The U.S. Officer of the Comptroller     of the Currency released an updated version of the Comptroller’s Licensing Manual Business Combinations booklet.  The booklet, which was updated in November of 2017, has been revised to make certain technical corrections and process updates with respect to clarifications regarding the public notice and comment period and a change in the public comment calculation period.

View full text of the revised booklet.

The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation (or STS Regulation) on the risk retention requirements for originators, sponsors and original lenders. The Securitization Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The final draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.

The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU twenty days after publication in the Official Journal of the European Union.

The Securitization Regulation, which will apply from January 1, 2019, has replaced the risk retention requirements in the Capital Requirements Regulation. Once the final RTS enter into force, the existing Commission Delegated Regulation ((EU) No 625/2014) on risk retention requirements, made under the Capital Requirements Regulation, will be repealed.

View the final draft RTS.

View the existing Delegated Regulation on risk retention requirements. 

View details of the EBA's consultation on the draft RTS.

The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework will apply across the EU from January 1, 2019.

Read more.

The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the revised Payment Services Directive on cooperation between national regulators in home and host states of a payment institution that operates cross-border in the EU. PSD2 took effect on January 13, 2018. The final report summarizes the feedback the EBA received to the proposed draft RTS and sets out the EBA's responses. The EBA confirms that it has made a number of the changes to the text of the final draft RTS as a result of the feedback.

The final draft RTS specify the framework for cooperation between supervisors of payment institutions operating on a cross-border basis, including the method for cooperation and details of information that should be provided between regulators. The final draft RTS also specify the means, details and frequency of reporting that a host national regulator may request from payment institutions concerning activities carried out in its territory through agents or branches. The final draft RTS will further apply to the framework for cooperation, and for the exchange of information, between national regulators for electronic money institutions providing services cross-border in the EU.

The EBA has submitted the final draft RTS to the European Commission for endorsement. The final RTS will apply across the EU twenty days after publication in the Official Journal of the European Union.

View the final report and final draft RTS.

The U.K. Payment Systems Regulator has published a Report setting out its understanding of the Contactless Mobile Payments sector, following information-gathering during 2016 and 2017. CMPs are in-store payments made by consumers, using apps installed on their mobile devices, usually using Near Field Technology for communication between the mobile device and the retailer's point-of-sale terminal and with payment security enabled via a "tokenization" process.

The PSR conducted two calls for information in 2016 and 2017, to increase its understanding of:

• whether the way CMPs operate and the way they are being offered in the U.K. potentially affects competition, innovation and the interests of people and organizations that use payment systems (and, if so, how); and
• whether there were any restrictions affecting the provision of tokenization services.

The Report explains how CMPs work from a functional and technical perspective, outlines the main participants and their respective roles, summarizes the PSR's consideration of particular issues and proposes next steps.

Read more.

The International Swaps and Derivatives Association has published the ISDA 2018 U.S. Resolution Stay Protocol. The protocol was developed to facilitate compliance with regulations issued by the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency that require global systemically important banking organizations to include contractual stays on early termination rights within in-scope qualified financial contracts, including swaps and repurchase agreements.

Adherence to the protocol will allow covered entities to comply with the U.S. stay regulations by amending in-scope QFCs to ensure that they are consistent with the limits on counterparties' exercise of default rights under Title II of Dodd-Frank and the Federal Deposit Insurance Act. The protocol will also limit counterparties' ability to exercise cross-default rights based on the insolvency or resolution of an affiliate of a covered entity.

ISDA members and non-members may adhere to the protocol beginning from the second half of August 2018. ISDA also announced it would also publish frequently asked questions to provide market participants with additional background information on the protocol and the U.S. stay regulations.

The first compliance date for the U.S. stay regulations is January 1, 2019.

View the protocol.

View ISDA's press release.

View Shearman & Sterling's client alert regarding the U.S. stay regulations.

The Financial Conduct Authority has launched a consultation on new rules for loan-based crowdfunding platforms, also known as peer-to-peer lending platforms. The FCA implemented rules regulating FCA-authorized firms operating investment-based and loan-based crowdfunding platforms on April 1, 2014. Investment-based crowdfunding is governed by the Markets in Financial Instruments package and the Alternative Investment Fund Managers Directive, as transposed into U.K. law. The regime for P2P lending is a national one and is less detailed and prescriptive.

The FCA began a post-implementation review of the crowdfunding sector and the applicable regimes in 2016. In the post-implementation review, the FCA identified that harm may be caused to investors as a result of poor business practices and due to the business models that some platforms have adopted. The consultation paper summarizes the FCA's findings from that review and sets out the FCA's proposals to change certain rules and guidance.

