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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

View the letter to ESMA.

View ESMA's request for clarification.

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

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

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

Read more.

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

View full text of the 2018 DFAST Methodology and Results.

Read more.

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

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

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

Read more.

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

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

The new entries are:

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

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

View the updated Final Report.

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

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

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

Read more.

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

View full White House press release.

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

The key changes introduced by 5MLD are:

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

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

Read more.

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

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

View ESMA's Annual Report.

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

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

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

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

Read more.

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

View full text of President Williams’s remarks.

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

View President Williams’s full statement.

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

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

Read more.

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

View the announcement.

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

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

View the Decision.

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

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

Read more.

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

View the announcement.

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

View the full text of the OCC bulletin. 

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

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

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

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

Read more. 

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

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

Read more.

The European Banking Authority has published an Opinion on the implementation of the Regulatory Technical Standards on strong customer authentication and common and secure communication. It has also published a consultation paper on draft Guidelines on the conditions that an account servicing payment service provider (ASPSP) must meet if it wants to provide access via a dedicated interface and be exempt from the obligation to have a fall-back option in place.

PSD2 requires that SCA is used for accessing a payment account online, initiating a payment transaction and carrying out a transaction through a remote channel. The RTS on SCA and CSC will apply directly across the EU partly from March 14, 2019 and predominantly from September 14, 2019.

Read more.

Following its consultation in August 2017, which closed in November 2017, the Bank of England has published its Statement of Policy on its expectations on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. In the BoE's view, limitations to a firm's valuation capabilities may constitute an impediment to resolvability where those limitations would not reliably enable valuations that support the firm's intended resolution strategy.

The BoE has made several changes to its proposed Statement of Policy following consultation responses. Briefly, these are: (i) extending the compliance deadline to January 1, 2021 and introducing a provision for firm-specific compliance dates to be set in certain cases; (ii) explicitly requiring operational documentation of how capabilities would be used in a resolution scenario; and (iii) including a provision whereby certain smaller and simpler firms may not need to have resolution valuation models in place.

Read more.

The U.K. Prudential Regulation Authority has published a Policy Statement on reporting the minimum requirement for own funds and eligible liabilities and an updated Supervisory Statement "Resolution Planning", following a consultation which ran from January 8 to April 9, 2018. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

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The Bank of England has published a Policy Statement setting out its feedback to the responses it received to its October 2017 consultation on its approach to setting a minimum requirement for own funds and eligible liabilities. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top-up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

The BoE's October 2017 consultation set out proposals for changes to the BoE's 2016 Statement of Policy on its approach to setting "external" MREL for resolution entities, to include the BoE's approach to "internal" MREL, i.e. instruments that are issued to a resolution entity from other legal entities in a group. Internal MREL is intended to cover U.K.-headquartered banking groups as well as U.K. subsidiaries of overseas banking groups.

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The U.K. Payment Systems Regulator has published a discussion paper seeking feedback on the use of data in the payments industry. The PSR is the regulator for designated payment systems in the U.K. These are currently BACS, CHAPS, Cheque & Credit, the Faster Payments Scheme, LINK, Northern Ireland Cheque Clearing, Mastercard and Visa Europe.

As the U.K. payments sector undergoes rapid evolution and the collection, analysis and use of payments data plays an increasingly important part in the payments industry, the PSR wants to gain an understanding of the role it might play in ensuring that new uses of data work well for businesses and individuals using payment systems. "Payments data" in this context includes a mix of financial, transactional, behavioural and other types of data, which payment service providers collect in the course of providing payment services to end-users.

Read more.

The U.S. Senate Committee on Banking, Housing, and Urban Affairs approved the nominations of the Honorable Richard Clarida to be a Member and Vice Chairman of the Federal Reserve Board and Ms. Michelle Bowman to be a Member of the Federal Reserve Board. The approved nominations will now advance to the full U.S. Senate for confirmation votes.

View further information regarding the nominations.

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 issued a policy statement with respect to notification and coordination of formal enforcement actions. The policy statement was issued in response to the rescission of the Federal Financial Institutions Examination Council's "Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies" revised policy statement, which was issued on February 20, 1997. The interagency policy statement provides that when a federal banking regulator determines that it will take a formal enforcement action against any federally insured depository institution, depository institution holding company, non-bank affiliate, or institution-affiliated party, the agency should consider whether the enforcement action involves the interests of another federal banking regulator. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should notify the other relevant federal banking agency or agencies at the earlier of when written notification is provided to the subject financial institution regarding the enforcement action, or when the respective agency determines that an enforcement action is expected to be taken. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should provide sufficient information to allow the other federal banking regulator to take necessary action in examining or investigating the financial institution or institution-affiliated party.

