The European Securities and Markets Authority has published a Final Report, setting out Guidelines for national regulators of CCPs on the application of rules under the European Market Infrastructure Regulation that require CCPs to adopt anti-procyclicality margin measures.

EMIR requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions taking into account any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. This has been controversial, since U.S. regulators impose no such requirements in practice on U.S. CCPs, leading to more expensive margin requirements in Europe. The Guidelines seek to clarify and ensure consistent application of the requirements across the EU.

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The European Central Bank has published an updated Guide to Fit and Proper assessments for the suitability of members of the management body and key function holders in significant institutions. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The ECB Guide covers fit and proper assessments of members of management bodies, both in their management function (executives) and supervisory function (non-executives). It applies to all institutions under the direct supervision of the ECB, namely in-scope credit institutions, financial holding companies and mixed financial holding companies. In the context of licensing or qualifying holdings, the ECB Guide will also apply to less significant institutions.

The ECB Guide has been updated following the publication of the joint European Banking Authority and European Securities and Markets Authority Guidelines on the suitability of management body members and key function holders, which will apply from June 30, 2018, and the EBA Guidelines on Internal Governance.

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The European Securities and Markets Authority has published a Final Report setting out finalized Guidelines on aspects of the suitability requirements under the revised Markets in Financial Instruments Directive. ESMA consulted previously on a draft version of the Guidelines between July and October 2017.

The finalized Guidelines largely confirm ESMA's previous 2012 guidelines on MiFID I, but have a broader scope and ESMA has added clarifications and refinements where necessary.

Read more.

The U.S. Senate voted to confirm the nomination of Jelena McWilliams as Chair and Member of the Board of Directors of the U.S. Federal Deposit Insurance Corporation.

View ​Information regarding Chair Mc Williams’s nomination.

View confirmation of Member of the Board of Directors.

U.S. President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act; the first major financial services reform bill since the enactment of the Dodd-Frank Act in 2010.  While the act is not a wholesale repeal of the Dodd-Frank Act, and does not offer the broad regulatory relief that was proposed under the Financial Choice Act of 2017, it does modify or eliminate certain requirements on community and regional banks and nonbank financial institutions in particular that have been perceived to be especially burdensome.  The key aspect of the act may be the increase, from $50 billion to $250 billion, of the threshold at which a large banking organization automatically becomes subject to enhanced prudential standards.  The act contains several other important provisions, including: exempting banks with less than $10 billion in total consolidated assets from the Volcker Rule and easing certain fund naming restrictions under the Volcker Rule; exempting certain deposits held by custodial banks from the calculation of the supplementary leverage ratio; reducing reporting and supervision requirements applicable to community banks; and easing certain securities law requirements.  Many of the provisions in the act are self-executing, although a number of other provisions require positive action to be taken by U.S. federal financial regulatory agencies.

View ​more detailed discussion of the act.

View full text of the act.

The U.S. Office of the Comptroller of the Currency announced the publication of its spring 2018 Semiannual Risk Perspective.  The OCC report discusses risks facing national banks and federal savings associations and provides high-level overviews of the economic operating environment, bank performance, and trends in supervisory actions. The report highlights key risks in three areas: easing underwriting practices with respect to credit underwriting practices, elevated operational risk, due, in part, to cybersecurity and increased use of third-party service providers, and compliance risk, particularly with respect to high BSA/AML/OFAC compliance risk, changing regulatory landscape and evolving risks outpacing compliance management systems.  The report also focuses on risk that is emerging with respect to rising interest rates and their effect on increased uncertainty in deposits. With respect to trends in supervisory actions, the report notes that the number of banks with composite ratings of 4 or 5 have declined year-over-year through the end of 2017, that the number of outstanding matters requiring attention has been declining over the past few years, and that the number of outstanding enforcement actions has declined since 2010.

View ​full text of the OCC report.

The Bank of England, the Financial Conduct Authority and HM Treasury have published a progress report on the Fair and Effective Markets Review, outlining the progress made in responding to the FEMR recommendations that were originally published in June 2015 and followed by an implementation report in June 2016.

