The European Parliament has adopted a non-legislative resolution entitled "distributed ledger technologies and blockchains: building trust with disintermediation." Of particular relevance to the financial services sector, the European Parliament is requesting that the European Commission and other EU authorities take various steps to maximize the potential of this technology in the EU.

Read more.

The European Securities and Markets Authority has issued an opinion addressed to EU national regulators on the market size calculation for the ancillary activity exemption under the revised Markets in Financial Instruments Directive.

MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business at group level and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Delegated Regulation (EU 2017/592) sets out the criteria for establishing when an activity should be considered as ancillary to the main business at group level, including the rules for calculating the overall market trading activity of a firm.

ESMA's opinion provides guidance to market participants and national regulators on determining market size figures, since there is no centralized, publicly available record of transactions for commodity derivatives and emission allowances. ESMA acknowledges that the data it has used for the guidance may have limitations in terms of accuracy and completeness and states that national regulators may use alternative data provided by market participants for the calculation.

View the opinion.

The Joint Committee of the European Supervisory Authorities (i.e., the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) has published a letter it has sent to the European Commission, in response to a request from the European Commission on August 10, 2018 for the ESAs to develop guidance on facilitating the production and distribution of information on investment funds.

Read more.

The U.K. Prudential Regulation Authority has launched a consultation entitled "Regulatory transactions: Changes to notification and application forms." The proposals in the consultation are for the amendment of various PRA forms that are used for applications and notifications for regulatory transactions. The PRA has chosen to combine the proposals into one substantial consultation paper to avoid having to issue multiple separate consultations on the same forms. The affected forms are located in the Passporting, Change in Control, Insurance Special Purpose Vehicles (ISPVs) and Notifications Parts of the PRA Rulebook.

The consultation proposals are relevant for PRA-authorized firms and any firms that have, or intend to acquire, a qualifying holding in a PRA-authorized firm.

Comments on the consultation are invited by November 1, 2018. The PRA expects that the proposals will take effect immediately after the publication of its planned Policy Statement.

View the consultation paper (PRA CP 21/18).

The European Securities and Markets Authority has published a letter (dated September 26, 2018) from ESMA Chair Steven Maijoor addressed to Valdis Dombrovskis, the Vice President of the European Commission. The purpose of the letter is to contribute to any further work the Commission may undertake on the investor protection and intermediaries-related requirements under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation.

Read more.

Following its announcement in August 2018, the European Securities and Markets Authority has published notice of the extension of the prohibition on the marketing, distribution and sale of binary options to retail investors for a further three-month period from October 2, 2018. ESMA is extending the ban because the threat to investor protection has not been addressed yet through a change in EU legislation and national regulators have either taken no action or have taken insufficient action to address the potential harm.

Read more.

The European Securities and Markets Authority has published its Annual Work Programme for 2019, dated September 26, 2018. ESMA sets out its focus areas for 2019 and provides details of expected outputs within each of the areas. ESMA also indicates that a number of pieces of EU legislation may be reviewed. These include the Market Abuse Regulation and the clearing obligation under the European Market Infrastructure Regulation, in addition to the reviews that have already been announced.

Read more.

The European Securities and Markets Authority has opened a consultation on proposed updates to the Guidelines on stress test scenarios for Money Market Funds under the Money Market Fund Regulation. The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds and often regarded as a short-term cash management function alternative to bank deposits.

The MMF Regulation tasks ESMA with developing Guidelines on common reference parameters of the stress test scenarios to be included in the stress tests that managers of MMFs are required to conduct. ESMA's original Guidelines, published in March 2018, include specifications for the stress tests, including common parameters and scenarios which take into account certain hypothetical risk factors. The Guidelines must be reviewed at least annually and updated for any market developments.

The consultation paper proposes updating the section in the Guidelines on the establishment of common reference stress test scenarios, the results of which should be included in the reporting template that managers of MMFs are required to use. ESMA is seeking feedback on the methodology, risk factors, data and the calculation of the impact. The calibration of stress test scenarios is not within scope of the consultation. However, feedback on how to calibrate the scenarios would be welcomed by ESMA.

