Amending Delegated Regulations on the safe-keeping duties of depositaries, supplementing the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive, have been published in the Official Journal of the European Union.

The amending Delegated Regulations were adopted by the European Commission in July 2018. They amend existing delegated regulations under AIFMD and UCITS relating to the safekeeping of AIF and UCITS clients' assets respectively, to ensure a more uniform approach is adopted across the EU. The amendments clarify that where a depositary for an AIF or UCITS delegates safe-keeping functions to a third party custodian, the clients' assets must be segregated at the level of the delegate (i.e. from the delegate's own assets but not from those of its other clients). This should prevent interpretation of the segregation obligations as requiring separate accounts per depositary and per type of fund at each level of the custody chain. The respective Delegated Regulations set out how that obligation should be fulfilled to ensure a clear identification of assets belonging to a particular AIF or UCITS and the protection of assets in the event of the depositary or custodian entering insolvency.

The amending Delegated Regulations enter into force on November 19, 2018 and will apply directly across the EU from April 1, 2020.

View the amending Delegated Regulation under AIFMD ((EU) 2018/1618).

View the amending Delegated Regulation under UCITS ((EU) 2018/1619).

The European Banking Authority announced on October 29, 2018 that it acknowledged the European Commission's adoption of a draft Commission Implementing Regulation setting out revised Implementing Technical Standards on the procedures and standard forms and templates to be used to provide information for the resolution plans of credit institutions and investment firms. The Implementing Regulation supplements the Bank Recovery and Resolution Directive and will repeal the existing ITS, reflecting the evolution in the policy and practices applied by authorities in the development of resolution plans for financial institutions. The EBA submitted its final report with final revised draft ITS to the European Commission in April 2018.

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The Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 were made on October 25, 2018 and entered into force on October 26, 2018.

The Regulations delegate power under the EU (Withdrawal) Act 2018 to the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator to fix deficiencies in EU Binding Technical Standards and regulators’ rules in advance of exit day, so that the BTS and regulators' rules function effectively after Brexit. The Regulations also establish the statutory basis on which those regulators will continue to maintain the relevant BTS after exit. The Schedule to the Regulations lists all the BTS that will be "onshored" and, for each, allocates joint or individual responsibility among the regulators.

The version of the Regulations that has entered into force contains only minor changes from the draft version that was published in July 2018.

View the Regulations (S.I. 2018/1115).

View the explanatory memorandum.

The Joint Committee of the European Securities Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published a consultation paper setting out proposed revisions to Implementing Technical Standards on the mapping of External Credit Assessment Institutions' credit assessments under the Capital Requirements Regulation.

The proposed revisions will amend the existing Implementing Regulation ((EU) 2016/1799), which sets out how ECAIs' credit assessments should be "mapped" to credit quality steps for the purposes of calculating capital requirements. The proposed amendments reflect the result of a monitoring exercise on the adequacy of mappings, which necessitates amendments related to: (i) the re-allocation of the credit quality steps for two ECAIs; and (ii) changes in credit rating scales/types for ten ECAIs. The consultation webpage also contains mapping reports for each of the 11 ECAIs concerned.

Comments on the consultation are invited by December 31, 2018. Respondents are asked to provide comments via the "Send your comments" button on the EBA's consultation webpage.

View the consultation paper.

View the EBA's consultation webpage.

The Bank of England and the U.K. Prudential Regulation Authority have launched a joint consultation paper entitled "The Bank of England’s approach to amending financial services legislation under the European Union (Withdrawal) Act 2018." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

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The U.K. Prudential Regulation Authority has published a "Dear CEO" letter that it has sent to the Chief Executive Officers of all firms authorized and regulated by the PRA, as well as EEA firms undertaking cross-border activities into the U.K. from the rest of the European Union by means of a single market passport.

The letter refers to the publication, on October 25, 2018, of a package of consultations and other communications by the Bank of England that provide more detail on the planned Brexit-related changes to PRA rules and to the onshored Binding Technical Standards within the remit of the PRA and the BOE in their various capacities. The letter builds on the communications released by the government and U.K. regulators in June 2018 on their overall approach to onshoring financial services legislation under the EU (Withdrawal) Act 2018.

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The Financial Action Task Force has published the finalized version of its Guidance on a Risk-Based Approach for the Securities Sector. The finalized Guidance was adopted at the FATF's plenary meeting held on October 17—19, 2018. The FATF has developed the Guidance in conjunction with the private sector, to assist governments, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering the financing of terrorism.

The final Guidance sets out the key principles involved in applying a risk-based approach to AML and CTF. Separate sections provide specific guidance to securities providers and intermediaries and to securities supervisors on the effective implementation of a risk-based approach. Annexes provide examples of supervisory practices that have been adopted and examples of suspicious activity indicators relevant to securities.

