The Financial Action Task Force has issued a detailed report on the concealment of beneficial ownership, assessing how legal persons, legal arrangements and professional intermediaries can help criminals conceal wealth and illicit assets. The aim of the report is to help national authorities including financial intelligence units, financial institutions and other professional service providers in understanding the nature of the risks that they face. The report was prepared in conjunction with the Egmont Group of financial intelligence units.

The FATF and the Egmont Group together identified the need for further analysis of the vulnerabilities associated with beneficial ownership, with a particular focus on the involvement of professional intermediaries, to guide global responses. Their joint report brings together the results of analysis of open-source research, public intelligence reports, classified intelligence holdings and public and private sector experience and expertise. It sets out a comprehensive overview of the main characteristics and vulnerabilities that lead to the misuse of legal persons and arrangements, and the exploitation of professional intermediaries, to conceal beneficial ownership.

The report identifies a number of issues for consideration to help address the vulnerabilities associated with the concealment of beneficial ownership.

View the FATF-Egmont Group report.

The U.S. Financial Stability Oversight Council issued a proposed decision with respect to a national bank’s petition to not treat the surviving entity of a bank holding company parent merging into its large U.S. national bank subsidiary as a nonbank financial company supervised by the U.S. Board of Governors of the Federal Reserve System pursuant to Section 117 of the Dodd Frank Act (commonly referred to as the “Hotel California” provision).  Section 117 applies to any entity, or its successor entity, that received financial assistance under, or participated in, the Capital Purchase Plan established under the Troubled Asset Relief Program and was a bank holding company with total consolidated assets of at least $50 billion as of January 1, 2010.

Read more.

The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission published their previously announced notice of proposed rulemaking entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds in the Federal Register.  The proposed rules seek to simplify and tailor the Volcker Rule.  Comments to the proposal are due by September 17, 2018.

View proposed changes to the Volcker Rule.

View full text of the proposal.

The Financial Market Infrastructure Administration (Designation of VocaLink) Order 2018 has been laid before Parliament. The Order relates to the special administration regime for operators of financial market infrastructures, which came into force on July 13, 2018. Relevant FMIs are operators of recognized payment systems, excluding recognized CCPs (which are already subject to the Banking Act resolution regime in the U.K.) and recognized central securities depositories operating a securities settlement system. However, HM Treasury is able to designate certain service providers to FMIs as infrastructure companies and so bring them within the FMI administration regime.

The Order designates VocaLink as an infrastructure company in connection with its provision of services to the operators of Faster Payments Service, Bacs and LINK. HM Treasury judges that an interruption in VocaLink's services to these operators of payment services would have a serious adverse effect on their operation.

The Order comes into force on August 9, 2018.

View the Order (SI 2018/858).

View the explanatory memorandum.

The European Securities and Markets Authority has published a final report setting out Regulatory Technical Standards supplementing the Prospectus Regulation, which will apply fully across the EU from July 21, 2019. ESMA consulted on draft RTS in December 2017. The final draft RTS cover:

• the content and format of key financial information for the summary;
• the data necessary for the classification of prospectuses and the practical arrangements to ensure machine readability of that data;
• advertisements;
• situations requiring a supplement to the prospectus to be published;
• requirements on the publication of the prospectus; and
• technical arrangements for the notification portal for passporting prospectuses.

ESMA has submitted the final draft RTS to the European Commission for endorsement.

View ESMA's final report.

The Financial Conduct Authority has published its Approach to Consumers alongside a discussion paper on the potential introduction of a new duty of care and possible alternative approaches. The Approach to Consumers forms part of a series of formal approach documents explaining the FCA's approach to regulation in more depth. It should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.

The Approach to Consumers sets out the FCA's approach to regulating for retail customers. The document sets out the FCA's vision for well-functioning markets that work for consumers, the relevant regulatory and legal framework, when and how the regulator will act to protect consumers, the FCA's policy position on key issues and its strategy for ensuring that its consumer protection objective is advanced with the greatest impact.

Read more.

The Bank of England's Working Group on Risk-Free Reference Rates has launched a consultation on term reference rates for the Sterling Overnight Index Average.

The Working Group is tasked with facilitating the transition across sterling bond, loan and derivatives markets from the use of sterling LIBOR to the use of SONIA. The Working Group notes that SONIA is an overnight rate, while LIBOR is commonly referenced in longer tenors of three or six months. Some end-users in loan and debt capital markets have reported that term rates are essential for their business needs.

Read more.

A draft of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force on the day the U.K. withdraws from the EU.

