The European Central Bank has launched a consultation on a proposed Regulation on the materiality threshold for credit obligations past due under the Capital Requirements Regulation. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and must set the materiality threshold for these banks. The ECB must take into account the Regulatory Technical Standards on the materiality threshold for credit obligations past due that supplement the CRR requirements on the conditions for use of the internal ratings-based approach.

Read more.

The U.K. Prudential Regulation Authority has published a consultation paper entitled "UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer."

The Systemic Risk Buffer is one of the elements of the overall capital framework for U.K. banks and building societies. It is applied by the PRA to individual institutions and will be introduced at the same time that ring-fencing comes into force in 2019. SRB institutions are banks falling within the definition of Ring-fenced Bodies in the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits (where one or more of the accountholders is a small business) and shares (excluding deferred shares).

Read more.

The Financial Conduct Authority has published a press release confirming the acceptance of 29 firms to begin testing in the fourth cohort of its regulatory sandbox.

The FCA's regulatory sandbox is part of Project Innovate, the FCA's initiative for encouraging innovation in the interest of consumers. On its launch in June 2016, the FCA sandbox was the first in the world and has since been emulated by regulators globally. The sandbox is open to authorized and unauthorized firms of all sizes and provides a controlled live environment for participating firms to test product and service innovations on a time-limited basis. Applicants to the sandbox must satisfy strict eligibility criteria to be able to test in the sandbox and testing is subject to appropriate safeguards for consumer protection which are set on a case-by-case basis. Cohort 4 had 69 applicants, which is the largest number of applicants to date.

Read more.

Following the publication of its FinTech Roadmap in March 2018, the European Banking Authority has published two reports contemplated by the Roadmap.

The first report sets out the results of a thematic review of the impact of FinTech on the business models of incumbent credit institutions. The second report outlines the perceived benefits and potential prudential risks of seven FinTech use cases.

The EBA has also established a FinTech Knowledge Hub for the sharing of information and experience and promotion of emerging trends among EU national regulators.

Read more.

The U.K. Competition and Markets Authority has published a notice of intention to operate a confidentiality ring, following publication of the Provisional Decision Report on the Investment Consultants Market Investigation. The CMA is assessing the supply and acquisition of investment consultancy services and fiduciary management services. As part of the investigation, the CMA has received information and/or data from a number of parties. This data has been used by the CMA in the investigation, in particular in preparing the Provisional Decision Report, which will be published in mid-July 2018. The notice:

• provides a description of the data that has been used;
• sets the timing of the confidentiality ring - from 9.30 am on the date of publication of the Provisional Decision Report until 5 pm on the date five weeks thereafter; and
• stipulates the access conditions under the confidentiality ring, including completion of an undertaking by those wishing to access the confidentiality ring, the form of which is set out in an annex.

View the CMA's notice.

View the form of undertaking.

The Payment Systems Regulator and the New Payment System Operator have issued press releases confirming that the consolidation of U.K. retail payment systems is now complete. Consolidation of the three U.K. payment systems was one of the recommendations made in the Payments Strategy Forum's November 2016 report, which set out a wide-ranging strategy for reforming the U.K. retail payments industry.

The NPSO assumed responsibility for Bacs Payment Schemes Limited and Faster Payments Scheme Ltd on May 1, 2018. The NPSO's press release confirms that, as of July 1, 2018, the Cheque and Credit Clearing Company Limited has become a subsidiary of the NPSO and the NPSO has assumed responsibility for oversight of running and managing the cheque paper and cheque image clearing systems. All payments will continue to be processed through the cheque clearing systems. The NPSO has also acquired UK Payments Administration Ltd, which is the service company responsible for providing people, facilities and business services to the U.K. payments industry.

Read more.

As part of its work on the protection of financial stability against the malicious use of information and communication technologies, the Financial Stability Board has published a draft cyber lexicon for consultation.

In March 2017, the FSB was asked by the G20 Finance Ministers to review and produce a stock-take report on the existing regulation, supervisory practices and guidance on cyber security in the financial sectors of G20 jurisdictions. The G20 welcomed the FSB's stock-take report in October 2017 and asked the FSB to continue its work and to develop a common lexicon of cyber terms.

The FSB stresses that the lexicon is not intended for use in the legal interpretation of any international arrangement or agreement or any private contract. The use of the cyber lexicon will not be mandatory. Its purpose is to support the work of the FSB, standard-setting bodies, national authorities and private sector participants to address, and develop guidance on, cyber security and cyber resilience in the financial sector. In particular, the aim of the cyber lexicon is to create a cross-sector common understanding of relevant cyber security and cyber resilience terminology and to facilitate assessment and monitoring of financial stability risks in cyber risk scenarios.

Read more.

