The European Banking Authority published its final draft Implementing Technical Standards under the Capital Requirements Regulation, amending the existing ITS on supervisory reporting on the Liquidity Coverage Ratio. The final draft ITS make significant changes to the existing LCR reporting templates and a large number of new data items need to be introduced further to the requirements of the LCR delegated regulation published in the Official Journal of the European Union in January 2015. The changes include new templates and instructions for banks on capturing and reporting all necessary LCR items. The new templates cover liquid assets, outflows, inflows, collateral swaps and calculation of the LCR. The new instructions will only apply to banks – investment firms will continue to use current instructions and templates, at least for now. 

View the ITS.

The Prudential Regulation Authority and Financial Conduct Authority issued a joint Policy Statement on new remuneration rules to strengthen the alignment of risk and reward,. The changes to the PRA Rulebook and FCA Handbook will apply to banks, building societies, PRA designated investment firms as well as UK branches of non-EEA headquartered firms. The new rules apply to all Material Risk Takers and Senior Managers covered by the incoming Senior Managers Regime which takes effect next year. The changes include: (i) extending deferral periods for Senior Managers to no less than seven years, with no vesting period prior to the third anniversary of the award and vesting no faster than on a pro-rata basis; (ii) extending deferral periods for all other MRTs to no less than five years, with vesting no faster than pro-rata from one year (PRA only requirement); (iii) clarifying that the rule that no variable remuneration should be paid to the management body of a firm which receives exceptional government support unless justified applies to all discretionary payments but would not apply to firms receiving emergency liquidity assistance; (iv) a new FCA rule requiring firms to apply clawback where there is misconduct or risk management failures up to seven years from the date of a variable remuneration award (the PRA implemented the same rule from January 1, 2015); and (v) extending the clawback period by up to three years, in addition to the seven years for PRA-designated Senior Managers where there are outstanding internal or regulatory investigations at the end of the normal seven-year clawback period. The final rules on clawback and deferrals will apply to variable remuneration awarded for performance periods beginning on or after January 1, 2016. The remainder of the new rules will apply from July 1, 2015.

View the Policy Statement.

The US Commodity Futures Trading Commission’s Division of Market Oversight published an updated Guidebook and Appendices for Part 20 Reports, providing guidance and instructions for the submission of large swaps trader reports to the CFTC in accordance with Part 20 of the CFTC regulations. Among other things, the Part 20 Guidebook includes instructions on reporting formats and record layouts for submitting position reports and examples for converting swaps into futures equivalent units as required under Part 20.

View the CFTC Guidebook for Part 20 Reports.

The Basel Committee on Banking Supervision released final Net Stable Funding Ratio disclosure standards. The NSFR was introduced by the Basel Committee to reduce funding risk over a period of one year by requiring banks to fund their activities with sufficiently stable sources to mitigate the risk of future funding stress. The NSFR and the Liquidity Coverage Ratio are intended to increase a bank's resilience to liquidity shocks, ensure more stable funding and enhance liquidity risk management. Similar to the LCR disclosure framework, the goal of the NSFR disclosure standards is to improve transparency of funding requirements and reduce uncertainty in the markets as the NSFR is implemented. The NSFR disclosure requirements are applicable to internationally active banks on a consolidated basis although jurisdictions may choose to apply the requirements to other banks. Banks will be required to publish their NSFR disclosures at the same time as they publish their financial statements, either within those statements or linked to their websites. Banks will also need to make archived disclosures publicly available on their websites for a retention period to be determined by national regulators. The NSFR disclosure requirements will be adopted in parallel to the NSFR and banks will be required to comply with the new disclosure requirements from the date of the first reporting period after January 1, 2018.

View the press release.

View the final standards.

The Federal Reserve Board announced that Brian F. Madigan will become the new secretary of the Federal Open Market Committee and deputy director of the Federal Reserve Board’s Division of Monetary Affairs.

View the Federal Reserve Board press release.

An Amending Regulation which amends the Regulatory Technical Standards on assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk was published in the Official Journal of the European Union. The Amending Regulation adds standards to the original RTS on the conditions for assessing materiality of extensions and changes to Internal Model approaches used for the calculation of own funds requirements for market risk. The amendments mean that all of the provisions regulating extensions and changes to internal approaches are set out in a single legal text. The original RTS only included provisions for the Internal Rating Based Approach and the Advanced Measurement Approaches used for calculating capital requirements for credit and operational risk. The Amending Regulation enters into force on July 9, 2015.

View the Amending Regulation.