The Guidance is non-binding. It 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.

View the final Guidance.

View details of the consultation on draft Guidance.

View details of further outcomes of the FATF's October 2018 plenary.

The Bank of England has published a "Dear CEO" letter sent by Sir John Cunliffe, Deputy Governor, Financial Stability, to the Chief Executive Officers of non-U.K. CCPs to provide more detail on the post-Brexit recognition of non-U.K. CCPs and the temporary permissions regime that will give temporary deemed recognized status to eligible non-U.K. CCPs.

The BoE wrote to the CEOs of non-U.K. CCPs in December 2017, outlining that forthcoming U.K. legislation would give it a new power to recognize non-U.K. CCPs and that it anticipated that, in the period immediately after Brexit, the recognition regime for non-U.K. CCPs would be materially the same as the third country recognition regime under the European Market Infrastructure Regulation, but might be reviewed later. In an update in March 2018, the BoE confirmed that non-U.K. CCPs already providing services in the U.K. should be able to continue to do so until the end of the envisaged transitional, or "implementation" period after Brexit.

This latest letter to non-U.K. CCPs provides an update following the laying before Parliament, in July 2018, of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 before Parliament in July 2018. Subject to Parliamentary scrutiny, these Regulations are expected to enter into force during Q4 2018, establishing the post-Brexit framework for non-U.K. CCP recognition. The letter outlines actions non-U.K. CCPs will need to take once the Regulations are in force.

Read more.

The European Commission has adopted a draft Delegated Regulation under the Bank Recovery and Resolution Directive, setting out Regulatory Technical Standards specifying the criteria for assessing the impact of an institution's failure on financial markets, on other institutions and on funding conditions.

Under the BRRD, where a national regulator or resolution authority is determining whether to grant simplified obligations to an institution, it must assess the impact that the failure of the institution could have due to a number of factors specified in the BRRD. The European Banking Authority submitted final draft RTS to the European Commission in December 2017. The RTS adopted by the Commission set out a two-stage test based on quantitative and qualitative criteria to determine whether an institution is eligible for simplified obligations. Institutions meeting quantitative criteria at stage one must then meet qualitative criteria at stage two to be assessed as eligible.

The draft Delegated Regulation will now be subject to a three-month scrutiny period by the European Parliament and the Council of the European Union. Assuming no objections have been raised by the co-legislators during that period, the Delegated Regulation will then be published in the Official Journal of the European Union and enter into force 20 days later. Once in force, the delegated regulation will have direct effect across the EU and will replace existing EBA Guidelines on simplified obligations.

View the draft Delegated Regulation and Annexes.

View details of the EBA's final draft RTS.

The U.K. Competition and Markets Authority has published an updated working paper on its "market outcomes" analysis, following responses to its July 2018 consultation on its Provisional Decision Report on its Market Investigation into the supply and acquisition of investment consultancy services and fiduciary management services.

The updated analysis covers: (a) gains from engagement—the impact of engagement on the fees paid by fiduciary management and investment consultancy customers; and (b) the relationship between quality and market success—the relationship between quality of service and market shares for a sample of investment consultancy firms. The CMA has also published a final notice of its intention to operate a confidentiality ring in respect of specified data submitted by respondents to the Provisional Decision Report. Access to the confidentiality ring will be granted to a limited number of approved external legal and/or economic advisers of certain parties. The confidentiality ring will operate from 9:30am on October 29, 2018 until 5:00pm on November 5, 2018.

Read more.

The Bank of England has published a "Dear CEO" letter sent by Sir John Cunliffe, Deputy Governor, Financial Stability, to the Chief Executive Officers of non-U.K. Central Securities Depositories that have been identified as possibly requiring recognition to provide CSD services in the U.K. after Brexit. The Dear CEO letter provides more detail on the post-Brexit recognition of non-U.K. CSDs by the BoE and on the transitional regime that has been set out in the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

Read more.

The Bank of England has published a consultation paper entitled "UK withdrawal from the EU: Changes to FMI rules and onshored Binding Technical Standards." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

The consultation proposals cover:

• the BoE's proposed fixes to deficiencies in the onshored Binding Technical Standards for which the BoE, as FMI supervisor, has responsibility under the Financial Regulators’ Powers, (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018;
• the BoE's proposals to amend its FMI rules; and
• the BoE's proposed approach to non-binding BoE materials after Brexit.

Read more.

