The U.K. Payment Systems Regulator has published a consultation on a review of the six formal General Directions (Directions GD 1-6) and one Specific Direction (SD1) it adopted in 2015 under the Financial Services (Banking Reform) Act 2013. These Directions were all intended to improve access to and the governance of payment systems in the U.K. GD1 sets out the PSR’s expectations of regulated participants in payment systems to have an open and co-operative relationship with it. GD2, GD3 and SD1 set out requirements on operators relating to access to interbank and card payment systems and GD4-6 set out requirements for the governance of interbank payment systems.

Since the Directions were adopted in 2015, the PSR has gained experience of applying the Directions in practice and there have been a number of market and legislative changes, including the introduction of the Payment Services Regulations 2017. The PSR considers that the Directions should now be reviewed to reflect these market and legislative developments and to ensure that they remain relevant, proportionate and correctly targeted. The consultation paper sets out each of the Directives along with the PSR’s proposals to revoke, revise or retain the Direction in its current form.

The PSR invites comments on the proposals by June 8, 2018.

View the consultation paper.

The U.K. Banking Standards Board has published its Annual Review for the year 2017-2018. The BSB is a non-statutory organization established in April 2015 to help raise standards of behaviour and competence across the U.K. banking sector. Voluntary membership of the BSB is open to all banks and building societies operating in the U.K. The Annual Review sets out the key findings of the second annual assessment exercise conducted at member firms.

The BSB uses quantitative and qualitative data to assess firms against an Assessment Framework to establish how far each of nine characteristics is demonstrated within each firm. These characteristics are: honesty; competence; reliability; responsiveness; personal/organizational resilience; accountability; openness; respect; and shared purpose. The quantitative aspect of the assessment consists of an employee survey asking 37 core questions that allow comparison across and between firms and over time. The qualitative aspect incorporates views and perspectives from all levels and parts of the firm, obtained by various means, including written submissions, interviews and focus groups.

Read more.

The U.S. Senate passed a significant financial services reform bill 67-31 on a bipartisan basis that would eliminate certain requirements of the Dodd-Frank Act, including, most notably, increasing, from $50 billion to $250 billion, the threshold at which a large banking organization automatically becomes a systemically important financial institution that is subject to stricter supervisory standards.  The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) would also (i) exempt banks with less than $10 billion total consolidated assets from the Volcker Rule; (ii) exempt certain funds placed on deposit with certain central banks by a custodial bank from the calculation of the supplementary leverage ratio; (iii) reduce certain reporting and supervision requirements applicable to community banks; and (iv) ease certain securities law requirements.  A number of the provisions of the bill track legislation that has been passed by the U.S. House of Representatives over the past year, the most significant of which is the Financial Choice Act of 2017, which would amount to an omnibus revision of the Dodd-Frank Act.  The House will now have to consider the Senate bill, and the differences between the two bills will likely be negotiated and resolved in a Conference Committee of the House and Senate.

View full text of the bill.

HM Treasury has published a call for evidence which aims to inform the government's understanding of cash and digital payments in the new economy. Statistics show that the advance of digital technology has impacted how people manage their finances, with a large increase in the use of digital payments and a decrease in the use of cash. The UK Government is seeking input on how it can support the transition from cash to digital payments. The Government would like to ensure that cash remains available and secure to those who need to use it. In addition, the Government is concerned with how it can do more to prevent cash being used illegitimately, mostly to evade tax and to launder money.

Responses to the consultation should be provided by June 5, 2018.

View the call for evidence.

A Commission Delegated Regulation has been published in the Official Journal of the European Union. The Delegated Regulation supplements the revised Payment Services Directive with Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication.

PSD2 requires that strong customer authentication is used for accessing a payment account online, initiating a payment transaction and carrying out a transaction through a remote channel. “Strong customer authentication” means an authentication based on the use of two or more elements categorized as knowledge (something only the user knows), possession (something only the user possesses) and inherence (something the user is) that are independent, in that the breach of one does not compromise the reliability of the others, and is designed in such a way as to protect the confidentiality of the authentication data.

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The U.S. Financial Stability Oversight Council approved certain amendments to its procedures for hearings under Titles I and VIII of the Dodd-Frank Act.  The amendments add Section 117 of the Dodd-Frank Act to the scope of its hearing procedures, and make other conforming technical and streamlining amendments. Section 117 of the Dodd-Frank Act (the so-called Hotel California provision) applies to certain bank holding companies and provides that in the event one of these entities ceases to be a bank holding company, it shall thereupon be treated as a nonbank financial company subject to supervision by the U.S. Board of Governors of the Federal Reserve System. Section 117 also provides that an entity designated as a nonbank financial company pursuant to this section may request a hearing before the FSOC to appeal this treatment.  The amendments are effective immediately, but the FSOC will accept written comments received within 30 days of the publication of the amendments in the Federal Register.

