The Prudential Regulation Authority published a consultation paper on contractual stays in financial contracts governed by non-EEA law. The consultation paper proposes a new rule to be included in the PRA rulebook that would require the contractual adoption of UK resolution stays in certain financial contracts governed by the laws of a jurisdiction outside the EEA. The rule would apply to PRA regulated banks and investment firms, prohibiting firms from creating new obligations or materially amending existing obligations under a financial contract governed by third country law, unless there is agreement in writing with the counterparty to the contract concerning stays in resolution. The rule’s aim is to reduce risks of contagion from the failure of a firm and to support orderly resolution so that when resolution action is taken against a firm, this does not immediately lead to the early termination of financial contracts governed by third country law while its financial contracts governed by UK or EU law are stayed. The deadline for comments on the proposed rule is August 26, 2015.

View the consultation paper.

The European Banking Authority published a final report on guidelines on the management of interest rate risk arising from non-trading activities also known as interest rate risk in the banking book or IRRBB. The report includes the final guidelines which apply from January 1, 2016, and are addressed to national regulators, relevant credit institutions and investment firms. The final guidelines update and repeal the guidelines published on October 3, 2006 by the Committee of European Banking Supervisors. The guidelines set out the expectations for the identification and mitigation of IRRBB risks by firms. The level of application of the guidelines should be consistent with the level of application of the supervisory review and evaluation process.

View the report.

The European Securities and Markets Authority published its opinion on the impact of the European Market Infrastructure Regulation on requirements under the Undertakings for Collective Investment in Transferable Securities Directive for OTC derivative transactions that are centrally cleared. ESMA recommends that the provisions on the counterparty risk limits for OTC derivatives in the UCITS Directive should be amended to take into account the clearing obligation of certain OTC derivatives under EMIR. ESMA’s opinion is that the UCITS Directive should not differentiate between OTC derivatives and exchange traded derivatives. The distinction should rather be between cleared and uncleared derivative transactions which would allow a UCITS to treat ETDs and cleared derivatives transactions with similar counterparty risk characteristics in the same way.

View ESMA’s opinion.

The Bank of England launched a consultation on its proposed approach for exercising its power to direct firms to address impediments to resolvability under the Banking Act 2009, including a proposed Statement of Policy. The Banking Act 2009 implements the Bank Recovery and Resolution Directive. The BoE, in preparing the resolution plan for a firm, must assess the resolvability of a firm. If any substantive impediments are identified during that assessment or otherwise, the BoE has the power to require the firm to remove any such obstacle, including requiring the amendment of a group financial support agreement, the disposal of certain assets or a change to its legal or operational structure. The proposed Statement of Policy also includes a list of possible scenarios in which the BoE might consider using its power of direction, including: (i) the issuance of debt instruments at parent company level to allow for loss absorption and recapitalization of group entities; (ii) to ensure continuity of services in resolution such as operational services, trading agreements and access to payment services and financial market infrastructures; and (iii) for systems to be put in place to support rapid and effective valuation. The consultation is open until August 22, 2015. The BoEintends to issue later this year a separate statement on its power to direct firms to maintain a minimum requirement for own funds and eligible liabilities, known as MREL.

View the consultation paper.

The  Financial Conduct Authority published the terms of reference for its upcoming market study into competition in investment and corporate banking. The need for the market study emerged during the FCA’s review of competition into the wholesale sector. The aim of the market study is to assess whether competition for investment banking and corporate banking services is functioning well, focusing on primary market and related activities provided in the UK. The market study will concentrate on: (i) choice of banks and advisers, including the competitive landscape, clients’ purchasing behavior and entry and expansion within the sector; (ii) limited transparency, including the adequacy of information available to clients, transparency of the allocation process and the impact of established practices, processes or regulation on transparency in the IPO process; and (iii) bundling and cross-subsidization of investment and corporate and banking services, including whether there are any resulting adverse effects on competition and clients. The outcome of the market study may lead the FCA to adopt measures to promote effective competition. However, the FCA will be taking into account related initiatives such as the Fair and Effective Markets Review, the implementation of MiFID II and the Capital Markets Union, and may decide that no further action is required if any concerns arising from the market study are likely to be satisfied by upcoming legislative measures or otherwise. The FCA will be accepting comments on the terms of reference until June 22, 2015, although the regulator is not formally consulting on the terms. The FCA intends to publish an interim report, including any proposed remedies that may be necessary, by the end of the year and a final report in spring 2016.