Responses to the consultation should be submitted by December 1, 2018. ESMA intends to finalize the revised Guidelines in Q1 2019.

View the consultation paper.

The European Securities and Markets Authority has announced that its various restrictions on the sale, distribution and marketing of Contracts for Difference to retail investors will be extended from November 1, 2018 for a further three months.

ESMA adopted two temporary product intervention Decisions under the Markets in Financial Instruments Regulation in June this year, one relating to binary options and another to CFDs. ESMA has powers under MiFIR to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire and it would then fall to member states to impose similar restrictions at a national level, if they so wish. The U.K. Financial Conduct Authority is expected to consult before the end of the year on whether to make permanent the EU's temporary prohibition on marketing, distribution and sale of binary options to retail investors. The International Organization of Securities Commissions recently published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options.

Read more.

The U.K.'s Serious Fraud Office has announced that it will be restructuring and expanding its management team with two new senior appointments:
 

1. A new Head of Intelligence to enable the SFO to move to a more proactive approach to sourcing new cases. This appointment will enable the Head of Investigations to focus on advising on investigative strategy and leading the professional development of investigators.
2. A new Head of Corporate Services to manage the finance, human resources, procurement and facilities management functions. This new appointment will enable the General Counsel to focus on legal matters.

The recruitment process for the new roles will run concurrently with recruitment of an appropriate replacement for the SFO's current General Counsel, who will be leaving the SFO later in the year after six years.

View the SFO press release.

The European Securities and Markets Authority has published a final report on the exemption from the clearing obligation for intragroup transactions with a third country group entity. There are currently three sets of Regulatory Technical Standards made under the European Market Infrastructure Regulation that impose the clearing obligation of certain interest rate derivatives and credit derivatives. Each of these three RTS exempts from the clearing obligation certain intragroup derivatives transactions where one of the counterparties is a third-country group entity and there is no relevant equivalence decision in respect of the third country in which it is situated. An equivalence decision would enable parties that are subject to both the EU and a third country's clearing obligation to comply only with one jurisdiction's requirements, but no equivalence decisions have been made to date. Each of the three RTS sets a different expiry date for the intra-group exemption. These dates fall between December 21, 2018 and July 9, 2019.

Following a consultation launched in July 2018, ESMA's final report contains final draft amending RTS setting out ESMA's proposal to extend the exemption period by amending each of the RTS to have one unified expiry date of December 21, 2020. The final draft amending RTS have been submitted to the European Commission for endorsement.

View the Final Report.

The European Securities and Markets Authority has announced that it will publish two new data completeness indicators for trading venues, detailing how venues are performing on the delivery of Double Volume Cap and bond liquidity data in compliance with their obligations under the Markets in Financial Instruments Regulation. ESMA has been working with national regulators to improve the timeliness and completeness of the data underpinning the monthly DVC and quarterly bond liquidity assessment publications. ESMA believes that the new indicators will incentivize trading venues to provide timely and complete data. For both DVC and bond liquidity data, ESMA will introduce the following completeness indicators:
 

1. The Completeness Ratio, to provide information on the completeness of each particular venue, irrespective of the performance of other venues.
2. The Completeness Shortfall, which will give an indication of a venue’s performance in terms of completeness compared to other trading venues and reflect the percentage of missing data for which a particular venue is responsible.

ESMA will publish the DVC completeness indicators on October 8, 2018 with the next DVC update and then on a monthly basis. It will publish bond liquidity completeness indicators from the next bond liquidity quarterly assessment publication by November 1, 2018 and then on a quarterly basis.

View the ESMA press release.

The U.K. Prudential Regulation Authority has published a report entitled "Transition in thinking: The impact of climate change on the U.K. banking sector".

