The US Senate Committee on Banking, Housing and Urban Affairs held a full committee hearing entitled “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement.” Chairman Mike Crapo and ranking member Sherrod Brown each delivered opening statements at the hearing. Mr. Crapo highlighted the vital importance of robust anti-money laundering laws, rules and regulations, and their implementation through financial institution policies and procedures. Mr. Crapo also noted, however, that much has changed since the Bank Secrecy Act was enacted nearly 50 years ago, and stressed the need for its modernization. Mr. Brown also emphasized the importance of a robust AML regime, and noted that many large US and international financial institutions have been penalized for AML deficiencies. Mr. Brown noted that broadening information-sharing may make sense but that important questions about privacy protections must also be addressed.

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The European Securities and Markets Authority has announced that it will delay the publication of data for January 2018 on the double volume cap mechanism introduced by the Markets in Financial Instruments Regulation from January 3, 2018. The DVC mechanism introduced by MiFIR seeks to ensure that dark pool trading using waivers from pre-trade transparency requirements does not unduly harm price formation. It does so by capping the amount of trading for orders placed in systems which are based on a trading methodology using the reference price waiver and certain transactions using the negotiated price waiver.

ESMA expects to work with national regulators and trading venues to address issues it has identified with the quality and completeness of the data it has so far received from trading venues. It hopes to publish the data in March 2018.

View the press release.

The European Securities and Markets Authority has published a list of trading venues exempt from the open access requirements of the Markets in Financial Instruments Regulation under transitional arrangements for exchange-traded derivatives under the "de minimis" principle. Various national regulators have also delayed the coming into effect of the open access requirements of MiFID II for clearing houses.

MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades concluded on a trading venue of their choice, which will in turn allow the members of a trading venue to select the CCP they wish to use for clearing. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions are controversial since they mean that valuable intellectual property and IT systems developed by exchanges effectively must be made available to competitors or new market entrants. It has been argued that the open access requirements make the EU unattractive as a location for exchange businesses due to commercial disadvantages that result for those exchanges which have successfully invested in innovation.

MiFIR provides for a transitional opt-out from the open access requirements for trading venues and clearing houses in relation to ETDs provided that certain criteria are met. ESMA's list specifies four trading venues from Spain, Poland, Norway and Greece that have had their application for exemption approved and one from Sweden whose approval is pending. The four trading venues - MEFF Sociedad Rectora del Mercado de Productos Derivados S.A.U., Giełda Papierów Wartościowych w Warszawie S.A., Oslo Børs ASA and Athens Exchange S.A. - are exempt from the MiFIR open access requirements until July 3, 2020.

Read more. 

The European Securities and Markets Authority is consulting on proposed guidelines for national regulators of CCPs on the application of the rules requiring CCPs to adopt anti-procyclicality margin measures.

The European Market Infrastructure Regulation requires CCPs to impose, call and collect margins to limit its credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions taking into account any potentially procyclical effects of those revisions. The Regulatory Technical Standards on requirements for CCPs provides that CCPs must use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected.

During the EMIR Review, ESMA highlighted that the implementation of these requirements differs across CCPs and that the effectiveness and supervision of these measures could be improved. The draft guidelines seek to clarify and ensure consistent application of the requirements across the EU.

Read more.

The UK Prudential Regulation Authority has published a "Dear CFO" letter that was sent to the Chief Finance Officers of larger UK-headquartered credit institutions. The "Dear CFO" letter sets out the PRA's expectations as to the minimum disclosures those firms should be making on transition to the new standard for loan loss provisioning based on "expected credit losses" that forms part of standard 9 of International Financial Reporting Standards. The ECL requirements will replace the old "incurred loss" provisioning model that was contained in standard 39 of the International Accounting Standards. ECL will require banks to provision for expected credit losses from the time a loan is originated, rather than awaiting "trigger events" signalling imminent losses. IFRS 9 has been implemented through Commission Regulation (EU) 2016/2067, which requires credit institutions and investment firms that use IFRS to prepare their financial statements to apply IFRS 9 as of the starting date of their first financial year starting on or after 1 January 2018. The Regulation permits banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital. Firms that use these transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.

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The Prudential Regulation Authority has published proposals which would require firms to report on their progress in meeting their minimum requirement for own funds and eligible liabilities (MREL) requirement. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

The PRA is proposing to amend the Supervisory Statement on Resolution Planning to set out its expectations on the information firms should provide in relation to their MREL requirement. The PRA would share the information received with the Bank of England which is the UK's resolution authority. The PRA intends to use the information received to monitor a firm's progress in complying with its MREL requirement and to assess whether a firm is, or is likely to be, in breach of its MREL requirement.