View full text of the FSOC resolution.

The European Commission has published a Communication on the law applicable to the proprietary effects of transactions in securities. The Commission's objective is to clarify the conflicts of law provisions in the Financial Collateral Directive, the Settlement Finality Directive and the Winding-up Directive. These Directives apply to book-entry securities and instruments, the existence or transfer of which presupposes their recording in a register, an account, or centralized deposit system. All three Directives designate the applicable law based on the place of the relevant register or account. However, there is a degree of uncertainty because the provisions in the Directives use different language and because there is diverse interpretation and application of the provisions across the EU. The Communication confirms the Commission's view that the terms 'maintained' and 'located' used in these Directives mean the same thing and that the different ways across the EU of determining where the account or register is 'maintained' or 'located' are valid. The Commission's views are subject to any potential future decisions of the Court of Justice of the European Union on these issues.

The Commission will monitor developments in this area and assess whether any further action is necessary. National authorities are called upon to take the Commission's clarifications into account when applying the conflicts of law provisions of the FCD, SFD or WUD. The Communication should be read in conjunction with the Commission's proposed Regulation on the law applicable to the third-party effects of assignments of claims.

View the Communication.

View the proposed separate Regulation on assignment of claims.

The European Commission has published a proposed Regulation on the law applicable to the third-party effects of assignments of claims. The proposed Regulation was published alongside a Communication on the law applicable to the proprietary effects of transactions in securities.

Existing conflicts of law rules as to the contractual elements of the assignment of claims are governed at EU-level by the Rome 1 Regulation. However, there are no EU-level conflicts of law rules on the proprietary elements (or third-party effects) of the assignment of claims. The proprietary elements relate to who has ownership rights over a claim, which requirements must be met by an assignee to give him legal title over the claim and the resolution of competing claims. Currently, each Member State's conflicts of law rules govern the assignment of claims. These rules are inconsistent across the EU because they use different connecting factors to determine the applicable law - the rules in some Member States are based on the law of the assigned claim, others are based on the law of the assignor's habitual residence and other conflicts of law rules are based on the law of the assignment contract. In addition, some conflicts of law rules are unclear, particularly where they are not stated in legislation. Without legal certainty, market participants may not be aware of or choose to ignore the risk and then encounter unexpected losses; or they may mitigate the risk by seeking legal advice which will result in higher transaction costs; or they may be dissuaded by the legal risk, choose to avoid it and miss business opportunities.

Read more. 

The Committee on Payments and Markets Infrastructures and the Markets Committee of the Bank for International Settlements have issued a joint report that considers two types of central bank digital currency: (i) a wholesale CBDC for use in financial markets and limited to select financial institutions; and (ii) a general purpose CBDC that would be available for use by the public. The report analyzes the implications of both types of digital currency in the core central banking areas of payments, monetary policy implementation and financial stability.

As regards wholesale CBDCs, the report finds that, while they might be useful for payments, more work is needed to assess their full potential. The report also finds that a wholesale CBDC would not alter the basic mechanics of monetary policy implementation, but that its transmission could be affected. The report states that a general purpose CBDC could have wide-ranging implications for banks and the financial system and could also have effects on the efficiency of financial intermediation. As a result, the report concludes that any jurisdiction considering the launch of a CBDC should carefully and thoroughly consider the implications before making any decision.

The joint report has been published in advance of the meeting of the G20 central bank governors and finance ministers, scheduled for March 19-20, 2018, which, among other things, proposes to discuss the technology behind cryptocurrencies.

View the joint report.

View the press release.

As part of its work on creating a European Capital Markets Union, the European Commission has published a legislative package of amendments, comprising a proposed Regulation and a proposed Directive.

The proposed Directive amends the Directive on Undertakings for Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive by introducing new or amending existing elements of that legislation. This includes deletion or amendment of provisions of the UCITS Directive or AIFMD that are dealt with in the proposed new Regulation. The proposed Directive also inserts a definition of “pre-marketing” in AIFMD, which is designed to allow AIFMs to target investors by testing their appetite for upcoming investment opportunities or strategies through pre-marketing. Pre-marketing is defined as "a direct or indirect provision of information on investment strategies or investment ideas... in order to test [investor] interest" in an AIF that has not yet been established.

The proposed Regulation aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national competent authorities.

Read more.

The Banking Standards Board has published the "BSB Statement of Principles for Strengthening Professionalism - The role of the firm", which is a guiding statement of principles intended to assist banks and building societies to strengthen professionalism in the banking sector. The BSB has defined professionalism in UK banking as "attitudes, judgement and high standards of behaviour, knowledge and skill expected of individuals working in banking". The Statement consists of six principles, each of which is supported by action points on how the principle can be achieved.

