The European Securities and Markets Authority launched a consultation on draft guidelines specifying the criteria for the assessment of the knowledge and competence of employees in investment firms that provide investment advice, information aboutfinancial instruments, investment services or ancillary services to clients. Under the new Markets in Financial Instruments Directive II, investment firms will have to ensure and be able to demonstrate to national regulators that employees of the firm involved in such activities have the necessary knowledge and competence to provide such advice, to act in the best interests of the client and to act honestly, fairly and professionally. The draft guidelines will apply to investment firms and national regulators from January 3, 2017, the date that MiFID II comes into effect. Responses to the consultation are due by July 10, 2015. ESMA intends to publish its final report in Q4 2015.
 

View the consultation paper.

The CFTC’s Division of Market Oversight issued guidance to SEFs concerning the calculation of projected operating costs for the purpose of complying with the financial resource requirements under SEF Core Principle 13 and CFTC Regulation 13.1303. This guidance follows two no-action letters providing relief for erroneous swap trades and swap trade confirmations issued on April 22, 2015. The guidance provides that the cost of variable commissions that a voice-based SEF might pay its employee-brokers does not need to be included in a SEF’s calculation of projected operating costs. However, any fixed salaries or compensation payable to the SEF’s employee-brokers must be included in the calculation of projected operating expenses.

View the CFTC guidance to SEFs.

The European Securities and Markets Authority published a call for evidence on investment using virtual currency or distributed ledger technology. ESMA has been monitoring virtual currency investment to understand market developments, the potential benefits and risks for investors and potential issues for market integrity and financial stability. ESMA sets out its analysis in the paper and requests feedback on three particular topics: (i) virtual currency investment products, such as collective investment schemes or derivatives that have virtual currencies as an underlying or which invest in virtual currency businesses; (ii) virtual currency based assets, securities and asset transfers; and (iii) the application of distributed ledger technology to securities. ESMA is not proposing regulatory action at this stage but will continue to monitor investments using virtual currencies or distributed ledger technology to assist national regulators in keeping up to date with market developments. In July 2014, the European Banking Authority published an opinion proposing a potential regulatory regime for virtual currencies and advising national regulators to “discourage” financial institutions from buying, holding or selling them until a regulatory regime is in place.

View the call for evidence.

The Financial Stability Board published a statement written by FSB Chairman Mark Carney to the International Monetary and Financial Committee. The statement contains information on ongoing work to finalize post-crisis reforms and measures being taken by the FSB to promote financial stability. The letter discusses certain financial vulnerabilities, such as diminished market liquidity, asset price discontinuities, financial institution misconduct and contagion across markets. The statement reports certain measures taken by the FSB to address these risks, including the formulation of a plan to identify financial stability risks associated with market liquidity in fixed-income markets and asset management activities, ending too-big-to fail for global systemically important banks and developing procedures for implementation monitoring of the agreed international financial regulatory reforms.
 

View the statement.

US and UK regulators imposed fines on Deutsche Bank AG for failings related to EURIBOR and LIBOR (collectively known as IBOR) submissions. The CFTC imposed a financial penalty of $800 million, the US Department of Justice imposed a financial penalty of $775 million on DB Group Services (UK) Limited, a wholly-owned subsidiary of Deutsche Bank, which agreed to plead guilty to wire fraud for its role in manipulating LIBOR, the New York Department of Financial Services imposed a fine of $600 million and the UK FCA imposed a fine of £227 million (circa $340 million). The FCA found that Deutsche Bank had breached several regulatory requirements by attempting to manipulate IBOR rates and improperly influence IBOR submissions and for failing to have proper systems and controls in place. The FCA also fined the bank for the failure by its Managers and Senior Managers to deal with it in an open and cooperative way, for misleading the FCA and for not responding to requests for information timeously and effectively.

The CFTC Order stated that from at least 2005 through early 2011, and across currencies, Deutsche Bank’s submitters routinely took into account other Deutsche Bank traders’ derivatives trading positions, as well as their own cash and derivatives trading positions, when making the bank’s IBOR submissions. Furthermore, Deutsche Bank allowed submitters and traders to prioritize profit motives over appropriate submission considerations, permitted a culture of trader self-interest to exist and created conflicts of interest, which allowed the misconduct to occur.

View the FCA notice.

View the CFTC order.

View the New York Department of Financial Services order.