The European Supervisory Authorities published their second consultation on draft regulatory technical standards on risk mitigation techniques for OTC derivatives not cleared by a CCP. Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk. This second consultation follows the proposals published in April 2014 and seeks to address the issue of how the requirements would impact firms subject to differing requirements across jurisdictions. The second consultation seeks feedback on a narrower set of issues, including: (i) the treatment of non-financial counterparties established outside of the EU; (ii) the timing of calculation, call and delivery of initial and variation margin; (iii) unintended consequences that might arise due to the design or implementation of initial margin models; (iv) the requirements for trading relationship documentation; (v) the treatment of FX mismatch between collateral and OTC derivatives; (vi) whether allowing cash posted as initial margin to be re-invested will alleviate concerns that the ban on rehypothecation would result in a de facto ban of cash as initial margin; (vii) whether replacing the requirement to obtain legal opinions on the segregation of initial margin with a requirement for counterparties to conduct an internal assessment of the reliability and enforceability of agreements in each jurisdiction is sufficient to ease the burden on counterparties; and (viii) the revised regime for units in UCITS as eligible collateral. Responses to the consultation are due by July 10, 2015. The revised international timeline would apply.

View the Consultation paper.

The Board of Governors of the Federal Reserve System adopted a final rule amending Regulation D (Reserve Requirements of Depository Institutions), changing the calculation of interest payments on certain balances maintained by eligible institutions at Federal Reserve Banks. In contrast to the previous rule, which based interest payments on the average rate over the two-week reserve maintenance period, the final rule bases interest payments on a daily rate. The amendment is intended to enhance the effectiveness of changes in such rates of interest in moving the Federal funds rate into the target range established by the Federal Open Market Committee, especially when changes in those rates do not coincide with the beginning of a maintenance period. The amendments to Regulation D will be effective July 23, 2015.

View text of amended Regulation D.

The European Securities and Markets Authority published a letter, dated June 17, 2015, from it to the European Commission that informs the Commission that ESMA will be providing the technical standards due under the Central Securities Depositories Regulation in September 2015. The original due date for delivery of the technical standards was June 18, 2015. The delay to delivery of the standards is due to the European Commission’s Legal Services undertaking an early review of the standards to ensure conformity and consistency of EU legislation. There is not expected to be a delay in adoption by the European Commission of the technical standards under CSDR. The CSDR introduces common standards for settlements across the EU, such as the harmonization of the rules governing central securities depositories which operate the infrastructures enabling settlement, and the timing of securities settlement in the EU. The CSDR will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities. Certain provisions will only apply from the date of entry into force of the relevant delegated act adopted by the Commission under the CSDR.

View ESMA's letter.

The Council of the European Union and the European Parliament announced that they had reached agreement on the text of the proposed Regulation on Reporting and Transparency of Securities Financing Transactions, known as SFTR. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buy-sell back or sell-buy back transactions and margin lending transactions which will help reduce the likelihood of banks seeking to avoid rules applicable to them by moving certain of their activities to the shadow banking sector. The SFTR, once finalized, will require: (i) all securities financing transactions, subject to certain exceptions for central banks and similar bodies, to be reported to EU recognized trade repositories; (ii) investment funds to disclose their use of SFTs to investors in regular reports and pre-investment documents; and (iii) minimum conditions to be met on the reuse of collateral, such as disclosure of risks and the need to obtain prior consent. The politically agreed SFTR must be technically finalized before the official legal text can be adopted by the European Parliament, which is currently scheduled for October 2015.

View the European Council's press release.

View the European Parliament's press release.

The International Organization of Securities Commissions published a report on credible deterrence in the enforcement of securities regulation. With the objective of promoting awareness of deterrence, the report sets out the following as factors that may lead to credible deterrence of misconduct in the securities and investment markets if adopted by regulators: (i) legal certainty of the consequence of misconduct; (ii) detecting misconduct by being well connected and getting the right information; (iii) co-operation and collaboration between regulatory authorities; (iv) bold and resolute enforcement in investigations and prosecution of misconduct; (v) strong punishments which ensure that there is no profit from misconduct; (vi) promoting public understanding; and (vii) good regulatory governance.

View the report.

A regulation which amends the regulatory technical standards for own funds requirements was published in the Official Journal of the European Union. The amending regulation aims to ensure a harmonized approach across the EU to the deduction from own funds items of indirect and synthetic holdings in firms' own funds instruments and indirect and synthetic holdings in financial sector entities. The amending regulation adds provisions to the original RTS which: (i) explain what intermediate entities mean for the purpose of deducting holdings in financial sector entities held indirectly through intermediate entities; (ii) expand upon the different investments which should be considered as synthetic holdings and the amount to be deducted from Common Equity Tier 1 items in each case; (iii) set out the calculation for firms to determine the percentage held indirectly in a financial sector entity; (iv) include criteria required for indices to be qualify as broad market indices; and (v) explain the calculation of minority interests. The amending regulation enters into force on July 7, 2015.

