The Financial Stability Board has opened a second consultation on governance of the Unique Product Identifier. The FSB identified UPIs in September 2014 as a critical element towards a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique transaction identifier and the harmonization of other key data elements. The receipt of aggregated derivatives reporting data will enable national regulators to better assess systemic risk and perform other market oversight functions.

The purpose of the UPI is to uniquely identify OTC derivatives products that regulators require, or may require in the future, to be reported to trade repositories. The UPI system will assign a code to each OTC derivative product which maps to a set of data elements describing the product in a corresponding reference database, the UPI Reference Data Library. The Library will be administered by either one or a number of UPI Service Provider(s).

This second consultation paper seeks feedback on specific issues relating to the UPI Governance Arrangements, including fee models and cost recovery, intellectual property, standardization and potential restrictions on the activities of a UPI service provider. The FSB is also asking for feedback on whether a single UPI service provider model would be more suitable than having a competitive multi-UPI service provider model.

The consultation closes on May 24, 2018. The FSB intends to finalize the UPI governance arrangements and identify one or more UPI service provider(s) by mid-2019.

View the consultation paper.

The U.K. Competition and Markets Authority has published three more consultative working papers as part of its Investment Consultants Market Investigation. The CMA is assessing the supply and acquisition of investment consultancy services and fiduciary management services. These working papers should be read alongside the Issues Statement on the investigation, published in September 2017, as well as the other working papers, published earlier this year.

The first working paper is on barriers to entry and expansion in the investment consultancy and fiduciary management sectors. The paper sets out the CMA's emerging findings, focusing on the financial and other costs of entry and expansion. The CMA has neither identified, nor concluded whether there is, any adverse effect on competition in relation to barriers to entry or expansion. The CMA's separate emerging finding in relation to new market entrants is that the barriers are not excessively high but are greater in the fiduciary management sector than in the investment consultancy sector. In relation to barriers to expansion, the CMA's emerging finding is that the potential barriers to winning new clients are greater than the barriers to new entry and are also greater in the fiduciary management sector than in the investment consultancy sector.

Read more. 

ICE Benchmark Administration, the administrator of the LIBOR benchmark, has published a report setting out how it proposes to transition panel banks to the new "Waterfall Methodology" outlined in its ICE LIBOR Output Statement, which was updated following a feedback statement in March 2017 on the evolution of the London Interbank Offered Rate. LIBOR is a widely used benchmark for short-term interest rates. It is produced for five currencies and seven tenors, resulting in the publication of 35 rates every applicable London business day.

The ICE LIBOR Output Statement sets out a single LIBOR definition and a more standardized, transaction data-driven methodology for LIBOR panel banks’ submissions. IBA’s intention in introducing the new methodology is to publish, in all market circumstances, a wholesale funding rate anchored in unsecured, wholesale funding transactions to the greatest extent possible.

Read more.

A Commission Implementing Regulation has been published in the Official Journal of the European Union. This Amending Regulation, which takes effect on May 15, 2018, revises a Commission Implementing Regulation adopted in October 2016 under the Capital Requirements Regulation.

Under the CRR, firms that use the Standardised Approach for the purposes of calculating their capital requirements for credit risk can use external credit assessments to determine the credit quality of exposures. These external credit assessments must be made by External Credit Assessment Institutions. ECAIs are either credit rating agencies registered under the CRA Regulation or central banks that issue credit ratings (which are exempt from the application of the CRA Regulation). The 2016 Implementing Regulation set out Implementing Technical Standards for the mapping of the credit quality of exposures (obtained from ECAIs) to their corresponding risk weights.

The Joint Committee of the European Supervisory Authorities consulted in July 2017 on the need to make changes to the 2016 Implementing Regulation to reflect the fact that, since it was adopted, five additional ECAIs had been recognized and one ECAI had been de-registered. The Joint Committee submitted draft revised ITS to the Commission in December 2017 and the Commission has adopted them in the Amending Regulation.

View the Amending Regulation ((EU) 2018/634).

View details of the July 2017 consultation.

The Financial Action Task Force held its annual private sector consultative forum in Vienna on April 23 – 24, 2018. The annual forum provides a platform for the FATF to learn more about the private sector's views and concerns on issues related to anti-money laundering and countering the financing of terrorism. Attendees at the forum included representatives from the financial sector and other businesses and professions subject to AML/CTF obligations.

Read more.