The U.S. Federal Reserve Board and FDIC have announced that they were extending the filing deadline for the resolution plans of 14 U.S. financial institutions to December 31, 2019. The agencies note that the deadline was extended to allow for additional time to provide feedback to these institutions with respect to their last resolution plan submissions and for the institutions to file their next resolution plan submissions. The agencies also reiterated that, pursuant to the Economic Growth, Regulatory Reform, and Consumer Protection Act, financial institutions with less than $100 billion in total consolidated assets are no longer subject to resolution plan requirements, and that over the course of the next 18 months, the agencies will determine which financial institutions with $100 billion or more, but less than $250 billion in total consolidated assets will be subject to the resolution plan process going forward.

View the FDIC  press release.

View the Federal Reserve press release. 

The Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018, dated June 27, 2018, have been laid before Parliament. The U.K. Regulations will come into force on July 21, 2018, implementing parts of the Prospectus Regulation that will apply from that date. The Prospectus Regulation will replace the existing Prospectus Directive and sets out the requirements for a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The Prospectus Regulation aims to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions. The remainder of its provisions take effect on July 21, 2019.

U.K. law is not needed to transpose the Prospectus Regulation, which will be directly applicable across the EU. However, certain U.K. legislation will need to be amended to ensure that there is no conflict of laws. The U.K. Regulations amend the Financial Services and Markets Act by increasing the threshold, from €5 million to €8 million, for which a prospectus is required for an offer of securities to the public within the U.K. The U.K. Regulations also amend the U.K. legislation that implemented the Markets in Financial Instruments Directive, including by correcting the definition of a MiFID investment firm.

View the U.K. Regulations (S.I. 2018/786).

View the explanatory memorandum.

The European Banking Authority has published amended draft Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk under the EU Capital Requirements Directive. The EBA consulted on proposed changes to the ITS in Q4 2017 and Q1 2018.

The amended ITS include all the portfolios that will be used for the 2019 benchmarking exercise, provided that the amended ITS are adopted by the European Commission. For market risk benchmarking, major changes have been made to the portfolios, including the introduction of a new set of portfolios comprising vanilla instruments. Minor changes have been made to the credit risk portfolios including changes to the information requested from firms.

Regarding the 2018 benchmarking exercise, the EBA has confirmed that firms do not have to resubmit the same data as a result of the difference between the submission dates in the draft ITS published by the EBA and the final ITS published on May 18, 2018 in the Official Journal of the European Union.

View the amended ITS.

View details of the EBA's consultation on amending the ITS.

The U.S. Board of Governors of the Federal Reserve System and U.S. Federal Deposit Insurance Corporation have published revised resolution plan (or "living wills") guidance for the eight largest and most complex U.S. banking institutions. The proposed guidance would be applicable to resolution plans submitted beginning in 2019. The proposed guidance is largely based upon, and consistent with, prior guidance issued by the Federal Reserve Board and FDIC in 2016 - through the publication of Guidance for 2017 §165(d) Annual Resolution Plan Submissions by Domestic Covered Companies that Submitted Resolution Plans in July 2015 - and has been informed by, and updated as a result of, Federal Reserve Board and FDIC review of recent resolution plan submissions by these institutions. Consistent with prior guidance published by the Federal Reserve Board and FDIC, the proposed guidance is organized into six substantive areas: (1) Capital; (2) Liquidity; (3) Governance Mechanisms; (4) Operational; (5) Legal Entity Rationalization and Separability; and (6) Derivatives and Trading Activities. The proposed guidance includes updates to the Derivatives and Trading Activities and Operational: Payment, Clearing, and Settlement Activities Sections, and makes other clarifying changes. The changes and updates are intended, in part, to help streamline submissions by these institutions and to provide additional clarity with respect to the process. Comments to the proposed guidance will be due 60 days from its publication in the Federal Register.

View the full text of the proposal.

The U.K. Prudential Regulation Authority has published a "Dear CEO" letter, addressed to the Chief Executive Officers of banks, insurance companies and designated investment firms. The purpose of the letter is to remind firms of their relevant obligations under the PRA rules and to communicate the PRA's expectations regarding firms' exposures to crypto-assets.

Crypto-assets have exhibited high price volatility and relative illiquidity and may also be vulnerable to fraud and manipulation, which raises concerns about potential misconduct and poses issues for market integrity. The PRA's letter does not define crypto-assets, but the Financial Conduct Authority uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. The FCA recently published a "Dear CEO" letter outlining best practice for firms in handling the financial crime risks that crypto-assets can pose.

Read more.

Following a consultation in October 2017, which closed on January 4, 2018, the U.K. Prudential Regulation Authority has published a Policy Statement on changes to its large exposures framework.

The Policy Statement sets out the PRA's feedback on the responses received to its consultation. Respondents were largely supportive of the proposals. The PRA is implementing its proposals largely as consulted on, with only minor changes. The Policy Statement outlines the changes as follows:

(i) Changes to the relevant part of the PRA Rulebook on large exposures and regulatory reporting - the text of the changes is set out in a PRA Rulebook Instrument, "CRR Firms: Large Exposures Amendment Instrument".