The purpose of the report is to: (i) examine the financial risks from climate change that impact PRA regulated banks, building societies and designated investment firms; (ii) assess how those entities are responding to and managing the financial risks from climate change; and (iii) assist those entities in understanding the PRA's supervisory approach to the financial risks from climate change. The report will also be used to inform the Bank of England's wider work to assess the system-wide financial risks from climate change.

Read more.

The Task Force on Climate-related Financial Disclosures has issued a status report outlining progress on adoption of the TCFD disclosure recommendations issued in June 2017. The TCFD was established by the Financial Stability Board in 2015 and its 2017 recommendations provide a voluntary framework for companies to develop more effective climate-related financial disclosures through their existing reporting processes. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

Read more.

The U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).

The CFTC's initial enforcement order, filed in January 2018, accused the defendants of operating a fraudulent virtual currency scheme through which they solicited more than $6 million from customers throughout the U.S. by making false and misleading claims that MBC was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also were alleged to have misrepresented MBC's daily trading price in reports on its website, when no daily trading price existed because MBC was not actively being traded.

Read more. 

The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.

The Committee is also seeking various actions by the Government and the U.K. regulators.

Read more. 

The European Central Bank has published its finalized Guide to on-site inspections and internal model investigations under the Single Supervisory Mechanism. The ECB is empowered under the SSM Regulation to conduct, with respect to Eurozone entities within its supervisory remit: (i) on-site inspections, which are in-depth investigations of risk, risk controls and governance; and (ii) internal model investigations, which involve in-depth assessments of internal models used for the calculation of own fund requirements.

The ECB has developed the Guide as a reference document for supervised entities and other legal entities for which the ECB has decided to launch an on-site inspection. It consulted on a draft of the Guide in July 2017 and has published a separate feedback statement on the consultation responses that were received. The Guide applies to ECB inspections of significant institutions, less significant institutions and other legal entities referred to in the SSM Regulation, including third parties to whom credit institutions have outsourced functions.

The Guide comprises three sections: (i) the general framework for inspections; (ii) the inspection process; and (iii) applicable principles for inspections. The Guide is not a legally binding document and does not replace the legal requirements laid down in the relevant applicable EU law.

View the Guide.

View the feedback statement.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency (together, the "Prudential Regulators") have approved amendments to their margin requirements for uncleared swaps and security-based swaps to align with regulations of the Board, FDIC and OCC relating to stays on default remedies for certain qualified financial contracts (QFC Rules). The final amendments conform the definition of "eligible master netting agreement" under the Swap Margin Rule with the "qualifying master netting agreement" definition in the QFC Rules. Therefore, master netting agreements that comply with the limitations on default remedies in the QFC Rules are not excluded from the definition of EMNA for purposes of the Swap Margin Rules. Additionally, any legacy uncleared swaps not subject to the Swap Margin Rule would not become subject to the Swap Margin Rule due solely to amendments to comply with the QFC Rules.

The final amendments are effective 30 days following their publication in the Federal Register.

View the final amendments.

View the Prudential Regulators' joint press release.

The Court of Session has delivered an Opinion allowing a reference to be made to the Court of Justice of the European Union for a preliminary ruling on whether the U.K. can unilaterally revoke its notice of withdrawal from the EU - Wightman v Secretary of State for Exiting the European Union [2018] CSIH 62 (21 September 2018).

Under Article 50 of the Treaty on European Union, the United Kingdom gave notice to the EU Council on March 29, 2017 that it would leave the EU. The notification means that unless an agreement is reached between the U.K. and the EU, and absent any agreement to extend the two-year period, the U.K. will exit the EU on March 29, 2019.

Read more.

The Basel Committee on Banking Supervision has published a press release summarizing the outcome of its meeting on September 19-20, 2018. The Committee committed to consider Pillar 1 and Pillar 3 measures to prevent banks adjusting their balance sheets around regulatory reporting dates to manipulate reported leverage ratios. In addition, the Committee intends to further analyze banks' exposures to crypto-assets to reach a conclusion on whether action is needed to address the risks that these assets may present.