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HM Treasury has announced that Charles Randell CBE will become chair of the Financial Conduct Authority and the Payment Systems Regulator from April 1, 2018. He will replace the outgoing chair, John Griffith-Jones.

View HM Treasury's announcement.

The Commodity Futures Trading Commission has released a backgrounder on the federal oversight of virtual currencies and its approach to regulating the virtual currency derivatives markets. Because virtual currencies have been deemed a commodity, certain derivative and other transactions in virtual currencies may be subject to CFTC oversight under the Commodity Exchange Act.

The CFTC outlined its 5-pronged approach to the regulation of derivatives involving virtual currencies, which will focus on (1) consumer education; (2) asserting legal authority; (3) market intelligence; (4) robust enforcement; and (5) government-wide coordination.

Read more. 

The US Board of Governors of the Federal Reserve System issued proposed guidance for comment that would clarify supervisory expectations related to risk management for large financial institutions. This proposed guidance would complement the Federal Reserve Board's proposed rating system for large financial institutions and proposed guidance regarding supervisory expectations for bank boards of directors that were released in August of 2017. The proposed guidance provides core principles applicable to senior management, management of business lines, and independent risk management and controls. Under the proposed guidance, senior management is tasked with the management of the day-to-day operations of the institution, ensuring its safety and soundness and overseeing compliance with laws, regulations and internal policies and procedures.

Read more.

The US Office of the Comptroller of the Currency announced that Norman Williams has been appointed Deputy Comptroller for Economic and Policy Analysis.  Mr. Williams, who joined the OCC in 2006, will succeed Gary Whalen who has retired, and will oversee the Industry and Regional Analysis, International Analysis and Banking Condition and Policy Analysis divisions at the OCC, which conduct research and analysis with respect to financial and economic risks faced by national banks and federal savings institutions.  Prior to his time at the OCC, Mr. Williams served as the Chief of the Economic Analysis Section at the US Federal Deposit Insurance Corporation.  This appointment took effect on January 7, 2018.

View the announcement of Mr. Williams’s appointment.

The US Board of Governors of the Federal Reserve System requested comment regarding revisions to the FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES and FR Y-9CS call reports for holding companies. The notice requests comment with respect to, among other things, the utility of the reports, the accuracy of agency assumptions with regard to the burden imposed by the data collection activities, and means to enhance the quality of information collected or reduce the burden of the information collection activities. The proposed revisions include deletions or combination of certain sections of the reports, reducing the reporting frequency and increasing/adding reporting thresholds for certain data items. Comments to the Federal Reserve Board’s proposed revisions are due March 5, 2018.

View the Federal Reserve Board’s notice and request for comment.
 

The Financial Stability Board has published the Governance Arrangements for the Unique Transaction Identifier and a recommended implementation plan for the arrangements following its consultation in March 2017. The UTI is a critical element for the production and sharing of global aggregated derivatives reporting data. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories, thus minimizing the potential for the same transaction to be counted more than once.

The FSB has designated the International Organization for Standardization as the body responsible for publishing and maintaining the UTI data standard. The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have been designated on an interim basis as responsible for the governance functions relating to the UTI. The FSB would like the UTI to have a common governance framework and governance body with the unique product identifier and will make the final permanent designation once the governance of the UPI is finalized. The FSB intends to consult further on the UPI governance arrangements in 2018.

The FSB recommends that the UTI is implemented by no later than the end of 2020.

View the FSB's governance arrangements for the UTI.

A Commission Implementing Regulation amending the list of critical benchmarks used in financial markets under the Benchmark Regulation has been published in the Official Journal of the European Union. The amending Regulation adds the London Interbank Offered Rate - LIBOR - to the list of critical benchmarks.

The Benchmark Regulation provides for different categories of benchmarks depending on the risks involved, imposing additional requirements on benchmarks considered to be critical, including the power of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.

For the most part, the Benchmark Regulation applied from January 1, 2018. Certain provisions, giving powers to the European Securities and Markets Authority to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016. The original Implementing Regulation, which entered into force on August 13, 2016, listed the Euro Interbank Offered Rate as the first critical benchmark. The amending Implementing Regulation entered into force on December 29, 2017.

View the amending Implementing Regulation.

Two new EU Regulations introducing the new EU securitization framework for simple, transparent and standardized securitizations have been published in the Official Journal of the European Union - the STS Regulation and a Regulation amending the existing Capital Requirements Regulation. The two Regulations implement the Basel Committee on Banking Supervision's amended Securitization Framework for alternative regulatory capital treatment for simple, transparent and comparable securitizations in 2014 as part of Basel III.

The STS Regulation provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS 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.

Read more.