The draft Regulations have been prepared using the power under the European Union (Withdrawal) Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the withdrawal of the U.K. from the EU. The draft Regulations make amendments to various U.K. primary and secondary legislation that relate to building societies. The amendments remove references to EEA countries and territories, EU directives and EU member states that will no longer be appropriate following the U.K.'s withdrawal. In addition, the amendments remove provisions that provide reciprocal treatment to borrowers whose loans are secured on land in an EEA state and to bodies incorporated in an EEA state.

Read more.

The European Securities and Markets Authority has published final draft technical standards under the Securitization Regulation (also known as the STS Regulation). Among other things, the Securitization Regulation, which will apply directly across the EU from January 1, 2019, provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations. The Securitisation Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The Securitization Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

ESMA is mandated under the Securitization Regulation to develop Regulatory Technical Standards and Implementing Technical Standards on these elements. ESMA consulted on proposed draft Technical Standards in December 2017.

Read more.

A revised draft of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force the day after the day on which they are made.

The draft Regulations, which include some changes to the original draft published in April 2018, among other things empower the Bank of England, the Financial Conduct Authority, the Prudential Regulation Authority and the Payment Systems Regulator to make EU Exit instruments and to make any necessary amendments to the Regulatory Technical Standards and Implementing Technical Standards that comprise "level 2" of the EU financial services legislation that will be onshored (that is, converted into U.K. law) on the U.K.'s withdrawal from the EU. A schedule to the draft Regulations sets out a full list of technical standards that will be onshored and allocates responsibility for making EU Exit instruments to one or more of the regulators.

The draft Regulations have been prepared under the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.

View the draft Regulations.

View the draft explanatory memorandum.

View details of the proposed approach to onshoring EU legislation.

View details of the EU (Withdrawal) Act 2018.

The U.K. Financial Conduct Authority has published an Interim report as part of its market study to ascertain whether competition between investment platforms is working in the interests of consumers. The FCA launched the investment platforms market study in July 2017 after potential competition issues in the sector were highlighted in the course of its asset management market study, on which it issued its final report in June 2017.

The FCA has been assessing competition in the sector by exploring a range of areas, namely: barriers to entry and expansion; business models; platform profitability; the impact of financial advisers; and consumer preferences and behaviour. Noting the increasing vertical integration in the sector, the FCA has also been examining commercial relationships between platforms, asset managers, discretionary investment managers and financial advisers.

The FCA has found that the market appears largely to be working well for both advised and non-advised consumers and that customer satisfaction is currently high. However, the FCA has found that there are some customers for whom the market is not working as well as it should. The interim report highlights the issues the FCA has identified and consults on proposed remedies. The report is supported by eight annexes covering elements of the FCA's research and findings so far.

Read more.

The Financial Stability Board has issued a report to the G20 providing an overview of its current work on crypto-assets and that of the international standard setters, namely the Committee on Payments and Market Infrastructures, the International Organization of Securities Commissions and the Basel Committee on Banking Supervision. The G20 Ministers of Finance and Central Bank Governors issued a communiqué in March 2018 stating that they were concerned that crypto-assets raise a number of problematic issues in the contexts of consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. The G20 highlighted that crypto-assets may also have implications for financial stability and called on the FSB to provide a report on ongoing work by July 2018.

Read more.

The General Court of the European Union has annulled decisions of the European Central Bank, refusing to allow six French banks to exclude from the calculation of the leverage ratio certain exposures connected to French savings accounts. Banque Postale, BPCE, Confédération Nationale du Crédit Mutual, Société Générale, Crédit Agricole and BNP Paribas applied to the ECB, as their direct prudential supervisor under the Single Supervisory Mechanism, for permission to exclude exposures consisting of sums in a number of savings accounts taken out with them and transferred to the Caisse des Dépôts et Consignations, a French public investment vehicle. National regulators and the ECB have discretion to allow banks to exclude exposures that satisfy a number of conditions from the calculation of the leverage ratio under the Capital Requirements Regulation.

Read more.

A Commission Delegated Regulation amending and supplementing the European Money Market Funds Regulation has been published in the Official Journal of the European Union. The MMF Regulation, which applies directly across the EU from July 21, 2018, allows MMFs to invest in securitizations or asset-backed commercial paper and incentivizes the investment in simple, transparent and standardized securitizations. The Delegated Regulation amends the MMF Regulation (or MMFR) by applying the requirements for STS securitizations provided for in the Securitization Regulation (also known as the STS Regulation).