The Bank of England has issued a press release providing an update on its regulatory and supervisory approach to Brexit. The press release refers to a package of communications and new consultations published by the BoE on October 25, 2018. Building on previous communications with firms, this package of communications includes four consultation papers:

1. A joint consultation on the BoE/Prudential Regulation Authority's general approach to making changes to PRA rules and to Binding Technical Standards to implement Brexit. This consultation is to be read in conjunction with the other three consultations.
2. A PRA consultation on proposed changes to PRA rules and to the onshored BTS within the PRA's remit.
3. A BoE consultation on changes to Financial Market Infrastructure rules and onshored BTS within the BoE's remit as FMI supervisor, along with a draft Supervisory Statement on the BoE's expectations of FMIs in relation to existing non-binding domestic material.
4. A BoE consultation on the onshored BTS within the BoE's remit as the U.K. resolution authority.

Read more.

The Conference of State Bank Supervisors has sued the U.S. Office of the Comptroller of the Currency to prevent it from granting charters for special purpose national banks to non-depository FinTech companies. The CSBS is the nationwide organization of state banking regulators in the United States.

The CSBS filed the lawsuit upon the OCC’s announcement on July 31, 2018 that it would begin accepting these applications. The CSBS previously sued the OCC over its ability to provide SPNB charters in April 2017. The federal district court in D.C., however, dismissed the first suit for lack of subject matter jurisdiction and ripeness, stating that the OCC had not decided whether to grant SPNB charters to FinTech firms at that time.

Read more.

The Bank of England has published a consultation paper entitled "UK withdrawal from the EU: The Bank of England’s approach to resolution statements of policy and onshored Binding Technical Standards." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the Prudential Regulation Authority on October 25, 2018.

The consultation covers:

• the BoE’s proposals to fix deficiencies in the onshored Binding Technical Standards under the Bank Recovery and Resolution Directive, for which it is responsible in its capacity as U.K. resolution authority. The PRA has consulted separately on proposals for the BRRD BTS that are within its remit; and
• the BoE's proposed guidance on how the existing Statements of Policy on resolution should be interpreted after Brexit. These SoPs cover the BoE's: (i) power to direct institutions to address impediments to resolvability; (ii) approach to setting a minimum requirement for own funds and eligible liabilities (MREL) within groups, and further issues; and (iii) policy on valuation capabilities to support resolvability. li >

The proposals are relevant to all firms that are subject to the BoE's resolution powers, such as banks, larger investment firms and CCPs.

Read more.

The U.K. Prudential Regulation Authority has published a consultation paper entitled "UK withdrawal from the EU: Changes to PRA Rulebook and onshored Binding Technical Standards."  The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

The consultation paper sets out a suite of proposed amendments by the PRA to ensure an operable legal and regulatory framework after the U.K. leaves the EU.

Read more.

The European Banking Authority has published its Work Programme for 2019, setting out details of, and planned main outputs from, 37 separate work streams across the following five key strategic priorities:
 

1. Leading the Basel III implementation in the EU.
2. Understanding risks and opportunities arising from financial innovation.
3. Collecting, disseminating and analyzing banking data.
4. Ensuring a smooth relocation of the EBA to Paris.
5. Fostering the increase of the loss-absorbing capacity of the EU banking system.

The EBA also confirms that work related to Brexit will remain a horizontal priority for the EBA in 2019 and explains that the EBA's other activities may be affected in the future by Brexit-related developments. Should that be the case, any substantial change in the work programme will be communicated in due time, in order to seek steering and approval from its Management Board and Board of Supervisors.

View the EBA's 2019 Work Programme.

The European Commission has published a Communication, outlining its work plan for 2019. The Communication is addressed to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. The Communication discusses the ongoing challenges for the EU in the run-up to the European Parliamentary elections and the post-Brexit Summit in Sibiu at which a new multi-annual framework for the EU27 will be finalized.

Separately published Annexes to the Communication relating to: (i) new initiatives; (ii) REFIT initiatives; (iii) priority pending proposals; (iv) legislative initiatives that have been withdrawn; and (v) a list of envisaged repeals. Priority pending proposals of particular relevance to financial institutions include legislative proposals relating to the forthcoming sustainable finance package, cross-border distribution of collective investment schemes, crowdfunding, amendments to the European Market Infrastructure Regulation, prudential regulation and supervision of investment firms and a proposed amending regulation relating to minimum loss coverage for non-performing exposures.

Read more.

HM Treasury has published explanatory information on the draft Financial Conglomerates and Other Financial Groups (Amendment) (EU Exit) Regulations 2018, which it intends to publish in due course. The draft Regulations will amend deficiencies in the U.K. legislation that implemented the EU Financial Conglomerates Directive. FICOD sets out specific solvency requirements designed to prevent different entities in a conglomerate from using the same capital more than once as a buffer against risk. The Directive also sets out requirements for management controls, risk management and for information sharing between relevant regulators of conglomerates. In the U.K., FICOD has been implemented by the Financial Conglomerates and Other Financial Groups Regulations 2004, as well as through provisions in regulatory rulebooks.

The explanatory information explains that the draft Regulations will amend several deficiencies to ensure the U.K.'s FICOR Regulations remain operative in a U.K.-only context.