The Basel Committee on Banking Supervision has published its 14th progress report on implementation of the Basel III prudential framework, based on responses from Basel Committee member jurisdictions, and reports the status as of the end of March 2018. The Report sets out in tabular form the results of the Basel Committee's monitoring of the adoption progress of all Basel III standards agreed to date, which will come into effect by 2022. The table omits details of those Basel III standards that have already been implemented by all Basel Committee member jurisdictions. It sets out the ongoing implementation progress of each member jurisdiction on aspects of the risk-based capital standards, leverage ratio requirements, liquidity requirements, the requirements for systemically important banks, interest rate risk in the banking book, the supervisory framework for large exposures and the Pillar 3 disclosure requirements.

Read more.

The European Commission has published a proposal for a Directive on the protection of persons reporting on breaches of Union law. Whistleblowers help prevent damage and detect threat or harm to the public interest that may otherwise remain hidden, but fear of retaliation can often discourage them from reporting concerns.

The importance of providing effective whistleblower protections for safeguarding the public interest has been acknowledged both at European and international level. At EU level, whistleblower protections are currently provided only for specific sectors and to varying degrees. This means that, in many situations, whistleblowers are not properly protected against retaliation. The proposed Directive will address this fragmentation by encompassing "the broadest possible range of categories of persons, who, by virtue of work-related activities (irrespective of the nature of these activities and whether they are paid or not), have privileged access to information about breaches." Areas covered include financial services, money laundering and terrorist financing.

Read more.

A two-page corrigendum to the revised Payment Services Directive has been published in the Official Journal of the European Union. The corrigendum makes 11 corrections to the text of the PSD2 across one recital and eight of the directive's articles.

In addition to minor textual corrections, the corrigendum makes important clarifications to provisions on: (i) the liability of a payment service provider for initiation or execution of payment transactions; (ii) liability in respect of payment initiation services among those provisions of PSD2 that can be disapplied, or applied only in part, by agreement between a payment service provider and a non-consumer payment service user; (iii) the limited circumstances in which a payment services provider is permitted to charge for fulfilling information obligations or performing corrective or preventive measures; and (iv) the circumstances in which compensation can be obtained by a payment service provider from another payment service provider or intermediary for losses incurred for non-execution or defective execution of a payment order.

View the corrigendum.

The Bank of England has confirmed that it has implemented its reforms to the SONIA interest rate benchmark. SONIA, the Sterling Overnight Index Average Rate, which has been administered since April 2016 by the BoE, is the existing unsecured reference rate for the sterling Overnight Indexed Swap market.

The BOE announced in October 2017 that the methodology for calculating SONIA would move from being based on a market for brokered deposits (which has limited transaction volumes) to a methodology involving a volume-weighted trimmed mean. The BOE has also separately published the key features and policies for SONIA, which summarize how SONIA is calculated and administered, including the governance arrangements. The BoE intends to publish an assessment of the benchmark's compliance with the International Organization of Securities Commissions' Principles for Financial Benchmarks in Summer 2018.

View the BoE press release.

View the SONIA key features and policies document.

The Financial Stability Board has published a report, "Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors." The report is part of the FSB's work on measures to reduce misconduct in the financial sector and follows the FSB's stocktake of endeavors by international bodies, national authorities, industry associations and firms.

The Toolkit is designed to provide firms and authorities with a set of tools that can be used, taking into account the applicable legislative, judicial and regulatory frameworks. Rather than creating an international standard or adopting a prescriptive approach, the FSB's Toolkit allows firms and supervisors to decide whether and how to use the Toolkit to address misconduct risk. The FSB also states that firms and their supervisors can use individual tools separately or in combination.

The Toolkit comprises 19 tools, divided into three categories and assigned between firms and national authorities.

Read more. 

The European Banking Authority has published consultations on two sets of draft guidelines under the Securitization Regulation (also known as the STS Regulation) which, along with targeted amendments to the Capital Requirements Regulation, forms part of the new EU Securitization Framework for simple, transparent and standardized securitizations from January 2019. The STS Regulation establishes two sets of criteria for STS securitizations, namely for term (i.e. non-Asset Backed Commercial Paper) securitizations and for short-term (i.e. ABCP) securitizations respectively. The EBA is mandated under the STS Regulation to develop, by October 18, 2018, (i) guidelines and recommendations interpreting the STS criteria applicable to non-ABCP securitization; and (ii) guidelines and recommendations interpreting the transaction level and programme level criteria applicable to ABCP securitization.

Read more.