View the US Department of Justice press release

The US Commodity Futures Trading Commission’s Division of Market Oversight and the Division of Clearing and Risk issued two no-action letters providing certain time-limited relief to swap execution facilities and designated contract markets. CFTC Staff Letter 15-24 provides time-limited relief from certain CFTC regulations to permit SEFs and DCMs to correct clerical or operational errors that may cause a swap to be rejected for clearing and permits counterparties to resubmit the trade with the correct terms. The no-action letter also permits SEFs and DCMs to correct clerical or operational errors revealed after a swap has been cleared. It allows counterparties to execute a trade to offset the cleared trade and submit a new trade with the correct terms. The relief provided is set to expire on June 15, 2016.

CFTC Staff Letter 15-25 extends the time period for relief previously provided in No-Action Letter 14-108, from September 30, 2015 to March 31, 2016, with certain modifications. This Confirmation No-Action Letter provides relief to SEFs from certain requirements concerning trade confirmations required from SEFs for non-cleared swaps. Specifically, it provides relief to SEFs from the requirement to obtain documents that are incorporated by reference in a trade confirmation issued by a SEF, prior to issuing the confirmation. Additionally, the letter relieves SEFs from the requirement to preserve such documents as records.

View CFTC Staff Letter 15-24.

View CFTC Staff Letter 15-25.

The Basel Committee on Banking Supervision agreed to eliminate certain national discretions from the Basel II capital framework. The use of national discretions can hinder comparability across jurisdictions and increase variability in risk-weighted assets. The Basel Committee has agreed to remove national discretions from the Basel II capital framework regarding: (i) the treatment of past due loans; (ii) the definition of retail exposures; (iii) transitional arrangements for corporate, sovereign, bank and retail exposures; (iv) the rating structure standards for wholesale exposures; (v) internal and external audit; and (vi) re-ageing. The national discretion for the internal ratings-based approach treatment of equity exposures will expire in 2016. The Basel Committee intends to monitor national discretions that are still available and consider whether more of them should be removed. The Basel Committee also responded to a frequently asked question on funding valuation adjustment. The FAQ notes that a bank’s adoption of FVA should not have the effect of offsetting or reducing its “own credit” adjustment. A bank should continue to derecognize its debit valuation adjustment in full, whether or not it has adopted a funding valuation-type adjustment.

View the press release.

The US Federal Deposit Insurance Corporation issued an advanced notice of proposed rulemaking (“ANPR”), seeking input on potential new recordkeeping standards for certain FDIC-insured institutions with more than two million deposit accounts. The FDIC is required to provide depositors with access to their insured accounts as soon as possible after an institution fails. For a bank with a large number of deposit accounts, payments might be delayed if the bank’s records are unclear or incomplete, making it difficult to determine what is insured and what is not. Generally, the FDIC seeks input on whether banks with a large number of deposit accounts should be required to have a greater responsibility in the deposit insurance determination process. Specifically, the FDIC seeks comment on whether banks should be required to meet certain records standards, including the ability to calculate insured and uninsured amounts for each depositor at the end of each business day. The FDIC also seeks input on what types of new data requirements would aid a quick and effective insurance determination process as well as the appropriate threshold for institutions to have to comply with the potential new requirements. The proposals will be open for comment for 90 days after the ANPR has been published in the Federal Register.
 

View a statement issued by FDIC Director, Jeremiah O. Norton.

View the press release.

The Council of the EU approved a new directive and regulation aimed at strengthening rules against money laundering and terrorist financing. The new set of laws, when in effect, aim to bring the EU in line with approaches currently taken internationally, and follow the recommendations made by the Financial Action Task Force which is deemed to be a global reference for anti-money laundering and terrorist financing. The final text of the regulation and directive is yet to be published in the Official Journal of the European Union. Once published, member states will have two years to transpose the directive into national law. The regulation will be directly applicable in EU Member States without the need for any further transposition. The new laws will repeal the current European regulation and directive on anti-money laundering and terrorist financing.
 

View the proposed texts of the regulation and directive and press release.

