities are to report within two months of publication of the translated versions of the guidelines on the EBA website how they assessed the application of the criteria and indicators to their institutions. The EBA will then assess any difference in the modes of assessment by the jurisdiction, and will submit a report of its findings to the European Parliament, Council and European Commission by December 31, 2017.

View the final report, guidelines and draft ITS.

The European Banking Authority published a consultation paper on draft Regulatory Technical Standards relating to the conditions that national regulators must consider when tightening capital requirements for mortgage exposures and determining higher risk‑weights and higher minimum Loss Given Default values under the Capital Requirements Regulation. The draft RTS set out the conditions and financial stability considerations that would promote harmonization in setting higher risk weights and higher minimum LGD values. The proposed conditions set out in the consultation paper include a requirement for national regulators to specify the LGD expectation on property segments in property markets. The consultation states that forward‑looking analyses should be made and consideration given to developments in the property markets. The consultation also seeks views on the levels of indicative benchmarks for loss expectations when higher risk weights are set. Responses to the consultation are due by October 6, 2015.

View the consultation.

The Prudential Regulation Authority announced changes to depositor protection provided by the Financial Services Compensation Scheme. Currently, the deposit compensation limit is £85,000 for deposits made by private individuals and small businesses. The changes include: (i) amending the deposit protection limit to £75,000 from July 3, 2015 to match the new limit under the recast Deposit Guarantee Schemes Directive and because Member States converting the limit into their national currency must use the exchange rate prevailing on July 3, 2015 to recalculate the limit; (ii) transitional UK legislation under which most depositors remain protected up to £85,000 up to and including December 31, 2015; (iii) making certain deposits of large companies and small local authorities eligible for protection from July 3, 2015 onwards although the £75,000 deposit protection limit will apply which is a significant change from the past scope of the UK compensation scheme; (iv) amendments to the PRA rules to ensure that firms update disclosures and procedures to account for new limits and scope of the regime; and (v) requiring firms to communicate the changes to their customers by September 1, 2015 using the PRA’s prescribed language. The PRA is also consulting on proposals that would ensure that all depositors to which the decrease in FSCS protection applies have an opportunity to adjust to the new limit, without incurring any penalties, charges or loss of interest from August 1, 2015 until December 31, 2015. Responses to the consultation paper are due by July 24, 2015.

View the new rules.

View the consultation paper.

The Joint Committee of the European Supervisory Authorities (consisting of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) published new proposals and draft guidelines for the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. The new guidelines will replace previous guidelines published by the ESAs’ predecessors. The draft guidelines aim to provide legal certainty and clarity on assessment processes relating to increases of control and acquisitions in banks, investment firms and insurance firms, bringing a more harmonized, clear and transparent process in prudential assessments by national regulators, as well as clearer details on what information is required from proposed acquirers. The guidelines cover questions related to: (i) indirect acquisitions of qualifying holdings; (ii) assessment periods; and (iii) financial soundness of acquirers. Responses to the consultation are due by October 2, 2015.

View the consultation and draft guidelines.

The European Banking Authority published an Opinion on the European Commission’s intention to amend draft Regulatory Technical Standards on derogations for currencies with constraints on the availability of liquid assets under the Capital Requirements Regulation. The CRR allows firms to apply derogations where a justified need for liquid assets exists owing to the Liquidity Coverage Requirement, and exceeds the availability of those liquid assets in certain currencies. Measures in the draft RTS were introduced to prevent the unnecessary use of derogations by firms, such as a general 8% haircut to be applied to foreign currency liquid assets, and a requirement that the value of the collateral posted at a central bank is subject to a haircut of at least 15%. The EBA states in its Opinion that it agrees with the Commission’s suggestion to remove from the RTS the requirement for a haircut of at least 15%. The EBA also agrees with other amendments suggested by the Commission, such as providing more detail on what is considered to be an exceptional circumstance, conditions for derogations, and the process for notification of exceptional circumstances. The EBA has amended and resubmitted the draft RTS, and these are included in the Opinion.

View the Opinion.

The European Banking Authority published its seventh semi‑annual report on risks in the European banking sector. The report is based on 2014 data. The report does not cover the current situation in Greece. However, an addendum to the report notes that based on the most recent supervisory data, the exposure towards Greek borrowers by non‑Greek banks in Europe appears to be less than €20 billion or 1.4% of Common Equity Tier 1. The report sets out the main developments and trends that have affected the EU banking sector since mid‑2014 until June 12, 2015 as well as the EBA’s view of the key micro‑prudential risks in the near future.