The three authorities commend the significant progress that has been made by firms, both collectively and individually, in driving up standards in the Fixed Income, Currency and Commodities Markets since the implementation report. The progress report sets out the assessment of the three authorities of the impact of the FEMR's recommendations.

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The European Commission has published a proposal for a Regulation to provide an enabling framework for a market-led development of Sovereign Bond-Backed Securities, following the publication of an inception impact statement in January 2018. The proposal forms part of the Commission's efforts to enhance the Banking Union and Capital Markets Union.

SBBSs are to be defined as instruments created by the private sector, whereby a private sector entity would assemble an underlying portfolio of sovereign bonds from the market and would subsequently transfer them to a legally separate, self-standing entity, specifically established for the sole purpose of issuing to investors a series of securities representing claims on the proceeds from this underlying portfolio. Losses from the portfolio would be borne in a certain sequence by tranches of issued securities.

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The European Commission has published a proposal for a Regulation to amend the Market Abuse Regulation and the new Prospectus Regulation. The aim of the proposed Regulation is to promote the use of SME Growth Markets by making technical adjustments to the MAR and the new PR to make the regulatory framework applying to listed Small and Medium-sized Enterprises more proportionate and to foster the liquidity of equity instruments listed on SME Growth Markets, while maintaining a high level of investor protection and market integrity. The proposed Regulation is in line with the objectives of the EU Capital Markets Union of reducing the overreliance on bank funding and diversifying market-based sources of financing for European companies.

SME Growth Markets are a new sub-category of multilateral trading facility introduced by the revised Markets in Financial Instruments Directive in January 2018. Companies listed on an SME Growth Market are required to comply with MAR and the PR and are impacted by some aspects of MiFID II. The adjustments in the proposal for a Regulation are designed to lower the administrative burden and costs for issuers on SME Growth Markets stemming from compliance with MAR and the PR and to address regulatory shortcomings in MAR that can affect the liquidity of SME financial instruments. The European Commission has also published a separate proposal for a regulation amending delegated legislation under MiFID II to address regulatory barriers to the take-up of the SME Growth Markets.

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The European Commission has published for consultation a draft Delegated Regulation on registration conditions to promote the use of SME Growth Markets for the purposes of the revised Markets in Financial Instruments Directive. MiFID II introduced SME Growth Markets as a new sub-category of multilateral trading facility in January 2018 to facilitate access to capital for Small and Medium-sized Enterprises. The proposed delegated regulation will amend existing delegated legislation under MiFID II to address regulatory barriers to the take-up of SME Growth Markets. The European Commission has also published separately a legislative proposal to make adjustments to the Market Abuse Regulation and the Prospectus Regulation is to promote the use of SME Growth Markets.

Read more.

The European Commission has published a package of legislative reforms on sustainable finance. The aim of the package of reforms, which form part of the Commission's broader Capital Markets Union initiative, is to ensure that environmental, social and governance considerations are consistently integrated into the investment and advisory process across sectors. The proposed measures comprise:

(i) a proposed Regulation on the establishment of a framework to facilitate sustainable investment. This will establish an EU-wide classification system for environmentally sustainable economic activities and ensure that investment strategies are oriented towards economic activities that genuinely contribute to achieving environmental objectives. The proposed Regulation will empower the European Commission to adopt delegated acts to specify technical screening criteria to assess the contribution of a given economic activity to a particular environmental objective as substantial. A list of six environmental objectives is set out in the proposed regulation, namely: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; and protection of healthy ecosystems (which includes biodiversity conservation).

Read more.