(ii) An update to the PRA's supervisory statement on large exposures (SS16/13) to reflect the PRA's expectations on the resolution exemption and to provide additional guidance to firms on Core UK Group and Non-core Large Exposures Group permissions.

(iii) An update to the PRA's supervisory statement, Guidelines for completing regulatory reports (SS34/15), to remove the requirement to submit the UK integrated groups - large exposures data item (FSA018).

Read more.

The U.S. Board of Governors of the Federal Reserve System announced the results of this year's Comprehensive Capital Analysis and Review process. This year, 35 financial institutions participated in the CCAR process. The CCAR process consists of a quantitative assessment, which evaluates an institution's capital adequacy and planned capital distributions against its ability to continue operating and lending throughout times of economic and financial market stress. In addition to the quantitative analysis, institutions that are designated "large and complex firms" or supervised by the Large Institution Supervision Coordinating Committee are subject to a qualitative assessment, which evaluates the reliability of each institution's analyses and other processes for capital planning. Of the 35 institutions that participated, 18 were subject to both quantitative and qualitative assessments, while the remaining 17 were only subject to the quantitative assessment. In connection with the CCAR process, the Federal Reserve Board objected to the capital plan of one institution due to qualitative concerns. Two institutions were issued a conditional no-objection to their capital plans and will be required to maintain their capital distributions at the levels paid by these institutions in recent years. A third institution was issued a conditional no-objection to its capital plan, subject to the institution "taking certain steps regarding the management and analysis of its counterparty exposures under stress."

View the full text of the 2018 CCAR results.

The U.S. Office of the Comptroller of the Currency has announced updates to a number of supervision booklets, including the "Bank Supervision Process," "Community Bank Supervision," "Compliance Management Systems" and "Large Bank Supervision" booklets of the Comptroller's Handbook, and the "Federal Branches and Agencies Supervision" booklet. The updated booklets replace previously issued booklets of the same titles. The OCC also provided a table of previously issued bulletins and publications that have been rescinded and incorporated into the updated booklets. At a high level, the revisions and updates clarify the applicability of the booklets for financial institutions of differing size; add content with respect to asset management, including assessing Bank Secrecy Act, anti-money laundering and Office of Foreign Assets Control compliance; incorporate aspects of the Dodd-Frank Act; make technical corrections, including clarified terminology and to reflect the integration of the Office of Thrift Supervision into the OCC; include revised concepts and references; and incorporate references to OCC issuances published since each booklet's last publication date.

View the full text of the OCC press release and revised booklets.

The European Money Markets Institute has published a feedback summary report on its March 2018 consultation on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

EMMI consulted on: (i) introducing a three-level "hybrid" methodology for calculating Euribor; (ii) producing an overnight tenor for Euribor following the implementation of the hybrid methodology; (iii) discontinuing the calculation of three of the eight tenors; (iv) clarifying Euribor's underlying interest; (v) ceasing the publication of individual Panel Banks' submissions; and (vi) simplifying the publication process.

Read more.

The Commodity Futures Trading Commission has proposed to simplify its standards for a self-regulatory organization's financial surveillance program for futures commission merchants. The proposed amendments result from the CFTC's Project KISS initiative to simplify and modernize the Commission's regulations.

Under CFTC Regulation 1.52, a third-party examinations expert is required to evaluate an SRO's FCM supervisory program and the application of the program at least once every three years. The proposed amendments would narrow the scope of this evaluation to only consider whether the SRO's FCM examination standards are consistent with auditing standards issued by the Public Company Accounting Oversight Board. The proposal would also reduce the frequency of reviews by an examination expert, to once every five years or after the issuance of new or amended audit standards by the PCAOB that require material changes to the SRO's FCM examination standards.

Comments on the proposed amendments are due September 4, 2018.

View the CFTC’s press release.

View the proposed amendments.

The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission have approved a new Memorandum of Understanding between the two agencies. The MOU, which updates and enhances an MOU approved by the agencies in 2008, is aimed at fostering cooperation and information sharing in order to harmonize joint rulemakings mandated under Title VII of Dodd-Frank, which governs the regulation of swaps and security-based swaps.

The MOU outlines several measures intended to increase coordination. These include holding inter-agency meetings and consultations to enhance coordination and cooperation, sharing information relating to firms registered with both agencies and specific incidents that are of common regulatory interest to both agencies, and informing the other agency in advance of developments that may impact its regulatory interests.

CFTC Chairman J. Christopher Giancarlo said the MOU will enhance the agencies' "oversight efforts and reduce unnecessary complexity, and lessen costs on both regulators and market participants," and SEC Chairman Jay Clayton added that the agreement will support a "coherent and coordinated approach to regulation."