The New York Department of Financial Services published a proposed amendment which would require insurance brokers to offer products that align with a customer’s “best interest,” instead of products that offer the most economic benefit to the broker. The proposed amendment sets forth what constitutes acting in the best interest of a customer, which includes an evaluation of the suitability information of the customer and a determination that a product is suitable for the particular customer. In an accompanying press release New York Governor Andrew Cuomo drew comparisons between the proposed amendment and the US Department of Labor’s Fiduciary Rule, of which the implementation of certain provisions of the latter has been delayed.  As proposed, the NYDFS amendment is more expansive than the DOL’s Fiduciary Rule with respect to the products that it covers. The proposed amendment is open for public comment until February 25, 2018, and is scheduled to take effect March 27, 2018.

View proposed amendment.

An EU Regulation amending the Capital Requirements Regulation as regards transitional measures for mitigating the impact of the introduction of International Financial Reporting Standards (known as IFRS 9) has been published in the Official Journal of the European Union. IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The amending Regulation allows banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital.  A firm that uses the transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.

The amending Regulation also provides for transitional arrangements for the exemption from the large exposure limit available for exposures to certain public sector debt of Member States denominated in the currency of that Member State. A transitional period of three years from January 1, 2018, will apply to these exposures incurred on or after December 12, 2017. Exposures incurred before that date will continue to be exempt from the large exposures requirements.

The amending Regulation applies directly across the EU from January 1, 2018.

View the CRR IFRS Regulation.

An EU Directive amending the Bank Recovery and Resolution Directive has been published in the Official Journal of the European Union. The amending Directive amends the ranking of unsecured debt instruments in the insolvency hierarchy for the purpose of bank resolution and insolvency proceedings by introducing non-preferred senior debt instruments as a separate category of senior debt. These new instruments will rank junior to all other senior liabilities but will be senior to subordinated debt. The debt instruments must have an original contractual maturity of at least one year, must not contain embedded derivatives or be derivatives themselves and the contractual documentation, including the prospectus where applicable, relating to their issuance must explicitly refer to their lower ranking under normal insolvency proceedings.

Member states are required to transpose the amending Directive into national law by December 29, 2018 and must apply the laws from the date of transposition. The new provisions will apply to unsecured claims resulting from debt instruments issued on or after the date of application of the amending Directive. The insolvency ranking of all outstanding unsecured claims resulting from instruments issued before that date will be governed by the relevant national law as adopted at December 31, 2016, unless the national law permitted firms to issue subordinated liabilities in which case the instrument will be ranked as non-preferred senior debt instruments issued under the amending Directive.

View the BRRD Insolvency Hierarchy Directive.

A Commission Delegated Regulation on the derivatives trading obligation under the Markets in Financial Instruments Regulation has been published in the Official Journal of the European Union.

The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading or traded on at least one EU trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. The trading obligation applies to financial counterparties and to non-financial counterparties. Where a class of derivatives is determined to be subject to the MiFIR trading obligation, such derivative may only be traded on a third country trading venues if it has been determined to be equivalent by the European Commission.

Read more. 

The US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation issued statements providing guidance for examiners with respect to data collection by financial institutions pursuant to Regulation C, which implements the Home Mortgage Disclosure Act. In the statements, both agencies noted the regulatory and compliance challenges financial institutions face due to amendments to Regulation C made by the US Consumer Financial Protection Bureau which took effect on January 1, 2018. To address these challenges, the agencies announced that they will not require resubmission of HMDA data collected in 2018 and reported in 2019 unless there are material errors. The OCC and FDIC further noted that they do not intend to assess any penalties with respect to errors in data that is collected in 2018 and reported in 2019.

View the OCC bulletin.

View the statement by the FDIC.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced an increase in the aggregate loan commitment threshold for an institution to be included in the Shared National Credit program. The agencies noted that the increase from $20 million to $100 million reflects changes in average loan size and adjustments for inflation. In their joint release, the agencies noted that this change will bring regulatory relief to 82 financial institutions, while only nominally reducing the dollar amount of loans evaluated under the Shared National Credit program.

View the joint agency press release.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced technical amendments to the asset thresholds used to define small banks and saving associations and intermediate small banks and savings associations under the Community Reinvestment Act. These adjustments, which occur annually, are required under the CRA and based upon changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Under the adjusted threshold, a “small institution” will be any institution that had assets of less than $1.252 billion as of December 31 of either of the last two years. The definition of “intermediate small institution” will be updated to include institutions with at least $313 million as of December 31 of each of the last two years, and assets of less than $1.252 billion as of December 31 of either of the last two years. The updated definitions will take effect as of January 1, 2018.

View the Interagency final rule.