Read more.

The European Commission has published a Communication announcing its intention to adopt, with amendments, the Regulatory Technical Standards and Implementing Technical Standards prepared by the European Securities and Markets Authority under the Securities Financing Transactions Regulation. ESMA submitted final draft RTS and ITS to the Commission in March 2017.

The Commission has amended the draft RTS on the details of Securities Financing Transactions to be reported to Trade Repositories and the draft ITS on the format and frequency of reports on the details of SFTs to TRs. The draft RTS and ITS had contained wording to the effect that ESMA would have the power to endorse global unique trade identifiers for transactions or the global legal identifier system as it applies to the branch of an entity. This wording would have had the effect of delegating regulatory powers on potential future reporting requirements directly to ESMA, which is not possible under the legal framework for the European Supervisory Authorities. The Commission has made amendments to clarify that the Commission, rather than ESMA, has the responsibility to introduce changes to the reporting requirements, on the basis of a proposal by ESMA.

Read more.

The Prudential Regulation Authority has opened a consultation on proposals to implement the European Banking Authority's recent regulatory products on the definition of default in the Capital Requirements Regulation. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit commitment is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk.

The EBA developed a roadmap of regulatory products that aim to reduce unwarranted variability in the risk weighted assets calculated using banks' Internal Ratings-Based models. Three of these products pertain to the definition of default: the Regulatory Technical Standards on the materiality threshold for credit obligations past due, the Guidelines on the application of the definition of default and the EBA Opinion on the use of the 180 days past due criterion.

Read more.

The Financial Action Task Force has published a report on professional money laundering. The report is intended to assist authorities to target professional money launderers and the structures that they set up and use to launder money and to disrupt the organizations of their criminal clients. PMLs are referred to by the FATF as "individuals, organisations and networks that are involved in third-party laundering for a fee or commission." PMLs specialize in providing professional money laundering services, such as locating investments or purchasing assets, establishing companies or legal arrangements, acting as nominees, recruiting and managing networks of cash couriers or money mules, providing account management services and creating and registering financial accounts. By providing detailed explanations of the roles performed by PMLs, the FATF aim to facilitate the identification and understanding of how PMLs operate. The report provides recent examples of financial organizations acquired by criminal operations or co-opted to aid money laundering and focuses on some of the common methods used to launder funds, such as trade-based money laundering, account settlement mechanism and underground banking.

Read more.

The Financial Conduct Authority has issued a call for input on the Packaged Retail and Insurance-based Investment Products Regulation. Since January 1, 2018, the EU PRIIPs Regulation has required manufacturers of PRIIPs to prepare and publish a stand-alone, standardized Key Information Document for each of their PRIIPs. Those advising retail investors on PRIIPs, or selling PRIIPs to retail investors, must provide retail investors with a KID in good time before the transaction is concluded.

The FCA is seeking input about the initial experience of: (i) those producing, advising on, or distributing PRIIPs and preparing and providing KIDs; and (ii) consumers using KIDs to decide whether to invest in these investment products. In addition, the FCA is asking for feedback on the scope of the PRIIPs Regulation, in particular, which instruments fall in or out of the scope of the requirements, and on practical aspects of certain cost and risk disclosure requirements.

Feedback to the call for input should be provided by September 28, 2018. The FCA intends to publish a feedback statement in Q1 2019.

View the call for input.

The U.S. Board of Governors of the Federal Reserve System launched the Consumer Compliance Supervision Bulletin.  The bulletin will be published by the Federal Reserve Board’s Division of Consumer and Community Affairs, and will provide high-level summaries of supervisory issues, highlight violations that have been identified, include practical guidance with respect to the management of consumer compliance risks and enhance transparency with respect to the Federal Reserve Board’s consumer compliance supervisory program.  The current issue of the bulletin includes content with respect to fair lending, unfair or deceptive acts or practices and regulatory and policy developments.

View full text of the bulletin.

The U.K. Payment Systems Regulator has published for consultation its draft terms of reference for a planned market review into the supply of card-acquiring services in the U.K. Merchants that accept card payments from customers purchase card-acquiring services from specialist providers to enable card payments to be accepted and processed on their behalf. The market review is a response to concerns raised by stakeholders that the supply of these services may not be working well for some merchants and, ultimately, consumers.