The MOU will become effective on the date of its signing and will remain effective unless terminated by either agency. Revisions and modifications may be made upon agreement or as required by changes in law.

View the joint press release.

View the MOU.

Following the enactment of the European Union (Withdrawal) Act 2018, HM Treasury has set out its approach to "onshoring" EU financial services legislation under the Act. The Bank of England, the Financial Conduct Authority and the Payment Systems Regulator have each also issued statements on their respective roles in preparing for the U.K.'s withdrawal from the EU.

Read more.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the importance of the promotion of global financial stability at the Utah Bankers Association 110th Annual Convention. Vice Chairman Quarles began by discussing financial stability in the United States, noting that the implementation of post-financial crisis reform is largely complete and is now in the process of being reviewed and revised to promote efficiency and efficacy. Vice Chairman Quarles also noted how this review and revision process is easing the regulatory burden on community and regional banks, through reforms such as the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act, the Bank Exams Tailored to Risk program and the implementation of a new streamlined Call Report form in 2017. With respect to global financial stability, Vice Chairman Quarles discussed the role of the Financial Stability Board, explaining that the FSB helps to improve access to information on an international scale and promote minimum standards in areas such as resolution planning. Vice Chairman Quarles also highlighted that while the FSB may set international regulatory standards, it has no enforcement powers and no legal authority to direct its members to act. Instead, the FSB promotes effective dialogue by functioning by consensus, which allows international stakeholders to have meaningful input in the decisions that are made.

View the full text of Vice Chairman Quarles's speech.

The U.K. Financial Conduct Authority has published a Progress Report on its Strategic Review of Retail Banking Business Models. The FCA launched the Review in April 2017 and published a purpose and scope document in October 2017. The FCA is conducting the Review to gain a picture of how profits are generated by the sector, of the relative competitive advantages and disadvantages of different business models and of barriers to entry and expansion. The Review covers retail banking services to personal and small business customers. It focuses on the products and services that are used on a regular basis by large numbers of consumers and small businesses. This includes current accounts, savings products, mortgages, personal loans, credit cards, and business finance.

The FCA explains that its early analysis indicates that a key component of the competitive advantage enjoyed by retail banks to date has been the combination of personal current accounts and large branch networks. This combination has brought a number of benefits including a funding cost advantage (from personal current accounts paying zero interest or lower interest than other providers), significant additional income from fees and charges on personal current accounts (including overdrafts), the opportunity to cross-sell lending products to personal current account holders and the ability to cross-sell business accounts and associated business savings balances.

Read more.

The EU (Withdrawal) Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the EU (Withdrawal) Act 2018. The Act, which was also formerly referred to as the Great Repeal Bill, is necessary to ensure that the U.K.'s laws continue to operate from the day the U.K. exits the EU.

From the date of the U.K.'s exit from the EU, the Act will (i) end the supremacy of EU law in U.K. law by repealing the European Communities Act 1972; (ii) convert EU law as it stands at the moment of exit into domestic law before the U.K. leaves the EU; and (iii) maintain the current scope of devolved decision making powers in areas currently governed by EU law.

The Act also creates powers to make secondary legislation, including temporary powers to enable corrections to be made to the laws that would otherwise no longer operate appropriately once the U.K. has left the EU and to implement the withdrawal agreement under Article 50 of the Treaty on European Union. The Government will now start work to begin laying before Parliament the expected 800 pieces of secondary legislation that will be required to prepare the U.K.'s statute book for EU withdrawal.

Read more.

The European Banking Authority has published an Opinion on preparations for the withdrawal of the U.K. from the EU. The Opinion is addressed to EU national regulators and regulators in the European Free Trade Area States (Norway, Liechtenstein and Iceland), the European Central Bank and the Single Resolution Board. The Opinion concerns the activities of financial institutions in the context of preparing for the U.K.'s withdrawal. Financial Institutions comprise credit institutions, investment firms, payment service providers, electronic money institutions, creditors and credit intermediaries.

The purpose of the Opinion is to encourage national regulators to ensure that financial institutions are adequately considering the risks that arise from the possible departure of the U.K. from the EU in March 2019 without a ratified withdrawal agreement in place (a so-called "hard" Brexit). The EBA also seeks to ensure that national regulators draw the attention of financial institutions to their consumer protection obligations should that eventuality occur.

Read more.

The European Securities and Markets Authority has published an Opinion on the liquidity risk assessment that a CCP must undertake under the European Market Infrastructure Regulation. The Opinion is addressed to national regulators that supervise CCPs.