The U.S. Office of the Comptroller of the Currency issued a bulletin encouraging banks to offer responsible short-term small-dollar loans to help meet the credit needs of their customers.  The OCC reminded banks, however, that any short-term small-dollar lending should be done in accordance with three core lending principles, including:  (i) that all bank products should be consistent with safe and sound banking, treat customers fairly and comply with applicable laws and regulations, (ii) that banks should effectively manage the risks associated with the products they offer, including credit, operational, compliance and reputational risk, and (iii) that all credit products should be underwritten based upon reasonable policies and practices, including guidelines governing the amounts borrowed, frequency of borrowing and repayment requirements.  The OCC bulletin also lists a number of policies and procedures topics specific to short-term small dollar lending, including with respect to loan pricing and repayment terms, effective management of credit risk, loan servicing and timely reporting of repayment activities to credit bureaus.  In addition, the OCC bulletin encourages banks to discuss their plans to offer short-term small-dollar lending products with their OCC portfolio manager or other OCC supervisory authority, especially if the offering of these products represents a substantial deviation from a bank’s existing business plan.

View ​full text of the OCC bulletin.

The Sanctions and Anti-Money Laundering Act 2018 has received Royal Assent and came partly into force on May 23, 2018. The majority of the provisions of the Act will enter into force on a day appointed by the Secretary of State. The Act will provide a domestic sanctions framework after the U.K. leaves the EU, enabling the U.K. to continue to meet its international obligations and use sanctions as a national security and foreign policy tool.

The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.

View the Sanctions and Anti-Money Laundering Act 2018.

The European Banking Authority has launched two consultations on standards for estimation and identification of an economic downturn in Internal Ratings Based modelling.

The first consultation sets out draft Regulatory Technical Standards on the specification of the nature, severity and duration of an economic downturn in accordance with the Capital Requirements Regulation. The nature of the economic downturn is defined as a set of relevant economic factors and its severity is specified via the most severe values observed on the relevant economic factors over a given historical period. The duration of an economic downturn is specified using the concept of a "downturn period", namely the period of time where the peaks or troughs, which relate to the most severe values of one or several economic factors, are observed. The aim of the RTS is to ensure that institutions using the IRB approach can use a well-defined and common specification of the nature, duration and severity of an economic downturn for portfolios relating to comparable types of exposure.

Read more.

The U.K. Prudential Regulation Authority has published a Consultation Paper, setting out the PRA's proposals on its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The incoming EU framework consists of: (i) the Securitization Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation.

Read more.

The U.K. Financial Conduct Authority and the Insolvency Service have signed a Memorandum of Understanding to establish a framework for their cooperation in matters of common interest.

Both the FCA and the IS have statutory powers of investigation and enforcement under their respective enabling legislation. Both organizations are also legally obliged, from May 25, 2018, to handle personal information according to the requirements of the EU General Data Protection Regulation.

The areas of cooperation include misconduct, investigations and enforcement within their respective remits.

The MoU outlines the structure and process for the FCA and IS to be able to exchange information (including personal data) and intelligence, in a lawful and proportionate manner, to further their respective objectives. The MoU includes details of the circumstances in which the FCA will be permitted to disclose confidential information (such disclosure generally being prohibited under the Financial Services and Markets Act 2000) and outlines how each of the two organizations will treat information that is subject to legal professional privilege, including the circumstances in which privilege might be waived. The FCA and IS have agreed to apply a number of principles for the exchange and use of information, including the sharing of intelligence, the use of information for investigations and enforcement or other action, how data security controls will be applied and how data breaches will be handled.

The FCA and IS will monitor the effectiveness of the MoU and review it from time to time as necessary. The MoU has been published on the website of each organization.

View the MoU.

The Office of Financial Sanctions Implementation has published an updated version of its guidance on monetary penalties for breaches of financial sanctions. The guidance was first published in April 2017. The update sets out more detail on OFSI's expectations around voluntary disclosure of breaches of financial sanctions. The chapter on the right of individuals to appeal to the Upper Tribunal has also been updated.

View the updated guidance.

A Commission Delegated Regulation has been published in the Official Journal of the European Union, setting out Regulatory Technical Standards on procedures for excluding from the own funds requirement for credit valuation adjustment risk transactions with non-financial counterparties that are established in a third country and that do not hold positions over the clearing threshold under the European Market Infrastructure Regulation (so called NFC-s). The RTS supplement the requirements of the Capital Requirements Regulation.