The market review will examine: (i) the nature and characteristics of card-acquiring services; (ii) the providers of these services and how their market shares have developed historically; (iii) how merchants buy card-acquiring services; (iv) the availability of credible alternatives to card-acquiring services for some or all merchants; and (v) how competition is working in the sector, including looking at issues around the fees merchants pay and the quality of service they receive.

The PSR is inviting feedback on its draft terms of reference until September 14, 2018. The PSR intends to publish finalized terms of reference, including a timetable for the review, before the end of 2018.

View the draft terms of reference for the review (MR 18/1.1).

The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018 has been made and will come into force on October 31, 2018.

The Amendment Order amends the definition of a "core deposit" (set out in The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014) for the purposes of the U.K. framework for the ring-fencing of retail from wholesale/investment banking. Under the U.K. framework, if a deposit is not a "core deposit," then carrying on the regulated activity of accepting deposits in relation to that non-core deposit can take place in the non-ring-fenced bank.

Read more.

The European Banking Authority has published a final report in response to a call for advice from the European Commission, in the context of the Commission's Capital Markets Union project, to help the Commission assess the case for introducing European Secured Notes, an additional instrument which would be available for institutions to gain funding on the capital markets, particularly infrastructure loans and loans to Small and Medium Sized Enterprises. ESNs are defined in the call for advice as "dual recourse financial instruments on an issuer's balance sheet applying the basic structural characteristics of covered bonds to two non-traditional cover pool assets - SME bank loans and infrastructure bank loans."

The Commission asked the EBA to assess whether a dual recourse instrument, similar to covered bonds, may provide a useful funding option to banks engaged in lending to SMEs and infrastructure projects and to determine an appropriate EU framework and regulatory treatment for this new product.

In the final report, the EBA: (i) assesses the business case for ESNs; (ii) analyzes the potential implications of issuances of ESNs on asset encumbrance; and (iii) considers the risk profile of SME loans and project finance. The EBA makes suggestions on the pool eligibility criteria and the structure and features of ESNs and on their potential regulatory treatment. The EBA makes five main policy recommendations on crucial aspects for the Commission to consider when possibly designing the legislative framework for ESNs. These relate to the structure, cover assets and regulatory treatment of SME ESNs, the EBA's reservations about introducing Infrastructure ESNs and the impact of ESNs on asset encumbrance.

View the final report.

The U.K.'s Department for Exiting the EU has published a further Brexit white paper, entitled: "Legislating for the Withdrawal Agreement between the United Kingdom and the European Union." The paper describes the Bill that will implement the terms of the Withdrawal Agreement in the U.K. The Bill, which must pass before exit day (March 29, 2019) will only be introduced once Parliament has approved the finalized Withdrawal Agreement as required under the EU (Withdrawal) Act 2018. In the paper, the Government sets out how it envisages the Bill will implement the U.K.'s withdrawal and provides detail on those parts of the draft Withdrawal Agreement that have been agreed so far: citizens' rights, the implementation period and the negotiated financial settlement. The final provisions of the Bill will be subject to the final terms of the Withdrawal Agreement. The paper also sets out the procedures for Parliament's approval of the terms of the final Withdrawal Agreement.

Read more.

A draft of the Central Counterparties (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 has been laid before Parliament. The finalized Regulations will come into force partly on the day after the day they are made and fully on the day the U.K. withdraws from the EU.

The draft Regulations have been prepared using the power under the European Union (Withdrawal) Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the withdrawal of the U.K. from the EU. These draft Regulations deal with "onshoring" certain aspects of the European Market Infrastructure Regulation that relate to the regulatory framework for CCPs. The Bank of England wrote to non-U.K. CCPs in December 2017, outlining how it envisaged that non-U.K. CCPs will be recognized to provide services in the U.K. once the U.K. has withdrawn from the EU. Recognized status under EMIR enables third-country CCPs to provide clearing services to clearing members or trading venues established in the EU. The BoE explained in its letter that U.K. domestic law requirements for the recognition of non-U.K. CCPs would be substantially the same as the current requirements under EMIR, although references to international MoUs being in place would change, such that these must be established between third countries and relevant U.K. authorities.

Read more.

A draft of one of several pieces of U.K. legislation has been published, that will establish a temporary permissions regime after the U.K.'s withdrawal from the EU. Temporary permission will be available for EEA firms currently operating in the U.K. under financial services passports. The draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 are expected to be laid before Parliament in Autumn 2018 and to come into force mainly on the day after they are made, apart from some provisions that will apply on the day the U.K. withdraws from the EU. The draft Regulations also amend the Financial Services and Markets Act 2000 and related legislation to remove references to EEA passport rights.