The Basel Committee will publish the following before the end of the year:

• an updated 2018 list of global systemically important banks, along with the high-level indicator values of all the banks that are within the G-SIB assessment exercise;
• final revisions to the market risk framework (towards the end of the year);
• a consultation paper (in October 2018) on whether the exposure measure should be revised to alleviate its impact on client clearing, including presenting options for revising this; and
• the revised Principles on Stress Testing (in October 2018).

The Basel Committee also published responses to Frequently Asked Questions on the treatment of settled-to-market derivatives under the Liquidity Coverage Ratio and Net Stable Funding Ratio.

View the press release.

View the FAQs.

The European Securities and Markets Authority has published an Opinion and revised draft amendments to the Regulatory Technical Standard on the equity transparency obligations of trading venues and investment firms. The RTS, known as RTS 1, is set out in Commission Delegated Regulation (EU) 2017/587, supplementing the Markets in Financial Instruments Regulation.

Read more.

The Prudential Regulation Authority and the Financial Conduct Authority have published letters addressed to the CEOs of the largest banks and insurers supervised in the U.K. asking for confirmation of each firm's preparations for transition from LIBOR to risk-free rates. The regulators are requesting these firms to provide the following by December 14, 2018:

• A summary of the firm's assessment of key risks relating to LIBOR discontinuation and details of actions the firm intends to take to mitigate those risks, approved by the board; and
• The names of the Senior Manager(s) responsible for the provision of the firm's response to the letter and for implementing its transition plans.

The letter relates to the ongoing global benchmark reform effort instigated by the Financial Stability Board, in particular, the transition from LIBOR to alternative rates by the end of 2021. Firms that have not received the letter are not subject to the information request, but the regulators ask those firms to nevertheless consider their LIBOR transition plans, where relevant.

View the letters.

The International Organization of Securities Commissions has published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options. This step at international level follows the temporary prohibition of the marketing, distribution or sale of binary options and the restrictions on the marketing, distribution or sale of CFDs to retail clients introduced in the EU earlier this year, which the U.K. Financial Conduct Authority fully supported.

The report covers rolling spot forex contracts, CFDs and binary options offered and sold on a domestic and cross-border basis by intermediaries to retail investors. The report includes three toolkits providing guidance to IOSCO member jurisdictions on methods for mitigating the harm to retail investors investing in these products.

Read more. 

The International Organization of Securities Commissions has published a final report setting out Guidance to its members to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising. IOSCO consulted on a draft version of the guidance between February and April 2018.

IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise if analysts employed by firms managing the securities offering are at risk of being under pressure to present a positive view of the issuer. During the investor education and price-formation phase, there is a risk that these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. IOSCO considers that there can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions related to the capital raising. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.

Read more.

The U.S.-U.K. Financial Regulatory Working Group has issued a statement following its inaugural meeting held on September 12, 2018 in London. Participants discussed the outlook for financial regulatory reforms and future priorities, including possible areas for deeper regulatory cooperation to facilitate further financial services activity between U.S. and U.K. markets. Participants also discussed Brexit-related issues, including: (i)  U.S.-U.K. financial regulatory issues resulting from the U.K.’s exit from the EU;  and (ii) the implications of Brexit for financial stability and cross-border financial regulation, including contractual continuity and potential cliff-edge risks.

The Working Group was established in April 2018 to serve as a forum for staff from the U.S. Department of the Treasury and HM Treasury and financial regulatory authorities to exchange views on the regulatory relationship between the U.S. and the U.K. Its objectives are to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.

The next meeting of the Working Group will be held in the first half of 2019 in Washington, D.C.

View the statement. 

The U.K. Financial Conduct Authority has launched a consultation on its approach to implementing Regulatory Technical Standards and related Guidelines developed by the European Banking Authority to supplement provisions of the revised Payment Services Directive. The FCA's consultation focuses in particular on the RTS for strong customer authentication and common and secure open standards of communication. These RTS impose obligations on payment service providers to increase the security of customers' payments made by card and other means and also set out requirements on account servicing payment service providers (ASPSPs) relating to the third party providers of Account Information Services (AIS) and Payment Initiation Services (PIS) that were brought within the regulatory regime by PSD2.