The MMF Regulation also allows an MMF to enter into a reverse repurchase agreement provided that certain conditions are met. The assets received by the MMF under that agreement must be money market instruments that meet certain requirements. A derogation from those requirements provides that an MMF may also receive instruments that are either: (i) issued or guaranteed by the EU, a central authority or central bank of a Member State, the European Central Bank, the European Investment Bank, the European Stability Mechanism or the European Financial Stability Facility; or (ii) issued or guaranteed by a central authority or central bank of a third country. The Delegated Regulation supplements the MMF Regulation by providing the quantitative and qualitative liquidity requirements for the assets that an MMF receives under a reverse repurchase agreement where the derogation is being used.

Read more.

The European Securities and Markets Authority has launched a consultation on proposed amendments to the Regulatory Technical Standards (Commission Delegated Regulation (EU) 2017/588, also known as RTS 11) providing for the tick size regime under the Markets in Financial Instruments package, known as MiFID II. The tick size regime subjects orders in shares and depositary receipts to minimum tick sizes that are determined according to both the: (i) average daily number of transactions on the most relevant market in terms of liquidity; and (ii) price of the order. RTS 11 calibrates the minimum tick size based on the most liquid market in the EU, without any consideration being given to the liquidity on non-EU trading venues. The result is that EU trading venues have experienced a drop in market share in third-country financial instruments since January 3, 2018 when MiFID II came into effect. The trading venues have highlighted that the decrease in market share is because the RTS 11 methodology requires them to have in place larger price increments than those of their third-country competitor trading venues.

Read more.

The European Commission has adopted a series of Commission Delegated Regulations comprising all of the Regulatory Technical Standards to supplement the EU Benchmarks Regulation. The Benchmark Regulation, which took effect across the EU in January 2018, sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks. The RTS outline the behaviors and standards expected of administrators of and contributors to benchmarks. The RTS adopted by the Commission are based on draft RTS prepared by the European Securities and Markets Authority in March 2017.

The European Parliament and the Council of the European Union will now have three months in which to raise any objections to the Delegated Regulations. The Delegated Regulations will take effect 20 days after their publication in the Official Journal of the European Union.

Read more. 

The European Commission has adopted an Amending Regulation to make amendments to an existing Delegated Regulation (Regulation (EU) 2015/61) supplementing the Capital Requirements Regulation. The existing Delegated Regulation sets out detailed requirements on the Liquidity Coverage Requirement and specifies which assets are to be considered as liquid (so-called high quality liquid assets) and how the expected cash outflows and inflows over a 30-day stressed period are to be calculated.

The European Commission consulted on a draft of the Amending Regulation between January and February 2018. The Amending Regulation makes changes to the existing Delegated Regulation with the objective of improving its practical application, relating to:

• full alignment of the calculation of the expected liquidity outflows and inflows on repurchase agreements, reverse repurchase agreements and collateral swaps transactions with the international liquidity standard developed by the Basel Committee on Banking Supervision;
• treatment of certain reserves held with third-country central banks;
• waiver of the minimum issue size for certain non-EU liquid assets;
• the application of the unwind mechanism for the calculation of the liquidity buffer; and
• integration in the existing Delegated Regulation of the new criteria for simple, transparent and standardized securitizations.

Read more. 

The European Securities and Markets Authority has published a consultation paper on its draft technical advice to the European Commission on the minimum information content of documents provided for the purpose of describing a takeover, merger or division. ESMA was mandated by the Commission in February 2017 to provide it with technical advice for the circumstance where, under the Prospectus Regulation, issuers can benefit from an exemption to the requirement to supply a prospectus when they offer or admit securities connected with a takeover, merger or division. Issuers may, as an alternative to a prospectus, make available to investors an alternative document, which describes the transaction and its impact on the issuer.

ESMA's technical advice sets out the minimum information content of documents describing a merger, division or takeover which is necessary for an exemption from the obligation to publish a prospectus. ESMA invites comments on a range of questions on the content of the following sections of such "exempted documents": (i) operative provisions and definitions; (ii) Minimum Information Content Simplified Disclosure Regime for the Issuer; (iii) the Minimum Information Content Securities; (iv) the Minimum Information Content Description and Impact of Takeover, Merger and Division.

The consultation on the draft technical advice closes on October 5, 2018. ESMA expects to publish its final report on its technical advice in Q1 2019.

View the consultation.

The European Securities and Markets Authority has published a consultation paper setting out draft guidelines for national regulators on risk factors under the Prospectus Regulation. ESMA has prepared the draft guidelines following a mandate from the European Commission to assist national regulators in their review of the specificity and materiality of risk factors within prospectuses and of the presentation of risk factors across categories depending on their nature.

The draft guidelines cover: (i) specificity; (ii) materiality; (iii) corroboration of the materiality and specificity; (iv) presentation of risk factors across categories; (v) focused/concise risk factors; and (vi) risk factors in the summary.