View the amending regulation.

The Financial Conduct Authority issued a call for input, asking two specific questions on digital and mobile solutions for financial services, so that it may obtain market views on: (i) specific UK or EU rules and policies that may currently restrict the development of new and innovative products; and (ii) rules and policies that should be introduced to facilitate innovation in this field. The FCA is asking for specific examples, taking into account both UK and EU perspectives. The call for input also provides a summary on the FCA’s considerations related to the digital and mobile space to date, such as the demand for the regulation of digital currencies and concerns about regulatory requirements creating lengthy customer terms and conditions that are deemed not to be appropriate for digital and mobile solutions. Responses to the Call for input are due by September 7, 2015.

View the call for input.

The International Organization for Securities Commissions issued a press release further to its recent annual conference, reporting that important organization and policy issues have been discussed, including IOSCO’s strategic direction to 2020 as well as its action plans. IOSCO aims to reinforce its position as a global reference for securities regulation and aims to implement 43 new initiatives encompassing six priority areas: (i) research and risk identification; (ii) standard setting and developing guidance; (iii) implementation monitoring; (iv) capacity building; (v) co-operation and information exchange; and (vi) collaboration and engagement with other international organizations.

View the press release.

The US Federal Deposit Insurance Corporation approved a Notice of Proposed Rulemaking and request for comment on proposed refinements to the deposit insurance assessment system for small insured depository institutions that have been federally insured for at least five years (referred to as “established small banks”). The FDIC is proposing to refine the deposit insurance assessment system by: (i) revising the financial ratios method so that it would be based on a statistical model estimating the probability of failure over three years; (ii) updating the financial measures used in the financial ratios method consistent with the statistical model; and (iii) eliminating risk categories for established small banks and using the financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum initial assessment rates based upon a bank’s composite rating). The FDIC proposes that the refinements would become operative the quarter after the reserve ratio of the Deposit Insurance Fund reaches 1.15 percent. and that a final rule would go into effect the quarter after a final rule is adopted; however, as stated above, the proposed amendments would not become operative until the quarter after the DIF reserve ratio reaches 1.15 percent.
 

View the FDIC press release.

View the Noticed of Proposed Rulemaking.

The FDIC proposed an amendment to the methods used by the FDIC in assessing small banks for deposit insurance. Under the proposal, only banks with less than $10 billion in assets that have been insured by the FDIC for at least five years would be affected. Specifically, the FDIC will (i) revise the financial ratios method to be based on a statistical model estimating the probability of failure over three years; (ii) update the financial measures used in the financial ratios method to be consistent with the statistical model; and (iii) eliminate risk categories for established small banks and use the financial ratios method to determine assessment rates for all such banks. As the proposal seeks to be revenue neutral, the aggregate assessment revenue collected from small banks affected by the revisions is expected to remain approximately the same as it would have been otherwise. To assist banks in understanding the potential effect of the proposed rule and in estimating assessment rates under the proposal, the FDIC has published an online assessment calculator. Comments on the proposal are due within 60 days from publication of the proposed rule in the Federal Register.

View the notice of proposed rulemaking.

View the proposed assessment calculator.

View statement by FDIC Chairman, Martin J. Gruenberg.

The Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued final revisions to the regulatory capital rules adopted in July 2013. The final rule is applicable to large, international banking organizations that calculate their regulatory capital ratios using the advanced approaches rule (generally, institutions with more than $250 billion in total consolidated assets or more than $10 billion in total on-balance sheet foreign exposures). The final rule substantially adopts the changes to the rule as proposed on December 18, 2014, and corrects and updates certain aspects of the advanced approaches rule, including the calculation requirements for risk-weighted assets for banking organizations using the advanced approaches method. The revisions also enhance the consistency of the advanced approaches rule with international capital standards. The final rule will be effective October 1, 2015.

View the final rule.

The Federal Reserve Board issued a public statement regarding AIG and the recently issued United States Court of Federal Claims decision in Starr International Company, Inc. v. The United States. In its statement, the Federal Reserve Board stated that its actions during the bailout of AIG during the financial crisis were “legal, proper and effective.” In the decision, the United States Court of Federal Claims found in favor of Starr International Company, Inc. on a portion of its claim against the United States under the Fifth Amendment, but ultimately did not award any damages. The opinion strongly criticized many of the US government’s actions with respect to the assistance it provided AIG in 2008 and the years following. Ultimately, the Court held that no damages were available to the shareholders, because they were in fact in a better position than they would have been had the US government not intervened and AIG had filed for bankruptcy.