View the report.

The European Banking Authority has published draft final Regulatory Technical Standards under the EU Bank Recovery and Resolution Directive on the criteria for assessing the independence of valuers from both the resolution authority and the firm or entity subject to the valuation, including ensuring that the valuer has no actual or potential material interests in common or in conflict with any relevant authority or entity concerned which might influence the valuer’s judgement in performing the valuation. The RTS identify two situations which preclude a person per se from being an independent valuer: (i) where the valuer is not legally separate from an authority or entity subject to valuation; and (ii) where the person, in the year preceding the date on which his independence is assessed, has completed a statutory audit of the relevant entity. The RTS will, once they enter into force, apply directly across the EU.

View the RTS on valuers.

The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:
 
1. RTS on the operational functioning of resolution colleges which will be established for groups that operate on a cross-border basis in the European Economic Area. The RTS set out details on the establishment of a college, describe the resolution planning process, provide for the manner in which the resolution of a cross-border group should be undertaken, the exchange of information and interaction between resolution authorities, the requirements for EU resolution authorities to develop a framework for involvement of third country resolution authorities and the process for reaching decisions in the event of disagreement between resolution authorities.

2. RTS on notification which set out the process and information required for firms to notify their national regulators that the firm is failing or likely to fail, for national regulators to then notify the resolution authority and the publication by the resolution authority of the resolution action taken using its powers under the BRRD. The RTS also cover the situation where the national regulator assesses for itself that a firm is likely to fail or is failing.

The RTS will, once they enter into force, apply directly across the EU.

View the RTS on resolution colleges.

View the RTS on notification requirements.

The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:

1. RTS on the minimum requirement for own funds and eligible liabilities, known as MREL, to ensure firms have adequate loss absorbing capacity. MREL will be set by resolution authorities for each firm so that resolution plans are effective and will be linked to the capital requirements of a firm. A tailored approach is set out for financial market infrastructures that are also subject to MREL requirements and for subsidiaries of groups. The RTS aim to ensure that the MREL requirements are compatible with the proposed Total Loss Absorbing Capacity requirements, known as TLAC, which are being developed at international level.

2. RTS on the contractual recognition of bail-in of contracts governed by the law of a non-EU country which set out when the contractual recognition clause requirement does not apply, for example, if the non-EU country has a statutory regime which provides for the recognition of the write-down and conversion powers of an EU resolution authority. 

The RTS will, once they enter into force, apply directly across the EU.


View the RTS on MREL. 

View the RTS on contractual recognition of bail-in powers.

The UK Competition and Markets Authority announced that it appointed Dr. Michael Grenfell to its board as the new Executive Director for Enforcement.

View the press release.

The Financial Stability Board announced a peer review on the implementation of its shadow banking framework, excluding money market funds. The review will assess the extent to which FSB‑member jurisdictions have adequately assessed shadow banking entities based on the economic functions that they undertake, adopted tools to mitigate any identified financial stability risks, implemented reporting requirements for public disclosure by shadow banking entities of certain risks and implemented arrangements, systems and processes for authorities to collect and analyze information about the risks that shadow banking entities pose. Questionnaires will be provided to FSB members for completion and to feed back into the review report, which will be published in early 2016. The FSB is also inviting financial market participants and stakeholders to comment by July 24, 2015, on means of updating the regulatory perimeter, types of information needed to assess shadow banking risks, methods for enhancing transparency of shadow bank entities’ risks and the design of policy tools to mitigate financial stability risks posed by shadow banking entities.

View the terms of reference for the peer review.

The European Securities and Markets Authority published a final report on the interoperability arrangements between EU‑based CCPs. The report is required under the European Market Infrastructure Regulation. Interoperability arrangements made between two or more CCPs enable a counterparty using one CCP to execute a trade with a counterparty that chooses to use a different CCP. The report, which describes current interoperability arrangements for different product types such as equities and government bonds recommends that the interoperability provisions in EMIR (which are currently limited to transferable securities and money‑market instruments only) are not yet extended to OTC derivatives, given the additional complexities involved in an interoperability arrangement between CCPs clearing OTC derivative contracts. The report does, however, recommend that the interoperability provisions in EMIR be extended to Exchange‑Traded Derivatives, as one interoperability arrangement already exists (between LCH.Clearnet Ltd and Oslo Clearing), as is the general framework for assessing the risk involved as a result. This proposal will next be considered by the European Commission and may prove to be controversial.