The Statement does not impose any legal or regulatory obligations on firms or replace any regulation. It is intended to assist firms in structuring their own practices and to build on regulatory initiatives, such as the Senior Managers and Certification Regimes.

View the BSB Statement.

The European Commission has published legislative proposals for a new EU covered bonds framework. The legislative package consists of a proposed Directive on the issue of covered bonds and covered bond public supervision and a proposed Regulation to amend the prudential treatment of covered bonds under the Capital Requirements Regulation. The proposals are part of the EU's Capital Markets Union project and follow from the work of the European Banking Authority in this area, in particular, its 2016 recommendations for an EU covered bonds framework.

The proposed Covered Bonds Directive will apply to covered bonds issued by EU credit institutions, which means that only EU credit institutions will be able to issue covered bonds governed by the framework. Issuers using the EU covered bonds label will need to comply with the proposed Directive but can also use the label with national labels. Covered bonds are debt obligations issued by credit institutions and secured against a ring-fenced pool of assets to which bondholders have direct recourse as preferred creditors. The proposed Directive provides requirements for issuing covered bonds and the structural features of covered bonds, including dual recourse and bankruptcy remoteness. There are also provisions to address liquidity risk through the imposition of a liquidity buffer related to the cover pool and transparency provisions requiring information to be disclosed to covered bond investors. In addition, the proposed Directive provides for supervision at national level of covered bonds.

Read more. 

The U.S. Board of Governors of the Federal Reserve System published updates to its Comprehensive Capital and Analysis Review and Dodd-Frank Act Stress Tests questions and answers guide.  The Federal Reserve Board provided additional questions and answers with respect to a number of topics, including general CCAR considerations, range of practice and supervisory expectations, FR Y 14-A report supporting documentation and the remediation of supervisory findings.

Read more.

The European Central Bank has confirmed that a collective agreement signed between the central banks operating TARGET2 component systems and the central securities depositories operating on the TARGET2-Securities platform can enter into force. The provisions of the Collective Agreement will take effect on March 20, 2018. The Collective Agreement provides a definition of a “common moment of entry” for payments and securities transfer orders that are matched in the systems of the signatories to the agreement. This common moment of entry will either be the moment at which a transfer order has been declared compliant with the technical rules of T2S by either the T2S platform or, if the CSD is operating a separate matching component, by the CSD. Defining the common moment of entry makes it possible to establish the point at which securities transactions become irrevocable and accordingly will provide certainty regarding the treatment of outstanding transactions if a participant becomes insolvent.

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The Financial Stability Board has published the finalized version of its Supplementary Guidance on its Principles and Standards on Sound Compensation Practices, following feedback to a consultation it launched in June 2017. The Supplementary Guidance relates to the use of compensation tools to address misconduct risk. Misconduct, for the purposes of the Supplementary Guidance, should generally be understood as conduct that falls short of expected standards, including legal, professional, internal conduct and ethical standards.

The Supplementary Guidance is consistent with the FSB’s existing Principles and Standards on Sound Compensation Practices and provides guidance on better practice for addressing misconduct risk without adding any new or additional principles or standards. It is broken down into sections covering: (i) governance of compensation and misconduct risk; (ii) effective alignment of compensation with misconduct risk; and (iii) supervision of compensation and misconduct risk. FSB members are asked to apply the Supplementary Guidance to significant institutions and in a way consistent with the law and regulation of their jurisdictions.

View the Supplementary Guidance.

The U.K. Financial Conduct Authority has launched a short online survey seeking information from European Economic Area firms currently operating in the UK under a passport. The information obtained will identify those firms for which a “temporary permission” may be relevant following the U.K.’s withdrawal from the European Union. The possibility of a “temporary permission regime” was raised by HM Treasury in December 2017 as a means by which firms previously operating under a passport would be able to enter into new business and fulfil existing contracts with U.K. customers for a period of time after exit day, while seeking full authorization in the U.K.. HM Treasury has not yet prepared legislation relating to the temporary permissions regime, and EU-U.K. negotiations are in any event ongoing, however the FCA believes that it is likely that firms operating under a passport would need to inform it of their intention to operate under the temporary regime via a straightforward notification process in advance of the U.K.’s withdrawal.

Read more.

The European Banking Authority has commenced a consultation on draft Guidelines on the management of non-performing and forborne exposures. The Capital Requirements Directive requires in-scope banks and investment firms to have robust governance arrangements and effective processes to identify, manage, monitor and report the risks to which the firm is exposed. The EBA is responsible for issuing related guidelines to further harmonize across the EU how firms implement these obligations.

Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks’ viability and lending capabilities. In March 2017, the European Central Bank finalized its Guidance on managing NPLs, which applies to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. The EBA’s draft Guidelines similarly aim to reduce the build-up of non-performing exposures (NPEs) in a bank’s balance sheet.

The EBA’s proposed Guidelines set out sound risk management practices for banks for managing NPEs, forborne exposures (FBE) and foreclosed assets and apply to all exposures that fall within the definition of non-performing and forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The finalized Guidelines will also apply to national regulators responsible for assessing firms’ risk management of NPEs and FBEs, as part of the Supervisory Review and Evaluation Process. National regulators must also ensure that firms comply with the Guidelines on an individual, sub-consolidated and consolidated basis.

Read more.

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

In the press release announcing the draft revised guidance, the JMLSG clarifies that the revisions do not make substantive changes to the existing guidance. Instead, the proposals provide clarification on the workings of these two sectors, how to identify customers and how risks should be assessed.

The JMLSG invites comments on the proposed revisions by March 30, 2018.

View the consultation.

The European Commission has issued a Communication on FinTech to the European Parliament, the European Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions.

The Communication sets out the Commission's Action Plan for FinTech, building on responses from the Commission's public consultation on its policy approach to FinTech, which ran from March to June 2017, and on the work of the Task Force on Financial Technology which was established in November 2016. The Action Plan is part of the Commission's efforts to build a Capital Markets Union and a true single market for consumer financial services. It is also part of its drive to create a Digital Single Market. The Communication is accompanied by Frequently Asked Questions on FinTech and a factsheet.

At this stage, the Commission considers that there is limited need for regulatory or legislative action or reform. However, the outcome of ongoing monitoring and assessment of innovative technologies may point to the need for regulatory action at EU level in the future. The current Action Plan is concerned with initiatives designed to facilitate the emergence of innovative models throughout the EU (through sandboxes and similar approaches), to enable innovative models to scale up (through consistent licensing, common standards and interoperability). The Commission also aims to improve the uptake of technological innovation in the financial sector, by ensuring the suitability of the regulatory regime, reducing barriers to entry for innovative firms such as cloud service providers and, in particular, harnessing the potential of blockchain and other distributed ledger technologies. The Action Plan further outlines planned initiatives to strengthen cybersecurity as well as the integrity of the financial system.

Read more. 

The European Commission has published a proposed Regulation on European Crowdfunding Service Providers for Business. The proposed ECSP Regulation is part of the EU Capital Markets Union initiative and the Commission's FinTech Action Plan. It aims to increase access to finance through crowdfunding for innovative companies, start-ups and SMEs.

The Commission is seeking to introduce an "EU label for crowdfunding service providers" which would be authorized and supervised by the European Securities and Markets Authority and able to passport their services across the EU. Currently, different EU Member States apply different levels of regulatory requirements to CSPs. Some Member States require CSPs to comply with onerous obligations under the Markets in Financial Instruments package, some apply more lenient regimes, while others allow CSPs to benefit from exemptions and remain unregulated. The Commission's view is that this divergence hampers the potential scaling-up of crowdfunding activity, because CSPs need to comply with different legal and regulatory requirements and adjust their business models accordingly if they want to provide services in more than one EU Member State. The Commission is not proposing that current national frameworks be repealed. Instead, those frameworks can continue to exist, which will allow CSPs to choose to either provide or continue providing services on a domestic basis under national laws or to provide services under the proposed ECSP Regulation. However, the Commission is proposing that the MiFID II Directive be amended to exclude CSPs from its obligations.

Read more. 

The European Commission has published a Communication on completing the Capital Markets Union by 2019. The Communication confirms the Commissions commitment to completing the CMU by mid-2019 and announces the publication of the FinTech Action Plan, including a proposed Regulation on Crowdfunding, and the Sustainable Finance Action Plan. Legislative proposals on covered bonds, the cross-border distribution of collective investment funds and the law applicable to third-party effects of assignment are expected to be published on March 12, 2018. In May 2018, the Commission intends to publish a proposed Directive on credit servicers, credit purchasers and the recovery of collateral as well as impact assessments on the SME listing regime and the resolution of investment disputes.

The Commission states that completion of the CMU is more urgent due to the impending exit by the UK from the EU because the UK is currently the EUs largest financial centre. The Commission notes that an effective CMU will need to "open-up markets to give better access to finance for EU businesses and more and innovative investment opportunities for savers." 

Read more. 

The European Securities and Markets Authority has published on its website trading volumes and calculations for the purposes of the Double Volume Cap under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The published data covers the periods January 1, 2017 to December 31, 2017 and February 1, 2017 to January 31, 2018.