View Federal Reserve Board press release.

The European Banking Authority published two final draft Implementing Technical Standards under the Capital Requirements Regulation on the leverage ratio for EU firms with regards to disclosure and supervisory reporting. These include amendments and updates to templates used for supervisory reporting and instructions to update the leverage ratio disclosure and reporting framework. The final draft ITS on reporting aim to encourage the harmonization of reporting and disclosure of the leverage ratio across the European Union, as consistent reporting requirements in all member states facilitate the comparability of data as well as cross-border supervision. The final draft ITS will enter into force following their publication in the Official Journal of the European Union.

View final draft ITS.

View final draft ITS 2.

The Financial Conduct Authority published its Policy Statement and final rules on the restrictions on the retail distribution of contingent convertible securities, known as CoCos, and mutual society shares. The FCA announced a temporary ban on the retail distribution of CoCos, which entered into force on October 1, 2014. The final permanent rules restricting distribution of CoCos to retail clients will come into effect on October 1, 2015 and the rules on mutual society shares will come into effect on July 1, 2015.

View the FCA's Policy Statement.

The US Securities and Exchange Commission announced that it is seeking public comment on the listing and trading of new, novel or complex exchange-traded products (“ETPs”). Specifically, the request deals with key issues that arise when market participants seek an exemption in order to trade a new ETP or when a securities exchange is looking to establish standards for the listing of new ETPs. ETPs have become an important investment vehicle to market participants. Given the significant increase in the number and complexity of new products, the SEC has determined that broad public input is necessary regarding certain issues, including arbitrage mechanisms and market pricing for ETPs, legal exemptions and other regulatory positions related to the trading of ETPs and securities exchange listing standards for ETPs. The request also solicits comment on how market professionals sell ETPs, especially to retail investors, and on investors’ understanding of the nature and use of ETPs. The public comment period will remain open for 60 days following publication of the comment request in the Federal Register.

View the press release.

View the request for comment.

The US federal agencies responsible for implementing the Volcker Rule (the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission) issued two new Volcker Rule Frequently Asked Questions. The FAQs provide guidance regarding the application of covered funds exclusions to foreign public funds and joint ventures.

FAQ 14 generally provides that foreign public funds sponsored by banking entities will not themselves be treated as banking entities even if controlled by a foreign banking entity though means other than share ownership. FAQ 15 generally emphasizes that joint ventures must be engaged in business activities, as opposed to investing in securities or other financial instruments, in order to be exempt as a joint venture.

View FAQ 14.

View FAQ 15.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published the second report on Level 1 assessments of implementation monitoring of the Principles for Financial Market Infrastructures. Level 1 assessments are based on self-assessments by individual jurisdictions on how they have adopted the PFMIs through legislation, regulations and other policies. The PFMIs are international standards for payment, clearing and settlement systems and trade repositories aimed at ensuring that such
infrastructure is robust and able to withstand financial stability shocks. Level 1 assessments will next be undertaken in 2016.

View the report.

The Bank of England announced an Open Forum, that will take place in autumn this year, to assess the financial regulatory reforms affecting the Fixed Income, Currency and Commodities markets that are already implemented or in train. Alongside the announcement, the Bank published a paper detailing its analysis of the short fallings of the FICC market, issues with its own frameworks and operating procedures, measures to rectify those failings and the difficulties that remain. Further details of the Open Forum will be published in due course. In the meantime, stakeholders are invited to register their interest in attending the event through the Bank of England’s website.

View the announcement.

View the related document.

The final report of the UK Fair and Effective Markets Review was published. The report includes an analysis of the causes of recent misconduct in the Fixed Income, Currency and Commodities markets, an evaluation of the impact of related reforms that have been implemented or are otherwise in progress and recommendations to enhance the fairness of the FICC markets. The recommendations will need to be implemented by public authorities and market participants domestically although several will require international discussions and coordination to implement. The recommendations to be implemented domestically include: (i) extending the UK criminal sanctions regime for market abuse by including a wider range of FICC markets, lengthening the maximum sentence from seven to ten year’s imprisonment and creating a regime for spot FX (the latter would be a civil and criminal regime for market abuse); (ii) extending certain elements of the Senior Managers and Certification regimes to a wider range of regulated firms that participate in the FICC markets; (iii) establishing a new FICC Market Standards Board; (iv) improving awareness of the application of competition law to the FICC markets; (v) developing new training and qualification standards; (vi) and requiring regulatory references for individuals. Recommendations requiring international coordination include:
(i) developing globally agreed common standards for trading practices in FICC markets; (ii) agreeing a single global FX code; (iii) considering how to ensure benchmark administrators publish consistent self-assessments; and (iv) examining means to improve the alignment of remuneration and conduct risk. A report on implementation progress will be published by June 2016.