The Council of the EU adopted a regulation that would increase the capital available for long-term investment in the EU economy. The new kind of fund vehicle, the European long-term investment fund, known as an ELTIF, is expected to provide investors with stable long term returns. An ELTIF will be subject to additional rules, requiring it, for example, to invest at least 70% of its capital in clearly defined categories of assets. Only alternative investment funds managed by alternative investment fund managers and authorized under the Alternative Investment Fund Managers Directive would be able to market themselves as ELTIFs. The regulation will come into force on the twentieth day following its publication in the Official Journal of the European Union.

View the text of the regulations.

The Financial Stability Board chair wrote a letter to the G20 Financial Ministers and Central Bank Governors on the FSB’s progress on the financial regulation agenda. The letter includes information on continuing work to finalize post-crisis reforms in two major areas: (i) ending too-big-to-fail for financial institutions; and (ii) emerging vulnerabilities, specifically, financial stability risks, especially those from asset managers, and misconduct risks and withdrawal from correspondent banking.

View the letter.

The US Board of Governors of the Federal Reserve System, Division of Banking, Supervision and Regulation issued information regarding the operating structure of the Large Institution Supervision Coordinating Committee supervisory program. SR Letter 15-7 provides information on the program’s organizational structure, including the roles and responsibilities of the committees, subgroups and dedicated supervisory teams that collectively comprise the LISCC’s governance structure. Established in 2010, the LISCC program aims to oversee and supervise the largest, most systemically important financial institutions using a centralized process and is comprised of senior Federal Reserve Board and Federal Reserve Bank officers and financial professionals.

View the letter.

The European Banking Authority published its annual assessment on the EU Colleges of Supervisors. Colleges bring together regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The EBA’s assessment specifies an action plan for 2015, and states that the College’s 2014 action plan was fulfilled to a reasonable extent with improvements in the efficiency of EU supervisory cooperation and the development of a better understanding of the risk profiles of cross-border banking groups. The 2015 action plan covers issues such as: (i) credit, conduct and IT risk; (ii) key tasks for supervisory colleges, including joint decisions on capital and liquidity; and (iii) how best to align the functioning of the College with the new Regulatory Technical Standards and Implementing Technical Standards on the operational functioning of supervisory colleges.

View the assessment.

The European Banking Authority published a report on the eXtensible Business Reporting Language taxonomy filing rules. National regulators use this taxonomy to provide data to the EBA under the supervisory reporting requirements set out in the new European capital requirements legislation. The document corrects the scheme identifier for pre-LEIs. Supervisory reporting covers own funds, financial information, large exposures, leverage and liquidity ratios, asset encumbrance and funding plans

View the report.

The US Board of Governors of the Federal Reserve System, Division of Banking, Supervision and Regulation issued information regarding the operating structure of the Large Institution Supervision Coordinating Committee supervisory program. SR Letter 15-7 provides information on the program’s organizational structure, including the roles and responsibilities of the committees, subgroups and dedicated supervisory teams that collectively comprise the LISCC’s governance structure. Established in 2010, the LISCC program aims to oversee and supervise the largest, most systemically important financial institutions using a centralized process and is comprised of senior Federal Reserve Board and Federal Reserve Bank officers and financial professionals.

View the letter.

President Obama announced the nomination of the US Office of Foreign Assets Control’s Director, Adam Szubin, for the role of Undersecretary of the Treasury for Terrorism and Financial Crimes.

View the press release.

On April 16 and 17, 2015, the G20 Finance Ministers and Central Bank Governors held their second meeting under Turkish presidency in Washington, DC. Further to the meeting, a communiqué was published which detailed the conclusions of the group as well as its goals for the future. The G20 stated, amongst other things, that (i) the commitment remains to finalize the total loss absorbing capacity standard for global financial institutions by November 2015; (ii) gaps in the recovery and resolution of CCPs will be identified and addressed; (iii) the G20 roadmap for the regulation of shadow banking is being implemented; and (iv) that cross-border cooperation will be enhanced to ensure more effective regulations, particularly for resolution and OTC derivative market reforms. The G20 Finance Ministers and Central Bank Governors will meet again in September 2015. The next G20 summit is in November 2015.
 

View the communiqué.