U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Global Finance Forum regarding maintaining resiliency across economic cycles.  Governor Brainard drew comparisons between the current state of the economy and the economy prior to the financial crisis, noting positive growth, but highlighting elevated risks in asset valuation and business leverage.  Governor Brainard discussed that post-crisis regulation has greatly improved the capital and liquidity positions of financial institutions, and highlighted the importance of maintaining a dynamic capital regime, but cautioned against purely backward-looking analysis, rather than proactively seeking out emerging risks.  Governor Brainard discussed the importance of properly tailoring and calibrating existing regulations, such as the countercyclical capital buffer rule, but also stressed the importance of implementing additional critical regulatory elements, such as finalizing the net stable funding ratio, which she noted was close to finalization, and the Dodd-Frank Act limits on large counterparty exposure.  Governor Brainard also expressed her support for improving the efficiency of the Volcker Rule without undermining its efficacy, and for moving forward with minimum haircuts for securities financing transactions.  Governor Brainard distinguished these regulations, designed to promote the resiliency of large financial institutions, with the regulation of smaller institutions, suggesting that with respect to the latter, regulations should be appropriately tailored to reduce regulatory burden.

View full text of Governor Brainard's speech.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding the Federal Reserve Board’s regulation and supervision of financial institutions.  Vice Chairman Quarles submitted identical remarks to the U.S. House Financial Services Committee two days earlier on April 17, 2018.

Read more.

The U.K. Financial Conduct Authority has published a "Dear CEO" letter to the Chief Executive Officers of U.K. listed companies on capital instruments expressed to be perpetual, irredeemable or in some other way that suggests permanence. The FCA wishes to ensure that investors have access to all the information necessary for them to be able to assess properly the risks and rewards attaching to such shares. The letter lists the information that listed companies may wish to make readily accessible to all holders and potential holders of such shares, including:

• the terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer or admission of the shares, and details of any changes made after the issue of the shares;
• the articles of association of the issuer, particularly the articles relevant to the shares concerned; and
• a Q&A or similar publication.

Read more.

The U.S. Treasury Department and HM Treasury have issued a joint statement announcing the establishment of a Financial Regulatory Working Group. The Working Group will be a forum for treasury staff and financial regulatory authorities to exchange views on the regulatory relationship between the United States and the U.K. The objectives of the Working Group will be to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.

View the statement.

The U.S. Securities and Exchange Commission published three proposed rules with request for public comment that would seek to enhance and clarify the standards of care applicable to broker-dealers and investment advisers when dealing with retail clients. The three proposals are designed to be interlocked and complementary, and, as noted by SEC Chairman Jay Clayton in his introduction of the proposals, are aimed, in part, at better aligning regulations and obligations of broker-dealers and investment advisers with the expectations of retail investors, and preserving retail investor choice.

Read more.

U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Federal Reserve Bank of Richmond Baltimore Community Development Gathering regarding efforts to modernize the Community Reinvestment Act.  Governor Brainard provided a brief summary of the history and importance of the CRA, noting that the current CRA regulations date back to 1995 and are in need of update to better reflect how banks currently operate and the customer base they serve, given structural and technological changes in the banking industry.

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 announced proposed revisions to the agencies’ regulatory capital rules to reflect changes to U.S. generally accepted accounting principles regarding credit losses.  The proposed revisions will identify which of the new credit loss allowances will be eligible for inclusion in a financial institution’s regulatory capital.  The proposal will further provide for an optional transition period that will allow financial institutions to phase in the adverse effects on certain regulatory capital components over a three-year period.  The proposal also seeks to amend the stress testing regulations to allow covered institutions that have adopted these changes to U.S. GAAP to not include the effects from adopting this new standard until the 2020 stress test cycle.  The proposed amendment will also make conforming changes, including with respect to certain definitions, disclosures and regulatory reporting forms.  Comments to the proposal are due 60 days from the proposal’s publication in the Federal Register.

View ​full text of the agencies’ proposal.

The European Banking Authority has launched a consultation on draft Guidelines on certain types of exposures and the circumstances in which they can be categorized as being associated with high risk for regulatory capital purposes. The Capital Requirements Regulation provides that when firms use the Standardised Approach for determining minimum capital requirements for credit risk, risk weightings must be allocated to an exposure, based on its exposure class. One of the exposure classes is "exposures associated with particularly high risk," which are: investments in venture capital firms or private equity, speculative immovable property financing and investments in Alternative Investment Funds where the fund's mandate allows a higher leverage than required in the UCITS Directive. An exposure that is of particularly high risk receives a risk weight of 150%.