View the final report.

The US Consumer Financial Protection Bureau published a rule that for the first time permits CFPB oversight over larger non-bank auto finance companies. The agency’s Supervisory and Examination Manual has also been updated to guide examiners who are monitoring compliance by auto finance companies with federal consumer financial laws (e.g., the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair, deceptive or abusive acts or practices).

The final rule extends the CFPB’s current oversight of auto financing at the largest banks and credit unions to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act. While the CFPB has finalized the rule largely as proposed in September 2014, the final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold and slightly modifies the definition of refinancing for the purpose of the threshold. 

The CFPB rule will take effect 60 days after publication in the Federal Register.

View the CFPB press release.

View the Final Rule.

View the Examination Procedures for Auto Finance.

The European Banking Authority published technical advice on the target level and initial period for contributions to the Single Resolution Fund under the Single Resolution Mechanism. The EBA’s advice was requested by the European Commission to assist it in developing legislation which specifies criteria for: (i) the spreading out in time of the contributions to the SRF; (ii) determining the number of years by which the initial period for reaching the target level can be extended; and (iii) establishing the annual contribution when the available financial means of the SRF falls below its target level after the initial period. The SRM and the SRF provide for the resolution of credit institutions and certain investment firms established in Member States within the Eurozone or in Member States that participate in the Banking Union. The SRF will support resolution measures for those banks and investment firms and will be financed by bank levies raised at national level. Ex ante contributions by those firms must be made to ensure that the SRF reaches a level of one per cent of the protected deposits of all banks within the Banking Union within eight years. The SRM and SRF are due to come into effect from January 1, 2016.

View the EBA's advice.

Several US federal financial regulatory agencies (including the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Securities and Exchange Commission) issued a final interagency policy statement creating joint standards to assess the diversity policies and practices of entities they regulate, as required by Section 342 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. 

Similar to the proposed standards, the final standards provide regulated entities with a framework for strengthening their
diversity policies and practices. This framework includes an organizational commitment to diversity, workforce and employment practices, procurement and business practices and practices to promote transparency of organizational diversity and inclusion within the entities’ US operations. 

The final interagency policy statement is effective on publication in the Federal Register.

View the press release.

View the interagency policy statement.

The Basel Committee on Banking Supervision published a consultation paper on the risk management, capital treatment and supervision of interest rate risk in the banking book. The proposals expand upon, and are intended to ultimately replace, the Basel Committee’s 2004 Principles for the Management and Supervision of Interest Rate Risk. The objectives of the proposals are to help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates and to limit capital arbitrage between the trading book and the banking book, as well as between banking book portfolios that are subject to different accounting treatments. The published proposal
presents two options for the capital treatment of interest rate risk in the banking book: (i) a Pillar 1 (Minimum Capital Requirements) approach; and (ii) an enhanced Pillar 2 approach. Comments to the proposal are due by September 11, 2015.

View the consultation document.

View the 2004 Principles for the Management and Supervision of Interest Rate Risk.

US Financial Stability Oversight Council staff released guidance providing additional information regarding the calculation of Stage 1 thresholds, used by the FSOC to help identify nonbank financial companies for potential supervision by the Board of Governors of the Federal Reserve System and to determine application of enhanced prudential standards to such companies. To assist its determination, the FSOC created a three-stage process, where it applies in Stage 1 six quantitative thresholds to a broad group of nonbank financial companies to assess whether any may be subject to further evaluation in Stage 2. The recent FSOC guidance describes the components of each of the thresholds, applicable accounting standards that are applied, data sources that are utilized, entities included in the calculations, the frequency of calculations and periodic review of the Stage 1 thresholds.

View the FSOC staff guidance.

The Prudential Regulation Authority published a Policy Statement setting out the final rules on its approach to regulating liquidity under the Capital Requirements Regulation. The Policy Statement provides feedback on the responses received by the PRA to the consultation on liquidity published in November 2014, and refers to a new Supervisory Statement on supervisory liquidity and funding risks which was published on the same day. The Policy Statement is aimed at UK banks, EEA banks with a branch in the UK, PRA-designated investment firms, as well as third country banks or PRA-designated investment firms. The Policy Statement includes new rules and feedback on issues related to: (i) the phasing-in of the Liquidity Coverage Requirement and additional liquidity requirements on top of the LCR; (ii) liquidity reporting and disclosure, including changes made to address concerns about the increased and burdensome volume of liquidity data that is to be reported; and (iii) interim LCR reporting. The Supervisory Statement deals with issues including (i) the Internal Liquidity Adequacy Assessment Process; (ii) the liquidity supervisory review and evaluation process; (iii) the drawing down of liquid asset buffers; (iv) collateral placed at the Bank of England; and (v) reporting of liquidity positions. The rules and Supervisory Statement come into effect on October 1, 2015, with the exception of Annex E, which will delete the requirement to submit certain liquidity returns and which will enter into force following a further review.

