The UK Banking Standards Board announced the appointment of Saker Nusseibeh, CEO of Hermes Investment Management, to its Board from September 2015.

The FCA published final guidance and amended rules on its new competition law powers. The FCA obtained concurrent competition powers for the provision of financial services on April 1, 2015 which allow it to: (i) conduct investigations under the Competition Act 1998 and the Treaty on the Functioning of the European Union; and (ii) carry out market studies and make market investigation references to the Competition and Markets Authority under the Enterprise Act 2002. The finalized guidance clarifies how the FCA intends to use its new competition powers. The final rules, which come into effect from August 1, 2015, impose an obligation on authorized firms to report to the FCA any significant infringement of any applicable competition law.
 

View the Shearman & Sterling client publication on the FCA’s Concurrent Competition Powers.

View the FCA Policy Statement, including final rules.

View the final guidance on the FCA’s powers and procedures under the Competition Act 1998.

View the final guidance on the FCA’s market.

The Financial Stability Board published its ninth report on the implementation of OTC derivatives reforms. The report notes that implementation of the reforms continues to progress but that challenges do still exist. Issues that are being addressed at international level include harmonization of transaction reporting, a framework for uniform trade and product identifiers, coordination on CCP resilience and cross-border regulatory issues. The FSB will continue to monitor and report on implementation of the reforms including the effects thereof.

View the FSB report.

The Markets Committee of the Bank for International Settlements announced that the Foreign Exchange Working Group has been established. The objective of the FX Working Group is to strengthen code of conduct standards and principles in FX markets through the establishment of a single global code of conduct and related principles to ensure increased adherence to the code.

View the announcement.

The EU Agency for the Cooperation of Energy Regulators has announced that it has approved the first five third-party Registered Reporting Mechanisms under the Regulation on wholesale energy market integrity and transparency, known as REMIT. From October 7, 2015, market participants must report their wholesale energy market transactions admitted to trading at Organized Market Places, including orders to trade, to ACER. Market participants must either be approved by ACER as an RRM or report through a third-party RRM to fulfill the obligation. Further reporting obligations come into effect on April 7, 2016, which will require market participants to report OTC standard and non-standard supply contracts and transportation contracts.

View the announcement.

The European Securities and Markets Authority published proposed guidelines on sound remuneration policies under the Undertakings for the Collective Investment of Transferable Securities Directive, known as UCITS V. A minor revision of the guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive, known as AIFMD, is also proposed. The proposed UCITS V guidelines are based on the Guidelines on sound remuneration practices developed under AIFMD. ESMA intends to publish a final report and guidelines in Q1 2016 ahead of the implementation deadline for the UCITS V Directive of March 18, 2016. The consultation is open until October 23, 2015.

View the consultation paper.

The Basel Committee and the International Organization of Securities Commissions published final criteria for identifying simple, transparent and comparable securitizations. The aim of the criteria is to assist parties to a securitization to assess the risk involved across similar products, although they do not serve as a substitute for investor due diligence. The criteria are non-exhaustive and non-binding.

View the final criteria.

The Financial Conduct Authority announced that Antonio Simoes, Chief Executive Officer for HSBC in the UK, will become Chair of the FCA Practitioner Panel from August 1, 2015. Mr. Simoes will succeed Alison Brittain, former Group Director of Retail at Lloyds Banking Group.

The UK Government published proposals to amend the Limited Partnership Act 1907 as it applies to funds. The aim of the proposals is to remove unnecessary legal complexity and administrative burdens so as to ensure that the UK limited partnership remains the market standard for European private equity and venture capital funds and other private funds. The proposals include: (i) for private fund vehicles that are limited partnerships to be designated as private fund limited partnerships upon registration; (ii) adding a non-exhaustive list of activities that a limited partner of a private fund limited partnership may carry out without being considered to take part in the management of the business; (iii) removing the requirement for limited partners in private funds to make capital contributions; (iv) allowing the partners in a private fund to agree who should wind up the limited partnership and removing the requirement to obtain a court order; and (v) removing the requirement for certain details to be provided when a private fund is established as a limited partnership. The consultation is open until October 5, 2015.

View the consultation.

View the draft amendment instrument.