The draft Regulations have been prepared under the provisions of the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.

Read more.

The U.K. Government has announced that it intends to legislate to ensure, after U.K. withdrawal from the EU, the continuation of U.K. settlement finality protections currently provided under the Settlement Finality Directive and implemented in the U.K. by the Financial Markets and Insolvency (Settlement Finality) Regulations 1999. The SFRs establish various insolvency carve-outs for designated market infrastructure systems and also legislate for finality of transactions within such systems. However, only EU systems are in scope.

The SFD requires Member States to notify the European Securities and Markets Authority with information concerning the national systems (and the respective system operators) they have designated to be included within the scope of the SFD protections. Member States must also designate the national authorities that must be notified when insolvency proceedings are opened against a participant or a system operator. Under the protections afforded by the SFD, transfer orders which enter into designated systems within certain deadlines are guaranteed to be finally settled, regardless of whether the sending participant has become insolvent or transfer orders have been revoked in the meantime. Under the SFD, each Member State automatically recognizes systems that have been designated by other Member States.

Read more.

The G20 Finance Ministers & Central Bank Governors have issued a communiqué following their meeting in Buenos Aires on July 21 - 22, 2018. Among other things, the communiqué requests that the Financial Action Task Force clarify, by October 2018, how its global anti-money laundering and counter-terrorist financing standards apply to crypto assets.

The FATF's global standards (also known as the 40 Recommendations) promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. However, the FATF standards do not refer explicitly to crypto assets or the associated service providers and intermediaries, which creates uncertainty as to the scope of AML/CTF obligations that may apply to them.

Read more.

Randal Quarles, current Vice Chairman for Supervision, was sworn in for his second term as a member of the U.S. Board of Governors of the Federal Reserve System.  Vice Chairman Quarles’s term as Vice Chairman for Supervision ends in 2021, while his term as a member of the Federal Reserve Board ends in 2032.

View full text of the Federal Reserve Board press release.

The U.K.'s Government Department for Business, Energy & Industrial Strategy has launched a consultation on a draft Bill that would introduce a register of beneficial owners for overseas legal entities that own U.K. property. Since April 6, 2016, the U.K. has required U.K. companies, limited liability partnerships and societates europaeae to establish and maintain a register of persons with significant control over them and since June 30, 2016 and those entities have been required to file such information with Companies House where it is publicly available on the People with Significant Control register.

Currently, information about overseas owners of land or property is often limited to the entity's name and territory of incorporation and it is unclear who ultimately owns and/or controls the entity. The aim of the draft Bill is to prevent and combat the use of land in the U.K. by overseas entities for the purposes of laundering money or investing illicit funds.

Read more.

The Bank of England has published the outcomes from a "Proof of Concept" it ran to understand how its renewed Real-Time Gross Settlement service could be capable of supporting settlement in systems operating on innovative payment technologies, such as those built on Distributed Ledger Technology. The BoE has operated the RTGS service since 1996 to provide a safe and reliable means of settling high-value cash payments in real time in sterling central bank money. The BoE published a blueprint for renewal of the RTGS in May 2017, setting out how it proposed to overhaul the system to ensure higher resilience, broader access, wider interoperability, improved user functionality and strengthened end-to-end risk management of the high-value payment system.

Read more.

The U.K. Working Group on Sterling Risk-Free Reference Rates has published a paper to raise awareness among market participants of some of the current market uncertainties surrounding issuance of long-dated bonds referencing LIBOR. The Working Group is tasked with helping to bring about broad-based transition to the Sterling Overnight Index Average rate by end-2021 across Sterling bond, loan and derivative markets. SONIA has been selected as the preferred alternative risk-free rate for Sterling and, among other work, the Working Group is in the process of developing market conventions for SONIA-linked bonds. A key milestone for the Working Group will be its publication, later in 2018, of best practice for referencing SONIA in bond markets.

In the paper, the Working Group outlines some of the risks faced by bond market participants who are continuing to issue, offer and purchase new Sterling bonds referencing LIBOR, in particular where those bonds are long-dated. "Long-dated" refers to bonds set to mature beyond the end of 2021, when banks' commitments to submit data for purposes of LIBOR are due to end. The Working Group suggests certain steps market participants could take to mitigate some of the risks arising where LIBOR continues to be referenced in new Sterling bonds issued in the interim period before market conventions and infrastructure for referencing alternatives to LIBOR are fully developed.

View the paper.