View the terms of reference.

The Financial Conduct Authority published a letter from its Director of Supervision, Clive Adamson, to the Remuneration Committee Chair of banks, building societies and investment firms with total assets exceeding £50 billion. The letter highlights the FCA’s expectations on the application of malus (bonus clawback) ahead of the annual review of remuneration policies and practices by the FCA and the Prudential Regulation Authority. Following the first annual review, the FCA published guidance to share best practices on the application of malus to variable remuneration and ex-ante risk adjustments.

View the letter.

The US Board of Governors of the Federal Reserve System issued a proposal adding certain general obligation state and municipal bonds to the range of assets a banking organization may use to satisfy the Liquidity Coverage Ratio requirement. Under the LCR requirement adopted by the federal banking agencies in September 2014, large banking organizations are required to hold High-Quality Liquid Assets that can be easily and quickly converted into cash within 30 days during a period of financial stress. The proposed rule would allow investment grade, general obligation US state and municipal bonds to be counted as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. The limits on the amount of a state or municipality’s bonds that could qualify are based on the specific liquidity characteristics of the bonds. The proposed rule would apply only to entities subject to the LCR and supervised by the Federal Reserve Board. The deadline for comments on the proposed rule is July 24, 2015.

View the proposed rule.

The Prudential Regulation Authority published a consultation paper which includes a draft Supervisory Statement on the PRA’s expectations for board governance. The purpose of the Supervisory Statement would be to identify those aspects of board governance to which the PRA attaches particular importance and on which the PRA is likely to focus during the course of supervision. The draft Statement confirms the PRA’s view that the accountability of Senior Managers under the new Senior Manager Regime would be additional and complementary to the collective responsibility of the board members. The proposed Supervisory Statement would apply to all PRA-regulated firms—banks, insurance firms, certain large investment firms and credit unions. However, the PRA recognizes that different governance models apply depending on the nature and size of the firm and that the degree of supervisory attention may vary from firm to firm depending on the risk profile of the firm and the potential impact of failure of a firm. The PRA’s judgments on the adequacy of governance arrangements may also be influenced by a firm’s recovery and resolution strategy, including (i) the extent to which the PRA is satisfied that the board of a material subsidiary can demonstrate that it is capable of independent action; (ii) culture; (iii) management incentives and business goals of the firm; and (iv) the extent to which those may differ from the PRA’s statutory objectives. Responses to the consultation are due by September 14, 2015.

View the consultation paper.

The European Commission published a consultation document on the review of the European Market Infrastructure Regulation. Under EMIR, the European Commission must submit a report, together with any relevant legislative proposals, by August 17, 2015 to the European Parliament and the European Council, both of which will assess: (i) the potential need for measures to facilitate access by CCPs to central bank liquidity facilities; (ii) the systemic importance of transactions of non-financial counterparties in OTC derivatives and the impact of EMIR on such firms; (iii) the supervisory framework for CCPs; (iv) the efficiency of margining requirements to limit procyclicality and the need to define additional intervention capacity in this area; and (v) the development of CCPs’ policies on collateral margining and their adaptation to the specific activities and risk profiles of their users. The Commission intends to focus only on those aspects of EMIR that have already been implemented, leaving out, for example, the obligation to exchange collateral for non-cleared derivatives. The report will also take into account other issues identified in the implementation of EMIR as well as reports submitted by the European Securities and Markets Authority to the European Commission on, for example, the application of the clearing obligation and the application of the segregation requirements. Feedback on the consultation is due by August 13, 2015.

View the consultation paper.