Under the CRR, transactions between an institution and a NFC- are excluded from the own funds requirements for CVA risk, irrespective of whether that NFC- is established in the EU or in a third country. As NFC-s established in third countries are not subject directly to EU regulation, the RTS clarify that EU firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds.

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A Commission Implementing Regulation has been published in the Official Journal of the European Union, setting out changes to Implementing Technical Standards contained in a Commission Implementing Regulation published in 2016. The ITS cover benchmarking portfolios, reporting templates and reporting instructions for the purposes of the supervisory benchmarking exercise under the Capital Requirements Directive. The benchmarking exercise is conducted at least annually to assess the internal approaches used by firms for calculating own funds. The European Banking Authority consulted on the proposed revisions to the ITS in a consultation which closed in January 2018 and subsequently submitted draft revised ITS to the European Commission, on which provisions of the Amending Regulation are based.

Read more.

The U.K. Joint Money Laundering Steering Group has finalized minor changes to Part II of its anti-money laundering and counter-terrorist financing guidance in relation to two sectors, namely asset finance and syndicated lending.

The JMLSG consulted on the proposed changes in a consultation that closed on March 30, 2018. The revisions do not make substantive changes to the existing guidance. Instead, the revised guidance provides clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.

View the JMLSG announcement.

View details of the JMLSG consultation.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the importance of finding the correct balance in cross-border resolution.

Read more.

The U.S. Financial Crimes Enforcement Network announced that it was granting a 90-day exception from compliance with the beneficial ownership requirements under its Customer Due Diligence Requirements for Financial Institutions rule.

Read more.

A Commission Implementing Regulation has been published in the Official Journal of the European Union, setting out Implementing Technical Standards for a standard reporting template to be used by money market fund managers when complying with their reporting requirements under the Money Market Funds Regulation. The Commission Implementing Regulation is based on the final draft ITS submitted by the European Securities and Markets Authority to the European Commission in November 2017.

The MMFR requires MMF managers to report quarterly to the relevant national regulator, supplying information including on the characteristics, portfolio indicators, assets, and liabilities of the MMF. This information is required to enable those national regulators to detect, monitor and respond to risks in the MMF market. The information is also forwarded to ESMA, which maintains a central database of MMFs.

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The Council of the European Union has adopted the EU's Fifth Money Laundering Directive, following the agreement reached between the European Parliament and the Council in December 2017. 5MLD will amend the existing EU Money Laundering Directive.

Read more.

The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have published an updated version of the sound practices document, "Criteria for identifying simple, transparent and comparable short-term securitisations", which was originally published in 2015. The Basel Committee has also published an updated version of its standards document, "Capital treatment for simple, transparent and comparable short-term securitisations".

The Basel Committee and IOSCO consulted on the proposed updated Criteria in July 2017. The Basel Committee consulted at the same time on proposed additional guidance and requirements for the purpose of applying preferential regulatory capital treatment for banks acting as investors in, or as sponsors of, STC short-term securitizations, typically in asset-backed commercial paper structures.

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 published the customer due diligence and beneficial ownership examination sections of the Federal Financial Institutions Examination Council BSA/AML Examination Manual.

Read more.

The U.K. Competition and Markets Authority has issued the latest in a series of working papers as part of its Investment Consultants Market Investigation. This latest Working Paper sets out the CMA's findings following its analysis of whether pension schemes that are more engaged with the market receive better outcomes, in terms of price, than pension schemes that are less engaged. It should be read alongside the Issues Statement on the investigation, published in September 2017, as well as the other working papers, published earlier in 2018.

The CMA's emerging findings are that engaged schemes pay significantly less, and disengaged schemes pay significantly more, when schemes transition into fiduciary management with the same provider as they used for investment consultancy services. The CMA believes that this is indicative that the market is not working well for disengaged schemes, or for schemes facing barriers to engagement.