The Law Commission has published a substantial consultation paper entitled "Anti-Money Laundering: the SARs Regime," seeking views on proposals to reform the law of England and Wales governing anti-money laundering. In particular, the report considers issues around Suspicious Activity Reports, which are the mechanism by which the private sector make disclosures relating to money laundering and terrorism financing.

The Law Commission has identified a number of legal difficulties that arise from the current regime and, following extensive fact-finding meetings with stakeholders, it has also identified a number of issues in the current regime that are causing particular practical difficulties. In the consultation paper, the Law Commission: (i) identifies the most pressing problems and proposes provisional solutions to improve the current regime; (ii) consults on reforming the consent regime within the Proceeds of Crime Act 2002 (POCA), which sets out the process whereby an individual who suspects that they are dealing with the proceeds of crime can seek permission to complete a transaction by disclosing their suspicion to the U.K. Financial Intelligence Unit of the National Crime Agency; and (iii) seeks to generate and consider ideas for long term reform.

Read more.

The U.K. Financial Conduct Authority has published a Policy Statement outlining its final policy and rule amendments on its approach to recognizing industry codes of conduct in unregulated markets, including the process and criteria for doing so. In the FCA's view, industry codes of conduct can be useful in helping firms to communicate what is expected of individuals to meet their conduct obligations under the Senior Managers and Certification Regimes. The SM&CR, which currently only applies to banks, credit unions, building societies and large investment firms (including EEA branches), will be extended to insurers from December 2018 and to all other FCA-regulated firms from December 2019.

The FCA consulted in November 2017 on proposals to formally recognize industry codes of conduct in markets that are outside the regulatory perimeter and to publish a list of recognized industry codes on its website. The consultation set out the criteria to be met for recognition of industry codes and proposed that recognition would apply for a renewable period of three years.

Read more.

Following a consultation between October 2017 and January 2018 on a package of revisions to certain of its Guidelines, the European Banking Authority has published three final reports and revised Guidelines aimed at strengthening the Pillar 2 framework.

The revised Guidelines have been prepared in line with the EBA's April 2017 Roadmap for revisions of the Pillar 2 framework, to keep the SREP Guidelines that were published in December 2014 (and in force from January 2016) up to date with respect to the EU and international standards. The EBA also aims to promote best supervisory practices and address issues identified in the EBA's ongoing work on assessment of supervisory convergence.

Read more. 

The EU Single Resolution Board has announced that Sr. Mauro Grande, Board Member and Director of Resolution Strategy and Cooperation, intends to leave his position. Sr. Grande has been with the SRB since its inception in March 2015. Sr. Grande will vacate the position once a successor is appointed, which is expected in the next few months. The European Commission and the SRB have jointly published a vacancy notice and applications for the position can be made until September 12, 2018.

View the SRB's announcement.

The U.K. Financial Conduct Authority has published the terms of reference (dated June 2018) for the pilot phase of its Digital Regulatory Reporting project. The FCA is working with the Bank of England in the RegTech sphere to explore ways of using technology to link regulation, compliance procedures and firms' policies and standards together with firms' transactional applications and databases.

The FCA published a Call for Input in February 2018 following a TechSprint in November 2017, at which a 'proof of concept' was achieved, showing that it was feasible to make regulatory reporting requirements machine readable and executable. Using this "Digital Regulatory Reporting" would allow firms to map their regulatory requirements directly to the data that they hold. Potential benefits include automated, straight-through processing of regulatory returns, greater accuracy in data submissions and faster implementation of changes in regulatory requirements, as well as cost reduction and improvements to competition.

Read more.

The European Banking Authority has published a response following allegations by Caius Capital LLP that UniCredit S.p.A.'s regulatory capital treatment in respect of a 2008 issuance of convertible and subordinated hybrid equity-linked securities (CASHES), which had been sanctioned by regulators including the European Central Bank, was incorrect. On May 3, 2018, Caius wrote a letter to the EBA, asking it to open an investigation for a breach of EU law on the basis that the structure of the transaction called into question the eligibility of ordinary shares underlying the CASHES as CET1 capital under the EU Capital Requirements Regulation. Caius has since published further letters restating and expanding upon its arguments that a portion of UniCredit's regulatory capital currently recognized as CET1 under the EU rules is ineligible for such classification.

Read more.