Read more.

HM Treasury has published in draft format the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 – the U.K.'s draft statutory instrument that would implement a post-Brexit EMIR regime, together with explanatory guidance. The draft EMIR Regulations will affect CCPs, clearing members, their clients, Trade Repositories, TR users and U.K. persons entering into derivatives contracts. They will also, like EMIR, have impacts for persons around the world which enter into derivatives with U.K. persons, through U.K. clearing members or that are ultimately held with CCPs that are regulated or recognized in the U.K.

The draft EMIR Regulations have been prepared to ensure that there continues to be an effective regulatory framework for OTC derivatives, CCPs and TRs in the U.K. after exit day. Onshoring of EMIR has been dealt with in three separate pieces of legislation. The draft EMIR Regulations should be read in conjunction with the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, which were published in draft form on July 24, 2018 and October 5, 2018 respectively.

Read more.

HM Treasury has published explanatory guidance on potential changes to the U.K.'s laws on ring-fencing in preparation for a "no deal" scenario in which the U.K. leaves the EU on March 29, 2019. The draft Ring-Fenced Bodies (Amendment) (EU Exit) Regulations 2018 have not yet been published. HM Treasury intends to publish the draft Regulations in due course and to lay them before Parliament before exit day.

Read more.

The U.K. Financial Conduct Authority has published an evaluation paper on the impact of bringing seven additional benchmarks within the U.K.'s regulatory and supervisory perimeter in April 2015, in response to the recommendations of the Fair and Effective Markets Review.  The necessary changes to the FCA's Handbook and guidance were effected by the Benchmarks (Amendment) Instrument 2015, a legal instrument made by the FCA. In the evaluation paper, the FCA clarifies that this benchmarks-related evaluation does not cover changes due to other policies that affect benchmarks, such as the EU Benchmarks Regulation or principles set by EU or international bodies.

The evaluation has been conducted in line with the FCA's approach to ex-post evaluation of the impact of its work, which it outlined in a discussion paper in April 2018. The FCA has conducted the benchmarks-related evaluation to understand: (i) the impact of the Benchmarks (Amendment) Instrument 2015 on markets and firms' costs; and (ii) whether the FCA's regulatory intervention met its objective of increasing the robustness of benchmarks and restoring market confidence.

Read more.

HM Treasury has published a draft of the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, along with explanatory information. 

Read more.

The U.K. Serious Fraud Office has charged a former banker with conspiracy to defraud, as part of its investigation into the manipulation of the Euro Interbank Offered Rate.

The former banker was arrested in Italy in August 2018 after his trip to the country activated a European Arrest Warrant that had been secured by the SFO in 2016. Italian authorities ruled on October 12, 2018 that he should be extradited to the U.K. and he was charged with conspiracy to defraud at Westminster Magistrates’ court on October 20, 2018.

The next hearing will take place at Southwark Crown Court on October 24, 2018.

View the SFO's announcement.

The European Securities and Markets Authority has published an own-initiative report prepared by its Securities and Markets Stakeholder Group. The purpose of the report is to provide advice to ESMA on steps it might take to contain the risks of Initial Coin Offerings and crypto-assets, on top of existing regulation.

In the report, the term “crypto-assets” is used to refer to coins, tokens, virtual and cryptocurrencies or other digital or virtual assets collectively. The acronym "ICO" is used to refer to an initial offering of any crypto-asset. The report sets out a taxonomy of crypto-assets, based on the distinction between payment tokens, utility tokens, asset tokens and hybrids used by the Swiss Financial Market Supervisory Authority (FINMA).

Read more.

The U.K. Financial Conduct Authority has launched the Green FinTech Challenge for firms developing innovative products and services to assist in the U.K.’s transition to a low-carbon economy. The Challenge is part of the FCA's Innovate project. Successful applicants to the challenge will benefit from authorization support, live testing in the regulatory sandbox and FCA guidance. Applications for inclusion in the challenge should be submitted by January 11, 2019 and successful applicants will be notified by the end of Q1 2019. This is the first FinTech challenge run by the FCA and is separate from the FCA's other Innovate services, which should continue to be accessed by firms developing propositions that fall outside the scope of the challenge. Once the challenge is complete, it will consider whether to launch more challenges.

View the FCA's Green FinTech Challenge webpage.

The Financial Action Task Force has published the outcomes of its plenary on October 17-19, 2018. The FATF considered key issues such as the operations and streamlining of the FATF, major and other strategic initiatives and mutual evaluations.