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A draft of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been laid before Parliament. The draft Order makes amendments to the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

AFIBs, such as Sukuk, are currently not permitted to trade on multilateral trading facilities or organised trading facilities, due to the wording of the AFIB definition in the RAO, however conventional bonds can be traded on these venues. This disparity of treatment between AFIBs and conventional bonds creates an obstacle to the use of U.K. venues for the issue and trading of AFIBs and is 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. The draft Order amends the RAO to expand the criteria for AFIBs to qualify as a specified investment under the RAO. This will allow AFIBs to be traded on U.K. MTFs and OTFs and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.

Read more.

The Board of Directors of the Bank for International Settlements has announced the re-election of Jens Weidmann, President of the Deutsche Bundesbank, as Chair of the BIS Board.

View the announcement.

The European Central Bank has published a report on the thematic review on effective risk data aggregation and risk reporting. The ECB launched the thematic review in 2016 to carry out an in-depth assessment of credit institutions' governance, data aggregation capabilities and reporting practices. The thematic review was based on 25 Eurozone significant institutions and took into account the Basel Committee on Banking Supervision's principles for effective risk data aggregation and risk reporting.

The ECB has ascertained that implementation of the Basel Committee's principles is unsatisfactory and that the issues are mostly as a result of a lack of clarity around responsibility for data quality. The ECB considers that further efforts are needed to enhance the effectiveness of risk data aggregation and risk reporting.

View the report.

Following a consultation late last year, the Committee on Payments and Market Infrastructure has published the final strategy for reducing the risk of wholesale payments fraud related to endpoint security. The strategy is directed to all relevant public and private sector stakeholders in reducing the risk of wholesale payments fraud, including the operators of wholesale payments systems and messaging networks, their participants and relevant regulators and authorities responsible for supervising these operators and participants.

The strategy comprises seven elements that are intended to work holistically for preventing, detecting, responding to and communicating about wholesale payments fraud. The elements are:

1. Identifying and understanding the range of risks;
2. Establishing endpoint security requirements;
3. Promoting adherence;
4. Providing and using information and tools to improve prevention and detection;
5. Responding in a timely way to potential fraud;
6. Supporting ongoing education, awareness and information-sharing; and
7. Learning, evolving and coordinating.

The CPMI and each of its member central banks have committed to promoting the effective operationalization of the strategy within and across jurisdictions and systems. They will be monitoring progress in 2018 and 2019 with a view to assessing whether further action is needed.

View the strategy.

The U.S. Department of Labor issued a Field Assistance Bulletin regarding an anticipated mandate by the United States Court of Appeals for the Fifth Circuit effectuating its opinion that vacates the Fiduciary Rule and related exemptions and amendments in their entirety.  The DOL guidance notes that fiduciaries may continue to rely on its previously issued temporary enforcement policy, which notes that the DOL will not pursue prohibited transaction claims against fiduciaries who are working in good faith to comply with certain prohibited transaction exemptions issued in connection with the Fiduciary Rule or treat those fiduciaries as violating the applicable prohibited transaction rules.  In addition, the temporary enforcement policy notes that investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit’s decision.

View full text of the DOL bulletin.

The U.S. Board of Governors of the Federal Reserve System approved final amendments to Regulation A (Extensions of Credit by Federal Reserve Banks).  The amendments make technical changes to provisions regarding establishing the primary credit rate in a financial emergency and delete obsolete provisions of Regulation A. With respect to the former, Regulation A will be amended to provide that in a financial emergency (defined as “a significant disruption to the U.S. money markets resulting from an act of war, military or terrorist attack, natural disaster, or other catastrophic event”), the primary credit rate will be the target federal funds rate or, if the Federal Open Market Committee has established a target range for the federal funds rate, a rate corresponding to the top of the target range. The amendments also delete references to credit ratings for Term Asset-Backed Securities Loan Facilities, given that the program has expired. The amendments to Regulation A will take effect on June 8, 2018.

View full text of the final rule.

The European Banking Authority has announced that the European Commission had requested technical advice on implementing the final Basel III reforms into EU law. The Basel Committee on Banking Supervision published the final revisions to Basel III on December 7, 2017. The revisions cover the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards will take effect from January 1, 2022, except for the output floor which may be phased-in until January 1, 2027.