The European Securities and Markets Authority has launched a consultation on proposed revised Guidelines on periodic reporting by credit rating agencies. Under the EU Credit Rating Agencies Regulation, ESMA is responsible for direct supervision of EU CRAs registered with it. ESMA wishes to update its existing Guidelines, first published in 2015, to better reflect ESMA's supervisory powers and duties. In particular, ESMA does not consider that the current approach of determining reporting requirements according supervisory fees matches its risk-based approach to supervision. ESMA is proposing to establish reporting categorizations for CRAs as well as reporting calendars based on reporting categorization. Furthermore, ESMA is proposing to standardize the reporting templates and to provide additional reporting instructions.

The consultation closes on September 26, 2018. ESMA intends to publish the Final Report on the Guidelines before the end of 2018.

View the consultation.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the evolution of reference rates at the Alternative Reference Rates Committee (ARRC) Roundtable at the Federal Reserve Bank of New York. Vice Chairman Quarles stated his view that certain markets relevant to some LIBOR tenors are relatively illiquid. He contrasted this with the newly established secured overnight financing rate (SOFR). SOFR is the product of a collaborative effort by the Federal Reserve Bank of New York, the Federal Reserve Board and the U.S. Office of Financial Research, and was created in response to the ARRC's interest in establishing a Treasury repo rate benchmark that would span the widest possible scope of the market. Vice Chairman Quarles further noted that the implementation timetable for SOFR is ahead of schedule, that market participants have begun offering clearing of SOFR overnight index and basis swaps, and that futures markets for SOFR have been introduced on the Chicago Mercantile Exchange.

View full text of Vice Chairman Quarles’s remarks.

The Financial Action Task Force has published its report to the G20 Finance Ministers and Central Bank Governors. The report gives an overview of recent FATF work and its proposed next steps in its current workstreams. The United States takes over the FATF Presidency for the period July 2018 to June 2019 and has separately published a document summarizing its priority and other initiatives for the duration of its presidency.

Read more. 

The European Commission has published a Communication on preparing for the withdrawal of the U.K. from the EU on March 30, 2019. Alongside the Communication, a factsheet has been published entitled, "Seven Things Businesses in the EU27 Need to Know in Order to Prepare for Brexit." In the Communication, the Commission warns all stakeholders that "[p]reparation must therefore be stepped up immediately at all levels and taking into account all possible outcomes." The Commission highlights that it is not yet certain that an agreement will be in place by exit day (March 30, 2019) and that a cliff-edge scenario could still occur. Without ratification of the Withdrawal Agreement, there will be no transitional period providing a further 21 months to prepare for when EU law ceases to apply to and in the U.K. and the Commission is urging all stakeholders to prepare for all scenarios.

In the Communication, the Commission counsels the financial services sector (see page 14) to prepare for a "hard Brexit." The Commission advises that ensuring that there is no disruption to their current business model and that they can continue to serve clients is the responsibility of all operators in all financial services sectors. Notably, the Commission is not concerned, at this stage, about any contractual continuity issues on the principle that the performance of existing obligations can continue post-Brexit. However, the Commission notes that "every type of contract needs to be looked at separately."

Read more.

The U.K. Competition and Markets Authority has published a Provisional Decision Report in respect of the Investment Consultants Market Investigation in which it is assessing the supply and acquisition of investment consultancy services and fiduciary management services. The CMA has already published several working papers and an Issues Statement as part of the investigation.

The Provisional Decision Report sets out the CMA's assessment of the investment consultancy and fiduciary management markets, its general conclusions on competition, its provisional decision on competition and provisional remedies to address the identified competition issues. The CMA's provisional finding is that there is an adverse effect on competition which may result in material detriment to customers in both the investment consultancy and fiduciary management markets, although there are more concerns with the fiduciary management market.

Read more.

The European Securities and Markets Authority has published a final report on the application of the endorsement regime under the EU Credit Rating Agencies Regulation. The report contains ESMA's feedback statement for its earlier consultation on draft supplementary Guidelines as well as the final supplementary Guidelines.

The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; or (ii) a third-country CRA under the endorsement regime or the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU provided that the rating has been endorsed by an EU CRA. The CRA Regulation sets out various conditions for such an endorsement.

Read more.

The Financial Stability Board is seeking feedback on an initial evaluation of the effects of the post-financial crisis regulatory reforms on infrastructure finance. The initial evaluation focuses on infrastructure finance provided by the financial sector, for which the financial regulatory reforms are of immediate relevance. The FSB has established a framework for assessing whether the reforms are achieving their intended outcomes and whether there are any material unintended consequences to be addressed.

The initial evaluation shows the results of a qualitative and quantitative analysis of the Basel III reforms to regulatory capital and the OTC derivatives reforms. The results of a qualitative analysis of reforms that are at an earlier stage of implementation, such as investment funds rules and accounting standards, are also presented.