The European Securities and Markets Authority published an opinion, dated May 7, 2015, on the composition of CCP colleges under the European Market Infrastructure Regulation following the establishment of the Single Supervisory Mechanism and the European Central Bank assuming direct responsibility for prudential supervision of large banks within the SSM. ESMA’s opinion clarifies which authorities qualify as a college member as well as the voting rights that the ECB will hold as a college member.

View ESMA’s opinion.

The European Banking Authority published three sets of final guidelines on the implementation of the resolution tools under the Bank Recovery and Resolution Directive. The final guidelines, which will apply to national resolution authorities from August 1, 2015, are: (i) guidelines on the determination of when the liquidation of assets or liabilities under normal insolvency proceedings could have an adverse effect on one or more financial markets; (ii) guidelines on factual circumstances amounting to a material threat to financial stability and on the elements related to the effectiveness of the sale of business tool; and (iii) guidelines on the minimum list of services or facilities that are necessary to enable a recipient to operate a business transferred to it under the BRRD.

View the final guidelines.

The Prudential Regulation Authority published a Policy Statement on depositor and dormant account protection which sets out the final rules that aim to reduce the adverse effects that the failure of a firm may have on the stability of the UK financial system as well as improve depositor confidence. The Policy Statement includes the amended rules for the Depositor Protection and Dormant Account Scheme rules in the PRA Rulebook. An updated Supervisory Statement on the PRA’s expectations of firms in connection to the amended rules was also published on the same day. The amended rules include a definition of public authority, extend deposit protection to deposits held by local authorities with an annual budget of up to €500,000, add a requirement for firms to inform depositors of deposits that are no longer covered by a deposit guarantee scheme from July 3, 2015 and a new requirement for deposit-takers to provide the Financial Services Compensation Scheme with information held on dormant accounts that have been transferred to a dormant account fund operator.

View PRA’s Policy Statement.
View updated Supervisory Statement.

Benjamin M. Lawsky, the superintendent of the New York Department of Financial Services, New York’s top financial regulator, announced his departure from the NYDFS effective late June 2015. Mr. Lawsky’s successor has not yet been announced.

The European Commission launched its Better Regulation Agenda. Through this package, the Commission aims to: (i) enhance transparency in the EU decision-making process by introducing a new web portal where initiatives can be tracked and by providing more opportunities for stakeholders to comment throughout the policy lifecycle, including allowing for feedback after the Commission has adopted a legislative proposal or, for secondary legislation, before adoption by the Commission or Member States; (ii) improve the quality of new laws through better impact assessments of draft legislation and amendments by: (a) transforming the current Commission Impact Assessment Board into an independent Regulatory Scrutiny Board with an expanded role; and (b) ensuring that impact assessments are carried out throughout the legislative process; and (iii) improve the review of existing EU laws by amending the Regulatory Fitness and Performance Programme (known as REFIT) so that it is more targeted, looks at the most serious sources of inefficiency and quantifies costs and benefits whenever possible. The European Commission also announced that it will enter into negotiations with the European Parliament and Council on a proposed new Interinstitutional Agreement on Better Law-making, endeavoring to reach an agreement by the end of 2015. The US federal bank regulatory agencies are also currently reviewing potential outdated or unnecessary regulations.

View the Better Regulation documents.

The Regulation on European long-term investment funds was published in the Official Journal of the European Union. The Regulation sets out harmonized rules for the authorization, investment policies and operating conditions of EU alternative investment funds, or parts thereof, that are marketed in the European Union as European long-term investment funds. The Regulation will apply in all EU Member States from December 9, 2015 and Member States are not able to add additional requirements for areas covered by the Regulation.

View the Regulation.

The US Office of the Comptroller of the Currency released a final rule integrating policies and procedures for certain corporate activities and transactions by national banks and federal savings associations. The OCC aims to make the regulatory regime for both national banks and federal savings associations more efficient and streamlined, where possible, to promote fair supervision and to promote the safe and sound operation of the institutions it supervises. The final rule makes technical and conforming changes that will allow certain provisions to apply to national banks and federal savings associations and provides clarity on OCC licensing offices’ responsibilities. The rule also updates the description of the OCC supervision structure and contact information.
 

View the published Federal Register notice.