EMIR requires a CCP to measure its potential liquidity needs on a daily basis and to ensure that it has access at all times to adequate liquidity to perform its services and activities. A CCP must, therefore, ensure it has access to credit lines or other arrangements with liquidity providers in case the financial resources at its disposal are not immediately available. In measuring its liquidity needs, a CCP is required to take into account the liquidity risk generated by the default of at least the two clearing members to which it has its largest exposures (the liquidity risk "Cover-2" test). EMIR and related delegated legislation provide detail on how a CCP should assess the liquidity risk arising from each of its relationships with its clearing members and its liquidity providers.

Read more.

The European Banking Authority has launched a consultation on draft Guidelines on outsourcing arrangements. The proposed Guidelines are intended to update and replace the outsourcing guidelines issued in 2006 (by the EBA's predecessor, the Committee of European Banking Supervisors) that applied to outsourcing by credit institutions. The proposed Guidelines will have a wider scope, applying to all financial institutions that are within the scope of the EBA's mandate, namely credit institutions and investment firms subject to the Capital Requirements Directive, payment institutions and electronic money institutions. The proposed Guidelines also integrate the recommendation on outsourcing to cloud service providers that was published by the EBA in December 2017.

The proposed Guidelines set out a definition of outsourcing in line with delegated legislation under the revised Markets in Financial Instruments Directive. They cover: (i) proportionality and group application; (ii) the nature of outsourcing arrangements; (iii) the applicable governance framework; (iv) the outsourcing process; and (v) guidelines on outsourcing addressed to competent authorities. A separate Annex provides an illustrative template that could be used for complying with the requirement in the proposed Guidelines to maintain a register of all outsourcing arrangements at institution and group level where applicable.

Read more.

Following the publication by the European Banking Authority of an Opinion and draft Guidelines on Regulatory Technical Standards under the revised Payment Services Directive for strong customer authentication and common and secure communication, the U.K. Financial Conduct Authority has published a statement on its website. The RTS under PSD2 set out how third-party providers of account information and payment initiation services (TPPs) and account servicing payment service providers (ASPSPs) should interact and communicate securely to enable TPPs to provide their services to customers with the customer's consent. The Opinion relates to the implementation of the RTS and the draft Guidelines relate to the availability of an exemption for ASPSPs from a requirement to build a contingency access mechanism.

The FCA welcomes the EBA's Opinion and draft Guidelines and confirms that, assuming the Guidelines remain as drafted, it expects to comply with them. The FCA will be consulting in Summer 2018 on proposed changes to its rules and guidance to reflect the RTS, the Opinion and the draft Guidelines. The consultation will outline the proposed process and level of information that the FCA will require from firms to make an exemption assessment. The FCA raises a number of issues that ASPSPs and TPPs should be considering, along with some key points from the Opinion and draft Guidelines of which they should take note in advance of the consultation.

Read more.

The European Commission has published a letter, dated May 31, 2018, from the President of the European Commission, Valdis Dombrovskis, to Steven Maijoor, Chair of the European Securities and Markets Authority, following ESMA's request in April for clarification on how to interpret the ancillary activity exemption under the revised Markets in Financial Instruments Directive.

MiFID II exempts non-financial entities that deal on own account, or provide investment services to clients, in commodity derivatives from having to obtain authorization as an investment firm under MiFID II provided that, among other things, this activity is ancillary to their main business. The wording of both MiFID II and related Regulatory Technical Standards suggests that the tests for whether an activity is ancillary to the main business should be carried out at the level of the entity's group. However, ESMA stated in its letter to the Commission that some drafting amendments that were introduced by the Commission have led to uncertainty as to whether the tests should be carried out at the level of the entity rather than at group level.

The Commission has confirmed that MiFID II requires that the ancillary activities test needs to be calculated by each entity within a group that engages in either of the two relevant MiFID activities for which the exemption is available. In consequence, the ancillary activities test must be calculated as many times as necessary for each separate entity which trades in commodity derivatives within a group.

View the letter to ESMA.

View ESMA's request for clarification.

Federal Reserve Bank of New York Executive Vice President and Director of Research, Beverly Hirtle, discussed the macroprudential  objectives of supervisory stress testing; focusing on structural and cyclical  macroprudential considerations.

Read more.

Following consultation on draft guidance in November 2017, the Financial Stability Board has published two finalized guidance papers on aspects of the recovery and resolution of global systemically important banks.

The first guidance paper sets out Principles on Bail-in Execution. The Principles are designed to assist resolution authorities developing bail-in resolution strategies and making resolution plans for G-SIBs operational. The Principles cover six aspects of bail-in execution: (i) bail-in scope; (ii) valuation; (iii) exchange mechanic; (iv) securities law and securities exchange requirements; (v) governance and (vi) communications.

Read more.

The U.S. Board of Governors of the Federal Reserve System announced the results of the eighth and latest round of Dodd-Frank Act stress testing.

View full text of the 2018 DFAST Methodology and Results.

Read more.