Feedback on the initial evaluation is invited by August 22, 2018. The FSB will consider the feedback in finalizing its report to the G20, due to be published towards the end of November 2018.

View the consultation paper.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the tailoring of supervision and regulation for large financial institutions.  Vice Chairman Quarles noted that post-crisis regulations made the financial system demonstrably stronger and more resilient, and that there was some degree of tailoring that occurred in the initial creation of the post-crisis regulatory framework.  Vice Chairman Quarles stressed that while steps have been taken since to improve the efficiency and efficacy of regulation, more can be done to streamline this framework.  He noted that there are still improvements that can be made to allow for greater differentiation in the supervision and regulation of large firms and further tailoring, a theme he has reiterated in several prior speeches.

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The European Banking Authority has published final Guidelines on fraud reporting under the revised Payment Services Directive. PSD2 aims to increase the security of electronic payments and decrease the risk of fraud. The Directive, which has applied since January 13, 2018, requires Payment Service Providers to provide, at least on an annual basis, data on fraud relating to different means of payment to their national regulator. The regulators must in turn provide such data in aggregated form to the EBA and the European Central Bank. Existing data reporting practices vary across the EU. The EBA has worked with the ECB to develop these Guidelines to ensure that data is reported consistently and that the data is comparable and reliable.

The final Guidelines are addressed to PSPs, except account information service providers, and to their national regulators. The Guidelines cover payment transactions that have been initiated and executed, including the acquiring of payment transactions for card payments, identified by reference to: (a) fraudulent payment transactions data over a defined period of time; and (b) payment transactions over the same defined period. The Guidelines also set out how national regulators should aggregate the data.

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The Financial Action Task Force has issued a detailed report on the concealment of beneficial ownership, assessing how legal persons, legal arrangements and professional intermediaries can help criminals conceal wealth and illicit assets. The aim of the report is to help national authorities including financial intelligence units, financial institutions and other professional service providers in understanding the nature of the risks that they face. The report was prepared in conjunction with the Egmont Group of financial intelligence units.

The FATF and the Egmont Group together identified the need for further analysis of the vulnerabilities associated with beneficial ownership, with a particular focus on the involvement of professional intermediaries, to guide global responses. Their joint report brings together the results of analysis of open-source research, public intelligence reports, classified intelligence holdings and public and private sector experience and expertise. It sets out a comprehensive overview of the main characteristics and vulnerabilities that lead to the misuse of legal persons and arrangements, and the exploitation of professional intermediaries, to conceal beneficial ownership.

The report identifies a number of issues for consideration to help address the vulnerabilities associated with the concealment of beneficial ownership.

View the FATF-Egmont Group report.

The U.S. Financial Stability Oversight Council issued a proposed decision with respect to a national bank’s petition to not treat the surviving entity of a bank holding company parent merging into its large U.S. national bank subsidiary as a nonbank financial company supervised by the U.S. Board of Governors of the Federal Reserve System pursuant to Section 117 of the Dodd Frank Act (commonly referred to as the “Hotel California” provision).  Section 117 applies to any entity, or its successor entity, that received financial assistance under, or participated in, the Capital Purchase Plan established under the Troubled Asset Relief Program and was a bank holding company with total consolidated assets of at least $50 billion as of January 1, 2010.

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The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission published their previously announced notice of proposed rulemaking entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds in the Federal Register.  The proposed rules seek to simplify and tailor the Volcker Rule.  Comments to the proposal are due by September 17, 2018.

View proposed changes to the Volcker Rule.

View full text of the proposal.

The Financial Market Infrastructure Administration (Designation of VocaLink) Order 2018 has been laid before Parliament. The Order relates to the special administration regime for operators of financial market infrastructures, which came into force on July 13, 2018. Relevant FMIs are operators of recognized payment systems, excluding recognized CCPs (which are already subject to the Banking Act resolution regime in the U.K.) and recognized central securities depositories operating a securities settlement system. However, HM Treasury is able to designate certain service providers to FMIs as infrastructure companies and so bring them within the FMI administration regime.

The Order designates VocaLink as an infrastructure company in connection with its provision of services to the operators of Faster Payments Service, Bacs and LINK. HM Treasury judges that an interruption in VocaLink's services to these operators of payment services would have a serious adverse effect on their operation.

The Order comes into force on August 9, 2018.

View the Order (SI 2018/858).

View the explanatory memorandum.