The European Banking Authority published two reports on the findings of two benchmarking exercises conducted under the Capital Requirements Directive IV. The exercises aim to assess and improve the consistency and comparability of Risk-Weighted Assets across large EU banks. The first report deals with findings on internal approaches applied for the calculation of RWAs for Low Default Portfolios across large EU firms. The study found that 75 percent of the observed differences in Global Charge levels across institutions can be explained by the proportion of defaulted exposures in a portfolio and portfolio mix. When each portfolio is looked at separately, the impact of defaulted exposures explains around 50 percent of GC differences for both large corporate and institutions portfolios. The remaining 50 percent could be attributed to bank-specific issues such as Internal Ratings-Based parameters or risk management practices. Data was collected from 41 institutions for this study. The study was based only on draft technical standards. The report states that more in-depth analysis is required on the impact of collateral on internal loss-given-default estimates as well as comparisons between the IRB and standardized approaches. The second report deals with the internal approaches applied for Counterparty Credit Risk exposures under the Internal Model Method and Credit Valuation Adjustment Risk according to the Advanced Approach. This study was carried out using data collected by the Basel Committee for Banking Supervision and shows significant variability in the calculation of CCR and CVAR when using the IMM across banks, especially where equity and foreign exchange OTC derivatives are concerned.

View the press release and both reports.
 

The European Banking Authority published a report, dated June 16, 2015, following a peer review of the EBA Guidelines on the assessment of the suitability of members of the management body and key function holders in banks. The EU Capital Requirements Directive provides that a bank must have at least two suitable persons who effectively direct the business. The EBA Guidelines set out the criteria and processes for banks and their supervisors to follow when assessing the suitability of proposed and appointed members of the management body and provisions for the assessment of key function holders. The peer review results show that national regulators mostly apply the EBA Guidelines, that best practices have been identified but that there is no harmonized practice amongst EU Member States in many areas of the Guidelines. The EBA intends to set out best practices in a revised version of the EBA Guidelines and to recommend a legislative initiative on certain points to ensure further alignment of practices among Member States.

View the report.

View the EBA Guidelines.

The UK Government launched a consultation on proposed amendments to the governance and regulatory architecture in line with the announcement made alongside the Queen’s speech in May about a new Bank of England Bill. The proposals include ending the subsidiary status of the Prudential Regulation Authority by bringing it within the BoE and calling it the Prudential Regulation Committee. The PRA’s functions would transfer to the BoE and the PRC would have the responsibility for exercising them, retaining the independence of the PRA to make rules, policies and supervisory decisions. The new PRC would be set up on the same basis as the Monetary Policy Committee of the BoE. Other proposals include: (i) formalizing the working relationship established between HM Treasury and the BoE for coordination in a financial crisis and the development of resolution strategies for banks and large investment firms; (ii) adjusting the statutory status of the Financial Policy Committee from a sub-Committee of the Court of Directors of the BoE to a Committee of the BoE in line with the MPC; (iii) transferring responsibility for setting the BoE’s financial stability strategy from the Court of the BoE to the FPC; and (iv) decreasing the size of the Court and including the new Deputy Governor position for Markets and Banking. The consultation is open until September 11, 2015.

View the consultation paper.

President Barack Obama announced his intent to nominate Dr. Kathryn M. Dominguez to serve on the Board of Governors of the Federal Reserve System. Dr. Dominguez is a Professor of Public Policy and Economics in the Gerald R. Ford School of Public Policy and the Department of Economics at the University of Michigan.

The US Board of Governors of the Federal Reserve System issued a final rule under Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring all US bank holding companies with $250 billion or more in consolidated total assets or $10 billion or more in consolidated total on-balance sheet foreign exposures to annually calculate their systemic importance using the methodology in the final rule. BHCs that meet the “G-SIB threshold” will be required to hold additional common equity tier 1 capital (the “G-SIB surcharge”) as an addition to the capital conservation buffer under the Federal Reserve’s minimum risk-based capital requirements. Eight US firms are currently expected to qualify as G-SIBs under the final rule. Similar to the proposed rule, under the final rule, estimated surcharges for the eight G-SIBs range from 1.0 to 4.5 percent of each firm’s total risk-weighted assets. Failure to meet the G-SIB surcharge will result in limitations on a G-SIB’s ability to make certain capital distributions and discretionary bonus payments. The Final Rule is generally similar to the proposed rule issued in December 2014 and is largely based on, but stricter than, an international standard adopted by the Basel Committee on Banking Supervision. The G-SIB surcharge will be phased in starting in 2016, and will become fully effective on January 1, 2019.

View the press release.

View the final rule.

View the Shearman & Sterling client publication.

The Prudential Regulation Authority published a Supervisory Statement setting out the liquidity coverage requirement reporting standards which firm's will need to comply with on an interim basis between October 1, 2015, the date the LCR applies under the original implementing technical standards, and the date of the new LCR requirements come into effect following the adoption by the European Commission of revised ITS on liquidity reporting. Firms are required to submit LCR data to national regulators under the CRR and CRD. The PRA considers that firms should report their LCR positions in the interim period so that their liquidity resilience can be monitored. However, if firms report their LCR positions according to the provisions of the original ITS, their LCR positions will not be properly determined. Therefore, the PRA has set out in the Supervisory Statement the data that firms are required to submit in the interim period.
 