Comments on the draft guidelines are invited by October 5, 2018.

View the consultation paper.

The European Commission has adopted revisions to the Delegated Regulations on the safekeeping duties of depositaries under both the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive. The Commission consulted on the proposed changes between May 29 and June 26, 2018. Following feedback received during that consultation the Commission has agreed to defer the date from which the revisions will apply to 18 months after publication in the Official Journal of the European Union. It had been proposed that the revisions would apply from six months of publication. In addition, the Commission has made certain changes to the text to improve the clarity of the requirements without introducing any further substantive changes.

The adopted Delegated Regulations are subject to review by the European Parliament and the Council of the European Union. If there is no objection from either of those bodies, the revised Delegated Regulations should apply directly across the EU from Spring 2020.

View the amending Delegated Regulation under AIFMD.

View the amending Delegated Regulation under UCITS.

View details of the proposed revisions to the Delegated Regulations.

A U.K. Order, the Financial Services (Banking Reform) Act 2013 (Commencement No. 1) (England and Wales) Order 2018, has been made. The Order brings into force, from July 13, 2018, the provisions in the Financial Services (Banking Reform) Act 2013 relating to the special administration regime for operators of financial market infrastructures. Relevant FMIs are operators of recognized payment systems, excluding recognized CCPs (which are already subject to the Banking Act resolution regime in the U.K.) and recognized central securities depositories operating a securities settlement system.

Read more.

The European Securities and Markets Authority has issued a public statement urging U.K.-based financial institutions to prepare for a hard Brexit. In particular, ESMA states that firms wishing to continue providing services across the EU after the U.K. has exited the EU must make timely applications for authorization to the relevant national regulators in the EU member state in which the firm wants to relocate its business. ESMA notes that it has seen an increase in applications being made and highlights that some national regulators have stipulated that applications needed to be received in June/July 2018 for approval to be granted in time.

View ESMA's statement.

The U.K. Prudential Regulation Authority has published a statement on Systemic Risk Buffers and Pillar 2A in stress test hurdle rates. The Bank of England announced in its March 2018 Key Elements of the 2018 Stress Test that it would be making four changes to the way hurdle rates are calculated. Hurdle rates are the level that a firm's capital ratio falls to during a stress scenario relative to the level of capital a firm is expected to maintain during the scenario. The PRA's statement provides details on two of the ways in which hurdle rates will change: (i) hurdle rates will incorporate buffers to capture domestic systemic importance, in addition to global systemic importance; and (ii) the calculation of minimum capital requirements (incorporated in the hurdle rates) will more accurately reflect how they would evolve in a real stress scenario.

The PRA has not commented on when further details of the other changes to hurdle rates will be published. The BoE expects to publish the results of the stress test in Q4 2018.

View the statement.

View details of the Key Elements of the 2018 stress test.

The International Swaps and Derivatives Association has launched a consultation in which it proposes to amend its standard documentation to implement fall-backs based on alternative risk-free rates for certain key Interbank Offered Rates - GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW. ISDA states that the back-ups will apply if the relevant IBOR is permanently discontinued, based on defined triggers.

ISDA is seeking feedback on the approach to address certain technical issues arising from the necessary adjustments that will apply to the RFRs if the fall backs are triggered.

ISDA intends to consult on the technical issues for these changes for derivatives referencing USD LIBOR, EUR LIBOR and EURIBOR at a later date. It requests preliminary feedback on the technical issues associated with fall-backs for these benchmarks in this consultation.

Responses to the consultation should be submitted by October 12, 2018. ISDA will determine which approach to adopt based on the feedback and will publish the final approach for review and comment before implementing any changes to the ISDA standard documentation.

The FSB issued a statement on the same day welcoming ISDA's consultation and encouraging market participants to respond to the proposals.

View ISDA's consultation.

View details of the FSB's statement. 

The Financial Stability Board has published a statement welcoming the consultation by the International Swaps and Derivatives Association on fall backs based on overnight risk-free rates for certain derivative contracts. The statement has been issued to provide market participants with the FSB's views ahead of the consultation by ISDA. The FSB's view is that overnight RFRs are more robust than interbank or term rates because they are based on active and liquid underlying markets. Overnight RFRs are considered by the FSB to be a better choice than term rates for markets where participants do not need forward-looking term rates. The FSB stated that for those markets where the IBOR may cease, citing the example of LIBOR, a transition to new reference rates will be crucial. The FSB acknowledges the work to reform some IBORS excluding LIBOR. It is therefore unclear whether the FSB has factored in the recently announced changes to LIBOR methodology in making this assessment and reaching these conclusions.