The US Consumer Financial Protection Bureau issued a final rule intended to improve the process for companies submitting consumer credit card agreements to the CFPB. The final rule suspends credit card issuers’ obligations to submit their credit card agreements to the CFPB for one year. The purpose of the suspension period is to give the CFPB time to create a more streamlined and automated electronic submission system. Under the rule, credit card issuers will not be required to submit agreements that would otherwise have been due to the CFPB by the first business day on or after April 30, 2015, July 31, 2015, October 31, 2015 and January 31, 2016. During the temporary suspension period, the CFPB will collect consumer credit card agreements from credit card issuers’ public websites and post the agreements to its online consumer credit card agreements database. Credit card issuers will be required to resume submitting credit card agreements on a quarterly basis starting on April 30, 2016.

View the final rule.

Regulations on the calculation of margin periods of risk of netting sets, which calculation firms must use to calculate their own funds requirements when acting as a clearing member, were published in the Official Journal of the European Union. The Regulations, which supplement the Capital Requirements Regulation, provide for the calculation of exposures to clients according to whether a transaction is cleared by a qualifying CCP or not. A qualifying CCP is one which has been authorized or recognized under the European Market Infrastructure Regulation.

View the Regulations.

The Financial Conduct Authority published final guidance for Multilateral Trading Facility operators on regulatory requirements for MTF rulebooks and procedures as set out in the Market Conduct Sourcebook of the FCA Handbook. The FCA consulted on its proposed guidance late in 2014 which was based on feedback received through a thematic review. The FCA expects all MTF operators to be able to demonstrate that they have considered the good practice observations included in the guidance when setting their approach to compliance with the Market Conduct requirements.

View the final guidance.

The European Securities and Markets Authority announced that the latest set of statistical data on the performance of credit ratings is available in the Central Ratings Repository. CEREP contains information on credit ratings issued by credit rating agencies which are either registered or certified in the European Union and is intended to assist investors in assessing the performance and reliability of credit ratings on different types of ratings, asset classes and geographical regions.

View ESMA's announcement.

The International Monetary Fund recently published two chapters for its annual Global Financial Stability Report discussing the risks mutual funds and local lenders may pose to financial stability. The two chapters are titled: “Chapter 2: International Banking After the Crisis: Increasingly Local and Safer?” and “Chapter 3: The Asset Management Industry and Financial Stability.” The IMF warns that mutual funds are increasingly crowding into the same securities, especially bond funds, and that this “herding behavior” may lead to financial instability.

View the chapter.

The US Office of the Comptroller of the Currency issued the “Real Estate Settlement Procedures Act” booklet of the Comptroller’s Handbook. The revised booklet replaces a similar booklet issued in October 2011 and provides updated information resulting from recent changes in Regulation X (12 CFR 1024) related to mortgage servicing and loss mitigation. Additionally, on April 15, 2015, the OCC issued the “Trade Finance and Services” booklet of the Comptroller’s Handbook. The revised booklet replaces the “Trade Finance” and “Bankers’ Acceptances” booklets issued in November 1998 and September 1999, respectively.
 

View the OCC press release.
View the "Trade Finance and Services" booklet.
View the OCC bulletin for the "Real Estate Settlement Procedures Act" booklet.

The Federal Reserve Board requested public comment on proposed amendments to Regulation D (Reserve Requirements of Depository Institutions). The amendments include making technical changes to the calculation of interest payments on certain balances maintained by depository institutions at Federal Reserve Banks. Comments on the proposal are requested within 30 days of publication in the Federal Register.

View the press release.

View the proposal.
 

The Financial Stability Board initiated the second review of resolution regimes in FSB member jurisdictions. The goal of the review is to survey the scope of resolution powers that are available in FSB jurisdictions for the banking sector. As part of the review, the FSB invites feedback from financial institutions, industry associations, and other stakeholders on the implementation of reforms to resolution regimes. Feedback should be submitted to the FSB by May 8, 2015 and the peer review report will be published in early 2016.

View the press release.

View the details of the peer review.

The European Banking Authority published its first report on progress towards convergence of supervisory practice across EU Member States. Under the Capital Requirements Directive, the EBA must report annually to the EU Parliament and the Council on the degree of convergence of supervisory practices between Member States. The EBA is responsible for developing a Single Rulebook and recommendations as well as a European supervisory handbook to promote consistency across the EU. The EBA’s report focuses on the supervisory review and evaluation process and assessment of risks (known as SREP), stress testing, review of permissions to use internal approach, and supervisory measures and powers. The EBA notes that there has been significant progress since 2011 in strengthening supervisory colleges and that supervisory convergence is under way. However, further work is required, such as the development of technical standards and guidelines on key aspects of the Internal Ratings Based Approach, the interaction between capital buffers, and additional capital requirements and implementation by national regulators of the EBA’s guidelines and other policy items relating to supervision.

