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.

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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.

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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.

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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.

Read more.

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.

Read more.

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.

Read more.
 

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.

Read more.

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.

Read more.

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).

Read more.

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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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.

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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).

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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