The European Central Bank has published a consultation on behalf of the Working Group on Euro Risk-Free Rates. The ECB provides the secretariat for this Working Group. The Working Group is tasked, among other things, with identifying and recommending alternatives to Euro lending benchmark rates, namely EURIBOR and EONIA.

The administrator of EONIA announced in February 2018 that, due to prolonged structural change in the underlying interbank lending market that uses EONIA as a benchmark, EONIA's compliance with the EU Benchmarks Regulation by January 2020 "cannot be warranted" and that the ongoing review of EONIA would therefore be discontinued. The consultation invites comments on three euro risk-free rates that could potentially replace EONIA. These are:

• The euro short-term rate (ESTER), a new wholesale unsecured overnight bank borrowing rate that the ECB proposes to launch before 2020;
• GC Pooling Deferred, a one-day secured, centrally cleared, general collateral repo rate, which is produced by STOXX, a wholly-owned subsidiary of Deutsche Börse Group; and
• RepoFunds Rate, a one-day secured, centrally cleared, combined general and specific collateral repo rate, which is produced by NEX Data Services Limited, a wholly owned subsidiary of NEX Group plc, soon to be acquired by CME Group.

Read more.

The European Banking Authority has published an updated Final Report on recommendations on the equivalence of confidentiality regimes under the Capital Requirements Directive. The Final Report was originally published in April 2015.

The EBA has added three third-country national regulators to the current list of third-country national regulators whose confidentiality regimes can be regarded as equivalent with those in the EU, following an assessment of the professional secrecy and confidentiality frameworks under which they operate.

The new entries are:

• The Guernsey Financial Services Commission (the Bailiwick of Guernsey);
• The Superintendence of the Financial Services of the Central Bank of Uruguay (the Oriental Republic of Uruguay); and
• The Bank of Korea (the Republic of Korea).

The updated recommendations apply from June 21, 2018. The recommendations are intended to assist national regulators in the EU in their assessment of third-country equivalence with the aim of facilitating cooperation with third-country supervisory authorities and their participation in supervisory colleges overseeing international banks.

View the updated Final Report.

The European Central Bank has published a revised version of its manual on the methodology for phase 2 of its Asset Quality Review, which forms part of the Comprehensive Assessment that the ECB and national regulators must make of relevant Eurozone banks under the EU Regulation on the Single Supervisory Mechanism. This revised version replaces the earlier version of the AQR manual published in 2014.

In Frequently Asked Questions published alongside the updated AQR manual, the ECB explains that the AQR manual has been updated to reflect the entry into force of the new accounting rules of International Financial Reporting Standard 9 on January 1, 2018. This has required some changes to the provisions of the AQR manual, in particular to incorporate new approaches to determining impairments and classifying financial instruments. The manual has also been updated to reflect their view that bank business models focused on investment services have become increasingly important for ECB Banking Supervision, in particular in the context of Brexit.

Read more.

The European Securities and Markets Authority has published a statement on the requirements under the Markets in Financial Instruments Regulation for a Legal Entity Identifier. In response to concerns that institutions would not all be able to obtain LEI codes in time for MiFIR's effective date, January 3, 2018, ESMA had issued a statement in December 2017 providing temporary concessions for a period of six months. Those temporary concessions permitted investment firms to provide a service triggering the obligation to submit a transaction report to a client from which they had not obtained an LEI code, provided that, before providing the service, they obtain the necessary documentation from the client to apply for an LEI code on the client's behalf. Trading venues were also permitted to report their own LEI codes instead of LEI codes of non-EU issuers while reaching out to those non-EU issuers.

Read more.

U.S. President Donald Trump announced that he had nominated Kathleen Kraninger to serve as Director of the U.S. Bureau of Consumer Financial Protection.  Ms. Kraninger is nominated to replace former CFPB Director Richard Cordray, who resigned in November of 2017.  Mick Mulvaney currently serves as Acting Director of the CFPB.

View full White House press release.

The Fifth Money Laundering Directive has been published in the Official Journal of the European Union and will enter into force on July 9, 2018. Member States must transpose the directive into their national laws within 18 months of that date. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive.

The key changes introduced by 5MLD are:

1. Extending the scope of "obliged entities" to include providers of exchange services between virtual and fiat currencies as well as custodian wallet providers. These entities will need to register in their home Member State.

2. Harmonizing the application of enhanced customer due diligence for third countries that are determined by the European Commission to be high risk countries. Member States will be able to apply additional measures, where appropriate.

Read more.

The European Securities and Markets Authority has published its Annual Report, dated June 15, 2018. The report sets out ESMA's key achievements against its 2017 objectives of promoting supervisory convergence, assessing risks to investors, markets and financial stability, completing a single rulebook for the EU financial markets and directly supervising trade repositories, credit rating agencies and third-country CCPs. The report also discusses ESMA's contributions to the work of the Joint Committee of the European Supervisory Authorities.