The EBA's mandate is to prepare guidelines on the types of exposures other than those set out in the CRR that must be associated with particularly high risk and under which circumstances. The EBA's draft Guidelines aim to implement that mandate by specifying that firms should classify exposures as items of high risk where the exposure has a "high risk of loss due to being structurally different from common exposures of the same asset class." The EBA provides a list of those exposures that would fall within the scope of this category.

Read more. 

The European Commission has published a proposal for a directive aimed at increasing security within EU member states and across the EU by improving access to financial information, including bank account information, to the relevant authorities and bodies in charge for the prevention, investigation and prosecution of serious forms of crimes. It is envisaged that this will enhance their ability to conduct financial investigations and analysis and improve their cooperation. In addition, the proposal contains measures to improve the ability of Financial Intelligence Units to carry out their tasks under the 4th Money Laundering Directive.

Currently, most EU national authorities competent for the prevention, detection, investigation or prosecution of criminal offences do not have direct access to information on the identity of bank account holders held in centralized account registries or data retrieval systems. Indeed, such registries and systems are currently only operational in 15 EU member states and the relevant authorities only have direct access in 6 of those member states. This lack of, or lack of access to, centralized information means the relevant authorities must send blanket information requests to all financial institutions. Delays in replies to these blanket requests can significantly hamper criminal investigations.

Read more.

The European Commission has published a legislative proposal to extend until December 15, 2018 the transitional periods related to own funds requirements for exposures to CCPs set out in the Capital Requirements Regulation and European Market Infrastructure Regulation. Thirty-two third-country CCPs have been recognized by the European Securities and Markets Authority to date. However, there are still third-country CCPs that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized.

Feedback on the proposal can be provided until May 15, 2018.

The proposals to amend the CRR include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third-country CCP.

View the proposed ITS and the consultation feedback page.

President Donald Trump announced his intent to nominate Michelle Bowman and Richard Clarida to serve as Members of the U.S. Board of Governors of the Federal Reserve System.  Ms. Bowman, currently the Kansas State Bank Commissioner, is to be nominated to serve as a Member of the Federal Reserve Board as the Community Bank Representative representing Region eight. She is being nominated to serve the remainder of a 14-year term that expires on January 31, 2020. Mr. Clarida, currently the Lowell Harriss Professor of Economics at Columbia University, is to be nominated to serve as Vice Chairman of the Federal Reserve Board for a 4-year term, and to serve the remainder of a 14-year term as a Member of the Federal Reserve Board representing Region 1, expiring on January 31, 2022.

View full text of the White House press release.

The European Banking Authority has published a final report and final revised draft Implementing Technical Standards on resolution reporting requirements. The EBA proposes to replace the existing ITS with the revised ITS to reflect the evolution in the policy and practices applied by authorities in the development of resolution plans for financial institutions. The new framework is proposed to become operational in 2019 when resolution authorities collect information as of December 31, 2018.

The revised draft ITS set out the procedures and a minimum set of standard templates for use by institutions when providing information to resolution authorities that is needed to draw up and implement resolution plans. The power of resolution authorities to apply simplified obligations or to require further information from a firm is specifically provided for in the revised draft ITS, in line with the EU Bank Recovery and Resolution Directive. In addition, the revised draft ITS specify the information required from groups and from individual entities. Furthermore, the revised draft ITS set the frequency, reference dates and remittance dates and the format for submission of information.

The EBA confirms that the final draft revised ITS take into account comments received during consultation and provides a summary of the main changes that have been made.

Read more. 

The U.S. Department of the Treasury announced that John E. Smith will be stepping down as director of the U.S. Office of Foreign Assets Control in early May 2018.  Mr. Smith’s 11-year career with OFAC includes serving as Acting Director/Director of OFAC since February 2015, and previously serving as OFAC’s Deputy Director and as an Associate Director.  OFAC Deputy Director Andrea M. Gacki will serve as Acting Director upon Mr. Smith’s departure.

View the full text of the Treasury Department announcement.

The U.K. Competition and Markets Authority has published a working paper seeking views on its initial analysis on trustee engagement with investment consultancy and fiduciary management service providers. This is the fourth working paper in the CMA's Investment Consultants Market Investigation in which it is assessing the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018. The second working paper, on asset manager product recommendations, was published on March 22, 2018. The third working paper was published on March 29, 2018 and covered competition issues that may arise when firms offer both investment consultancy and fiduciary management services. This working paper builds on the CMA's second working paper, analyzing the information available to pension trustees on the fees and quality of investment consultants and fiduciary managers.

Read more. 