The DVC has been introduced under MiFIR as a measure to limit the amount of dark pool trading, which can harm price formation in equity markets. The DVC places a cap on the volume of equities trading using two of the available waivers from the pre-trade transparency obligations of the MiFIR, namely the negotiated transaction waiver and the reference price waiver. The double cap comprises a per-venue cap of 4% of the total volume of trading in a particular financial instrument on all EU trading venues across over the previous 12 months and an EU-wide cap of 8%. ESMA is required to publish reports on the volume of trades that have relied on the waivers.  National regulators must suspend, for six months, trading under the waivers that exceeds either of the caps.

The publication of the data follows a delay announced by ESMA in January 2018 due to issues with the quality and completeness of data that had been submitted.

View the ESMA press release.

The International Organization of Securities Commissions has launched a consultation on proposed recommendations for trading venues and their regulators to consider when implementing, operating and monitoring volatility control mechanisms to preserve orderly trading. The consultation supports IOSCO’s objective of ensuring that markets are fair, efficient and transparent and focuses on automatic volatility interruptions and mechanisms to halt trading or reject orders.

Read more.

The U.S. House of Representatives passed four bills from the U.S. House Financial Services Committee, all by voice vote, which are primarily designed to reduce the regulatory burden on financial institutions.

Read more.

The U.S. Board of Governors of the Federal Reserve System published a proposed rule for that would amend Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire).  The proposed amendments are intended to better harmonize Regulation J with the Federal Reserve Board’s recent amendments to Regulation CC (Availability of Funds and Collection of Checks), and to reflect a transition from a paper-based check collection system to one that is essentially entirely electronic.  The proposed amendments are designed to clarify and simplify provisions of Subpart A of Regulation J, while removing obsolete provisions, and to better reflect the rights of stakeholders, including with respect to the Federal Reserve Banks.  The amendments also include proposed clarifications to Subpart B of Regulation J to reinforce that terms used in financial messaging standards do not confer legal status or responsibilities.  Comments to the Federal Reserve Board’s proposal are due 60 days from its publication in the Federal Register.

View full text of the Federal Reserve Board proposal.

The Financial Stability Board has published an update to its correspondent banking data report. The latest data report updates the data report the FSB published in July 2017 alongside a report for the G20 on progress made on the four point action plan the FSB launched in November 2015 to address the decline in correspondent banking relationships. The latest data report updates the July 2017 data report with additional information provided by SWIFT incorporating the period from January to June 2017.

This new data reveals the average number of active corridors per country (that is, direct relationships between countries, measured by the flow of SWIFT messages) increased in the first half of 2017 in Oceania, Eastern Europe, and Northern America but declined in the rest of the Americas and of Europe, as well as Africa and Asia. There was continued reduction in the total number of active correspondents (as measured by the number of banks that have sent or received messages corridor by corridor in a given month). This decline in active correspondents has not resulted in a lower number of payment messages (volume) or a lower underlying value of the messages processed through SWIFT, leading the FSB to conclude that the higher volume of messages could in part reflect a lengthening of payment chains, as previously discussed in its July 2017 report. Concentration levels of correspondent banking remain high.

Read more.

HM Treasury has directed the Prudential Regulation Authority to conduct an independent investigation into the prudential regulation of the Co-operative Bank plc during the period 2008 to 2013. HM Treasury is empowered to require the Financial Conduct Authority or PRA to undertake investigations where it considers that such an investigation is in the public interest and the relevant regulator has not launched an investigation on its own initiative. The investigation will consider the actions, policies and approach of the Financial Services Authority and one of the successors to its functions, the PRA, during their respective periods in charge of prudential supervision, including the withdrawal by the Co-operative Bank from the bidding process to purchase bank branches from Lloyds Banking Group (known as Project Verde).

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The Wolfsberg Group has published an updated version of its Correspondent Banking Due Diligence Questionnaire (dated February 22, 2018). The CBDDQ has been enhanced and expanded in line with regulatory expectations on strengthening and building due diligence tools. The Group has also published guidance on completing the CBDDQ, frequently asked questions and a glossary. The CBDDQ is intended to provide a standardized document for use by those needing to conduct due diligence on correspondent banks. Over time, it is hoped that use and availability of the CBDDQ may, among other things, help prevent unnecessary de-risking.

The Wolfsberg Group was established in 2002 and comprises thirteen banks. Its objective is to develop frameworks and guidance for the management of financial crime risks. The CBDDQ is intended to support the work on de-risking in correspondent banking by the Financial Stability Board, the Financial Action Task Force and the Committee on Payments and Market Infrastructures.
 

View the updated CBDDQ (version 1.2).

View the completion guidance.

View the FAQs.