View the EBA’s report.

The US Board of Governors of the Federal Reserve System issued a final rule expanding the applicability of its Small Bank Holding Company Policy Statement (“Policy Statement”) to include certain savings and loan holding companies and raising the asset threshold of the Policy Statement from $500 million to $1 billion in total consolidated assets. This rulemaking will allow a greater number of community banks to qualify for the advantages of being deemed a small bank holding company.

Small bank holding companies are exempt from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. This rule allows small bank holding companies to use non-equity funding, such as holding company loans, to finance growth and/or to use leverage to fund share repurchases and otherwise provide liquidity to shareholders.

The final rule implements a law passed in December 2014 by Congress. It will become effective 30 days after publication in the Federal Register.

View the Federal Reserve Board press release.

View the draft final rule.
 

The International Organization of Securities Commissions launched two consultations on business continuity plans for trading venues and for market intermediaries which aim to address weaknesses and gaps in the business continuity plans and recovery strategies of trading venues and market intermediaries. The first consultation report, “Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity,” focuses on how trading venues manage technology and the potential risks arising from technological developments and electronic trading. The second consultative report, “Market Intermediary Business Continuity and Recovery Planning,” proposes standards for regulators and sound practices for market intermediaries whilst recognizing that not all of the sound practices are suitable for each type of intermediary. Both consultations close on June 6, 2015.
 

View the consultation papers.

The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve and the US Federal Deposit Insurance Corporation issued answers to certain frequently asked questions on the regulatory capital rule. The topics addressed in the FAQs include the following: (i) the definition of capital; (ii) separate account and equity exposures to investment funds; (iii) high volatility commercial real estate exposures; (iv) other real estate and off-balance-sheet exposures; (v) qualifying central counterparty questions; (vi) credit valuation adjustment questions; and (vii) other miscellaneous questions.
 

The full text of the FAQs.

 

The OCC named Maryann H. Kennedy and Kris A. McIntire Deputy Comptrollers for Large Bank Supervision. In this role, Ms. Kennedy and Mr. McIntire will oversee the supervision of a portion of the OCC’s large bank portfolio.

The Prudential Regulation Authority published further Rules and Supervisory Statements and Policy Statements that will form part of the PRA Rulebook. The new Rulebook parts include verification of standing data rules and internal governance rules. The new Supervisory Statements cover internal governance, exercising certain functions under the Building Societies Act 1986 and supervising building societies’ treasury and lending activities. Also published is a new Policy Statement on the PRA’s approach to insurance business transfers. The PRA is creating a stand-alone PRA Rulebook and intends to launch the new Rulebook website online in summer 2015. The current PRA Handbook sits alongside the Financial Conduct Authority’s Handbook, inherited from the Financial Services Authority.

View the PRA Rulebook.
 

View the additional parts to the PRA Rulebook.

Richard Taft was named as Deputy Comptroller for Credit Risk at the OCC, starting in May. As a principal advisor on credit risks facing the banking system, he will oversee the Commercial and Retail Credit Policy units.

The International Swaps and Derivatives Association published a document entitled “Path Forward for Centralized Execution of Swaps.” The Path Forward is a set of principles which aim to promote consistency between the regulatory rules adopted by different jurisdictions for the mandatory trading of derivatives on an exchange or electronic trading platform. ISDA is concerned that market fragmentation will continue and increase if US, European and other regulators do not reconcile their requirements. ISDA suggests that the US regulations are inconsistent with its principles and that changes need to be made to the US trade execution rules for a harmonized international regime to be achieved. The principles are: (i) the trading liquidity of a derivatives contract should be determined by reference to specific objective criteria; (ii) derivatives contracts that are subject to the trading obligation should be able to trade on a number of different types of centralized venues; and (iii) trading venues should offer flexible execution mechanisms that take into account the trading liquidity and unique characteristics of a particular category of swap.

View the Path Forward.