The Commission has asked the EBA to provide technical advice on the potential impact of the revisions on the EU banking sector and the wider EU economy and on any potential implementation challenges. The Commission has also requested that the EBA consider the potential changes to the Basel market risk framework, on which the Basel Committee is currently consulting.

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The Financial Stability Board has published proposed Recommendations for consistent national reporting of data concerning the use of compensation tools to address misconduct risk in significant financial institutions. The FSB is proposing a supervisory framework for the collection and reporting of data, which can be used by supervisors for monitoring and analyzing the effectiveness of compensation frameworks in addressing misconduct risk. The information so collected is intended to assist supervisors to understand and review: (i) the importance of individual conduct within the firm's incentive compensation framework and the role of compensation policy in establishing a sound risk and conduct culture; and (ii) the use of compensation tools in practice and their role in ensuring accountability when misconduct occurs.

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The European Commission has adopted a draft delegated regulation under the Fourth Money Laundering Directive. The draft regulation sets out Regulatory Technical Standards on the criteria that EU Member States should use when deciding whether or not payment service providers or electronic money institutions that are headquartered in another EEA Member State and that operate establishments (other than a branch) in their territory should appoint a central contact point for compliance with anti-money laundering and counter-terrorist financing obligations. The draft regulation also sets out RTS on the functions that may be entrusted to such a central contact point.

The draft regulation will now be subject to a three-month scrutiny period by the European Parliament and the Council of the European Union. Following this period, should neither of the co-legislators object, the draft regulation will then be published in the Official Journal of the European Union and enter into force twenty days later. Once in force, the delegated regulation will have direct effect across the EU.

View the draft delegated regulation.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the relationship between liquidity and other post-crisis regulation and the Federal Reserve Board’s balance sheet.

Read more.

The Joint Committee of the European Supervisory Authorities has published two consultations on proposed amendments to: (i) Regulatory Technical Standards on the clearing obligation under the European Market Infrastructure Regulation for certain classes of OTC derivatives; and (ii) RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP. The proposed changes aim to incorporate the provisions of the Securitization Regulation (also known as the STS Regulation), which entered into force on January 17, 2018.

The Securitization Regulation notes that there is a degree of substitutability between covered bonds and securitizations. The Securitization Regulation therefore amends EMIR, among other things, to ensure consistency of treatment between the regime for derivatives transactions associated with covered bonds and the one for securitizations, with respect to the clearing obligation and the margin requirements for non-centrally cleared OTC derivatives. The ESAs have been mandated to make the necessary changes to existing RTS to effect consistent treatment.

Read more.

The Financial Industry Regulatory Authority published amendments to FINRA Rule 3310, the anti-money laundering compliance program rule.  The FINRA amendments seek to harmonize Rule 3310 with the Customer Due Diligence Requirements for Financial Institutions rule issued by the U.S. Financial Crimes Enforcement Network on May 11, 2016.  Amended Rule 3310 requires firms to conduct ongoing customer due diligence, establish procedures to understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, maintain and update customer information, including information regarding the beneficial ownership of legal entity customers.  Amended Rule 3310 becomes effective on May 11, 2018, which coincides with the compliance date for FinCEN’s CDD Rule.

View full text of Regulatory Notice 18-19.

The European Money Markets Institute has announced the start of the testing phase for a new hybrid methodology it proposes to introduce to determine Euribor. The testing phase will run from May 2, 2018 to July 31, 2018.
 

EMMI launched a consultation on the introduction of the hybrid methodology and on some related issues in March 2018. That consultation closes on May 15, 2018 and EMMI intends to publish a summary of responses in June 2018.

The testing phase will involve EMMI conducting data analysis and assessing the methodology's parameters. EMMI hopes to gain a better understanding of panel banks' overall contribution patterns and how they make submissions using Level 3 of three-level "hybrid" methodology. Based on the results, EMMI will launch a second consultation in Q3 2018.

It is intended that the new hybrid methodology will be launched by Q4 2019 at the latest, in line with the transitional period provided by the EU Benchmarks Regulation.