View the OCC press release.

The European Banking Authority published letters between itself and the European Commission on the application of the proportionality principle to the remuneration requirements under the EU Capital Requirements Directive and Capital Requirements Regulation. The proportionality principle states that firms should implement the remuneration provisions in a manner and to the extent that is appropriate to the firm’s size, internal organization and the nature, scope and complexity of its activities. The EBA requested the Commission's views on the approach that the EBA should adopt to interpreting the proportionality principle in its guidelines on sound remuneration policies. The EBA noted that on a legal interpretation of CRD IV the remuneration principles must be applied proportionately, but that there could be no waiver for small or non-complex firms. However, a waiver might be justified on policy grounds for small and non-complex firms because variable remuneration paid is low and the incentives for employees to take risks is low but implementing costs would be significant. The European Commission confirmed that the EBA should follow its legal interpretation as to do otherwise would be to take a policy decision, which is outside of its powers. The EBA is consulting on draft guidelines on sound remuneration policies, adopting the Commission's approach.

View the EBA letter.

View the Commission’s response.
 

The European Securities and Markets Authority published letters between itself and the European Commission which set out their agreement for the deadline for delivery by ESMA of technical standards due under the Market Abuse Regulation, the Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation to be postponed to the end of September 2015. The extension is a result of the European Commission conducting an early legal review of draft technical standards. The early legal review will assess the legality and legislative consistency of technical standards under the Undertakings for Collective Investment in Transferable Securities V Directive, the Transparency Directive, the Central Securities Depository Regulation, MAR and MiFID II.

View ESMA’s letter.
 

View the European Commission’s letter

The European Banking Authority published its proposed draft Regulatory Technical Standards on the valuation of derivatives under the Banking Recovery and Resolution Directive. Under the BRRD, a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine a value of those derivative liabilities at the moment of exercise of the resolution power. The EBA’s proposed draft RTS (i) provides a methodology for resolution authorities to follow with the close-out amount being based on the principle of replacement cost; and (ii) sets out the approach for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in which should be done on a case-by-case basis. The consultation closes on August 13, 2015. The EBA is required to submit the final draft RTS to the European Commission by January 3, 2016. Member states are required to implement the bail-in tool by January 1, 2016.
 

View the EBA’s consultation.

Martin J. Gruenberg, Chairman of the US Federal Deposit Insurance Corporation, delivered a speech regarding the progress the FDIC has made in developing a framework for the orderly resolution of large, complex, systemically important financial institutions (SIFIs) in the event that a SIFI experiences failure or other financial distress. Among other topics, the speech addressed the FDIC’s effort to strengthen the bankruptcy process and define the purpose of Orderly Liquidation Authority, a public-sector bankruptcy process prescribed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) for institutions whose resolution under the US Bankruptcy Code Bankruptcy Code would pose systemic concerns.

View the full text.

The European Supervisory Authorities published a report setting out the outcome of their review of EU legislative disclosure and due diligence requirements for securitizations and making recommendations for removing inconsistencies across the EU framework. The recommendations constitute the ESA’s response to the European Commission’s consultation on securitization published in February 2015 as part of the Capital Markets Union initiative. The EU framework for structured finance instruments, covering investor due diligence, originator, issuer and sponsor retention and disclosure requirements, is established under a number of EU legislative measures including the Prospectus Directive, the Capital Requirements legislation, the Alternative Investment Fund Managers Directive, the Credit Rating Agency Regulation and Solvency II. The ESAs are recommending: (i) harmonization of due diligence requirements across investor types; (ii) that investor due diligence needs and requirements are met by the disclosure requirements; (iii) a standardized investor report which is available in a centralized public space; (iv) that loan by loan data should be provided to investors; (v) that data providers should be able to fulfill disclosure requirements provided the data owner retains responsibility for the quality of the information; (vi) that all investors should be able to conduct stress tests on all types of structured finance instruments; (vii) a review of the definitions and key terms in the legislation with a comprehensive glossary to support the framework; and (viii) mandatory disclosure requirements for all structured finance instruments admitted to trading on an EU regulated market or offered to the public.
 