View the final report.

The Basel Committee on Banking Supervision published a report on the impact and accountability of banking supervision. The report analyzes how global supervisors define and evaluate the impact of their policies and actions and discusses: (i) supervisory trends and their development over time since the financial crisis; (ii) the objectives of supervision and how these are transformed into supervisory actions; (iii) developments in how to measure the impact of supervision through quality assurance mechanisms and feedback loops within the supervisory process; and (iv) internal and external accountability arrangements in the wake of the financial crisis.

View the consultation paper.

The European Securities and Markets Authority published Q&As on anti‑money laundering and terrorist financing in investment‑based crowdfunding platforms. The Q&As aim to encourage common supervisory approaches and consistent application of anti‑money laundering and terrorist financing rules to investment‑based crowdfunding platforms. The Q&As deal with questions related to the treatment of investment‑based crowdfunding under the Anti‑Money Laundering Directive, the differences in risk profiles of platforms operating inside or outside a regulatory regime or within the scope of MiFID, and how to mitigate risks.

View the Q&As.

The Basel Committee on Banking Supervision announced a review of the Credit Valuation Adjustment Risk Framework. The objectives of the review include ensuring that all important drivers of CVA risk and CVA hedges are covered in the Basel regulatory capital standard. Further, the review will align the capital standard with the fair value measurement of CVA employed under a number of accounting regimes and ensure consistency with the proposed revisions to the market risk framework under the Basel Committee’s Fundamental Review of the Trading Book.

View the consultation paper.

The Bank of England published a Policy Statement on the Financial Policy Committee’s powers over leverage ratio tools. The BoE was given powers of direction over leverage ratio requirements and buffers for banks, building societies and Prudental Regulation Authority‑regulated investment firms in April this year. The FPC intends to direct the PRA to apply: (i) a minimum leverage requirement immediately to UK Global Systemically Important Banks and other major domestic UK banks and building societies, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA‑regulated investment firms; (ii) a supplementary leverage ratio buffer of 35% of corresponding risk‑weighted systemic buffer rates to UK G‑SIBs, phased in from 2016, and to domestically systemically important banks, building societies and PRA‑regulated investment firms from 2019; and (iii) a countercyclical leverage ratio buffer of 35% of a firm’s institution‑specific countercyclical capital buffer rate which will apply immediately to UK G‑SIBs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA‑regulated investment firms, including any ring‑fenced banks, large building societies and any other banks that become subject to a systemic risk‑weighted capital buffer. The FPC cannot direct the means by which or the time within which the PRA must implement a direction but the PRA is now expected to take the proposals forwards. The implementation of the UK leverage ratio framework for G‑SIBs and other major domestic UK banks and building societies is ahead of the internationally agreed standards which are expected to introduce a minimum leverage ratio requirement by January 1, 2018. A consultation paper on implementation of the FPC’s direction is due to be published on July 10, 2015.

View the Policy Statement.

The Bank of England published its Financial Stability Report which identifies the main current risks in the UK financial system. The report sets out recommendations made by the Financial Policy Committee on Additional Tier 1 capital for the purposes of the minimum leverage ratio requirement. The report recommends to the Prudential Regulation Authority that AT1 capital should be counted towards Tier 1 capital only if the relevant capital instrument specifies a trigger event that occurs when the Common Equity Tier 1 capital ratio of the institution falls below 7%. The report also directs the BoE, PRA and Financial Conduct Authority to work with firms to complete cyber‑attack resilience assessments (also known as CBEST tests), adopt cyber‑resilience action plans and establish arrangements for CBEST tests to become regular cyber resilience assessments within the UK financial system. The report also refers to recommendations on the new UK leverage ratio framework which are discussed in further detail below.

View the report.

On June 25, 2015, the Federal Reserve Board issued a supervisory letter implementing changes to the "name check" process for banking applications. Under the previous process, a name check was conducted on all proposed officers and/or new principle shareholders of a supervised financial institution involved in an application under consideration by the Federal Reserve Board. The new name check process will only be conducted for individuals that will become principal shareholders or one of the top two policymakers of the organization upon consummation of the process. In the case of a group acting in concert, name checks generally will be initiated on all individual group members with five percent or greater individual ownership interests. A completed name check will remain current for five years; individuals and companies with current name checks will generally not be rechecked unless circumstances indicate otherwise. In addition, the Federal Reserve Board will obtain credit bureau reports in certain limited situations to supplement and corroborate financial information provided in the application process. The guidance is applicable to all financial institutions supervised by the Federal Reserve Board, including those with $10 billion or less in consolidated assets.