View the EMMI announcement.

View details of the March 2018 consultation.

The Bank of England and the Payment Systems Regulator have announced that the New Payment System Operator is now responsible for the operation of BACS and Faster Payments, two U.K. retail payment systems. The NPSO is expected to assume responsibility for the Cheque and Credit Clearing Company over the next few months. The consolidation of the three payment systems was one of the recommendations made in the Payments Strategy Forum's November 2016 report, which sets out a wide-ranging strategy for reforming the U.K. retail payments industry. The NPSO will also be responsible for delivering the New Payments Architecture, which is an industry-led initiative to increase competition, resilience and innovation across the payments and banking industry.

View the BoE and PSR announcement.

View the NPSO press release.

The U.S. District Court for the District of Columbia granted the U.S. Office of the Comptroller of the Currency’s motion to dismiss a lawsuit brought by the Conference of State Bank Supervisors challenging the OCC’s authority to grant special purpose national bank charters to companies that provide bank-like services but do not accept deposits (largely FinTech companies.) The D.C. District Court’s decision follows the December 2017 dismissal by the U.S. District Court for the Southern District of New York of a similar lawsuit filed by the New York State Department of Financial Services against the OCC. The court found that CSBS did not have standing to bring the action, as it did not plead an injury in fact and that any of the grounds asserted by the CSBS were speculative and contingent on whether the OCC in fact charters a FinTech company, and that regardless, CSBS failed to identify an imminent injury to a particular member of its organization.  In addition, the court dismissed the action on ripeness grounds, citing, among other reasons, that the OCC still has yet to issue a charter to a FinTech company.

View full text of the court’s decision.

U.S. Treasury Counselor to the Secretary, Craig Phillips, spoke at the International Swaps and Derivatives Association’s 33rd annual general meeting regarding regulatory policies of relevance to ISDA members.

Read more.

The U.K. Prudential Regulation Authority has published a Policy Statement setting out its proposals to amend the Groups policy framework it has in place for the application of prudential standards to firms on an individual and consolidated basis within banking groups.

The PRA consulted between October 2017 and January 2018 on proposals to enable: (i) assessment and mitigation of the risks to group resilience due to the use of "double leverage" (which occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally); (ii) assessment and mitigation of the risks highlighted by prudential requirements applied by local national regulators on overseas subsidiaries of U.K. consolidation groups; and (iii) improved monitoring of the distribution of financial resources across different group entities.

Following feedback received, the PRA has made three changes to the proposals, which it does not consider to be significant changes. The first and second changes affect the PRA Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" by: (a) changing the definition of "double leverage" so that it is accounting based to reflect the reporting practices of stand-alone holding companies; and (b) clarifying the level of application of the double leverage formula. The third change affects the PRA Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital" by amending the formula for double leverage.

Read more.

The U.K. Prudential Regulation Authority has published a Policy Statement and a finalized Supervisory Statement following a consultation which ran from December 2017 to March 2018 on model risk management principles for stress testing. In the consultation, the PRA proposed that firms that use stress testing models, and that participate in the Bank of England's annual concurrent stress test, should follow in full a set of four proposed principles when establishing and adopting risk management practices in relation to their models. Firms not participating in the BoE's annual stress test should instead seek to apply the four principles on a proportionate basis, taking into account their size, complexity, risk profile and the relevance to the firm of using stress test models.

The Policy Statement sets out feedback on the three responses it received to the consultation. The PRA has made a number of changes to the consultation draft of the Supervisory Statement to address issues raised by respondents. In particular, the PRA has made changes to the wording of Principles 1.2 (Model Inventory), 2.1 (Board oversight), 2.3 (Model developers, owners, users and control functions), 3.1 (Model purpose and design), 3.7 (Business Involvement), 3.8 (Model uncertainty), 3.9 (Model Monitoring), 4.1 (Scope and validation of review) and 4.2 (Independence). In addition, it has included a further section in the Supervisory Statement to set out its expectations on the application of materiality considerations.

Read more.