View the policy statement.

View the supervisory statement.

The International Organization of Securities Commissions published its final report titled Good Practices on Reducing Reliance on credit rating agencies in Asset Management, which lists a set of eight good practices intended to help asset managers avoid over-reliance on external credit ratings in the industry. To address concerns, IOSCO recommends that the Financial Stability Board consider potential ways to reduce possible investor overreliance on external ratings which are driven by regulatory requirements, such as those in the Basel framework or the Solvency regime applicable to insurers. The report highlights the importance of asset managers having the appropriate expertise and processes in place to evaluate and manage the credit risk associated with their investments.

View the IOSCO Final Report.

The Financial Conduct Authority published a Policy Statement and final rules on changes to the pension transfer rules. The amendments, which were consulted on in March this year, are needed to ensure that the rules reflect the change to legislation that made it a regulated activity to advise on the conversion or transfer of safeguarded pension benefits into flexible benefits. The FCA has also made changes to the Conduct of Business rules so that pension transfer requirements apply to all pension transfers, regardless of when the transferred benefits are accessed. The new rules came into force on June 8, 2015.

View the Policy Statement.

The revised EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “4th Anti-money Laundering Directive” or “4MLD”) and the Regulation on information accompanying transfers of funds were published in the Official Journal of the European Union. Together, the legislation represents the revised EU framework on anti-money laundering and terrorist financing. Member States have until June 26, 2017 to transpose the requirements of the 4th Anti-money Laundering Directive into national law. The 4th Anti-money Laundering Directive will repeal, from June 26, 2017, the current anti-money laundering Directive and its related Implementing Directive. The Regulation will apply directly in all Member States from June 26, 2017 and will repeal the 2006 Regulation on information on the payer accompanying transfers of funds from that date.

View the 4th Anti-Money Laundering Directive.

View the Regulation.

The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight issued no-action relief from introducing broker and commodity trading advisor registration to persons located outside the US that facilitate swap transactions for International Financial Institutions that have offices in the US. The relief granted by the DSIO is consistent with prior treatment of IFIs, including for purposes of the swap dealer definition and mandatory clearing requirements.

The definition of IFIs, for purposes of the no-action letter and in accordance with prior CFTC policy, is limited to certain specified institutions and organizations, including but not limited to, the International Monetary Fund, the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development and the International Development Association, among others.

View the CFTC Staff Letter 15-37.

The US Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter (CFTC Staff Letter 15-38) extending time-limited relief to Swap Dealers and Major Swap Participants from the obligation to report valuation data for cleared swaps. The no-action relief applies to (i) all SDs and MSPs that are reporting counterparties under regulation 45.8, for the purposes of section 45.4(b)(2)(ii) of the CFTC’s regulations, and (ii) all cleared swaps for which the SD or MSP has the obligation to report valuation data under section 45.4(b)(2)(ii).
According to the no-action letter, the DMO will not recommend that the CFTC take enforcement action against an SD or MSP for failing to comply with the requirements of the CFTC’s regulation to report valuation data. 

Originally expiring on June 30, 2015, in accordance with the time-limited relief provided previously in CFTC Staff Letter 14-90, the no-action letter issued on June 15, 2015, extends the relief until June 30, 2016.

View the press release.

View the CFTC Staff letter 15-38.

View the CFTC Staff letter 14-90.

The European Commission announced an extension of the exemption from the clearing obligation for pension funds from August 16, 2015 to August 16, 2017. The announcement was accompanied by a draft Commission Regulation which will, once it has come into effect, amend the European Market Infrastructure Regulation to give effect to the extension. The Commission noted that if pension funds were subject to the clearing obligation now, they would need to source cash for the margin requirements of CCPs. The Commission, and other EU regulators, have asked CCPs to develop a solution that would allow pension funds to clear derivatives without the obligation being too burdensome for pension funds but which will also allow CCPs to liquidate positions rapidly in the event of a default. To date, no solution has been confirmed.

View the draft Commission Regulation.

The European Banking Authority published a final report, dated June 3, 2015, including final draft Regulatory Technical Standards on the criteria that national regulators must take into account before allowing firms to use the Advanced Measurement Approaches for calculating capital requirements for operational risk under the Capital Requirements Regulation. The draft RTS aim to encourage regulatory harmonization across the European Union and also detail the assessment methodology that is to be used by national regulators. The draft RTS cover: (i) the qualitative and quantitative criteria that firms must meet before they are granted permission to use AMA models; (ii) the criteria for the supervisory assessment of key methodological components of the operational risk measurement system; and (iii) the common standards for the supervisory assessment of a bank’s operational risk governance.