View the ESA’s report.

The US Commodity Futures Trading Commission and the US Securities and Exchange Commission, after consultation with the US Board of Governors of the Federal Reserve System, jointly issued an interpretation concerning forward contracts with embedded volumetric optionality. The interpretation clarifies certain aspects of the original CFTC proposal made in November 2014 and identifies when an agreement, contract or transaction would fall within the forward contract exclusions from the “swap” and “future delivery” definitions in the Commodity Exchange Act, allowing for forward contracts that provide for variations in delivery amount (i.e., contains “embedded volumetric optionality”).

Although the interpretation was issued jointly, it is solely an interpretation of the CFTC and does not apply to the exclusion from the swap and security-based swap definitions for security forwards or to the distinction between security forwards and security futures products.
 

View the CFTC’s Final Interpretation.

View the ‘Fact Sheet’.

The European Banking Authority published a consultation paper comprising draft Regulatory Technical Standards on the assignation of risk weights to specialized lending exposures under the Capital Requirements Regulation. Specialized lending exposures are exposures to entities created explicitly to finance or operate physical assets. The CRR allows for special treatment of these exposures within the internal model based approach using a set of supervisory risk weights made up of five categories. The proposed RTS aim to determine how banks take into account certain factors, such as financial strength, political and legal environment and transaction characteristics, when assigning risk weight to specialized lending exposures. The draft RTS also specify how banks should combine those factors to determine the final assignment to a certain category. Responses to the consultation are due by August 11, 2015.

View the consultation paper.

The European Securities and Markets Authority launched a consultation on proposed regulatory technical standards on the clearing obligation for additional classes of OTC interest rate derivatives not already included in the first RTS on the clearing obligation for interest rate swaps. The additional classes of OTC interest rate derivatives are those denominated in certain non-G4 European currencies. The additions are: (i) fixed-to-float interest rate swaps denominated in Czech Koruna, Danish Krone, Hungarian Forint, Norwegian Krone, Swedish Krona and Polish Zloty; and (ii) forward rate agreements denominated in Norwegian Krone, Swedish Krona and Polish Zloty. The consultation also includes a summary of the clearing obligation procedure, the structure of the classes of OTC interest rate derivatives and the determination of the classes subject to mandatory clearing. Comments on the proposed RTS should be provided to ESMA by July 15, 2015.

View the consultation paper.

The Federal Reserve Bank of New York announced the creation of a new group called the Wholesale Product Office. The WPO, currently a function within the Federal Reserve Bank of New York’s Executive Office, manages the Fedwire Funds, Fedwire Securities, and the National Settlement Service. Richard P. Dzina will serve as the head of the WPO as of July 1, 2015, as well as a member of the Federal Reserve Bank of New York’s Management Committee.

View the press release.

The Bank of England published a consolidated version of its rules for Recognized Clearing Houses. RCHs are regulated by the Financial Services and Markets Act 2000 and are subject to the FSMA 2000 (Recognition Requirements) Regulations 2001, though different recognition requirements will apply under the European Market Infrastructure Regulation for RCHs that are also CCPs. RCHs that are also CCPs must comply with domestic requirements as well as EMIR. All UK RCHs must comply with the BoE rules.

View the BoE RCH rules.

The EBA published the new taxonomy for national regulators to provide data to the EBA under the supervisory reporting requirements set out in the Capital Requirements Directive. The revised taxonomy is for reporting on funding plans and supervisory benchmarking from December 31, 2014 onwards. The revised taxonomy incorporates corrections to funding plans and benchmarking reporting structures.

View the EBA announcement.

The European Banking Authority published its final report on guidelines on triggers for the use of early intervention powers under the Bank Recovery and Resolution Directive. The final guidelines provide national regulators with guidance on when to apply early intervention measures to firms. National regulators are not obliged to apply the triggers automatically and may even apply the measures when the triggers are not met. The guidelines identify the following triggers: (i) overall Supervisory Review and Evaluation Process score and outcome, expanding on when regulators should consider application of the early intervention measures; (ii) material changes or anomalies identified in the monitoring of key financial and non-financial indicators under SREP; and (iii) significant events indicating that the conditions for early intervention are met. The final guidelines will apply from January 1, 2016.