View the Supervisory Statement.

The US Board of Governors of the Federal Reserve System issued a final order establishing enhanced prudential standards for General Electric Capital Corporation. GECC is a nonbank financial company designated by the Financial Stability Oversight Council for supervision by the Federal Reserve Board. The final order establishes the application of enhanced prudential standards in two phases due to the recent announcement by General Electric – the parent company of GECC – of its plan to shrink GECC’s systemic footprint and only retain businesses that support GE’s core business. Enhanced prudential standards for GECC are similar to those applicable to large bank holding companies with certain alterations to reflect GECC’s unique business model. Enhanced prudential standards include capital requirements, capital-planning and stress-testing, liquidity requirements, and risk-management and risk-committee requirements. GECC must begin compliance with relevant requirements from January 1, 2016.

View the press release.

The UK Government announced the appointment of new external members to the Financial Services Trade and Investment Board, the body created in 2013 to ensure that Britain's position as a global finance centre is strengthened. The new external members are: (i) Helena Morrissey, CEO, Newton and Chair, The Investment Association; (ii) Inga Beale, CEO, Lloyd’s of London; (iii) John McFarlane, Chairman, Barclays, and incoming Chairman, TheCityUK; and (iv) Nathan Bostock, CEO, Santander UK.

The US Board of Governors of the Federal Reserve System proposed a rule modifying its regulations for capital planning and stress testing. Specific changes include altering the timing for several requirements that have not yet been integrated into the stress testing framework. Notably, banks subject to the supplementary leverage ratio would not be required to incorporate the ratio into their stress testing until the 2017 cycle. Additionally, all banks would continue to use standardized risk-weighted assets for capital planning and stress testing while the use of advanced approaches risk-weighted assets (applicable to banks with more than $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures) would be delayed indefinitely. The proposal would also remove the requirement that banking organizations calculate a tier 1 common capital ratio. Currently, banks are required to project post-stress regulatory capital ratios in their stress tests using the tier 1 common capital ration, but as the common equity tier 1 capital ratio becomes fully phased in under the Federal Reserve Board’s regulatory capital rule, it would generally require more capital than the tier 1 common capital ratio. The Federal Reserve Board only expected the tier 1 common capital ratio to remain in force until the common equity tier 1 capital requirement was adopted. The proposed changes would take effect for the 2016 capital plan and stress testing cycles. Comments on the proposal will be accepted through September 24, 2015. The Federal Reserve Board is also currently considering several issues related to its capital plan and stress testing rules and any modifications relating to these issues will be effected through a separate rulemaking, with changes thereunder taking effect no earlier than the 2017 cycle.

View the press release.
 
View the proposed rule.

The FCA announced that Chief Executive Martin Wheatley would be standing down from September 12, 2015. Mr. Wheatley will continue to act as an advisor to the FCA Board until January 31, 2016, particularly on the implementation of the recommendations of the Fair and Effective Markets Review.

The five US federal financial regulatory agencies – US Federal Reserve Board, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, the US Securities and Exchange Commission and the US Commodity Futures Trading Commission – issued a new Volcker Rule Frequently Asked Question 16 addressing the status of certain US-registered investment companies and foreign public funds as “banking entities” during their “seeding period.” Certain RICs and foreign public funds are currently excluded from the Volcker Rule’s definition of “covered fund” and FAQ 16 ensures that they will not be treated as “banking entities” under the Volcker Rule solely due to a banking entity’s ownership of the registered investment company or foreign public fund during the “seeding period” absent evidence that the RIC or foreign public fund was being used to evade the Volcker Rule’s requirements.

View Volcker Rule FAQ 16.

The EBA published (i) amending Regulatory Technical Standards on the treatment of non-delta risk of options in the standardized market risk approach; and (ii) amending RTS on the criteria to identify categories of staff whose professional activities have a material impact on a firm’s risk profile. According to the EBA, the amendments are necessary corrections following changes introduced by the European Commission during the legal adoption process of the original RTS. The RTS were prepared under the CRR and CRD.
 

View the amending RTS.

The Basel Committee for Banking Supervision published guidelines for identifying and dealing with weak banks. The guidelines revise and update the 2002 Basel Committee guidance for dealing with weak banks to take into account the changes in regulatory expectations and practices on early intervention, resolution frameworks, recovery and resolution planning, stress testing and macroprudential oversight. The revised guidelines are directed to supervisors and resolution authorities as well as international financial institutions advising supervisors.

View the guidelines.

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.