The Prudential Regulation Authority has published a Policy Statement confirming that updated Pillar 2 reporting requirements will apply from October 1, 2018 for banks, building societies and PRA-designated investment firms. This follows the PRA's consultation on the proposed updates, which ran from December 6, 2017 to March 5, 2018. The PRA proposed a new data item to capture stress-testing data currently included in firms' Internal Capital Adequacy Assessment Process documents. This change aims to increase transparency and comparability in stress test data provided alongside ICAAP documents and to decrease the operational risks associated with capturing stress test data manually. The PRA also proposed reducing the frequency of reporting of the data items in the Reporting Pillar 2 part of the PRA Rulebook for some firms as well as consolidating the definition of several reporting parts of the PRA Rulebook into the Glossary.

Read more.

Thomas M. Hoenig announced that, effective April 30, 2018, he was stepping down as Vice Chairman and Member of the Board of Directors of the U.S. Federal Deposit Insurance Corporation.  Mr. Hoenig served a full six-year term at the FDIC, since joining in April of 2012. Prior to his service with the FDIC, Mr. Hoenig served as President of the Federal Reserve Bank of Kansas City, and was a member of the Federal Open Market Committee.

View full text of the FDIC press release.

The European Commission and HM Treasury have announced that the European Central Bank and the Bank of England will establish a technical working group on risk management in the period around March 30, 2019 for financial services. The U.K. leaves the EU on March 29, 2019, although the provisionally agreed transition period means that most EU laws will continue to apply in the U.K. until December 31, 2020.

The Terms of Reference for the working group state that the European Commission and HM Treasury will attend the group as observers. Other regulatory authorities will be invited to attend on an issue-specific basis.

View the announcement.

View the terms of reference.

The European Banking Authority has launched a consultation on draft Guidelines on disclosure of non-performing and forborne exposures. Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks' viability and lending capabilities. The European authorities have agreed various actions to tackle NPLs in Europe, resulting in several recent steps being taken by the European Commission, the European Central Bank and the EBA.

The proposed Guidelines set out the content, format and frequency of disclosures for non-performing exposures, forborne exposures and foreclosed assets. The draft Guidelines would apply to all banks that are subject to any of the disclosure requirements under the Capital Requirements Regulation and would apply to all exposures that fall within the definition of either non-performing or forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The level and frequency of disclosure will depend on the significance of a firm and the level of NPEs.

The draft Guidelines should be read with the EBA's proposed Guidelines on sound risk management practices for banks for managing NPEs, FBEs and foreclosed assets.

As with the proposed risk management Guidelines, the EBA intends to publish the finalized disclosure Guidelines before the end of 2018 and for the Guidelines to apply from January 1, 2019. Feedback on the proposed Guidelines can be provided by June 27, 2018. The EBA is holding a public hearing on the draft Guidelines on June 27, 2018.

View the consultation paper.

View the EBA's proposed Guidelines on sound risk management practices for NPEs.

View the Commission's proposals to address the build-up of NPLs.

The Chair of the European Securities and Markets Authority, Steven Maijoor, has written to the European Commission recommending that clarification of certain provisions of the European Market Infrastructure Regulation should be made during the current revision of EMIR. EMIR requires clearing members of CCPs to provide initial margin and default fund contributions. ESMA has noticed that CCPs across the EU, as well as their national regulators, are adopting different approaches to these requirements for public entities. Some CCPs and national regulators exempt public entity clearing members from the requirement to provide initial margin and default fund contributions while others grant no exemptions.

ESMA requests the Commission to consider whether the scope of EMIR needs to be clarified and whether a specific amendment could be made to EMIR during the current review process.

The European Commission published legislative proposals to amend EMIR in May - the technical revisions in so-called EMIR 2.1 - and June 2017 - the Brexit-driven CCP "location policy" or so-called EMIR 2.2, which attempts to force the relocation of UK CCPs to the Eurozone. The legislative procedures to finalize those changes are ongoing.

View the letter.

View the Commission's technical amendments legislative proposal.

View the Commission's location policy legislative proposal.