Read more. 

The U.K. Government has published a White Paper setting out its approach and proposals for a future relationship between the U.K. and the EU. The Government is proposing new economic and regulatory arrangements for financial services that would give both the EU and the U.K. autonomy over decisions regarding access to its market. The Government acknowledges that both the EU and the U.K. will want to legislate for their own interests to take account of the differences in the EU and U.K. markets, business models as well as financial stability exposures.

The Government does not intend to replicate the existing EU passporting regime, which is reserved for countries falling within the single market. Instead, the Government intends that the new arrangements would be based on an enhanced equivalence regime that would enable the cross-border provision of the most important financial services and would preserve regulatory and supervisory cooperation. The Government states that the existing equivalence frameworks would need to be expanded, because the EU's equivalence regime does not cover the breadth of U.K. and EU financial services provision and because there are no provisions which ensure a transparent and predictable process with lasting effect.

Read more. 

The U.S. Federal Deposit Insurance Corporation announced updates to four of its interagency forms: (i) the Biographical and Financial Report (OMB Control Number 3064-0006); (ii) the Bank Merger Act Application (OMB Control Number 3064-0015); (iii) the Notice of Change in Control form (OMB Control Number 3064-0019); and (iv) the Notice of Change in Director or Senior Executive Officer form (OMB Control Number 3064-0097).  The U.S. Board of Governors of the Federal Reserve System also published updated versions of these forms (FR 2081c, FR 2070, FR 2081a and FR 2081b, respectively) to its website on July 11, 2018.  The FDIC announcement notes that these updates are based upon the comments and recommendations of an interagency working group, comprised of representatives from the FDIC, the Federal Reserve Board and the U.S. Office of the Comptroller of the Currency.  The changes to the forms were made  to improve the clarity of the specific information requested in the forms, provide additional transparency to financial institutions completing the forms, make changes to reflect new laws, regulations, capital requirements and accounting rules and to delete information requests that have been determined to be unnecessary.  The changes to the FDIC forms are effective immediately.

View full text of the FDIC Financial Institution Letter.

The European Securities and Markets Authority has opened a consultation on the exemption from the clearing obligation for intragroup transactions with a third country group entity. There are three Regulatory Technical Standards made under the European Market Infrastructure Regulation that provide for the clearing obligation of interest rate derivatives and credit derivatives - the RTS on the clearing obligation for IRS denominated in G4 currencies, the RTS on the clearing obligation for IRS denominated in certain other currencies and the RTS on the clearing obligation for CDS. Each of the RTS also exempt from the clearing obligation intragroup derivative transactions that meet certain conditions where one of the counterparties is a third country group entity and there is no relevant equivalence decision. An equivalence decision enables parties subject to both the EU and a third country's clearing obligation to only comply with one jurisdiction's requirements.

Each of the RTS sets a different expiry date for the exemption period. These dates are:

• December 21, 2018 in the RTS on the clearing obligation for IRS denominated in G4 currencies (RTS 2015/2205);
• May 9, 2019 in the RTS on the clearing obligation for CDS (RTS 2015/592); and
• July 9, 2019 in the RTS on the clearing obligation for IRS denominated in certain other currencies (RTS 2016/1178).

ESMA is proposing to extend the exemption period by amending each of the RTS to have one unified expiry date of December 21, 2020.

Comments on the proposals should be provided by August 30, 2018. ESMA will consider the feedback in finalizing the draft amending RTS for submission to the European Commission.

View the consultation paper.

The FICC Markets Standards Board has launched a consultation on a transparency draft of a Statement of Good Practice on algorithmic trading in the wholesale fixed income, commodity and currency markets. The draft SGP forms part of the FMSB's work to build up a body of Standards and Statements of Good Practice to improve conduct and raise standards in the wholesale FICC markets. The FMSB Standards and SGPs do not impose legal or regulatory obligations on FMSB members, nor do they take the place of regulation. Instead, an SGP is intended to be considered to the extent it is possible to follow it in compliance with applicable laws.

For the purposes of the consultation paper, "algorithmic trading" is defined as trading in instruments where a computer algorithm, with limited or no human intervention, automatically determines individual parameters of orders, such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission.

Read more.

The U.K. Financial Conduct Authority has published a Policy Statement outlining the rule changes necessary to align its rulebook with the provisions of the EU Money Market Funds Regulation.