One of the major initiatives covered by the plenary was the regulation of virtual assets. The G20 Finance Ministers & Central Bank Governors communiqué following their July 2018 Buenos Aires meeting called on the FATF to clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets.  At its October plenary, the FATF adopted amendments to the FATF Recommendations and Glossary at the plenary and issued a statement on the regulation of virtual assets. The FATF has done this to clarify that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. Jurisdictions should therefore ensure that virtual asset service providers are subject to AML/CTF regulations. However, jurisdictions are able to choose which category of regulated entity virtual asset service providers should fall into. 

Read more.

The Basel Committee on Banking Supervision has published a consultation paper entitled "Leverage ratio treatment of client-cleared derivatives," seeking views from stakeholders on whether a targeted and limited revision of the leverage ratio exposure measure is warranted with respect to the treatment of client cleared derivatives.

On the publication of the finalized Basel III framework in December 2017, the Basel Committee stated that it would continue to monitor the impact of the Basel III leverage ratio’s treatment of client-cleared derivative transactions. It confirmed that it would review the impact of the leverage ratio on banks’ provision of clearing services and any consequent impact on the resilience of central counterparty clearing. The Basel Committee has completed its review and is of the view that only a strong evidence-based case would justify making revisions to the current leverage ratio treatment of client cleared derivatives.

Read more. 

The Basel Committee on Banking Supervision has issued a statement on leverage ratio "window-dressing" behavior by banks.

To comply with the Basel III leverage ratio standard, among other things, banks are required to publicly disclose their leverage ratio, calculated on a quarter-end basis, or more frequently in certain jurisdictions. The Basel Committee has noted what may be a tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has the effect of allowing banks to report and publicly disclose higher leverage ratios.

The Basel Committee states that window dressing is unacceptable as it undermines the policy objectives of the leverage ratio standard and risks disrupting the operations of financial markets. The Basel Committee calls on banks to desist from undertaking transactions for window-dressing purposes and makes several suggestions for actions by supervisors to address these concerns. These include increasing the frequency of reporting and supervisory monitoring, focused supervisory inspections and/or additional public disclosures. The Basel Committee will continue to monitor potential window-dressing behavior and may consider adjusting the Pillar 1 minimum capital requirements and/or Pillar 3 disclosure requirements if necessary.

View the Basel Committee's Statement.

The U.K. Prudential Regulation Authority has published a "Dear Remuneration Committee Chair" letter that it has sent to Remuneration Committee Chairs of proportionality Level One firms (that is, banks, building societies and PRA-designated investment firms with relevant total assets exceeding £50 billion as at the relevant date) ahead of its annual review of remuneration policies and practices.

In the letter, the PRA explains that, with effect from the 2018/19 remuneration review, the PRA will no longer provide a non-objection statement to the proposed communication or distribution of variable remuneration awards by Level One firms. The PRA states that its oversight of Level One firms' remuneration practices will increasingly draw on the principles for governance set out in the Senior Managers and Certification Regime, placing more emphasis on how the Chairs of firms Remuneration Committees discharge their responsibilities under the SM&CR and on how Remuneration Committees carry out their role of oversight and independent challenge under the PRA's Remuneration Rules.

Going forward, Level One firms can continue to expect engagement throughout the year from their PRA supervisors on their remuneration policies, practices and processes and, where needed, feedback on issues the firm should address. Level One firms should submit a remuneration policy statement and quantitative data tables three months ahead of the firm's preferred final feedback date (that is, the date previously referred to as the "non-objection date"), and an update to the figures at least two weeks before the final feedback date.

View the Letter.

The Securities and Exchange Commission has launched its Strategic Hub for Innovation and Financial Technology (FinHub), designed to engage investors and market participants on FinTech issues and initiatives.

Valerie A. Szczepanik, the SEC's Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC's Division of Corporation Finance, will lead FinHub, which will focus on topics such as distributed ledger technology (DLT) and digital assets, automated investment advice, digital marketplace financing, artificial intelligence and machine learning. The SEC's various divisions will assign staff with expertise in the FinTech space. inHub will replace and build on the efforts of several of the SEC's internal FinTech working groups.

The SEC said that FinHub will provide a platform for market participants to engage directly with SEC staff on innovations and technological developments, publicize the SEC's FinTech-related activity on the FinHub webpage, host FinTech events (including a forum on DLT and digital assets planned for 2019) and act as a resource for SEC staff to acquire and disseminate FinTech-related information within the agency. Further, it will serve as the SEC's liaison to domestic and global regulators in respect of innovations in financial, regulatory and supervisory systems.

Read more.

The Basel Committee on Banking Supervision has published a final version of its Stress Testing Principles, which replace its 2009 Principles for Stress Testing and Supervision. The Basel Committee conducted a review of the 2009 Principles during 2017 and launched a consultation on proposed revisions in December 2017.

The new principles reflect the growth in importance of stress testing since the 2009 version was produced and its evolution into a critical element of risk management for banks as well as a core tool for both banking supervisors and macroprudential authorities.