The European Banking Authority published its recommendations on the equivalence of the confidentiality regimes of third country supervisory authorities. Under the EU Capital Requirements Directive, third country supervisory authorities may participate in a college of supervisors set up for an international cross-border bank if: (i) it is considered appropriate for that authority to participate and (ii) the authority is subject to confidentiality requirements that are equivalent to those set out in the EU Capital Requirements Directive. The EBA’s recommendations only relate to the equivalence of the confidentiality regimes. The appropriateness issue is to be determined by each college of supervisors. The EBA recommends that the confidentiality regimes of the supervisory authorities in the following countries should be considered as equivalent to the CRD IV requirements: Bosnia-Herzegovina, Brazil, Canada, China, FYR Macedonia, Mexico, Montenegro, Serbia, Singapore, Switzerland, Turkey and the United States.
 

View the EBA Recommendation.

The European Securities and Markets Authority announced the launch of two centalized data projects relating to obligations under the European Market Infrastructure Regulation, the Markets in Financial Instruments Regulation and the Market Abuse Regulation. The projects are:

• The Instrument Reference Data Project which will provide a central facility for instrument and trading data and the calculation of transparency and liquidity thresholds. This facility is expected to go live in early 2017.
• The Trade Repositories Project which will provide a single access point to trade repository data under EMIR. This data facility is expected to go live in 2016.

ESMA has agreed to develop the centralized data solutions following requests from EU national regulators. The projects will allow ESMA to collect data directly from trading venues and trade repositories and make that data publicly available through a centralized system.
 

View ESMA’s announcement.

The CFTC issued no-action relief, subject to specified conditions, to provisionally registered swap dealers from compliance with certain CFTC regulations. The regulations relate to business conduct standards with counterparties and swap trading relationship documentation when entering into swaps with certain special purpose vehicles (“SPVs”) in existence prior to October 10, 2013. Such swaps are referred to as “Legacy SPV Swaps” and the documentation governing the Legacy SPV Swaps are referred to as “Legacy SPV Swap Documentation.” As outlined in the request for the no-action relief, SPVs are entities established for very limited purposes and the permitted activities of SPVs, therefore, are significantly limited through covenants contained in their constitutive documents and transaction agreements. Since they are not operating entities, SPVs rely on third-party service providers to satisfy the SPV’s obligations under the Legacy SPV Swap Documentation and the various structured finance transaction agreements. As the specified CFTC regulations were not contemplated or addressed under the Legacy SPV Swap Documentation and related structured finance transaction agreements, there are consequent legal and practical impediments to third-party service providers taking the steps on behalf of SPVs that may be necessary to comply with the regulatory obligations set forth under the CFTC regulations.

In the no-action relief, the CFTC stated that no enforcement action would be taken against swap dealers for failure to comply with certain CFTC regulations as such regulations may apply to a Legacy SPV Swap.
 

View the CFTC Staff Letter 15-21.

The Bank of England announced that non-executive Prudential Regulation Authority board member, Iain Cornish, would be stepping down with immediate effect.

The Regulation of the European Central Bank on reporting of supervisory financial information was published in the Official Journal of the European Union. The Regulation sets out the requirements for significant and less significant banks to report supervisory financial information to their relevant national regulator. The Regulation applies to all banks that fall under the Single Supervisory Mechanism as well as any branches of banks established outside of the SSM where the branch operates in a Eurozone Member State or another Member State that has opted into the SSM. The aim of the Regulation is to ensure that both significant and less significant firms report a common minimum set of information to national regulators, which will then be passed to the ECB. The Regulation came into effect on April 1, 2015.
 

View the Regulation.

The US Board of Governors of the Federal Reserve and the US Office of the Comptroller announced that Wells Fargo – one of the largest global systemically important financial institutions – will be permitted to use the “advanced approaches” capital framework to calculate and publicly disclose its risk-based capital requirements as of the second quarter of 2015. The US advanced approaches framework is available for the largest US banks following a trial or “parallel run” in which the bank proves its ability to meet disclosure requirements for the capital framework under the advanced approach method for four consecutive calendar years. Currently, seven other US banks use the advanced approaches framework. Previously, Wells Fargo used the standardized approach to calculate risk-based capital.

View the Federal Reserve Board press release.

A revised Global Preamble: Codes of Best Practice and Shared Global Principles was published by eight FX committees which sit in the major financial centres — Australia, Canada, Frankfurt, Hong Kong, London, New York, Singapore and Tokyo. FX market participants are expected to incorporate the guidance into their FX policies in a timely manner. The Global Preamble, last revised in 2013, covers standards of personal conduct, execution and dealing practices, confidentiality and market conduct.