The Joint Committee of the European Supervisory Authorities has published a report on risks and vulnerabilities in the EU financial system. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. The ESAs make recommendations for policy actions by the ESAs, national regulators and financial institutions. A summary of the risks and recommendations contained in the report is set out below.

• To combat cyber risks, the ESAs recommend that financial institutions should continue to improve IT systems, explore risks in the context of information security and take steps to resolve risks surrounding connectivity and outsourcing to third-party providers. The ESAs will continue to keep these risks under review. ESMA is launching a supervisory project on cloud computing outsourcing and will continue work to address supervisory convergence. The EBA is developing guidelines on the management of information and communication technology risks. EIOPA is conducting a qualitative exercise on cyber risk with national regulators and the industry.

Read more. 

The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.

Read more.

The U.S. Federal Financial Institutions Examination Council members released a joint statement with respect to cyber insurance and its role in risk management.  FFIEC members include the U.S. Board of Governors of the Federal Reserve System, the U.S. Office of the Comptroller of the Currency and the U.S. Federal Deposit Insurance Corporation. The statement and corresponding press release note that the frequency, sophistication and severity of cybersecurity incidents are increasing. As a result, general insurance policies may not provide adequate coverage in the event of a cybersecurity event and cyber insurance options are increasing and evolving in response to these factors.  The statement highlights that cyber insurance options vary greatly, and can be in the form of either a standalone policy or an endorsement to an existing insurance policy.  The statement cautions, however, that cyber insurance should be viewed as a risk mitigation tool and not as an alternative to sound internal controls, policies and procedures to guard against cybersecurity events.  The statement notes that institutions, in considering cyber insurance, should assess their existing cybersecurity risk framework to determine the potential impact and magnitude of residual risk.  In weighing cost and benefits of cyber insurance, the statement suggests that institutions should consider involving multiple stakeholders in the decision-making process, perform adequate due diligence to fully understand available policies and coverage options and incorporate cyber insurance into their annual budgeting processes.

View full text of the FFIEC statement.

The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.

Read more.

The U.S. Board of Governors of the Federal Reserve System published a notice of proposed rulemaking and request for comment intended to integrate its capital and stress rules and thereby simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets and to the U.S. intermediate holding companies of foreign banking organizations.

Read more.

The European Central Bank has launched a consultation on draft "cyber resilience oversight expectations" for financial market infrastructures.

The CROE use, as a basis, the Guidance on Cyber Resilience for Financial Market Infrastructures that was published jointly in June 2016 by the Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions. FMIs were required to implement immediately that Guidance, which was supplemental to the Principles for Financial Market Infrastructures published in 2012 by IOSCO and the Committee on Payment and Settlement Systems. The PFMIs were adopted by the Governing Council of the ECB in June 2013. In developing the CROE, the ECB also took into account existing international guidance documents, in particular the Cyber Security Framework published by the U.S. National Institute of Standards and Technology, the ISO/IEC 27002 good practice standard for information security, the COBIT 5 framework for the governance and management of enterprise IT, the Information Security Forum's Standard of Good Practice for Information Security and the U.S. Federal Financial Institutions Examination Council's Cybersecurity Assessment Tools.

Read more.

The European Banking Authority has published a report entitled "Benchmarking of remuneration practices at the European Union level and data on high earners." The report sets out the EBA's analysis of the compensation data provided to it by national regulators for 2016, which the EBA has compared with data from 2015 and 2014. The Capital Requirements Directive requires the EBA to benchmark remuneration trends in credit institutions and investment firms at EU level and to publish aggregated data on high earners earning EUR 1 million or more per financial year. National regulators are required to collect the relevant information from credit institutions and investment firms and to submit it to the EBA.

The analysis shows a slight decrease in 2016 in the number of high earners paid EUR 1 million or more. There was also a significant decrease in the number of identified staff subject to a cap on the ratio of fixed to variable compensation, although the EBA notes that this was due to a significant reduction by two banks of their numbers of identified staff. The EBA also notes that the supervisory framework for compensation practices is still not sufficiently harmonized, with significant differences among Member States and among institutions in the application of deferral and payout in instruments.

Read more.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a Framework for the supervisory stress testing of CCPs, following a joint consultation launched in June 2017.

In April 2015 the CPMI and IOSCO were asked by the G20 to develop, in conjunction with the Financial Stability Board and the Basel Committee on Banking Supervision, a "CCP workplan" for identifying and addressing remaining gaps and potential financial stability risks related to CCPs that are systemic across multiple jurisdictions and for helping to enhance their resolvability.