The FCA has made changes to amend, delete or disapply rules in its Handbook to MMFs to ensure those rules do not conflict with the MMFR. The regulator consulted on the proposed changes between January and March 2018. The amended rules apply from July 21, 2018 to new MMFs, including funds with substantially similar objectives to MMFs, once they are authorized as MMFs under the MMFR. Funds already operating as either MMFs or funds falling within the current definition of short-term money market funds in the FCA's rules will benefit from transitional provisions and will have until July 21, 2019 to apply for authorization under the MMFR.

The MMFR takes effect directly across the EU from July 21, 2018. The effect of the MMFR in the U.K. will be that authorized unit trusts, authorized contractual schemes, open-ended investment companies and alternative investment funds can all apply to be authorized as MMFs. As a directly applicable EU regulation, the MMFR does not require transposition into national law. However these changes have been made to ensure the U.K. rules are in line with EU laws and empower the FCA to authorize funds as MMFs, to levy fees and to enforce requirements under the MMFR.

View the Policy Statement (FCA PS 18/17).

View details of the FCA consultation on proposed Handbook changes.

View details of the U.K. implementing regulations for the MMFR.

Charles Randell, Chair of the Financial Conduct Authority and Payment Systems Regulator,delivered a speech on big data, regulation and data protection entitled, "How can we ensure that big data does not make us prisoners of technology?"

Discussing the risks associated with big data and artificial intelligence, Mr. Randell highlighted that in order to innovate ethically, thought needs to be given to the questions posed by big data, AI and behavioural science. In particular, the FCA Chair is concerned that technical innovation could increase social exclusion and reduce access to financial services if it was used, for example, to identify the most profitable or most risky customers.

Read more.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been made and comes into force on July 11, 2018. The Order amends the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The result of the amendment is that AFIBs, such as Sukuk, will be permitted to trade on multilateral trading facilities or organised trading facilities and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.

The amendment removes a glitch creating disparity of treatment between AFIBs and conventional bonds, which had created an obstacle to the use of U.K. venues for the issue and trading of AFIBs. This was contrary to the U.K. Government's standing commitment to provide a level playing field for Islamic finance instruments in regulation and taxation in the U.K.

Read more.

The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation published the public portions of the July 2018 resolution plans for four foreign banking organizations, which plans focus on the institutions’ U.S. operations.  The public sections of the resolution plans summarize certain elements of the plans and how the resolution plans would be executed.  The public portions of the resolution plans are published exactly as submitted by the institutions and are available on the Federal Reserve Board and FDIC websites.

View full text of the FDIC release.

View full text of Federal Reserve Board press release.

A Commission Delegated Regulation has been published in the Official Journal of the European Union, which supplements the Capital Requirements Regulation with Regulatory Technical Standards on the assessment methodology to be used by national regulators when deciding whether to permit institutions to use Advanced Measurement Approaches for operational risk. The RTS cover: (i) the qualitative and quantitative criteria that firms must meet before they are granted permission to use AMA models for calculating their capital requirements to cover operational risk; (ii) the criteria for the supervisory assessment of key methodological components of the operational risk measurement system; and (iii) common standards for the supervisory assessment of a bank’s operational risk governance.

The Delegated Regulation was made by the European Commission on March 14, 2018 and is based on final draft RTS submitted to the European Commission by the European Banking Authority in June 2015. The Delegated Regulation comes into effect across the EU on July 26, 2018. For institutions currently using AMA models or whose application to do so is pending, the Delegated Regulation will apply from July 26, 2019 and certain provisions related to correlation will not apply until July 26, 2020.

View the Commission Delegated Regulation (EU) 2018/959.

The Financial Action Task Force has published for consultation draft Risk-Based Approach Guidance for the securities sector. The FATF is developing the Guidance to assist countries, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering financing of terrorism. The draft Guidance aims to assist in the risk-based design and implementation of applicable AML/CFT measures by providing general guidelines and examples of current practices and facilitate the effective implementation and supervision of national AML/CFT measures by focusing on risks and on mitigation measures. The FATF is also hoping that the draft Guidance will aid the development of a common understanding of what the risk-based approach to AML/CFT entails in the context of the securities sector. The Guidance will not be binding once it is finalized. The draft Guidance should be read in conjunction with the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation and the 2009 Report on Money Laundering and Terrorist Financing.

Read more. 

The U.K. Financial Conduct Authority has updated its Approach Document on payment services and electronic money, to reflect final guidelines issued in December 2017 by the European Banking Authority on security measures for mitigating operational and security risks under the revised Payment Services Directive. The changes will affect all payment service providers. The FCA has also updated its webpage on reporting requirements for payment services providers and e-money issuers to reflect these changes. The webpage includes a link to the revised version of the FCA's REP018 (operational and security risk) reporting form.