View the guidelines.

Jeremiah O. Norton submitted his resignation as Director of the US Federal Deposit Insurance Corporation. Mr. Norton has served as Director of the FDIC since April 16, 2012. His resignation will become effective on June 5, 2015.

View the press release.

The SEC announced that David Grim wills serve as the new Director of the Division of Investment Management. Mr. Grim has been the acting director of the Division of Investment Management since February 2015.

View the SEC press release.

The European Commission and US Commodity Futures Trading Commission published a statement made jointly by Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, and Timothy Massad, CFTC Chairman. Mr Massad and Commissioner Hill discussed a possible European Commission equivalence decision for CCPs regulated and supervised by the CFTC, and the statement reveals that discussions will continue so that an approach may be finalized by summer 2015.

View the statement.

The European Banking Authority published a consultation paper comprising draft Implementing Technical Standards on the mapping of credit assessments of External Credit Assessment Institutions for securitization positions under the Capital Requirements Regulation. The draft ITS aim to determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to ECAIs’ ratings issued on securitizations. Under the CRR, risk weights under the standardized and internal ratings based approach for securitization positions should be based on the credit quality of those positions established according to the credit ratings of ECAIs. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions’ capital requirements. Responses to the consultation are due by August 7, 2015.

View the consultation paper.

The International Organization of Securities Commissions published a consultation on sound practices at large intermediaries, discussing alternatives to the use of credit ratings in assessing creditworthiness. The report lists thirteen draft practices to be considered by large market intermediaries when developing internal credit assessment policies. These aim to encourage the implementation of efficient alternative methods to assess creditworthiness and reduce the overreliance on credit rating agencies. These draft practices are to be considered also by regulators when overseeing market intermediaries. The draft sound practices include: (i) establishing independent credit assessment functions separate from other business units; (ii) incorporating diverse qualitative and quantitative measures into robust assessment processes; and (iii) improving credit risk assessment practices to ensure that firms remain well informed on the latest developments that might have an adverse effect on the firm. A final report will be prepared after responses to the consultation have been considered. Responses to the consultation are due by July 8, 2015.

View the consultation.

The New York State Department of Financial Services announced that it has granted a charter under the New York Banking Law to itBit Trust Company, LLC – a commercial Bitcoin exchange based in New York City. The announcement establishes ItBit as the first virtual currency company to receive a charter from the NYDFS. This announcement caps a series of announcements from the NYDFS, outlining and establishing regulatory guidelines for virtual currencies. Most recently, in December 2014, the NYDFS released a framework for licensing virtual currency firms, known as the "Bitlicense framework." The BitLicense framework included consumer protection, anti-money laundering compliance and cyber security rules tailored for virtual currency firms, including the creation of a two-year transitional BitLicense to assist startups. The additional comment period for the revised BitLicense framework ended in March 2015 and NYDFS expects to put forward its final regulatory framework later this month.

View the press release.

The EBA published its final report on guidelines on the minimum list of qualitative and quantitative recovery plan indicators, including the final guidelines. Under the Banking Recovery and Resolution Directive, banks and certain investment firms are required to prepare recovery plans setting out the measures that a firm would take to restore its financial position. Recovery plans are required to include a set of indicators which identify when any of the measures included in the recovery plan are to be invoked. The final guidelines, which should be read in conjunction with the guidelines on the range of scenarios to test recovery scenarios, must be agreed by the national regulator charged with approving the overall recovery plan of a firm. The final guidelines specify that each recovery plan must include capital, liquidity, profitability and asset quality recovery plan indicators. Market-based indicators and macroeconomic indicators must also be included in a recovery plan unless the national regulator agrees that such indicator/s is not relevant to the firm’s legal structure, risk profile, size and complexity. For each category of indicators, the guidelines set out the specific indicators to be included. The guidelines are a minimum list of indicators and firms should not limit their indicators to that minimum. The guidelines will apply from July 31, 2015 to banks and investment firms subject to the BRRD and to national regulators.