Read more.

The European Securities and Markets Authority has published a letter from its Chair, Steven Maijoor, to the European Commission seeking clarification on how to interpret the ancillary activity exemption under the revised Markets in Financial Instruments Directive.

MiFID II exempts non-financial entities that deal on own account, or provide investment services to clients, in commodity derivatives from having to obtain authorization as an investment firm under MiFID II provided that, among other things, this activity is ancillary to their main business. The provisions of MiFID II are supplemented by a Commission Delegated Regulation setting out the Regulatory Technical Standard on the criteria to establish when an activity is considered to be ancillary to the main business. The wording of both MiFID II and the RTS suggest that the tests for whether activity is ancillary should be carried out at the level of the entity's group. However, some drafting amendments that were introduced by the Commission have led to uncertainty as to whether the tests should be carried out at the level of the entity rather than at group level.

ESMA states that it would not be appropriate for it to address this uncertainty through its usual Questions and Answers and invites the Commission to provide further guidance on the interpretation and implementation of the ancillary activity criteria, in particular on the level at which the tests should be applied.

View the ESMA letter.

View the Commission Delegated Regulation (2017/592).

The Financial Conduct Authority has published its Business Plan for 2018/19 which sets out its key priorities for the coming year. The FCA confirms that it will continue to focus on issues relating to the U.K.'s withdrawal from the EU by working with the Government, ensuring appropriate transition measures for EEA firms, working towards operational readiness and cooperating at international level.

The FCA divides the remainder of its priorities into cross-sector priorities and sector priorities. There are seven cross-sector priorities: firms' culture and governance; financial crime and anti-money laundering; data security, resilience and outsourcing; innovation, big data, technology and competition; treatment of existing customers; long-term savings, pensions and intergenerational differences; and high-cost credit. There are seven sector priority areas: wholesale financial markets; investment management; retail lending; pensions and retirement income; retail investments; retail banking; and general insurance and protection. The FCA also published Sector Views for each of these sectors which provide an FCA view of how each sector was performing as of mid-2017.

Read more. 

The Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions have published final Technical Guidance on the harmonization of critical OTC derivatives data reported to trade repositories. The Technical Guidance does not cover the Unique Transaction Identifier and Unique Product Identifier. The Financial Stability Board identified the development of a UTI, UPI and other key data elements as critical for a mechanism to produce and share global aggregated derivatives reporting data. The Technical Guidance sets out the definition, format and allowable values of critical elements that would facilitate consistent aggregation of reported data at global level. It does not specify which data elements must be reported because those requirements are set by the relevant authorities in each jurisdiction. The Guidance is for national authorities to use and it is not intended to function as a set of rules for market participants.

View the Technical Guidance.

The Financial Conduct Authority has published a discussion paper on its proposed approach to using ex post impact evaluation to assess the impact of its work on consumers, firms and markets. The consultation paper sets out what the FCA means by ex post impact evaluation, why it is important to the FCA, the scope of ex post impact evaluations, how the FCA will select which work to evaluate, how such evaluations will be conducted and the key challenges involved in ex post impact evaluations. The FCA is seeking feedback on its proposed approach.

Responses to the discussion paper should be submitted by July 9, 2018.

View the discussion paper. 

The Prudential Regulation Authority has published its Business Plan for 2018/19 which sets out its strategic goals and workplan to deliver those goals. The PRA also published a consultation paper on its fees and levies for 2018/19 alongside the Business Plan as well as a report to the Prudential Regulation Committee on the adequacy of PRA resources and independence of PRA functions.

Read a summary of the PRA's goals and workplan.

The European Commission has published a report on the effects of the EU regulatory capital framework on the economic cycle. The Capital Requirements Regulation requires the Commission to assess periodically whether risk-sensitive regulatory requirements contained in the CRR and the Capital Requirements Directive create unintended procyclical effects and to consider whether it would be appropriate to implement any remedies. The report is addressed to the European Parliament and the Council of the European Union and was prepared in cooperation with the European Banking Authority, the European Systemic Risk Board and Member States.

The Commission analyzed whether capital ratio requirements are procyclical and, if so, if they have an impact of the level of capital held by banks. The Commission has concluded that there is only weak evidence of any procyclical effects resulting from the requirements in CRR and CRD. The EU regulatory framework already provides various tools that deal with procyclical effects, such as the capital conservation buffer, the countercyclical capital buffer, the leverage ratio and risk weight adjustments for specific exposures. The Commission does not consider that any major changes to the EU framework are required at this time.

View the report.