The new principles are also set at a higher level than the previous version, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. The principles focus on the core elements of stress testing frameworks, including the objectives, governance, policies, processes, methodology, resources and documentation that guide stress testing. Each principle is followed by a short description of considerations that are equally relevant for banks and authorities, along with additional considerations for banks or authorities.

View the Stress Testing Principles.

The U.K. Financial Conduct Authority has published a Feedback Statement on the Digital Regulatory Reporting project it began earlier in 2018. The Feedback Statement summarizes the feedback the FCA received from the call for input it published in January 2018 and sets out the FCA's responses.

The FCA is working with the Bank of England in the RegTech sphere to explore ways of using technology to link regulation, compliance procedures and firms' policies and standards together with firms' transactional applications and databases. Most respondents to the FCA's call for input agreed in particular that digital regulatory reporting could bring increased efficiency, among other benefits. Some respondents expressed concerns about costs of implementation and called for a period of overlap were digital regulatory reporting to be introduced. Overall, the FCA is encouraged by the feedback.

The Feedback Statement confirms that participants to a pilot launched in June 2018 to further explore the proof of concept for a move to digital regulatory reporting will publish their findings in a technical paper in Q1 2019. The FCA will continue with workstreams under the project and should a business case be made, it will launch a consultation and a cost benefit analysis. While the FCA is focusing on implementation of digital regulatory reporting in the U.K., it also believes that multinational adoption could bring benefits and is in discussions with its counterparts internationally.

View the Feedback Statement (FCA FS 18/2).

View details of the FCA's call for input.

View details of the terms of reference for the project's pilot phase.

Commodity Futures Trading Commission Commissioner Brian Quintenz has given a wide-ranging speech at the GITEX Technology Week Conference in Dubai addressing a number of key issues faced by the CFTC in considering how to regulate smart contracts. While he acknowledged that there are still many questions to be answered on smart contract regulation, Commissioner Quintenz expressed a number of important views that should make market participants pause before assuming that activity in smart contracts will avoid CFTC scrutiny.

Commissioner Quintenz explained that, in his view, the first step the CFTC should take when considering a smart contract is to understand the basic nature of the contract and whether it is within the CFTC's jurisdiction. For example, is the contract a product that must be traded on an exchange? Does the protocol itself perform the functions of an exchange, which may trigger registration requirements? While the answers will of course be different for every smart contract, Commissioner Quintenz made clear that he believes existing CFTC regulations can and should be applied to such contracts where appropriate.

Read more.

The U.K. Financial Conduct Authority has published its finalized Approach to Competition, following feedback to its consultation between December 2017 and March 2018 on a draft of its approach document. The FCA's Approach to Competition should be read alongside the FCA Mission, which was first published in October 2016.

In the approach document, the FCA outlines its "competition objective" of promoting effective competition in the interests of consumers in particular markets and its "competition duty," which requires it to discharge its general functions in a way that promotes effective competition in the interests of consumers. It then explains how it advances its competition objective by: (i) using market studies to examine market structures and dynamics and imposing rule changes to improve consumer outcomes if necessary; (ii) using its powers under the Competition Act 1998 to investigate anti-competitive behavior under U.K. and EU law; and (iii) implementing regulation with the aim of supporting competition in the interests of consumers.

Read more.

The U.K. Financial Conduct Authority has announced that the application window has opened for cohort five of its regulatory sandbox. The FCA announced the successful applicants to the previous cohort in July 2018.

The FCA's sandbox is part of the FCA's Project Innovate, which was launched in 2014.  The regulatory sandbox has been in operation since 2016 and provides a controlled environment for firms that satisfy the relevant eligibility criteria to test innovative products and services with real customers.

The deadline for completed applications for cohort five is November 30, 2018.

View the FCA webpage.

View details of the successful applicants to cohort four.

The Prudential Regulation Authority has published a consultation paper on a draft Supervisory Statement on managing the financial risks from climate change. The consultation follows the PRA's publication in September 2018 of its report "Transition in thinking: The impact of climate change on the U.K. banking sector." The consultation paper is relevant to banks, insurers, re-insurers, building societies and PRA-designated investment firms. The PRA wants firms to take a strategic approach to financial risks from climate change by taking into account current and credible risks and identifying actions needed now to mitigate existing and future risks.

Read more.

The U.K. Financial Conduct Authority has published a Discussion Paper on climate change and green finance in which it calls for comment on potential changes to its regulatory approach in these areas. The Discussion Paper sets out specific action that the FCA intends to take in the short term in four focus areas - capital markets disclosures, public reporting requirements, green finance and pensions.