The report does not consider the focus areas for ESMA in 2018, which are set out in ESMA's work programes. However, ESMA indicates that in 2018 it will be, among other things: (i) issuing further opinions on pre-transparency waivers under the Markets in Financial Instruments package; (ii) engaging with credit rating agencies and trade repositories on their strategy, governance, operational matters and preparations for Brexit; and (iii) continuing its work to finalize the technical standards and technical advice under the EU Prospectus Regulation.

View ESMA's Annual Report.

The Bank of England has published a Policy Statement outlining the fees it intends to levy on Financial Market Infrastructures, namely CCPs, central securities depositaries, recognised payment systems and specified service providers to recognised payment systems.

The BoE is empowered under the Banking Act 2009 to levy fees on FMIs but has not so far exercised its power to do so. The BoE has instead funded its supervision of FMIs through the Cash Ratio Deposit scheme. The Policy Statement follows a recommendation in February 2017 from the BoE's independent evaluation office that the BoE review its approach to funding FMI supervision and consider whether levying fees on supervised FMIs would be appropriate. The BoE consulted in August 2017 on proposals to introduce a new funding structure for FMI supervision. A further joint consultation was launched by the BoE and HM Treasury in March 2018 on the detail of the proposed fee-levying regime and the proposed fees for the 2018/19 fee year. The rationale for introducing an FMI fee-levying regime is to allocate the costs of FMI supervision to those entities that directly benefit from the BoE's supervision.

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The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the conditions to allow institutions to calculate capital requirements, including on expected loss, arising from securitized exposures (known as KIRB) in accordance with the purchased receivables approach under the Capital Requirements Regulation.

As part of the new EU Securitization framework that will apply from January 1, 2019, an Amending Regulation makes amendments to the CRR to revise the capital requirements for securitizations.

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The Federal Reserve Bank of New York’s new President, John C. Williams, discussed banking cultural reform at the FRBNY’s annual Governance and Culture Reform Conference.  His speech kicked off a full day of panels discussing various aspects of bank culture reform.  President Williams noted that while the economy and regulation of the financial system have improved markedly since the financial crisis, more work needs to be done with respect to promoting good bank culture.  President Williams highlighted that bank culture is often overlooked, especially in prosperous times when hard numbers, such as profits, losses, capital and liquidity, often look very positive.  With respect to reform, President Williams suggested that effectuating change in bank culture is a multi-year process, and that maintaining good bank culture is an ongoing exercise that requires clearly defined expectations and values, a board and management who are committed to maintaining and promoting high standards of conduct and culture and an environment that empowers employees to speak up when they have concerns.

View full text of President Williams’s remarks.

John C. Williams became the 11th President and Chief Executive Officer of the Federal Reserve Bank of New York.  President Williams replaces outgoing President William C. Dudley, whose last day as president was June 17, 2018.  In a statement given on his first day in office, President Williams noted that his goals as President included openness and transparency, objectivity and independence of thought and a commitment to the diverse needs of constituents across the Federal Reserve Bank of New York’s District.

View President Williams’s full statement.

The European Banking Authority has published its Annual Report for 2017.

The Annual Report summarizes the progress made in a number of workstreams undertaken by the EBA in 2017, including the EBA's work on: (i) developing and maintaining an EU Single Rulebook for banking; (ii) promoting supervisory convergence; (iii) developing resolution policies and promoting common approaches for the resolution of failing financial institutions; (iv) determining and monitoring key risks in the banking sector across Europe; (v) strengthening the EBA's role as EU data hub for the collection, use and dissemination of banking data; (vi) protecting consumers, monitoring financial innovation and contributing to easy retail payments in the EU; (vii) Brexit preparations; (viii) international engagement; and (ix) cross-sectoral work by the European Supervisory Authorities under the Joint Committee.

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HM Treasury has announced the appointment, by the Chancellor, Philip Hammond, of two new external members of the Prudential Regulation Committee for a three-year term: Professor Julia Black and Jill May. In addition, Norval Bryson has been re-appointed to the PRC for a further three-year term.

View the announcement.

The European Banking Authority has published a redacted Decision on the disagreement between the Single Resolution Board and the National Bank of Romania, in their capacity as national resolution authorities under the EU Bank Recovery & Resolution Directive and the Single Resolution Mechanism Regulation. The Decision is the first that the EBA has made in its role as mediator between two resolution authorities responsible for agreeing the resolution plan for a EU cross-border banking group. The SRB and NRB failed to reach agreement on the resolution plan for two different banking groups. The EBA's Decision relates to both cases as the underlying facts and situation were similar.

The EBA's Decision requires the SRB and NRB to include detailed resolvability assessments and a consideration of the impediments to resolvability within any resolution plan that is adopted by either or both of the parties. Both resolution authorities must report within one month of the Decision to the EBA on the steps that they have taken to comply with the Decision and must make subsequent reports on a quarterly basis until the adoption of a joint decision on a group resolution plan.