View the revised Global Preamble.

The Bank of England published details of the 2015 stress test for the largest UK banks and building societies. The stress test, which aims to assess the resilience of banks and the banking system to severe shock, was agreed between the Financial Policy Committee and the Prudential Regulation Authority Board. It is not a variant to the EU stress test calibrated by the European Banking Authority, as was the case for the 2014 stress test. The European Banking Authority is not intending to undertake an EU-wide stress test this year. The results of the stress test will be announced in December 2015. If a firm’s capital or leverage ratios fall below the threshold in the test, it is likely that the PRA will require the firm to strengthen its capital position. The PRA may also require a firm whose ratios meet the threshold to strengthen its capital position after examining capital adequacy, recovery and resolution plans and the extent to which potentially significant risks are not quantified adequately as part of the stress. Any weakness detected in the banking system will be addressed by the FPC which has a variety of powers at its disposal, including recommendations to the PRA and the Financial Conduct Authority.
 

View the stress test details.

The European Central Bank and the Bank of England published a joint press release announcing that they had agreed to enhanced information exchange and cooperation arrangements for UK CCPs with significant euro-denominated business. Further, both central banks are extending the scope of their standing swap line order to aid the provision of multi-currency liquidity support by both central banks to CCPs established in the UK and the euro area. As a result of the measures, the UK Government announced that it would withdraw the two as yet undecided cases brought by the UK Government against the ECB’s CCP location policy. The announcements follow the General Court judgment on March 4, 2015, which annulled the ECB’s Eurosystem Oversight Policy Framework which had the effect of requiring CCPs with significant euro-denominated business to be located within the eurozone. The ECB has not yet made any announcement about the documents which are the subject of the two cases to be withdrawn (Decision of 11 December 2012 on the terms and conditions of TARGET2 and the ECB’s Statement of Standards published on 18 November 2011 in so far as it sets out a location policy for CCPs).

View the ECB / BoE press release.

View the UK Government’s announcement.

The Federal Reserve Bank of New York appointed Michael Strine first Vice President, effective July 1, 2015. The appointment was approved by the Federal Reserve Board.

Commission Delegated Regulations on the information to be provided by national regulators to the European Securities and Markets Authority on the passport for EU alternative investment fund managers managing or marketing EU alternative investment funds in the EU were published on March 27, 2015. Under the Alternative Investment Fund Managers Directive, ESMA is required to assess the functioning of the EU passport regime, the operating conditions for AIFs and their managers and the potential impact of an extension of the passport. The Regulations set out the information that national regulators will need to provide to ESMA, including the numbers of EU AIFMs authorized in their jurisdiction, problems relating to coordination between national regulators and cooperation arrangements with non-EU regulators, the effectiveness of the collection and sharing of information for monitoring systemic risk and the national regime for marketing of non-EU AIFs by EU AIFMs.

View the Regulations.

The US Commodity Futures Trading Commission issued a no-action letter to futures commission merchants, swap dealers and major swap participants that provides relief from certain requirements under CFTC Regulation 3.3(f). CFTC Regulation 3.3(f) requires FCMs, SDs and MSPs to submit to the CFTC annual reports by Chief Compliance Officers not more than 60 days after the end of their fiscal year. The relief grants FCMs, SDs and MSPs an additional 30 days to provide such annual reports to the CFTC. The relief will remain in effect until the adoption of a rule or rule amendment that modifies the timing requirements of CFTC Regulation 3.3(f)(2) and provides that the CFTC retains the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided, in its discretion.
 

CView FTC Staff Letter No. 15-15.

The European Securities and Markets Authority published its final report and final draft technical standards on the assessment of acquisitions and increases in qualifying holdings in investment firms under the Markets in Financial Instruments Directive I. The final draft technical standards comprise regulatory technical standards to establish an exhaustive list of information that an acquirer of an investment firm must provide to the relevant national regulator and implementing technical standards with standard forms, templates and procedures for cooperation and exchange of information between relevant national regulators. ESMA previously submitted draft RTS and ITS to the European Commission in December 2013. However, due to an amendment to legislation, those RTS need to be amended to cover information that the proposed acquirer must provide on the reputation and experience of any person who will direct the business of the investment firm after the proposed acquisition. The RTS and ITS published by ESMA on March 27, 2015 are the proposed revised RTS and ITS. Under MiFID II, which comes into effect on January 3, 2017, ESMA is required to prepare identical RTS and ITS and therefore ESMA considers that the revised RTS and ITS also satisfy its obligations under MiFID II.