View the Federal Reserve Board supervisory letter.

The Federal Financial Institutions Examination Council – an interagency body composed of the US Board of Governors of the Federal Reserve System, the FDIC, the US National Credit Union Administration, the US Office of the Comptroller of the Currency, and the US Consumer Financial Protection Bureau – announced its release of a Cybersecurity Assessment Tool. The tool, together with other resources made available by the FFIEC to financial institutions, is available for all financial institutions regardless of asset size and is intended to aid senior management and boards of directors of financial institutions to assess cybersecurity risk and preparedness.
 

View the Federal Reserve Board press release.

View the cybersecurity assessment tool.
 

The European Securities and Markets Authority published final draft implementing technical standards and Regulatory Technical Standards on requirements for: (i) the authorization of investment firms, including template forms; (ii) requirements for passport notification, including template forms and procedures; (iii) information for registration with ESMA of third country firms; (iv) the format of information to be provided by third country firms to their EU clients on the submission of disputes to the jurisdiction of a court or arbitral tribunal in a Member State; and (v) cooperation between national regulators including the exchange of information. ESMA is required to prepare the ITS and RTS under the Markets in Financial Instruments Regulation and Directive, which will apply from January 3, 2017. ESMA will provide the remaining technical standards to the European Commission before the end of 2015. 

View the report.

The European Securities and Markets Authority published proposed draft Regulatory Technical Standards on the buy‑in process, including the timeframe for delivery of financial instruments which ESMA is required to prepare under the EU Central Securities Depositories Regulation. The CSDR came into force on September 17, 2014. ESMA consulted in December 2014 on the buy‑in process, noting that there is currently no uniform approach to buy‑in by central securities depositories, CCPs and trading venues. Feedback to the consultation suggested that buy‑in should be executed by a bank or execution dealer that was not connected to the parties in the failed transaction. The current consultation therefore focuses on which entity should be responsible for operating the buy‑in process for OTC transactions that are not centrally cleared. ESMA seeks feedback on three proposed options: trading level execution, trading level with fall‑back option execution and CSD participant level execution. Responses to the proposals are due by August 6, 2015. ESMA must provide all of the final draft RTS under the CSD to the European Commission by the end of September 2015.

View the consultation paper.

The Board of the International Organization of Securities Commissions approved a project specification for its Committee 6 on Credit Rating Agencies. The goal of the project is to help the Board gain an improved understanding of the credit rating industry as well as CRA products other than those that are disclosed to subscribers, such as private ratings, confidential ratings, scoring and other tools that can be used for risk assessments. The collected data will aid discussions between C6 members, issuers and users of other CRA products and other parties.

View the questionnaire.

View the press release.

The Payment Systems Regulator published the final terms of reference for its market review into the ownership and competitiveness of the UK payments system infrastructure. The review aims to ascertain whether current infrastructure services are effective for service users and able to support new developments and innovations. The review focuses in particular on interbank payment systems BACS, FPS and Link, and is based around the seven following questions: (i) whether there is effective competition in the provision of infrastructure services in interbank payments; (ii) whether current ownership arrangements of infrastructure providers affect competition; (iii) whether there are any barriers to effective competition; (iv) what the likelihood is of entry or expansion in respect of provision of infrastructure services; (v) whether there are any efficiencies resulting from the present ownership arrangements; (vi) how demand affects competition in the provision of infrastructure services; and (vii) what the benefits of greater levels of competition might be. The review will aim to address any concerns identified with a view to publishing new directions, recommendations or guidance if necessary, as well as encouraging further industry initiatives and self-regulation if needed. The PSR welcomes views on the key questions outlined in the terms of reference and aims to publish its final report in the second quarter of 2016.

View the terms of reference.

The Board of Supervisors of the European Securities and Markets Authority has appointed the following individuals as chairs of its standing committees: (i) Lourdes Centeno to chair the Review Panel; (ii) Hannelore Lausch to chair the Corporate Reporting Standing Committee; (iii) David Lawton to chair the Market Data Standing Committee; (iv) Elizabeth Roegele to chair the Secondary Markets Standing Committee; (v) Jean-Paul Servais to chair the Financial Innovation Standing Committee; and (vi) Martin Wheatley to chair the Investor Protection and Intermediaries Standing Committee. 