Read more. 

The U.K. Financial Conduct Authority has published a "Dear CEO" letter to U.K. authorized banks, setting out its views on best practice that banks should adopt for handling the financial crime risks that may be posed by so-called crypto-assets. The FCA uses this term to refer to any publicly available electronic medium of exchange that features a distributed ledger and a decentralized system for exchange. Crypto-assets include crypto-currencies, a well-known example of which is Bitcoin. The FCA acknowledges that crypto-assets can be used without any criminal motives. However, the fact that crypto-assets can be held relatively anonymously and can be readily transferred between countries can make them attractive for criminal purposes. Banks should adopt proportionate measures to mitigate the risk that they are used to facilitate financial crimes involving crypto-assets.

Read more.

The Money Market Funds Regulations 2018 have been laid before Parliament and will enter into force partly on June 28, 2018 and fully on July 21, 2018. The EU Money Market Funds Regulation came into force on July 20, 2017 and will apply directly across the EU from July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds, often used by institutions as a short-term cash management function as an alternative to bank deposits. The effect of the MMFR in the U.K. will be that authorized unit trusts, authorized contractual schemes, open-ended investment companies and alternative investment funds can all apply to be authorized as MMFs.

The MMFR does not require transposition into the national law of EU Member States. However, U.K. legislation must be amended to empower the Financial Conduct Authority to authorize funds as MMFs, to levy fees and to enforce requirements under MMFR.

Read more.

The U.S. Board of Governors of the Federal Reserve System announced the dates for the release of the results from the most recent round of supervisory stress tests conducted as part of the Dodd-Frank Act and related Comprehensive Capital Analysis and Review exercise.  The results from the D-FAST supervisory stress tests and CCAR will be released on June 21, 2018, and June 28, 2018, respectively.

View Full text of the Federal Reserve Board press release.

The Council of the European Union and the European Parliament have announced their agreement on new EU criminal sanctions for money laundering. The proposed Countering Money Laundering by Criminal Law Directive will complement the Fifth Money Laundering Directive, which was adopted in May 2018.

The new Directive establishes minimum rules on the definition of criminal offences and sanctions in the area of money laundering. Member states will be required to implement national laws providing for money laundering offences by individuals to be punishable by a maximum term of imprisonment of at least four years. National laws will continue to provide for additional measures, such as fines, temporary or permanent exclusion from public tender procedures, grants and concessions, and national laws will also provide for national courts to take into account any aggravating factors for sentencing.

Read more.

The European Money Markets Institute has announced the planned cessation of three of the current tenors for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

EMMI published a consultation paper in March 2018 seeking views from stakeholders on a proposed hybrid determination methodology for Euribor that will transition Euribor away from a quote-based to a transaction-based methodology. As part of that consultation, EMMI sought feedback on whether to discontinue the calculation and publication of three of the eight tenors it publishes, due to low levels of activity underpinning the markets those tenors represent. The majority of respondents to the consultation supported the discontinuation of the two week, two month and nine month tenors and consequently EMMI will proceed with its proposal.

Read more.

The U.S. Office of the Comptroller of the Currency announced that it had selected Bao Nguyen and Ted Dowd to serve as Deputy Chief Counsels in the OCC’s Office of the Chief Counsel.  Mr. Nguyen will serve as the Principal Deputy Chief Counsel and the OCC Law Department’s chief operating officer.  Mr. Nguyen will also supervise the Bank Activities and Structure and the Community and Consumer Law divisions, and the Northeast district counsel office.  Mr. Dowd will supervise the OCC’s Legislative and Regulatory Activities and Securities and Corporate Practices divisions, and the Central and Western district counsel offices.

View full text of the OCC press release.

The Bank of England has published a consultation on adopting ISO 20022, the global messaging standard for payments which was first introduced in 2004 by the International Organization of Securities Commissions. Ten jurisdictions have already implemented the standard and another nine are intending to implement it by 2023, including the U.S., Canada, Singapore and the Eurozone. The consultation has been prepared in conjunction with the U.K. New Payment System Operator and the U.K. Payment Services Regulator.