The FCA will expect payment services providers to comply with the EBA guidelines, which cover issues such as operational and security risk management framework governance, the use of models, outsourcing and how functions, processes and assets should be identified, classified and risk-assessed. The EBA guidelines also cover security of data integrity, systems and confidentiality as well as physical security and asset control and communication of the security measures to payment service users. PSPs will be expected to report at least annually to the FCA on their operational and security risk management frameworks.

Read more.

The draft Business Contract Terms (Assignment of Receivables) Regulations 2018 have been laid before Parliament. The draft Regulations will invalidate terms in business contracts that prohibit or restrict the assignment of receivables, including terms that prevent the enforcement of a receivable. A receivable in this context is a right to be paid under a contract for the supply of goods, services or intangible assets. The Regulations will not apply if the person to whom the receivable is owed is a large enterprise or a special purpose vehicle.

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The U.S. Board of Governors of the Federal Reserve System published a notice of proposed service enhancement and request for comment with respect to adopting the International Organization for Standardization (ISO) 20022 message format for the Fedwire Funds Service.  The new format would replace the service’s current proprietary message format.  The proposal notes that the decision to implement the ISO 20022 message format standard is the result of a multi-year process, where the Federal Reserve Board and U.S. Federal Reserve Banks sought input from a number of stakeholders and industry participants, including The Clearing House Payments Company, which owns and operates the other main large-value payment system in the United States.  The Federal Reserve Banks have also performed extensive public outreach on this topic, including the formation of advisory groups, the distribution of customer surveys, and the preparation of educational materials regarding the ISO 20022 standard.  The proposal suggests that switching to the ISO 20022 standard may result in a number of benefits, including a richer and more structured message format, improved domestic and cross-border interoperability and the ability for financial institutions to provide additional services to customers.  The proposal notes that the implementation of the ISO 20022 standard will consist of three phases, with a target final implementation date of November 2023.  Comments to the proposal are due by September 4, 2018.

View full text of the FRB proposal.

The Basel Committee on Banking Supervision has published a revised methodology and the higher loss absorbency (HLA) requirement for the assessment of Global Systemically Important Banks. The revised framework updates and replaces the Basel Committee's July 2013 publication, "Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement."

The Basel Committee committed, on the introduction of the G-SIB framework, to review the framework every three years. It consulted on potential enhancements to the framework between March and June 2017. Following feedback to that consultation, the Basel Committee is proposing no changes to the fundamental structure of the G-SIB framework and states that it is generally recognized that the G-SIB framework is meeting its primary objective of requiring systemically important banks to hold higher capital buffers. The framework is also providing incentives for G-SIBs to reduce their systemic importance.

The proposed revisions to enhance the framework include a timetable for implementation. The revised assessment methodology will apply from 2021, based on end-2020 data. The corresponding HLA requirements based on the revised methodology will apply from January 1, 2023.

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The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation released statements regarding the implementation and impact of the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

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The Bank of England, the U.K. Prudential Regulation Authority and the U.K. Financial Conduct Authority have published a joint discussion paper entitled "Building the UK financial sector’s operational resilience." The Discussion Paper is aimed at opening a dialogue with the financial services industry on achieving what the Authorities view as a "step change" in the operational resilience of firms and Financial Market Infrastructures and at generating debate about the expectations regulators and the wider public might have of the operational resilience of financial services institutions.

While the existing regulatory framework already supports operational resilience, the BoE, PRA and FCA are together considering the extent to which they might supplement existing policies, to improve the resilience of the financial system as a whole and increase the focus on operational resilience within firms and FMIs.

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The U.K. Financial Authority has published Policy Statements confirming the rule changes it will apply to extend the application of the Senior Managers & Certification Regimes to all FCA solo-regulated firms (that is, firms for which the FCA is both conduct and prudential regulator). At this stage, the rules are near-final as they are subject to commencement regulations that will be made by HM Treasury and they may also be amended by subsequent changes related to, for example, Brexit or SM&CR optimizations. The FCA also plans to consult separately on rules for benchmark-related activities.

The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.

While insurance intermediaries, which are solo-regulated by the FCA, will fall within the FCA's new rules, the FCA and the Prudential Regulation Authority have separately published policy statements on the extension of the SM&CR to insurers.

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The U.K. Financial Conduct Authority and Prudential Regulation Authority have published Policy Statements confirming the near-final and final rule changes they will apply to extend the application of the Senior Managers & Certification Regimes to insurers. The Policy Statements do not make an changes to the prudential rules implementing Solvency II or to the wider U.K. regulatory framework for insurers.