The Financial Conduct Authority has published a statement confirming the regulatory requirements applicable to firms engaged in cryptocurrency derivatives. The FCA does not regulate cryptocurrencies, provided that they do not form part of other regulated services or products. However, the FCA states that cryptocurrency derivatives may be categorized as financial instruments under the revised Markets in Financial Instruments Directive II and that firms carrying out regulated activities in cryptocurrency derivatives should comply with the FCA's Handbook rules as well as the directly applicable EU provisions. The FCA points out that dealing in, arranging transactions in, advising on or providing other services that are regulated activities in relation to derivatives that reference cryptocurrencies or tokens issued through an Initial Coin Offering will require FCA authorization.

View the FCA's statement.

The Financial Conduct Authority has published a Policy Statement and final rules relating to strengthening the governance arrangements of U.K. authorized fund managers. The need to enhance these arrangements was identified by the FCA in the Asset Management Market Study launched in 2015. The final AMMS report was published in June 2017 and set out remedies the FCA intended to implement to address identified issues. At the same time, the FCA published a consultation paper on the first set of proposals.

The Policy Statement sets out the FCA's response to the feedback on its proposals and the final rules and guidance. The new rules and guidance applies to U.K. AFMs in relation to their management of authorized funds (that is, authorized open-ended collective investment schemes). The rules will apply either on April 1, 2019 or on September 30, 2019, depending on the lead time that the FCA considers the industry needs to implement the required changes.

Read more for a summary of the FCA's decision on the various consultation points. 

The Financial Conduct Authority has published a second consultation paper on remedies arising out of the Asset Management Market Study. This consultation concerns improving disclosure by authorized fund managers to their investors and should be read with the Policy Statement, final rules and revised guidance on enhanced governance arrangements for U.K. AFMs, which were published alongside the consultation paper. The FCA is proposing:

• new guidance on how AFMs should make fund objectives and investment policies clear and more useful for investors;
• new rules requiring managers to be clear about why (or why not) a benchmark has been used and how investors should assess the performance of the fund;
• new rules requiring AFMs that use benchmarks to use and reference them consistently across marketing materials;
• new rules requiring that where managers present past performance they must do so in an appropriate and consistent manner; and
• amending the performance fee rules to require that performance fees be calculated on performance net of other fees.

The proposed rules would apply to AFMs in respect of their management of authorized funds. Responses to the consultation should be submitted by July 5, 2018.

View the second consultation on remedies arising from the AMMS.

View details of the Policy Statement and final rules.

View the AMMS final report and the first consultation paper.

The International Organization of Securities Commissions has published a final report on regulatory reporting and public transparency in the secondary corporate bond markets. The report discusses the importance to robust capital markets of making information accessible to regulators and the public via regulatory reporting requirements and pre- and post-trade transparency requirements respectively. The report discusses the approach taken in various jurisdictions to impose these requirements before setting out seven recommendations for national regulators.

The recommendations update IOSCO's 2004 report, "Transparency of Corporate Bond Markets," which discussed the then-existing transparency arrangements for corporate bond markets, as well as the regulatory regimes that were in place in member jurisdictions and set out Core Measures for national regulators to consider to ensure adequate transparency and regulatory reporting arrangements. The recommendations also take into account IOSCO's 2017 report, "Examination of the Liquidity of the Secondary Corporate Bond Markets," which set out the findings of an evidence-based examination of the state of secondary corporate bond markets from 2004 until approximately 2015 and provided a detailed overview and discussion of the markets and how they had evolved since 2004.

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The Federal Reserve Bank of New York announced that John C. Williams has been named its president and chief executive officer.  Mr. Williams currently serves as the president and chief executive officer of the Federal Reserve Bank of San Francisco, a position he has held since 2011.  Mr. Williams joined the Federal Reserve Bank of San Francisco in 2002, and prior to his appointment as president, served as executive vice president and director of research.  Mr. Williams has also served as a senior economist at the White House Council of Economic Advisers.  Mr. Williams will begin as president and chief executive officer on June 18, 2018, succeeding current president William C. Dudley, who is retiring.

View Tte full text of the Federal Reserve Bank of New York announcement.

The U.S. Federal Reserve Bank of New York, in conjunction with the U.S. Office of Financial Research, introduced three new reference rates.  These three rates, the Secured Overnight Financing Rate, the Broad General Collateral Rate and the Tri-Party General Collateral Rate, are based upon overnight repurchase agreement transactions collateralized by Treasury Securities.  The Federal Reserve Bank of New York has previously published indicative historical data for these three new rates.  In connection with the production of these new rates, the Federal Reserve Bank of New York indicated that it plans to update its International Organization of Securities Commissions statement of compliance during the second quarter of 2018 to include these rates.