View ESMA final report.

HM Treasury published a consultation paper on its proposed transposition of the Markets in Financial Instruments Directive II into UK law, including four draft statutory instruments. Member States are required to adopt measures transposing MiFID II by July 3, 2016 and to apply the provisions from January 3, 2017. In addition to the proposed statutory instruments, the FCA will also need to revise current rules and make new rules to transpose MiFID II. The proposed statutory instruments include provisions which create the position limit regime for commodity derivatives, make operating an organized trading facility a regulated activity, bring emission allowances, structured deposits and option and futures within the regulatory perimeter, provide for the exercise of the optional exemptions and transpose other exemptions and impose obligations on certain unauthorized firms in relation to algorithmic trading, provision of direct electronic access services and acting as a general clearing member of the CCP. The consultation closes on June 1, 2015. It is expected that the proposed legislation will be made in 2016.

View the consultation page.

The Federal Reserve Board and the FDIC permanently changed the annual resolution plan or “living will” deadline for four non-bank systemically important financial institutions (“non-bank SIFIs”) from July 1 to December 31 beginning in 2016. The institutions include American International Group, Inc., General Electric Capital Corporation, Inc., MetLife Inc., and Prudential Financial, Inc. The agencies previously temporarily extended the 2015 living will deadlines for American International Group, General Electric Capital Corporation, and Prudential Financial to December 31, 2015. MetLife, recently designated as systemically important, is required to submit its first resolution plan by December 31, 2016.

Resolution plans are required by the Dodd-Frank Wall-Street Reform and Consumer Protection Act for the largest financial institutions. Each living will must describe the company’s strategy for rapid and orderly resolution under the US Bankruptcy Code in the event of material financial distress or failure of the company.

View the press release.

The Financial Conduct Authority published a discussion paper on its proposals for implementing the Markets in Financial Instruments Directive II conduct of business and organizational requirements. The paper sets out the policy choices available to the FCA in implementing some provisions of MiFID II including: (i) the application of MiFID II to insurance-based investment products and pensions; (ii) the best approach to implementing the extended application of MiFID II’s investor protection requirements to the sale of and advice on structured deposits; (iii) whether a ban on discretionary investment management firms accepting commissions and other deposits is appropriate for retail client business; (iv) changing the criteria for local authorities’ treatment as elective professional clients; (v) adopting the new requirements for independent advice on shares, bonds, derivatives and structured products; (vi) extending the MiFID II remuneration rules for conduct of business to non-MiFID firms; and (viii) amending the UK approach to recording telephone conversations and electronic communications. The FCA paper also highlights key conduct of business changes that firms will be required to comply with from January 3, 2017. In particular, the paper discusses types of third party inducements that firms will be able to receive and the classification of products as either non-complex or complex, relevant to the determination of whether the appropriateness test must be applied. The FCA consultation closes on May 26, 2015. The FCA intends to consult fully on implementing the MiFID II requirements in December 2015 and to publish its final rules in June 2016.

View the FCA discussion paper.

View an FCA implementation timetable.

The Financial Conduct Authority published proposed guidance on the application of ex-post risk adjustment to variable compensation (also known as performance adjustment). Ex-post risk adjustment is the adjustment of variable compensation to take into account a specific crystalized risk or adverse performance outcome and includes measures such as reducing current year awards, the application of malus and clawback. The proposed guidance is intended to amend and replace the guidance consulted on by the FCA in its joint consultation paper with the Prudential Regulation Authority on strengthening the alignment of risk and reward at the end of 2014. The revised proposed guidance will only apply to dual-regulated firms — banks, building societies and PRA-designated investments firms — and not to firms that are only regulated by the FCA, as was proposed in the 2014 consultation. The FCA notes that the revised proposed guidance may need to be amended depending on the outcome of the European Banking Authority's consultation on guidelines on sound compensation policies under the EU Capital Requirements Directive and Capital Requirements Regulation, known as CRD IV. Responses to the FCA's consultation are due by May 7, 2015. The FCA expects that the final revised proposed guidance will come into effect in summer 2015.
 

View the consultation paper.