The consultation includes proposals on new fraud reporting requirements reflecting PSD2 fraud reporting guidelines published by the EBA in July 2018. The FCA is also consulting on proposed changes to its Payment Services and E-Money Approach Document to reflect other legislative changes and clarify its expectations.
The EBA consulted between June and August 2018 on proposed Guidelines on aspects of the RTS. The FCA's proposed implementation approach is premised on the assumption that the final Guidelines will be largely as consulted on and the FCA will adjust its approach if necessary when the finalized Guidelines are published.

Read more.

The Bank of England has announced that its Money Markets Committee has launched a public register to display the statements of commitment from market participants that have agreed to abide by the UK Money Markets Code and would like their statements to be included on the register. The public register is accessible via a dedicated BoE webpage.

The Code is a voluntary industry code launched in April 2017, written by market participants. It sets out best practice expected from participants in the deposit, repo and securities lending markets and incorporates revised relevant sections of the Non-Investment Products Code, and also a revision and update of the Gilt Repo Code and Securities Borrowing and Lending Code.

View the public register. 

View the Money Markets Code. 

The European Central Bank has opened a consultation on a draft Part 2 to its Guide to Assessments of Licence Applications by banks. The ECB published the Guide to Assessment of Licence Applications in March 2018, which applies to all license applications to become a credit institution within the meaning of the Capital Requirements Regulation.  The ECB developed the Guide, which is not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the Single Supervisory Mechanism.

The consultation on the draft Part 2 of the Guide focuses on assessment criteria for capital requirements and business plans, including initial capital, own funds, location, operations and structural organization, banking group and outsourcing.

The consultation closes on October 25, 2018.

View the consultation paper. 

View the consultation webpage. 

View details of the Guide to Assessments of Licence Applications.

The Financial Conduct Authority has published a direction on how EEA market operators can apply for recognition as an overseas investment exchange in preparation for Brexit. EEA market operators operating a regulated market, a multilateral trading facility or an organised trading facility currently use passports granted under the revised Markets in Financial Instruments Directive to give their U.K.-based members access to their markets. Once the U.K. has left the EU, those passports will no longer be valid and the U.K. Government does not intend to establish a temporary permissions regime in the event of a "no deal" outcome to the EU-U.K. Brexit negotiations or without an agreed implementation period. EEA market operators that engage in regulated activities when providing their U.K. members with access to their markets will need to apply for ROIE status, unless they can rely on the U.K.'s overseas persons exclusion. The FCA's direction sets out the FCA's expectations for EEA market operators.

View the FCA's statement.

View the FCA's Direction. 

The U.S. Commodity Futures Trading Commission and the Monetary Authority of Singapore today signed a cooperation arrangement on FinTech innovation, which is to be supported by the agencies' respective FinTech initiatives, LabCFTC and the MAS Financial Technology & Innovation Group. The arrangement will facilitate inter-agency cooperation on FinTech innovation and referrals for innovators that wish to enter the other regulator's market. In addition, it will provide an information sharing framework between the agencies focused on FinTech market trends and developments, innovations and best practices within their respective jurisdictions. The arrangement also calls for joint events, proofs of concept, trials and innovation competitions where permitted, along with periodic meetings to discuss FinTech issues of common interest.

CFTC Chairman J. Christopher Giancarlo in a statement said that he believes this collaboration with the MAS will "enhance global awareness of the critical role of regulators in 21st century digital markets," while Ravi Menon, Managing Director of the MAS, said that he hopes the arrangement will "create more opportunities for firms in both jurisdictions, especially in developing innovative business models for the derivatives market."

The arrangement follows a similar agreement reached by the CFTC and the U.K. Financial Conduct Authority this past February, and reflects the global nature of FinTech markets and the importance of cross-border collaboration between regulators.

View the cooperation agreement.

View the CFTC/FCA agreement.