First, the FCA is considering whether the regulatory approach to disclosures by issuers in the capital markets should be amended. In particular, the FCA is asking for comments on: (i) the difficulties that issuers may have in determining materiality of climate-related issues such that a specific disclosure would be warranted; (ii) whether investors would benefit from greater comparability of disclosures; (iii) whether further prescribed requirements on climate-related disclosures should be introduced to facilitate more consistent disclosures by issuers. This final point includes whether the introduction of a "comply or explain" approach to the Task Force on Climate-related Disclosures would facilitate more effective markets.

Read more.

The U.K. Financial Conduct Authority has published a further consultation on implementation of the EU Securitization Regulation. The Securitization Regulation (also known as the STS Regulation) and a related amendment to the Capital Requirements Regulation came into effect on January 17, 2018. The majority of the provisions of the Securitization Regulation and the related amendment to the CRR will apply directly across the EU from January 1, 2019. While the Securitization Regulation is directly applicable, HM Treasury must make certain legislative amendments to align provisions of U.K. law with the Regulation. The FCA must also align its Handbook and launched a first consultation in August 2018 on its proposals for Handbook amendments.

In this further consultation, the FCA is consulting on proposed amendments to its Decision Procedure and Penalties manual (DEPP) and to its Enforcement Guide, to reflect the expected provisions of a Statutory Instrument which is expected to be laid before Parliament by HM Treasury in December 2018.

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The U.K. Foreign and Commonwealth Office has published guidance on the U.K. government's approach to implementing sanctions in the event that no deal is agreed between the EU and the U.K. on the U.K.'s exit from the EU. If there is no deal, the U.K. will leave the EU on March 29, 2019.

The U.K. currently implements sanctions agreed by the UN Security Council, according to international law requirements, and the EU, as provided for in EU legislation and U.K. implementing legislation. In the event of a "hard Brexit," the U.K. would continue to implement sanctions agreed by the UN Security Council and would have the power to adopt other sanctions under the Sanctions and Anti-Money Laundering Act 2018. The FCO would publish the names of individuals and organizations subject to U.K. sanctions.

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The U.K. Prudential Regulation Authority has published a consultation proposing a six-month overlap period following the introduction of the new Pillar 2 Liquidity reporting template (PRA110) from July 1, 2019. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements, to capture those liquidity risks that are either not captured or not fully captured under the Pillar 1 framework. The final element - Pillar 3 - involves public reporting of capital. The PRA published its final Policy Statement on the introduction of its Pillar 2 framework in February 2018. The PRA110 template was scheduled to replace the existing "daily flows" and "enhanced mismatch" liquidity reports (FSA047 and FSA048) from July 1, 2019.

Since its Policy Statement, the PRA has reassessed the risks from transitioning to the PRA110 template and considers it prudent to delay the termination of FSA047 and FSA048, to ensure data quality and continuity. The PRA proposes that the PRA110 is introduced on July 1, 2019 as planned. However, between then and January 1, 2020, firms should additionally continue to submit liquidity reports using FSA047 and FSA048. The overlap will allow the PRA and firms alike to assess the quality of PRA110 reporting.

The PRA is inviting comments on the proposal by November 12, 2018. The PRA considers that the short consultation period is justified due to the fact that firms are already reporting using FSA047 and FSA048.

View the consultation paper (PRA CP22/18).

View details of the PRA's Pillar 2 Policy Statement.

The U.S. Securities and Exchange Commission has voted to reopen the comment period and request additional comments on proposals for capital, margin and segregation requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) and capital requirements for broker-dealers. The Commission approved the measure by a 4-1 vote, with only Commissioner Robert Jackson Jr. dissenting.

The Commission initially published in 2012 a proposal on capital and margin requirements for non-bank SBSDs and MSBSPs, and segregation requirements for all SBSDs. The Commission published proposed provisions to establish the cross-border treatment of these rules in 2013 and an additional capital requirement for nonbank SBSDs in 2014. By reopening the comment period, the Commission stated that it is looking to provide market participants with an opportunity to provide comments that account for regulatory and market developments since the initial publication of the proposals, as well as the potential economic effects of the proposals in light of such developments. The Commission has previously indicated that it intends to finalize these rules prior to commencing registration of SBSDs and MSBSPs.

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The Financial Conduct Authority has published a consultation paper on proposed guidance on the Statement of Responsibilities (SoR) and Responsibilities Maps required under the Senior Managers and Certification regimes. 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.

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HM Treasury has published a draft of the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations are primarily relevant for MiFID II-authorized firms including investment banks, stock and futures exchanges, broker-dealers, investment advisers and investment managers.

The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.

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The Financial Stability Board has published a report entitled "Crypto-asset markets: Potential Channels for future financial stability," in which it outlines its findings following its assessment of the crypto-asset markets in 2018.