View the Decision.

Following its consultation in February 2018, the Prudential Regulation Authority has published a Policy Statement and final new Supervisory Statement on Algorithmic Trading. The Supervisory Statement sets out the PRA's supervisory expectations of firms in relation to their algorithmic trading activities and covers: (i) governance; (ii) a firm's algorithmic approval process; (iii) testing and deployment; (iv) inventories and documentation; and (v) risk management and other systems and controls functions.

The Supervisory Statement applies to firms that engage in algorithmic trading and that are subject to the PRA's rules on algorithmic trading as well as the Regulatory Technical Standards on the organizational requirements of investment firms engaged in algorithmic trading (Commission Delegated Regulation (EU) 2017/589) under the Markets in Financial Instruments package. The Supervisory Statement applies to all of a firm's algorithmic trading activities, including those related to unregulated financial instruments.

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The European Central Bank has announced the appointment of Petra Senkovic as Director General, in the Directorate General Secretariat to the Supervisory Board, from July 1, 2018. Ms. Senkovic has been acting Director General since February 2018. The appointment follows the reorganization of the ECB's banking supervision division.

View the announcement.

The U.S. Office of the Comptroller of the Currency has issued clarifying guidance with respect to the examination and evaluation of institutions under the Community Reinvestment Act. The bulletin issued by the OCC notes that clarifications with respect to CRA evaluation processes were previously communicated to examiners, and that effective June 1, 2018, the OCC rescinded its previous "Large Bank CRA Examiner Guidance," issued December 29, 2000 (OCC Bulletin 2000-35). The OCC bulletin provides clarification with respect to a number of aspects of the CRA evaluation process, including the frequency and timing of CRA performance evaluations, the applicable CRA performance evaluation period, full-scope and limited-scope reviews, the evaluation of various components of CRA evaluations and the timing for the finalization of CRA performance evaluations when there is an open investigation regarding potential discriminatory or other illegal credit practices. The OCC bulletin also outlines the guidance provided to examiners with respect to CRA evaluations, including the factors to consider in the evaluation process, communication with supervised institutions during the evaluation process and the presentation and analysis of performance data.

View the full text of the OCC bulletin. 

U.S. Comptroller of the Currency Joseph M. Otting has discussed the priorities of the U.S. Office of the Comptroller of the Currency before the U.S. House Financial Services Committee and U.S. Senate Committee on Banking, Housing, and Urban Affairs. Comptroller Otting identified the following as his key priorities: modernizing the OCC's approach to the Community Reinvestment Act, encouraging institutions to meet the short-term, small-dollar credit needs of their customers, enhancing Bank Secrecy Act and anti-money laundering compliance, simplifying regulatory capital requirements, simplifying the Volcker Rule and promoting efficacy and efficiency in the supervisory activities of the OCC.

View the full text of Comptroller Otting’s prepared testimony before the two committees, here, here and here.

The U.S. Board of Governors of the Federal Reserve System approved a final rule, which implements section 165(e) of the Dodd-Frank Act, and establishes single-counterparty credit limits for bank holding companies and foreign banking organizations with $250 billion or more in total consolidated assets (including any U.S. intermediate holding company of these foreign banking organizations with $50 billion or more in total consolidated assets) and any other bank holding company classified by the Federal Reserve Board as a global systemically important bank.

Under the final rule, a U.S. GSIB cannot have aggregate net credit exposure to another single global systemically important banking organization or a nonbank financial company supervised by the Federal Reserve Board that exceeds 15% of its tier 1 capital, and cannot have aggregate net credit exposure that exceeds 25% of its tier 1 capital to any other counterparty (defined under the final rule to include a company (including any consolidated affiliates of the company); a natural person (including the person's immediate family collectively where the exposure to the natural person exceeds 5% of the institution's tier 1 capital); a U.S. state (including all of its agencies, instrumentalities, and political subdivisions); foreign sovereign entities that are not assigned a zero risk weighting under the risk-based capital rules (including their agencies and instrumentalities); and political subdivisions of foreign sovereign entities (including their agencies and instrumentalities)). Other financial institutions subject to the final rule (other than U.S. IHCs subject to the rule) cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of an institution's tier 1 capital.

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The European Securities and Markets Authority has published its first annual report on penalties imposed by national regulators for infringement of obligations under the European Market Infrastructure Regulation. The report focuses on supervisory measures and penalties imposed by EU national regulators in relation to the EMIR clearing obligation, the reporting obligation, obligations on non-financial counterparties and the risk mitigation techniques for uncleared derivatives. The obligations on CCPs and Trade Repositories are out of scope of the report.

The report has been provided to the European Commission, the Council of the European Union and the European Parliament. ESMA notes that the report can be used to identify best practices as well as areas which might benefit from increased harmonization.

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