The U.S. Federal Deposit Insurance Corporation published a notice of proposed rulemaking and request for comments regarding a limited exception for a capped amount of reciprocal deposits from treatment as brokered deposits.

Read more.

The European Central Bank has announced its recommendation of the Euro short-term rate - €STR - as a euro risk-free rate by a private sector working group. The group also recommends that €STR replaces the Euro overnight index average, EONIA, because EONIA no longer complies with the EU Benchmark Regulation and will be restricted from January 1, 2020. The recommendations of the working group are not legally binding.

Read more.

A Commission Delegated Regulation on settlement discipline has been published in the Official Journal of the European Union. The Delegated Regulation sets out Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a buy-in process. The RTS will apply directly across the EU from September 13, 2020.

View the RTS.

The U.S. Board of Governors of the Federal Reserve System announced a final rule amending the liability provisions of Subpart C of Regulation CC to address instances where there is a dispute between banks as to whether a check has been altered or is a forgery, and the original check is not available for inspection.  The final rule creates a rebuttable presumption of alteration (as that term is used in the UCC) with respect to disputes that arise between banks regarding substitute or electronic checks.  The presumption is rebuttable either by proving by a preponderance of the evidence that the substitute or electronic check is forged (i.e., derives from an original check that was issued with an unauthorized signature of the drawer) or does not contain an alteration.  The presumption of alteration does not apply if a copy of the original check is available for inspection by all parties or where one bank sent the original check to the other bank, even if the check was subsequently truncated and destroyed.  The final rule will take effect on January 1, 2019.

View full text of the final rule.

The European Commission has published a Communication setting out a broad strategy for strengthening the EU's framework for anti-money laundering supervision. The Communication is accompanied by a fact sheet setting out Questions and Answers on the strategy.

The Commission notes that, despite the recent strengthening of the EU's framework, through the Fourth Money Laundering Directive (4MLD) and the forthcoming Fifth Money Laundering Directive (5MLD), there are concerns that gaps remain in the EU's supervisory framework. The Commission highlights that there is no clear articulation between the prudential and anti-money laundering rules for financial institutions. It identifies shortcomings in the reaction time of national supervisors and in the level of cooperation and information sharing both between prudential and anti-money laundering supervisors and on a cross-border basis between EU supervisors and other supervisors based both within and outside the EU. While the Commission recognizes that 5MLD will remove certain obstacles to cooperation between anti-money laundering and prudential supervisors, it also notes that further steps are necessary to ensure effective supervisory cooperation, especially where financial institutions operate across borders.

Read more.

HM Treasury has published a consultation on the U.K. Government's proposed approach to implementing the EU Bank Creditor Hierarchy Directive (also known as the Insolvency Hierarchy Directive) into U.K. domestic law. Member states are required to transpose the BCHD into national law by December 29, 2018 and must apply the laws from the date of transposition.

The BCHD is part of a package of reforms aimed at further strengthening the resilience of EU banks. It lays down harmonized rules for the insolvency ranking of unsecured debt instruments for the purposes of the EU recovery and resolution framework. The BCHD introduces statutory subordination across the EU, by amending the Bank Recovery and Resolution Directive so as to require Member States to create a new class of non-preferred senior debt in their creditor hierarchy. Instruments meeting the relevant criteria to fall within the new class will be eligible to meet subordination requirements under the provisions of the Total Loss Absorbing Capacity (TLAC) term sheet and its EU equivalent, the requirement for Minimum Requirement for Own Funds and Eligible Liabilities (MREL). HM Treasury explains in the consultation paper that the statutory subordination introduced by the BCHD will not prevent the U.K.'s preferred approach, which is to require structural subordination (i.e. subordination within the terms of capital instruments).

Read more.