View the final draft RTS.

The US Securities and Exchange Commission’s Division of Economic and Risk Analysis published additional analysis related to its proposed rules for pay ratio disclosure. Among other things, the analysis considers the potential effects of excluding different percentages of employees from the pay ratio calculation. In September 2013, the SEC proposed rules that would require the disclosure of the median of the annual total compensation of all employees of the issuer, the annual total compensation of the chief executive officer of the issuer and the ration of the median of the annual total compensation of all employees of the issuer to the annual total compensation of the chief executive officer of the issuer. The analysis and proposed rules are available for public comment until July 6, 2015.

View the SEC analysis.

View the proposed SEC rules for pay ratio disclosure.

Following the announcement by the European Commission, that the transitional period for regulatory capital requirements for EU banks’ exposures to CCPs under the EU Capital Requirements Regulation would be extended from June 15, 2015 to December 15, 2015, the Implementing Regulation was published in the Official Journal of the European Union on June 9, 2015. The Implementing Regulation comes into effect on June 12, 2015. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. One of the requirements for recognition of a third country CCP is that the third country’s regime for supervision of CCPs is deemed to be equivalent to that of the regime under EMIR. Equivalence decisions for CCP regimes have only been given for Hong Kong, Singapore, Australia and Japan. Decisions for major jurisdictions, such as the US, are still outstanding. Authorization or recognition under EMIR will give the CCP the status of being a Qualifying CCP, which is relevant for clearing member firms to calculate their capital requirements for exposures to CCPs under the CRR. Lower capital requirements will be imposed for exposures to a QCCP than for exposures to a non-QCCP CCP.

View the Implementing Regulation.

View our client note on third country equivalence under EMIR.

The Financial Conduct Authority published a consultation paper setting out proposals for fair, reasonable and non-discriminatory access to regulated benchmarks by benchmark administrators. This is further to the policy statement published by the FCA in March 2015 on the seven new benchmarks it will be regulating and supervising. The policy statement included the FCA’s final rules amending Chapter 8 of the Market Conduct Sourcebook (MAR 8), originally designed for benchmarks determined through a submission process, such as LIBOR. The FCA’s proposals are in response to concerns raised about the unconstrained ability of administrators to set the prices of access to benchmark information and benchmark licenses. The new proposals limit the ability of benchmark administrators to exploit their market power in a way that could encourage unfair competition. The new rules would apply to existing and future pricing and licensing arrangements and would not apply retrospectively. Responses are due before August 3, 2015 and the FCA aims to publish a policy statement and final rules towards the end of 2015.

View the consultation paper.

The US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the US Office of the Comptroller of the Currency (collectively, the Federal banking agencies), released a statement reiterating the disclosure requirements for the annual company-run stress tests conducted by financial institutions with total consolidated assets between $10 billion and $50 billion. In the statement, the Federal banking agencies emphasized the requirement for such medium-sized firms to disclose certain information regarding the annual stress tests, including: (i) a description of the types of risks included in the stress test; (ii) a summary description of the methodologies used to conduct the stress test; (iii) estimates of losses, revenue, and net income; (iv) post-stress capital ratios; and (v) an explanation of the most significant causes for the changes in regulatory capital ratios. In addition, as the Federal banking agencies have previously stated, the company-run stress tests are intended to produce hypothetical results and are not intended to be forecasts or expected outcomes.

Stress test results must be disclosed between June 15, 2015 and June 30, 2015. Any questions regarding the disclosures made in connection with the stress tests should be directed to the firms.

View statement released by the Federal banking agencies.

The Amending Regulation setting out Regulatory Technical Standards on own funds requirements for institutions under the EU Capital Requirements Directive and Capital Requirements Regulation, together known as CRD IV, was published in the Official Journal of the European Union. The Amending Regulation applies to banks and investment firms and specifies the conditions in which a drag on own funds is disproportionate in terms of distributions on: (i) an individual Common Equity Tier 1 instrument; and (ii) the total own funds of the firm. The Amending Regulation also deals with preferential distributions regarding preferential rights to payments of distributions as well as preferential distributions regarding the order of distribution payments. The Amending Regulation enters into effect on June 22, 2015.

View the Regulation.