View the guidelines.

The US Securities and Exchange Commission approved a proposal by the national securities exchanges and the US Financial Industry Regulatory Authority regarding a two-year pilot program widening the minimum quoting and trading increments, known as "tick sizes" for stocks of some small firms. The pilot program aims to assess whether wider tick sizes would improve the quality of small company stocks for issuers and investors.

View the the SEC press release.

The European Securities and Markets Authority published its guidelines on the application of the definition of commodity derivatives under the Markets in Financial Instruments Directive (known as MiFID I). The guidelines aim to provide a common, uniform and consistent application of the definition of commodity derivatives. There is no commonly adopted definition of derivatives in the EU under MiFID I, which can result in the inconsistent application of EMIR when it refers to the MiFID commodity derivatives definition. The guidelines also aim to ensure continuity when MiFID II replaces MiFID I from January 3, 2017. The guidelines will apply from August 7, 2015.

View the guidelines.

The TARGET2-Securities advisory group of the European Central Bank published an impact analysis report on non-compliance with T2S harmonization standards. The standards aim to provide a single centralized platform for securities settlement in central bank funds across European securities markets. In November 2014, six jurisdictions declared that it would not be likely that they would be able to comply with some of the obligatory harmonization standards by the time their markets plan to migrate to T2S. These jurisdictions are Belgium, France, Germany, the Netherlands, Romania and Switzerland. The report states that there have been no new cases of non-compliance with T2S harmonization standards. The T2S group has assessed the impact of non-compliant T2S markets on the T2S community as a whole. For the Belgian, Dutch, French, Romanian and Swiss markets, the impact of non-compliance is deemed to be manageable and the T2S group has asked for the further monitoring of implementation plans. A decision for the German market has been postponed until the next impact analysis.

View the impact analysis.

The Council of the European Union issued a press release stating it had reached a tentative agreement with the European Parliament on a draft directive that would further the development of electronic payments in the EU market. The new directive will incorporate and repeal the existing Payment Services Directive to create a new framework for emerging and innovative payment services, including internet and mobile payments, providing a more secure and harmonized environment for payments. Once the full text is finalized, the draft directive will need to be confirmed by the Council, submitted to the European Parliament for a vote and then to the Council for adoption. Once adopted, member states will have two years to transpose the directive into national law.

View the press release.

The CFTC’s Division of Clearing and Risk issued an interpretive letter in response to letters from the Ford Motor Credit Company LLC, among others. The CFTC letter clarifies that a securitization special purpose vehicle wholly-owned by, and consolidated with, an entity as described in Section 2(h)(7)(C)(iii) of the Commodity Exchange Act qualifies as a captive finance company. Captive finance companies, in turn, are eligible to elect the end-user exception from the clearing requirement issued by the CFTC under Section 2(h) of the CEA.

View the press release.

The European Banking Authority published a report on the monitoring of Additional Tier 1 capital instruments issued by EU institutions. 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 in October 2014. The EBA has examined fifteen AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and ten under a temporary write-down mechanism. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised so that uncertainty and complexity is minimized. 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. 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. These would be non-compulsory for institutions, but would help to ensure compliance with regulatory provisions. The EBA report is not fully comprehensive and a final report will be published at the end of May 2015.

View the report.

The Federal Reserve Bank of New York announced the resignation of Sarah Dahlgren, executive vice president and head of the New York Fed’s Financial Institution Supervision Group. On October 1, 2015, Ms. Dahlgren will assume the role of senior advisor to the president of the New York Fed, Mr. William C. Dudley. Ms. Dahlgren is expected to remain in her current position as head of FISG until October 1, 2015, to assist with the transition.

View the press release.

The UK Prudential Regulation Authority published a policy statement introducing the final rule that implements the Branch Return, a new return that will collect data biannually from EEA and non-EEA firms with UK branches. The final rule is also directed at firms looking to operate in the UK in the future. The new return gathers quantitative information on economic functions performed by branches in the UK and aims to enhance the PRA’s understanding of the impact that branches have on UK financial stability.