The U.K. Prudential Regulation Authority has launched a consultation on changes to the PRA's reporting requirements to reflect proposed changes set out by the European Banking Authority in EBA consultations launched in August 2018. The EBA proposes a number of revisions to the existing Implementing Technical Standards on the supervisory reporting requirements under the Capital Requirements Regulation. These include proposed revisions to the financial reporting (FINREP) annexes of the ITS, which add new reporting requirements for non-performing and forborne exposures, amend the reporting of profit or loss items (in particular on expenses) and amend the reporting on leases following International Financial Reporting Standard 16. Proposed revisions to the common reporting (COREP) annexes relate to the Liquidity Coverage Requirement for credit institutions.

Read more.

HM Treasury has published a press release announcing that Bank of England Governor Mark Carney will remain in his position for an extended term until January 31, 2020. The extension of Dr. Carney's term will ensure continuity at the BoE until Brexit is completed. A new governor would be appointed during Autumn 2019 after the terms for the U.K.'s withdrawal and the framework for the future U.K.-EU partnership have been agreed.

Sir Jon Cunliffe, BoE Deputy Governor with responsibility for financial stability, has also been re-appointed for a term from November 1, 2018 to October 2023.

View the HM Treasury press release.

View the correspondence between Dr. Carney and the Chancellor of the Exchequer. 

The U.S. Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and Bureau of Consumer Financial Protection issued an interagency statement explaining the role and legal status of supervisory guidance.

Read more.

The U.S. Office of Comptroller of the Currency published a notice of proposed rulemaking regarding permitting federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017 (“covered savings associations”), to elect to operate with the same rights and privileges as a national bank.  The proposed rule seeks to implement Section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amends the Home Owners’ Loan Act, and is intended to provide business flexibility for certain federal savings associations to adapt to change without a corresponding requirement to change charters.   Under the proposed rule, a covered savings association has same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association, and is subject to the same duties, restrictions, penalties, liabilities, conditions and limitations that would apply to such a national bank.  The covered savings institution, however, will retain its federal savings association charter, and will be treated as a federal savings association for governance and other purposes, including consolidation, merger, dissolution, conversion, conservatorship and receivership.  Treatment as a covered savings association would generally continue even after the institution’s total consolidated assets exceed $20 billion.  Comments to proposed rule are due no later than November 19, 2018.

View full text of the proposal.

The U.S. Federal Deposit Insurance Corporation published a proposal (FIL-46-2018) seeking comment with respect to the retirement of certain Financial Institution Letters.  FILs are letters that typically announce various types of regulations, policies, publications, and other matters of interest to those in the banking community.  The retired FILs would be archived and moved to inactive status, but would still be available for reference.  The FDIC issued the proposal pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which requires the FDIC (and other agencies) to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations.  In connection with this mandate, the FDIC has identified 374 FILs issued between 1995 and 2017 regarding risk management supervision that have become outdated or redundant.  The FDIC is also currently reviewing FILs regarding other subject matters, and is exploring opportunities to update or streamline its remaining FILs generally.  Comments to the proposal are due by October 10, 2018.

View full text of the FDIC proposal, including a list of the letters to be retired.

HM Treasury has published draft statutory instruments on the regulation of payments and e-money and on access to the Single Euro Payments Area in preparation for the U.K.'s withdrawal from the EU - the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 and the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018. The draft Regulations are relevant to all Payment Service Providers and registered Account Information Service Providers. The draft Regulations will amend the Payment Services Regulations 2017, Electronic Money Regulations 2011 and the SEPA Regulation to:

• Create a temporary permissions regime for EEA payment firms

In line with the proposed temporary permissions regime for EEA firms regulated under the Financial Services and Markets Act 2000 (covered by the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018), HM Treasury is proposing a TPR for payments. EEA firms operating under the TPR for payments will need to establish a U.K. subsidiary at the end of the proposed three-year TPR period. This provision should give firms the time to fully operationalize their new U.K. subsidiary.

Read more.

The U.K. Financial Conduct Authority has issued a press release announcing the appointment of Sheldon Mills as its new director of competition. Mr. Mills is currently senior director, mergers and state aid at the Competition and Markets Authority. Mr. Mills will take up his role in November 2018.

View the FCA press release.