The European Securities and Markets Authority has published a final report setting out Regulatory Technical Standards supplementing the Prospectus Regulation, which will apply fully across the EU from July 21, 2019. ESMA consulted on draft RTS in December 2017. The final draft RTS cover:

• the content and format of key financial information for the summary;
• the data necessary for the classification of prospectuses and the practical arrangements to ensure machine readability of that data;
• advertisements;
• situations requiring a supplement to the prospectus to be published;
• requirements on the publication of the prospectus; and
• technical arrangements for the notification portal for passporting prospectuses.

ESMA has submitted the final draft RTS to the European Commission for endorsement.

View ESMA's final report.

The Financial Conduct Authority has published its Approach to Consumers alongside a discussion paper on the potential introduction of a new duty of care and possible alternative approaches. The Approach to Consumers forms part of a series of formal approach documents explaining the FCA's approach to regulation in more depth. It should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.

The Approach to Consumers sets out the FCA's approach to regulating for retail customers. The document sets out the FCA's vision for well-functioning markets that work for consumers, the relevant regulatory and legal framework, when and how the regulator will act to protect consumers, the FCA's policy position on key issues and its strategy for ensuring that its consumer protection objective is advanced with the greatest impact.

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The Bank of England's Working Group on Risk-Free Reference Rates has launched a consultation on term reference rates for the Sterling Overnight Index Average.

The Working Group is tasked with facilitating the transition across sterling bond, loan and derivatives markets from the use of sterling LIBOR to the use of SONIA. The Working Group notes that SONIA is an overnight rate, while LIBOR is commonly referenced in longer tenors of three or six months. Some end-users in loan and debt capital markets have reported that term rates are essential for their business needs.

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A draft of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force on the day the U.K. withdraws from the EU.

The draft Regulations have been prepared using the power under the European Union (Withdrawal) Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the withdrawal of the U.K. from the EU. The draft Regulations make amendments to various U.K. primary and secondary legislation that relate to building societies. The amendments remove references to EEA countries and territories, EU directives and EU member states that will no longer be appropriate following the U.K.'s withdrawal. In addition, the amendments remove provisions that provide reciprocal treatment to borrowers whose loans are secured on land in an EEA state and to bodies incorporated in an EEA state.

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The European Securities and Markets Authority has published final draft technical standards under the Securitization Regulation (also known as the STS Regulation). Among other things, the Securitization Regulation, which will apply directly across the EU from January 1, 2019, provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations. The Securitisation Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The Securitization Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

ESMA is mandated under the Securitization Regulation to develop Regulatory Technical Standards and Implementing Technical Standards on these elements. ESMA consulted on proposed draft Technical Standards in December 2017.

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A revised draft of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 has been laid before Parliament. The Regulations will come into force the day after the day on which they are made.

The draft Regulations, which include some changes to the original draft published in April 2018, among other things empower the Bank of England, the Financial Conduct Authority, the Prudential Regulation Authority and the Payment Systems Regulator to make EU Exit instruments and to make any necessary amendments to the Regulatory Technical Standards and Implementing Technical Standards that comprise "level 2" of the EU financial services legislation that will be onshored (that is, converted into U.K. law) on the U.K.'s withdrawal from the EU. A schedule to the draft Regulations sets out a full list of technical standards that will be onshored and allocates responsibility for making EU Exit instruments to one or more of the regulators.

The draft Regulations have been prepared under the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.

View the draft Regulations.

View the draft explanatory memorandum.

View details of the proposed approach to onshoring EU legislation.

View details of the EU (Withdrawal) Act 2018.

The U.K. Financial Conduct Authority has published an Interim report as part of its market study to ascertain whether competition between investment platforms is working in the interests of consumers. The FCA launched the investment platforms market study in July 2017 after potential competition issues in the sector were highlighted in the course of its asset management market study, on which it issued its final report in June 2017.

The FCA has been assessing competition in the sector by exploring a range of areas, namely: barriers to entry and expansion; business models; platform profitability; the impact of financial advisers; and consumer preferences and behaviour. Noting the increasing vertical integration in the sector, the FCA has also been examining commercial relationships between platforms, asset managers, discretionary investment managers and financial advisers.

The FCA has found that the market appears largely to be working well for both advised and non-advised consumers and that customer satisfaction is currently high. However, the FCA has found that there are some customers for whom the market is not working as well as it should. The interim report highlights the issues the FCA has identified and consults on proposed remedies. The report is supported by eight annexes covering elements of the FCA's research and findings so far.

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