The FSB has considered the primary risks present in crypto-assets markets as low liquidity, volatility, leverage risks, as well as technological and operational risks (including cyber security risks). The FSB considers that crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value or a mainstream unit of account. Based on the available information, the FSB considers that crypto-assets do not pose a material risk to global financial stability at this time. However, the FSB's report highlights that there could be financial stability implications from these primary risks through a variety of transmission channels including: (i) confidence effects; (ii) financial institutions' exposures to crypto-assets, related financial products and entities that are financially impacted by crypto-assets; (iii) the level of market capitalisation of crypto-assets; and (iv) the extent of their use for payments and settlements.

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The Financial Conduct Authority has published three press releases announcing how entities can register with it as a credit rating agency, a trade repository or apply for temporary authorization as a data reporting services provider in preparation for the U.K. leaving the EU without a deal. The press releases follow the draft legislation and explanatory guidance recently published by HM Treasury and the FCA's first consultation on onshoring the EU technical standards through changes to its rulebook.

For credit rating agencies, the U.K. intends to establish a conversion regime (for U.K. CRAs and third-country CRAs currently registered or certified by the European Securities and Markets Authority) and a temporary registration regime (for newly established U.K. entities that are part of a group of CRAs with an existing ESMA registration before exit day). The FCA's CRA press release informs CRAs of how they can notify the FCA of their intention to use one of these regimes and provides an indicative timeline for the legislation and regime to be put into place.

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The U.K. Financial Conduct Authority has published its first consultation on proposed changes to the FCA Handbook to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place and there is consequently no transitional period for firms. The proposed amendments will not take effect if the U.K. enters into a transitional period after exit day.

The consultation includes the FCA's proposals in relation to the Binding Technical Standards it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterward. These are the retained EU "Level 2" delegated and implementing regulations that set out regulatory technical standards and implementing technical standards. The consultation also sets out the FCA's proposed approach to non-legislative "Level 3" materials such as guidelines, recommendations and opinions that will also be onshored.

The FCA states in the consultation that the majority of the proposed changes are consequential in nature and follow the amendments to retained EU law that HM Treasury is proposing, as set out in the series of financial services-related statutory instruments being made under the European Union (Withdrawal) Act 2018.

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The U.K. Financial Conduct Authority has published a consultation on its proposed approach to a Temporary Permissions Regime for EEA firms and investment funds that currently provide services in the U.K. - either via a branch or cross-border - pursuant to a single market passport. The proposed TPR is designed to minimize the potential harm caused by an abrupt loss of the passport in a "no-deal" scenario, in which the U.K. exits the EU without a ratified Withdrawal Agreement, which would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The TPR will enable EEA firms and investment funds to continue to provide services in the U.K. for a limited period following exit day.

The proposed TPR will take effect on March 29, 2019 in the event of no deal. Should the U.K. and EU negotiations lead to ratification of the Withdrawal Agreement, the TPR will not enter into force. Instead, during the transitional period, firms and investment funds would continue to have access to the same passporting arrangements as they do now.

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HM Treasury has published guidance stating that the laws establishing the three European Supervisory Authorities and the European Systemic Risk Board will be revoked in their entirety once the U.K. has left the EU. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. These ESAs and the ESRB are part of the EU framework for supervision and regulation of the EU financial services sector. The European Union (Withdrawal) Act 2018 automatically incorporates such EU legislation into U.K. laws when the U.K. leaves the EU.

At the point of Brexit, the ESAs and the ESRB will no longer perform functions in relation to the U.K. and the EU legislation that established them will be inoperable in U.K. laws. HM Treasury intends to use a statutory instrument to revoke those laws in their entirety so that they do not become applicable on Brexit. Where other EU legislation automatically incorporated into U.K. law refers to the ESAs or ESRB, statutory instruments will either amend the law or revoke it, as appropriate.

View the guidance.

The Financial Policy Committee has published a statement from its meeting held on October 3, 2018 where it reviewed developments since June 19, 2018. The FPC continues to consider that the U.K. banking system is sufficiently robust to withstand the disruption of a "hard Brexit" and that there is no need for additional capital buffers for banks as a result. The FPC is of the view that the banking system would be able to absorb, in addition to a disorderly Brexit, further costs that might arise from trade tensions. However, the FPC is concerned about the lack of action taken by EU authorities to address the risks of disruption in the event of the U.K. leaving the EU without a deal on March 29, 2019. In particular, the FPC would like mitigating action to be taken to address the risks associated with derivatives contracts and the transfer of personal data.

Aside from the risks presented by Brexit, the FPC considers that domestic risks are still at a standard level overall. However, the FPC is concerned about the swift growth of leveraged lending and intends to: (i) assess the implications for banks in the 2018 stress test; and (ii) review the impact of the increasing role of non-bank lenders and changes in the distribution of corporate debt. The FPC has decided to maintain the U.K. countercyclical capital buffer rate at 1% and will review the rate again at its meeting on November 28, 2018.

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