The extended SM&CR will apply from December 10, 2018, subject to commencement regulations being made by HM Treasury. The SM&CR will apply to all insurers and reinsurers regulated by the FCA and the PRA. The Policy Statements will be of specific interest to Solvency II firms (that is, all firms within the scope of the U.K. rules implementing the Solvency II Directive), insurance special purpose vehicles (undertakings with permission to carry on the regulated activity of insurance risk transformation), insurers outside the scope of the Solvency II Directive (so-called Non-Directive Firms) and small run-off firms (all insurers with less than £25 million technical provisions that no longer have permission to write or acquire new business).

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The Financial Conduct Authority has published a consultation paper setting out proposals to introduce a new directory of financial services workers.

In the consultation paper, the FCA explains that one effect of the extension of the Senior Management and Certification Regimes to all financial services firms will be that the Financial Services Register will contain the details of fewer individuals. Currently the Financial Services Register contains details of individuals who have been approved by the FCA or PRA. This includes individuals in senior management roles, individuals approved to hold controlled functions and individuals who hold customer-facing roles. However, this will change following the extension of SM&CR to all firms, because Individuals in customer functions, for example, will need to be assessed as fit and proper by firms rather than being approved by the regulators. Only individuals in specified senior manager roles will be approved by the relevant regulators and entered on the Register.

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The Bank of England has published a Financial Stability Report, dated June 2018, and a record of the Financial Policy Committee Meeting held on June 19, 2018. The Report sets out the FPC's view of the U.K.'s financial stability, the resilience of the U.K.'s financial system and the risks posed to each of those. Where applicable, the Report also notes the steps that the FPC is taking to address the risks. The record of the meeting provides a summary of issues discussed by the FPC in June.

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The European Union (Withdrawal) Act 2018 (Commencement and Transitional Provisions) Regulations 2018 have been made. These Regulations are the first statutory instrument to be made under the EU (Withdrawal) Act 2018, which was made on June 26, 2018. The Regulations bring into force some of the provisions of the Act. The Act, which was also formerly referred to as the Great Repeal Bill, ensures that the U.K.'s laws will continue to operate from the day the U.K. exits the EU.

View the Regulations.

View details of the EU (Withdrawal) Act 2018.

The European Securities and Markets Authority has published a statement on the transitional exemption from the clearing obligation for pension scheme arrangements under the European Market Infrastructure Regulation and delegated regulations. Transitional provisions provide for PSAs to be exempt from the clearing obligation until August 16, 2018. There is no provision in EMIR that would allow for a further extension of this exemption period. It is proposed that this exemption will be further extended under the proposal to amend EMIR, known as EMIR Refit. The length of the extension is yet to be agreed as part of the EMIR Refit legislative process between the European Parliament (which advocates a two-year extension) and the Council of the European Union (which supports a three-year extension). Parliament is also proposing to backdate the application of the new transitional period to August 16, 2018 if EMIR Refit enters into force after the expiry of the existing exemption so as to prevent a gap between the two exemptions periods, providing legal certainty for PSAs and their counterparties.

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The U.K. Fixed Income, Currency and Commodities Markets Standards Board has published a new Standard on Risk Management Transactions for New Issuances for the Fixed Income markets.

The FMSB has created several Standards to improve conduct in the FICC markets since its establishment in 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the Financial Conduct Authority. FMSB members commit to applying the FMSB Standards but the Standards do not impose legal or regulatory obligations.

The new Standard describes expected behaviors to improve the practice and awareness regarding risk management activities conducted in and around the new issuance of bonds and includes 12 Core Principles. Following its consultation at the end of 2017 on the proposed Standard on Risk Management Transactions for New Issuances, the FMSB has made some minor changes, including providing more detail on the nature of the conduct risks and amending the Principle on dissemination of information (Core Principle 9).

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The European Central Bank has published a report on recovery plans. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. Under that remit, the ECB has analyzed the recovery plans of numerous Eurozone banks. The report sets out the ECB's experience of that process and best practices that have been adopted by some banks. The report is intended to assist Eurozone banks to improve their recovery planning, although the report itself is restricted to the recovery plans of significant institutions.

View the ECB's report.

Following its announcement in its 2018 Work Programme of its intention to withdraw 15 pending EU legislative proposals, the European Commission has announced the formal withdrawal of that legislation, which includes the 2014 Proposal for a Regulation on structural reform of the EU banking sector.

The original proposal built on the 2013 recommendations of a high level expert group on reforming the structure of EU banking sector, chaired by Bank of Finland Governor and European Central Bank Governing Council member Erkki Liikanen. For banks within its scope, the provisions of the proposed regulation would have imposed a ban on proprietary trading and would have empowered supervisors to require banks to ring-fence certain trading activities from a deposit-taking entity.

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