View the Glossary.

Randal Quarles, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, discussed the need to examine post-crisis reforms.  Focusing on post-crisis regulations that impact foreign banking organizations operating in the U.S., he noted that regulations should be reviewed to ensure not only efficacy, but also efficiency and transparency.

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The U.K.’s Joint Money Laundering Steering Group has confirmed that it has received approval from HM Treasury for the final revised guidance it published in December 2017 on anti-money laundering and counter-terrorist financing for the financial services sector. The revisions to the guidance align it with the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which is the UK implementing legislation for the Fourth EU Money Laundering Directive (4MLD) and the revised Wire Transfer Regulation (WTR) which came into effect on June 26, 2017. 4MLD seeks to give effect to the updated Financial Action Task Force (FATF) global standards which 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. WTR sets out the minimum requirements that are essential to ensure the traceability of transfers of funds.

Read more.

The Financial Stability Board has published final Reporting Guidelines for implementing the November 2015 Global FSB Securities Financing Data Standards, which set out the standards and processes for global securities financing data collection, aggregation and reporting by national regulators for financial stability purposes. The standards, among other things, define the data elements for repurchase agreements, securities lending and margin lending and set out recommendations for national regulators on the collection of data from market participants, so that timely and comprehensive visibility into trends and developments in these markets can be obtained. National regulators must report in USD to the Bank for International Settlements, acting as the global aggregator.

Read more.

The European Central Bank has published two consultations on draft guides on the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP). The draft Guides, which will be relevant to institutions within the Single Supervisory Mechanism, are designed to assist institutions in strengthening their ICAAPs and ILAAPs and encourage the use of best practices by explaining in greater detail the ECB’s expectations.

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The U.K. Prime Minister delivered her third major speech on the future partnership between the U.K. and the European Union following Brexit. In it, the Prime Minister restated the key elements and provided greater detail about the U.K.’s aims for a free trade agreement with the EU post-Brexit.

 The Prime Minister was candid about the fact there are some “hard facts” to be accepted, one of which is that access to each other’s markets may in certain ways be less than it is now. Two key aspects of the speech are of particular interest for financial services businesses and their advisers.

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The U.S. Board of Governors of the Federal Reserve System announced that the Secure Payments Task Force will conclude its efforts this month with a final publication detailing the lifecycles and security profiles of today's primary payment methods.  Established in 2015, the Secure Payments Task Force, which has engaged more than 200 financial institutions, payment service providers, and other stakeholders, has made a number of contributions to improve the security and resiliency of payment systems, including identifying key security priorities, developing resources and documentation to educate stakeholders and providing feedback to the Federal Reserve Board.  The members of the Secure Payments Task Force will transition into the FedPayments Improvement Community, a network established to provide stakeholders with opportunities to engage in the Federal Reserve Board with respect to its payment improvement initiatives.

View full text of the Federal Reserve Announcement.

As part of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services, the U.K. Competition and Markets Authority has published the first in a series of working papers on specific aspects of the investigation, as envisaged by the progress report it published in February 2018. The working paper sets out the CMA’s analysis and emerging findings to date in respect of the information available to pension trustees on the fees and quality of investment consultants and fiduciary managers. It should be read together with the issues statement for the investigation, which was published in September 2017. The working paper also provides an update on the CMA’s developing thinking on potential remedies that might be applied in the event that the CMA was to find an adverse effect on competition. Remedies being considered by the CMA include guidance and off-the-shelf materials for running better tenders, standardised information for prospective clients in response to tenders, better fee information, standardised performance metrics and stronger service quality metrics.

Read more.

The Federal Reserve Bank of New York has announced it will begin publication of three Treasury repo reference rates on April 3, 2018. The rates will reflect data from the previous day and will be published each day at approximately 8:00 a.m. Eastern Time.

These rates include the Secured Overnight Financing Rate (SOFR), which will be based on triparty repo data from Bank of New York Mellon and cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation; the Triparty General Collateral Rate (TGCR), which will solely include triparty repo data; and the Broad General Collateral Rate (BGCR), which will be based on triparty repo data and GCF Repo data. In December, the Alternative Reference Rates Committee recommended SOFR as an alternative to U.S. dollar LIBOR in certain new U.S. dollar derivatives and other financial contracts.

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The U.K. Payment Systems Regulator has published the outcome of the consultation it launched in November 2017 on a contingent reimbursement model for the victims of so-called “authorized push payment” scams. That consultation, which closed on January 12, 2018, outlined high level principles for the CRM and requested input from stakeholders on how the model should be further developed, implemented and administered.