The Joint Committee of the European Supervisory Authorities has published a joint report on automation in financial advice. The Report follows the ESA's 2015 joint discussion paper and follow-up report in 2016. The Report provides a summary of recent sectoral work by the ESAs in this area and the main findings of a survey with national regulators on the evolution of automation in financial advice in the securities, banking and insurance sectors. The ESAs observed that automated services are more often offered through partnerships between established financial intermediaries and FinTech firms than by FinTech firms alone. The ESAs also found that automation in financial advice has grown slowly and that the number of firms and customers involved is still limited. As a result, the ESAs do not consider that any of the previously identified risks have materialized and therefore that further action is unnecessary at this stage. The ESAs will conduct a new monitoring exercise if and when market developments and risks merit the work.

View the report.

The European Securities and Markets Authority has published an Opinion on the European Commission's proposed amendments to the final draft Implementing and Regulatory Technical Standards on reporting under the Securities Financing Transactions Regulation. Various parts of the SFTR came into effect on January 12, 2016. However, the new reporting obligation for SFTs is not yet in force. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The SFTR requires, amongst other things, all securities financing transactions to be reported to EU recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.

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The European Commission has published a Communication (dated August 10, 2018) on proposed amendments by the European Securities and Markets Authority to a Regulatory Technical Standard, known as "RTS1," supplementing the Markets in Financial Instruments Regulation.

Under MiFIR, Systematic Internalisers must make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity." ESMA submitted final draft amendments to RTS 1 in March 2018, which provided that, where a financial instrument is subject to the "minimum tick size" regime, the quotes of an SI can only adequately reflect prevailing market conditions when those quotes reflect the minimum price increments ("tick sizes") quoted by EU trading venues trading the instrument.

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The Prudential Regulation Authority has issued an update on the application of its supervisory statement, "Resolution Planning." The supervisory statement sets out the PRA's expectations on the resolution planning information that firms must submit to comply with their obligations under the EU Bank Recovery and Resolution Directive. The update confirms the approach that will be taken by the PRA and the Bank of England as the U.K.'s national resolution authority.

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The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation announced that the agencies have extended the submission deadline for the resolution plans (commonly referred to as “living wills”) for one designated non-bank and four foreign banking organizations. The announcement extends the submission deadline for the non-bank financial company from December 31, 2018 to December 31, 2019, and extends the submission deadline for the four foreign banking organizations from July 1, 2019 to July 1, 2020. The agencies noted that the extended deadline will allow for feedback to be provided to the institutions with respect to their prior resolution plan submissions, and will also provide time for the institutions to prepare their next resolution plan submissions.  The FDIC also announced that it will be extending the resolution plan submission deadline for all insured depository institutions to no sooner than July 1, 2020.

View full text of the FDIC and Federal Reserve press release.

Following a consultation in March 2018, the Basel Committee on Banking Supervision has published a finalized technical amendment to the consolidated Pillar 3 disclosure technical standard that was issued in March 2017. The amendment imposes additional Pillar 3 disclosure requirements for those jurisdictions implementing an Expected Credit Loss, or ECL, accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting provisions. These additional disclosures require banks to disclose, where applicable: (i) the "fully loaded" impact of ECL transitional arrangements used in Total Loss Absorbing Capacity resources and ratios; (ii) the allocation between general and specific provisions for standardized approach exposures; and (iii) the rationale for their categorization of ECL accounting provisions in general and specific categories for standardized approach exposures.

The technical amendment will also apply to jurisdictions adopting transitional arrangements for the regulatory treatment of accounting provisions. The interim approach to, and transitional arrangements for, the regulatory treatment of accounting provisions were published separately by the Basel Committee in March 2017.

The amendments covered by the revised Technical Standard will take effect from January 1, 2019.

View the Technical Amendment. 

View the consultation paper.

View the interim approach and transitional arrangements published March 2017.

The U.S. Office of the Comptroller of the Currency issued guidance to OCC-supervised institutions with respect to the role of informal or implied expressions of support from foreign governments in determining credit risk ratings.

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