View the Policy Statement and Branch Return Form.

The Prudential Regulation Authority published its third consultation paper on the PRA Rulebook, setting out proposals to amend or delete certain modules of the PRA Handbook and create a new PRA Rulebook. The aim of the review is to reshape materials inherited from the Financial Services Authority to create a Rulebook which contains PRA rules only and follows the split of the FSA into the PRA and the Financial Conduct Authority. This is intended to facilitate firms’ compliance with PRA rules and to provide access to more concise rules, resulting in a more comprehensive understanding of the PRA’s requirements. The consultation paper sets out suggested Rulebook parts including on: (i) the exercise of passport rights by UK firms; (ii) reverse stress-testing (which will be moved to the Internal Capital Adequacy Assessment part of the Rulebook); and (iii) integrated regulatory reporting. The consultation paper also includes draft supervisory statements on: (i) guidelines for completing regulatory reports; (ii) internal governance of third country branches; (iii) Internal Capital Adequacy Assessment Process and Supervisory Review and Evaluation Process; and (iv) internal governance. Responses to the consultation are due by June 30, 2015.

View the consultation paper.

The US Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance issued interagency examination procedures for Regulation Z (Truth in Lending) and Regulation X (Real Estate Settlement Procedures Act). The procedures reflect recent amendments by the CFPB to Regulation Z and Regulation X that, among other things, revised and integrated the disclosures received in connection with certain closed-end mortgage loans. The guidance will become effective on August 1, 2015.

View the Federal Reserve Board’s press release.

View a summary of the updates to the examination procedures.

The US Board of Governors of the Federal Reserve System released its Semiannual Report on Banking Applications Activity. The report delivers aggregate information on applications submitted by bank holding companies, state member banks, savings and loan holding companies, foreign banking organizations, and other entities and individuals for approval to undertake various transactions, including mergers and acquisitions, and engaging in new activities. The latest report covers the period from July 1, 2014 to December 31, 2014. During that period, 681 proposals were reviewed, of which 629 were approved and 52 were withdrawn. Among other things, the report noted that merger and acquisition proposals are generally more complex than other proposals. The average and median number of days to approve such an application is 60 and 41 days, respectively, but the average number of days to approve an application that receives adverse public comments is 206 days.

View the latest Semiannual Report on Banking Applications Activity.

The European Securities and Markets Authority published a list of ten third country central counterparties that have been recognized to offer services in the EU under the European Market Infrastructure Regulation. These third country CCPs are established in Australia, Hong Kong, Japan and Singapore, jurisdictions that are deemed by the European Commission to have legal and supervisory provisions for CCPs equivalent to the regime for EU CCPs under EMIR. The ten CCPs are ASX Clear (Futures) Pty Ltd, ASX Clear Pty Ltd, HKFE Clearing Corporation Limited, Hong Kong Securities Clearing Company Limited, OTC Clearing Hong Kong Limited, SEHK Options Clearing House Limited, Japan Securities Clearing Corporation, Tokyo Financial Exchange Inc, Singapore Exchange Derivatives Clearing Limited and The Central Depository (Pte) Limited. The recognized CCPs will be able to provide clearing services to clearing members or trading venues established in the EU and clearing on these CCPs will satisfy the clearing obligation under EMIR.

View the list of third-country CCPs.

The US Securities and Exchange Commission proposed rules that would require companies to disclose to shareholders the relationship between executive compensation and the financial performance of a company. The proposal, which is designed to enhance company transparency and to allow shareholders to be better informed when making voting decisions to elect directors, would require a company to disclose for itself as well as for other companies in its peer group certain information, including but not limited to information regarding executive pay and performance as well as total shareholder return. Under the rule, companies would be required to disclose the relevant information for the last five fiscal years. Smaller reporting companies, as defined in the proposed rule, would only be required to provide disclosure for the last three fiscal years. The proposed rule provides for a phased-in compliance period for these requirements. The comment period for the SEC proposal is 60 days after publication in the Federal Register which occurred on April 29, 2015. 

View our client note on this development.

View the SEC press release.