Taking into account responses to the consultation, the PSR proposes to proceed with the CRM model and will establish a dedicated steering group to develop it, in the form of an industry code for reimbursement of APP scam victims. The steering group will be comprised of representatives from key stakeholder groups, particularly consumer representatives and PSPs, with oversight and support from the PSR. Other relevant regulatory and governmental bodies will also be involved as observers.

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The U.S. House of Representatives voted 245-169 in favor of passing H.R. 4296.  The bill prohibits federal financial regulators from establishing operational risk capital requirements for financial institutions unless the requirements are based upon, and appropriately sensitive to, the risks posed by the institution’s current business and operations.  The requirements also must be forward-looking, rather than focused on historical losses of the financial institution, and provide for adjustment to capital requirements based upon the operational risk mitigating activities of the financial institution.  The bill was originally part of the larger Financial CHOICE Act, which passed the House in June 2017.  The bill was read in the U.S. Senate and referred to the U.S. Senate Committee on Banking, Finance, & Urban Affairs.

View full text of the bill.

The European Systemic Risk Board has published a final report setting out proposed amendments to the ESRB Handbook on Operationalising Macroprudential Policy and policy proposals on the legal framework of the systemic risk buffer and the structural buffers for global systemically important institutions (G-SIIs) and O-SIIs. Alongside the final report, the ESRB has also published an Opinion to the European Commission on structural macroprudential buffers.

Read more.

The Basel Committee on Banking Supervision has published a Consultation on its proposals for the third phase of the Pillar 3 Framework. Pillar 3 comprises a set of quantitative and qualitative disclosure requirements applicable to banks in relation to capital, risk exposures and risk assessment processes, which are designed to allow other market participants to assess each bank’s capital adequacy.

The Pillar 3 framework was last updated in March 2017, following a Basel Committee review. The Basel Committee now proposes some revisions and additions to the Pillar 3 framework which result from the finalization of the Basel III framework in December 2017.

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A Commission Implementing Regulation providing Implementing Technical Standards on the procedures and forms for exchange of information and assistance between national regulators under the Market Abuse Regulation has been published in the Official Journal of the European Union. MAR, which entered into force on July 3, 2016, requires national regulators to cooperate with each other in investigations and on supervision and enforcement matters by exchanging information, taking statements from individuals, conducting on-site inspections or investigations and in the recovery of monetary sanctions. The new ITS describe the procedures to be followed by national regulators when making, acknowledging, processing and replying to requests for assistance and when unsolicited assistance is provided and contain standard forms for national regulators to use when doing so.

The ITS enters into force on February 28, 2018 and apply directly across the EU.

View the Commission Implementing Regulation.

Randal Quarles, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, provided brief remarks at the Financial Services Roundtable 2018 Spring Conference.  Vice Chairman Quarles noted the importance of reviewing the post-crisis regulatory regime to determine which regulations may not be functioning effectively or as intended, and make changes, as necessary.  He noted the importance of evaluating the costs and benefits of regulatory initiatives as well as evaluating their effect on both the resiliency of the financial system and on credit availability and growth.  He focused in particular on the topic of cybersecurity, which he remarked is a high priority for the Federal Reserve Board.  Given the dynamic and highly sophisticated nature of cyber attacks, Vice Chairman Quarles emphasized the need for collaboration in this area, both among private sector stakeholders and between the private sector and federal financial regulators.  He noted that the Federal Reserve Board is continuing to work with other financial regulatory agencies to harmonize cyber risk-management standards and supervisory expectations to align them with existing best practices such as the National Institution of Standards and Technology’s Cybersecurity Framework.

View full text of Vice Chairman Quarles's remarks.

The Financial Conduct Authority has announced that it will be putting forward proposals for aligning the Financial Services Register with the expanded Senior Managers & Certification Regimes. The SM&CR has been in place for banks, building societies, credit unions and PRA-designated investment firms since March 2016, whilst certain insurers have been subject to the separate Senior Insurance Managers Regime. The remainder of authorized firms have continued to be subject to the Approved Persons Regime. The FCA recently consulted on expanding the existing SM&CR to all other authorized firms.

Under the SM&CR, the FCA only approves Senior Managers and it is only these individuals that appear in the FS Register. The Certification Regime requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper".

Feedback on the proposals to extend the SM&CR indicated that there would be public value in including details of certification of employees and other important individuals at firms in the FS Register. The FCA intends to consult in the Summer on implementing that feedback. If these proposals are implemented, non-executive directors, financial advisers, traders and portfolio managers would appear in the revised FS Register.

View the FCA's statement.

View the proposals to extend the SM&CR.