It is intended that ISO 20022 will be adopted across the U.K.'s three main interbank payment systems, namely CHAPS, BACS and Faster Payments. The BoE took over responsibility for the operation of the CHAPS system in November 2017 and the NPSO is responsible for the operation of BACS and Faster Payments. The fact that the three payment systems currently all have different information requirements, methodologies, formats, standards and rulebooks means that it can be difficult and expensive to move customers' payments between the systems and costly for new entrants wishing to participate in payment systems. Moving to ISO 20022 will address these and related issues.

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The Financial Stability Board is seeking feedback on the technical implementation of standards on the adequacy of total loss-absorbing and recapitalization capacity for Global Systemically Important Banks in resolution - the TLAC Standard. The FSB wants to assess whether implementation aligns with the timelines and objectives set out in the TLAC Standard. The TLAC Standard is being phased in, with G-SIBs expected to reach the first minimum requirement by January 1, 2019.

The FSB is due to report to the G20 on the implementation of TLAC by the end of 2019. The comments provided in response to the call for feedback will help the FSB to prepare that report. The FSB highlights that the objective of the call for feedback is to monitor implementation by jurisdictions of the TLAC Standard and to identify whether there are any technical issues or operational challenges in implementation. The aim is not to seek views on the substantive aspects of the standard or whether any changes should be made to it. The FSB will consider whether further implementation guidance is needed based on the feedback.

The FSB requests views and evidence on:

1. the regulatory adoption of the TLAC principles and Term Sheet;
2. cross-border aspects of the implementation of the TLAC Standard;
3. G-SIBs' issuance strategies and overall progress towards meeting external and internal TLAC requirements;
4. distribution of TLAC instruments and liabilities in the market; and
5. any technical issues or material factors impacting implementation of the TLAC Standard.

Responses to the call for feedback should be submitted via email by August 20, 2018.

View the call for feedback.

The Basel Committee on Banking Supervision has published its 2018-2019 work program, setting out its focus areas for policy development, supervision, implementation and monitoring. Industry will welcome the news that the Committee intends to adopt a limited number of new policy initiatives, concentrating primarily on cyber risk, operational resilience and proportionality. On the implementation of the Committee's post-crisis reforms, one of the more immediate actions will be to finalize the revised market risk framework, which is due to be implemented by January 1, 2022. Other revisions to be finalized include the assessment framework for Global Systemically Important Banks and the Pillar 3 disclosure framework. Other work will include:

• Furthering discussions on the regulatory treatment of sovereign exposures.
• Continuing to promote strong supervision, which will involve holding discussion sessions and workshops on emerging challenges for supervision, such as how supervisors should comprehensively assess risks when banks change their business models, oversight of third-party origination practices and oversight of risk management practices, in particular, lending standards, collateral management and valuation practices.

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Jelena McWilliams was sworn in as the 21st Chair of the U.S. Federal Deposit Insurance Corporation. Chair McWilliams succeeds Martin J. Gruenberg, who served as Chairman of the FDIC since November of 2012 and as a Member of the FDIC Board of Directors since August of 2005.

View full text of the FDIC press release.

The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission released for public comment a proposal that would simplify and tailor the Volcker Rule. The joint notice of proposed rulemaking includes 342 specific questions for public comment largely focused on reducing compliance burdens under the Volcker Rule.

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At the Commodity Futures Trading Commission's open meeting on June 4, 2018, the CFTC voted to propose rules that would permanently maintain the swap dealer de minimis registration threshold at $8 billion. The Commission voted 2-1 to issue the proposal, with Chairman J. Christopher Giancarlo and Commissioner Brian Quintenz voting in favor and Commissioner Rostin Behnam dissenting.

Under the proposed rule, firms with less than $8 billion in notional value of OTC derivatives would be exempted from the CFTC's swap dealer registration requirements, as under the current regime. The proposed rule also would exclude swaps of insured depository institutions made in connection with loans from a firm's notional calculation. The proposal seeks comment on a number of other potential exclusions from the de minimis threshold, and Chairman Giancarlo stated that the CFTC is exploring with its counterparts at the Securities and Exchange Commission and prudential regulators further potential exclusions from swap dealer registration.

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The Financial Stability Board has launched its third thematic peer review on bank resolution planning, with the aim of evaluating implementation, by FSB member jurisdictions, of the resolution planning standard contained in the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions and associated guidance for banks.

The third thematic peer review will cover resolution planning for all globally or domestically systemically important banks in FSB member jurisdictions and any other banks that could be systemic in failure and that are included in resolution planning at a jurisdictional level. Given that much of the FSB's work has focused on G-SIBs in recent years, the focus of this third review will be on banks other than G-SIBs. It will consider how, and to what extent, the expectations in FSB guidance have been applied to these institutions.

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