View the FRB of NY's announcement.

The U.S. Department of the Treasury issued recommendations to the U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation regarding the modernization of the Community Reinvestment Act.  The report is a follow-up to Treasury’s 2017 report to the President entitled A Financial System That Creates Economic Opportunities: Banks and Credit Unions.

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The U.S. Financial Crimes Enforcement Network released answers to 37 frequently asked questions regarding its final rule on Customer Due Diligence Requirements for Financial Institutions, which was published in the Federal Register on May 11, 2016 and amended on September 29, 2017.  This is the second series of FAQs FinCEN has released.  The FAQs cover various topics in connection with the requirement that financial institutions obtain beneficial ownership information for legal entity customers, including the beneficial ownership threshold and its interaction with other AML program obligations, collection and verification of identifying information, particularly for legal entity customers with complex ownership structures and the definition of “legal entity customer,” including the treatment of foreign financial institutions.  The FAQs also provide guidance regarding the beneficial ownership certification requirement, including when a single customer opens multiple accounts and in respect of product or service renewals, obligations to update beneficial ownership information and requirements to understand the nature and purpose of the customer relationship.

View FinCEN FAQs.

The European Securities and Markets Authority has published its final report on its technical advice to the European Commission to supplement the provisions of the Prospectus Regulation with delegated legislation. The Prospectus Regulation entered into force on July 20, 2017 and certain provisions took effect directly across the EU on July 20, 2017. It will further take effect partly on July 21, 2018 with the remainder of its provisions taking effect on July 21, 2019. The Prospectus Regulation is a major part of the European Commission's drive towards EU Capital Markets Union. It will repeal and replace the existing Prospectus Directive as well as its supplemental Regulation on the form and content of a prospectus.

ESMA was mandated by the European Commission to provide technical advice on possible delegated acts on the format and content of the prospectus, the content, format and sequence of the EU Growth Prospectus (a new type of prospectus for small and medium-sized enterprises and in certain cases non-SMEs for small issuances) and scrutiny and approval of the prospectus. ESMA consulted on its draft technical advice in three consultations launched in July 2017. ESMA has made a number of amendments to its technical advice, based on feedback received on the consultations.

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The U.S. Consumer Financial Protection Bureau published its semi-annual report.  The report, which is mandated by the Dodd-Frank Act, highlights and summarizes various topics the CFPB is working on, including a list of rules, orders and initiatives to be undertaken in the upcoming period.  The report notes upcoming proposed and final rules, including reconsideration of certain aspects of Regulation C (Home Mortgage Disclosure), finalization of amendments to Regulation P (Annual Privacy Notice Requirements Under the Gramm-Leach-Bliley Act), and finalizing an amendment to Regulation Z (Federal Mortgage Disclosure Requirements under the Truth in Lending Act).  In his introductory letter to the report, CFPB Acting Director Mick Mulvaney was critical of past actions by the CFPB, contending that the CFPB was too powerful and subject to very little oversight.  Acting Director Mulvaney noted that the CFPB “will continue to execute the law, but will no longer go beyond its statutory mandate.”  In addition, Acting Director Mulvaney requested Congress enact four changes in order to promote and establish CFPB accountability: funding the CFPB through the congressional appropriations process; requiring congressional approval of major CFPB rules; ensuring that the CFPB Director is accountable to the President in the exercise of executive authority; and creating an independent Inspector General for the CFPB.

View the CFPB report.

The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation issued a final rule that exempts commercial real estate transactions of $500,000 or less from the appraisal requirements promulgated under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  The final rule raises the threshold from $250,000 to $500,000, for which appraisals are not required in connection with commercial real estate transactions.  The agencies originally proposed to increase the threshold to $400,000, but they determined that an increase to $500,000 would not pose a threat to the safety and soundness of financial institutions, and would result in a material reduction in the compliance-related regulatory burden for financial institutions.  For purposes of the final rule, “commercial real estate transaction” is defined as “a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.” The final rule clarifies that construction loans of $500,000 or less secured by a single 1-to-4 family residential property are not exempted from the appraisal requirement.  In lieu of an appraisal, financial institutions are required to obtain an evaluation of the collateral that is sufficient to support the institution’s decision to engage in the transaction and consistent with safe and sound business practices.  The final rule took effect on April 9, 2018.

View full text of final rule.