The U.S. Office of the Comptroller of the Currency issued a final rule that makes certain technical amendments to its annual stress testing regulation.  The stress testing regulation provides that the OCC may require an institution to include trading and counterparty components in its adverse and severely adverse scenarios if the institution has significant trading activities.  Under the final rule, the date range of this position data has been expanded from between January 1 and March 1 of the current calendar year to between October 1 of the preceding calendar year and March 1 of the current calendar year.  The final rule notes that this will provide the OCC with greater flexibility in establishing an appropriate as-of date and that the U.S. Board of Governors of the Federal Reserve System has made a similar change to its corresponding regulations.  The final rule also amends and clarifies the transition period for institutions that meet the $50 billion asset threshold, which subjects the institution to different stress testing requirements.  Under the final rule, if an institution crosses the $50 billion threshold in the fourth quarter of a calendar year, it will not be subject to the supervisory stress testing requirement until the third calendar year after it crossed the threshold.  Otherwise, institutions become subject to the over $50 billion stress testing requirements two calendar years after crossing the threshold.  The final rule also makes definitional and other technical changes.  The final rule will become effective 30 days from its publication in the Federal Register.

View full text of final rule.

The U.K. Prudential Regulation Authority has published a Policy Statement on Pillar 2 liquidity, following two consultations in May 2016 and July 2017. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework complements the Pillar 1 Liquidity Coverage Ratio requirements by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. In its May 2016 and July 2017 consultations, the PRA set out proposals for liquidity assessments, the introduction of a framework for cashflow mismatch risk (CFMR) and survival guidance on the granular liquidity coverage requirement stress within the CFMR framework.

The PRA received a number of consultation responses. The Policy Statement sets out the PRA's feedback and explanation of a number of changes it has made to its original proposals.

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The House of Commons Treasury Committee has launched an inquiry into digital currencies and distributed ledger technology in the U.K. The inquiry will consider the risks and opportunities of digital currencies for consumers, businesses and the Government as well as the impact of DLT on financial institutions, financial market infrastructure and the central bank. The regulatory response of the Bank of England and the Financial Conduct Authority in relation to anti-money laundering legislation will also be assessed against the need to ensure the protection of consumers without repressing innovation.

View the announcement.

The U.S. Department of the Treasury released its report and recommendations regarding the Orderly Liquidation Authority established under Title II of the Dodd-Frank Act.  The report proposes a “bankruptcy first” approach to the resolution of financial institutions, recommending the establishment of a new chapter of the U.S. Bankruptcy Code.  This new Chapter 14, which has been the subject of academic and industry debate for several years, would generally involve placing the top-tier parent of a financial group into bankruptcy proceedings and transferring the subsidiaries to a new bridge company and would also include procedural features tailored to address specific nuances in respect of the resolution of financial institutions.

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The International Organization of Securities Commissions has published a consultation report in which it seeks feedback on proposed Guidance to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising.

IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise where analysts employed by firms managing the securities offering may be under pressure to present a positive view of the issuer. During the investor education and price-formation phase these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. There can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.

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Following a market investigation reference from the Financial Conduct Authority in September 2017, the Competition and Markets Authority has published a progress report on the Investment Consultants Market Investigation that it is carrying out into the supply of investment consultancy services and fiduciary management services to, or the acquisition of such services by, institutional investors and employers. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.

The progress report sets out the steps that the CMA has taken to date, such as the publication of the Issues Statement in October 2017, the hearings it has held and the visits it has made to the three largest investment consultants. The report also provides a list of working papers that the CMA intends to publish in the next few months, which will provide the CMA's emerging thinking on specific areas of the Investigation, such as information on fees and quality of service that investment consultants and fiduciary managers provide to current and prospective clients, the performance of investment consultants' recommended asset managers, conflicts of interest and market concentration. The CMA also confirms, as proposed in the Issues Statement, that the Investigation will focus on pension schemes as clients of investment consultants and fiduciary managers.

The CMA will publish a Provisional Decision report in July 2018, to which interested stakeholders can provide feedback in advance of the publication of the final report in March 2019.

View the progress report.

View the Issues Statement.

The U.K. Banking Standards Board has published further Supporting Guidance to its Statement of Good Practice on the Certification Regime: Fitness and Propriety Assessment Principles (known as Statement of Good Practice 1). The new Supporting Guidance, "Establishing Pass/Fail Criteria and Evidencing the F&P Assessment" (known as Supporting Guidance 2), aims to assist firms and other persons assessing fitness and propriety in making certification decisions, particularly in borderline cases. The Certification Regime is part of the regulatory reforms introduced in the U.K. to strengthen individual accountability (namely, the Senior Managers Regime, the Certification Regime and the Conduct Rules). It requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper." The U.K. regulators are proposing to extend the Certification Regime to all other regulated firms. The BSB was launched in April 2015 as an industry initiative to help raise standards of behavior and competence in the banking sector.

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