View the press release.

The International Organization of Securities Commissions published proposed recommendations and statements of practice on fees and expenses of investment funds. The recommendations and statements of practice are intended to update the 2004 report on International Regulatory Standards on Fees and Expenses which provided a set of international standards of best practice for collective investment schemes and regulators to consider. The proposed recommendations and statements of practice cover issues such as types of permitted fees and expenses, performance-related fees, disclosure of fees and expenses, transaction costs and hard and soft commissions on transactions. The report is aimed at funds whose shares or units may be sold to retail investors and includes open-ended funds, closed-ended funds whose shares are traded in the securities market, unit investment trusts and contractual models. The proposals are open for comment until September 23, 2015. 

View the report.

The Financial Conduct Authority issued an interactive discussion paper to start a debate and encourage firms to deliver smarter communications to consumers in more effective ways. The discussion paper states that for a market to perform well, engaged and informed consumers are needed. The FCA recognizes that some methods of communication can overwhelm, confuse and even deter consumers from making effective choices about financial products and services. The FCA is committed to ensuring that firms operate with due regard for their consumers, that communications are not misleading and that communications are transmitted in a clear and fair way. The FCA also published research alongside the discussion paper. Responses to the discussion paper are due by September 25, 2015.

View the discussion paper and research.

The European Systemic Risk Board published a report on misconduct risk in the banking sector. The report analyses misconduct risk in the banking sector from a macroprudential angle and makes the following recommendations: (i) prudential and conduct regulators should continue to impose requirements on banks that limit the opportunities for misconduct; (ii) coordination and transparency between regulators at an international level should be improved, including preparation of a set of principles for authorities to follow where action against a bank in one jurisdiction may have systemic implications in another jurisdiction; (iii) extension of the legal entity identifier scheme to a wider range of counterparties so that banks can determine which entities are subject to financial sanctions; (iv) the European Supervisory Review and Evaluation Process taking into account the systemic impact of potential misconduct; and (v) inclusion of potential misconduct risks in future EU-wide stress tests. 

View the report.

The Payment Systems Regulator issued a call for input on card payment systems. The PSR seeks views on issues related to payment systems in the UK and in particular on interbank payment systems. The PSR is interested in hearing about the impact of new EU regulations which introduce new rules and implement caps on interchange fees, and the effect that these regulations might have on the way in which the UK card payment systems operate. The call for input also wishes to obtain views on general trends within card payment systems and gather information on how the interests of service users are considered in decision making. Responses to the call for input are due before July 31, 2015. 

View the call for input.

The Prudential Regulation Authority and the Financial Conduct Authority launched a consultation on proposals to reform the Credit Unions Sourcebook in the Handbook. The PRA intends to replace the current Credit Unions Sourcebook that was inherited from the Financial Services Authority with a new Credit Unions Rulebook in the PRA Rulebook which will focus on the safety and soundness of credit unions and will reflect the now broader range of financial services offered by credit unions. The FCA intends to replicate many of the provisions of the Credit Unions Sourcebook. The consultation closes on September 30, 2015. 

View the consultation.

The Monetary Authority of Singapore released its Consultation Paper on Proposed Enhancements to Resolution Regime for Financial Institutions in Singapore.  In the paper, MAS proposed enhancements to the resolution regime in Singapore by strengthening its powers to resolve distressed institutions while maintaining continuity of their critical economic functions. Among other topics, the policy proposals cover: (i) recovery and resolution planning; (ii) temporary stays and suspensions; (iii) statutory bail-in powers; (iv) cross-border recognition of resolution actions; (v) creditor safeguards; and (vi) resolution funding. The proposed policy changes will be introduced primarily through amendments to the MAS Act, supported by the necessary regulations. MAS will also consult on the legislative amendments, after considering the feedback received on the policy proposals in this consultation.  The submission deadline for comments on the proposal is July 22, 2015.

View the consultation paper.

The final guidelines on periodic information to be submitted by Credit Rating Agencies to the European Securities and Markets Authority were published on June 23, 2015. The guidelines apply to CRAs registered in the EU, but not to certified CRAs. They set out the information that CRAs should submit to ESMA on a quarterly, semi-annual and annual basis, including for the calculation by ESMA of supervisory fees and CRA market share. The guidelines will apply from August 23, 2015.

View the final guidelines.