The European Banking Authority published a questionnaire on the assessment of third country equivalence with the regulatory and supervisory framework under the Capital Requirements Directive IV package. The questionnaire aims to assess whether third countries apply regulatory and supervisory provisions equivalent to those in the EU framework. The questionnaire will be sent to certain third countries so that the regimes of those countries can be assessed. For third countries that are deemed to be equivalent, more favorable treatment in terms of capital requirements could be available for EU credit institutions with relevant exposures to entities located in these countries, though only after the European Commission adopts an Implementing Decision determining the equivalence of the third country’s prudential supervisory and regulatory requirements.

View the questionnaire.

The US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the Federal Reserve Board (collectively, the "federal bank regulatory agencies") approved a notice requesting comment on a third set of regulatory categories as part of their review to identify outdated or unnecessary regulations applied to insured depository institutions. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 requires federal bank regulatory agencies to review their regulations at least once every 10 years and to categorize and publish the regulations for comment. Consistent with the EGRPRA, the federal bank regulatory agencies have grouped regulations applicable to insured depository institutions into 12 regulatory categories: (i) Applications and Reporting; (ii) Banking Operations; (iii) Capital; (iv) Community Reinvestment Act; (v) Consumer Protection; (vi) Directors, Officers and Employees; (vii) International Operations; (viii) Money Laundering; (ix) Powers and Activities; (x) Rules of Procedure; (xi) Safety and Soundness; and (xii) Securities. The latest notice seeks comment on regulations in the following three categories: (i) Consumer Protection; (ii) Directors, Officers and Employees; and (iii) Money Laundering. Comments will be accepted within 90 days after publication in the Federal Register. Although the current notice seeks comment on the three specifically enumerated categories above, comments are accepted on any of the established categories of regulation as well as on all rules that have been finalized before the publication of the last EGRPRA notice which is expected by year-end. The European Commission also recently launched its Better Regulation Agenda, which among other things, aims to improve the review of existing EU laws.

View the Federal Register Notice.
View the EGRPRA website.

The European Banking Authority published a final report on the monitoring of Additional Tier 1 capital instruments issued by EU firms. Under the EU Capital Requirements Regulation, the EBA must monitor the quality of own funds instruments issued by EU institutions. The report presents the EBA’s recent monitoring results and updates the EBA’s earlier report on the topic, published on May 4, 2015. The EBA has examined 15 AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and 10 under a temporary write-down mechanism, for a total amount of €21.4 billion. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised to minimize uncertainty. Wording used should be consistent with that in the CRR, for example, "non-objection" cannot be used as a substitute for "supervisory permission," a term used in the CRR. Also, certain issuances include partial regulatory calls. This means that only a portion of the instruments may be called by an institution if the corresponding part of the issuance is, due to a regulatory change, no longer recognized in Tier 1 capital. The report states that only regulatory calls for the full amount of instruments are acceptable, irrespective of whether a regulatory changes triggers full or partial derecognition from AT1 capital. The EBA intends to continue monitoring certain AT1 issuances, expects that future issuances will use some level of standardization and advises that terms and conditions should not be unjustifiably complex. The EBA will also develop standardized terms and conditions for AT1 issuances which would not be compulsory for firms but would help to ensure compliance with regulatory provisions.

View the report.

The Director of the CFTC’s Office of International Affairs, Sarah E. Josephson, announced her resignation as director of the OIA and return to her previous position as the CFTC Deputy Director in the Division of Clearing and Risk. Special Counsel, Jeffrey M. Bandman, has been appointed Acting Director of OIA while the CFTC conducts a search for a new director.

The SEC named Andrew J. Donohue the SEC Chief of Staff.Mr. Donohue will replace Lona Nallengara who leaves the SEC in June. As chief of staff, Mr. Donohue will be a senior adviser to SEC Chair Mary Jo White on all policy, management and regulatory issues.

The Prudential Regulation Authority published a policy statement on ring-fencing rules concerning legal structure, governance and continuity of services and facilities. The policy statement applies to banks that are required to ring-fence their core activities, banking groups with core deposits exceeding £25 billion and financial and other institutions who deal with ring-fenced bodies. The document sets out the new rules and the new "Ring-Fenced Bodies" Part to the PRA Rulebook, all in near-final versions. A second consultation paper on ring-fencing will be published later in 2015. Final versions of all the rules and supervisory statements relating to ring-fencing will be published in the first half of 2016.

View the policy statement.

The Bank of England published a report on stress testing the UK banking system, which includes guidance on the traded risk methodology for participating banks and building societies. The document sets out the approach that banks are expected to take in the execution of the stress test of the UK banking system relating to trading positions. The guidance is designed to assist firms to carry out their own analysis for the stress test. The BoE also published a traded risk and structured finance scenario. This is a "tail risk" scenario, designed to assess the resilience of banks to deterioration in global economic conditions.

View the report.

View the scenario.