The Basel Committee on Banking Supervision has published a proposed technical amendment to the Net Stable Funding Ratio. Consultation on the proposed technical amendment will run for a short 45-day consultation period, under a new procedure adopted by the Basel Committee at its meeting in December 2017.

The proposed technical amendment relates to the treatment of extraordinary monetary policy operations in the NSFR. The amendment proposes to allow reduced required stable funding factors for central bank claims with maturity of more than six months.

Read more.

HM Treasury has published draft legislation to amend the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 (S.I. 2001/1177), to clarify the position of borrowers who raise funds through peer-to-peer lending platforms.

The draft Order will, once it is approved by Parliament, clarify that only firms whose core business involves borrowing through a peer-to-peer platform would need to obtain a banking license and be regulated as a "deposit taker". The draft legislation has been laid before Parliament to address uncertainty for businesses borrowing via peer-to-peer platforms (and for the platforms themselves) as there is a risk that those borrowers might in certain circumstances be carrying on the regulated activity of accepting deposits.

Read more.

The European Securities and Markets Authority has published a final report setting out its technical advice to the European Commission on elements of the Short Selling Regulation that relate to market making, short-term bans on short selling and the transparency, reporting and disclosure requirements around net short positions. ESMA consulted on a draft of its technical advice in July 2017.

ESMA believes that the differentiation between the concepts of "market maker" under the revised Markets in Financial Instruments Directive and "market making activities" under the SSR should remain, but recommends revising the definition of "market making activities" under the SSR to ensure that certain activities carried out on a trading venue and OTC can benefit from the SSR exemption for market making activities. ESMA recommends extending the scope of the market making exemption to additional instruments that are currently only traded OTC and hedged through shares and sovereign debt.

Read more.

The Joint Money Laundering Steering Group has published final revised guidance on anti-money laundering and counterterrorist financing for the financial services sector. The revised guidance will only replace the existing guidance once it has been approved by HM Treasury, however, the JMLSG notes that firms may use the revised version if they wish to.

View JMLSG's announcement.

The European Securities and Markets Authority has published a statement in response to indications that not all investment firms will succeed in obtaining Legal Entity Identifier codes from all their clients that are legal persons ahead January 3, 2018 when the Markets in Financial Instrument Regulation takes effect. There is also concern that trading venues may not obtain LEI codes for non-EU issuers in time.

Under MiFIR, investment firms are required to identify all clients that are legal persons with an LEI code. An investment firm is acquired to obtain the LEI code of a client prior to providing any service that triggers the obligation to submit a transaction report for a transaction entered into on behalf of a client who is eligible for the LEI code. Trading venues must also identify each issuer of a financial instrument traded on their systems with an LEI code when making daily submissions to the Financial Instruments Reference Data System.

Read more.

The European Banking Authority has published its final report on Recommendations on outsourcing by financial institutions to cloud service providers. The EBA has developed the Recommendations on its own initiative as part of its broader work on FinTech, given the increasing importance and popularity of cloud services as an enabling technology used by financial institutions.

The Recommendations are designed to complement the guidelines on outsourcing issued by the EBA's predecessor, the Committee of European Banking Supervisors on December 14, 2006. The Recommendations further specify the CEBS guidelines in five key areas: the security of data and systems; the location of data and data processing; access and audit rights; chain outsourcing; and contingency plans and exit strategies.

The Recommendations are addressed to credit institutions, investment firms and national regulators and will apply from July 1, 2018.

View the EBA Final Report.

Commission Implementing Regulation (EU) 2017/2382 has been published in the Official Journal of the European Union and will take effect on January 3, 2018.

The Implementing Regulation contains Implementing Technical Standards on the standard forms and templates that should be used for notifications and the procedures for the transmission of information when investment firms, market operators operating a multilateral trading facility or organised trading facility, and, where required by the revised Markets in Financial Instruments Directive, credit institutions, want passport investment services or perform activities in another Member State.

View the Implementing Regulation.

The UK Financial Conduct Authority has published a Policy Statement setting out responses to its earlier consultation in June 2017 on proposed Handbook changes to ensure that the Handbook is consistent with the provisions of the EU Benchmarks Regulation, which takes effect on January 1, 2018. The Policy Statement includes further clarifications, in particular on the treatment of commodity benchmarks, on one-off application fees and annual periodic fees and on other Handbook rules and guidance that the FCA will apply in addition to the BMR.

The Policy Statement includes the final form of the legal instrument which contains the Handbook changes. The FCA will make the Handbook changes once it has the necessary regulatory authority under proposed changes to UK secondary legislation.

The Handbook changes will affect benchmark administrators and also firms that are already supervised under EU financial services legislation and that either use or contribute input data to benchmarks.

View the Policy Statement (PS17/28).

Following the summary it published on December 7, 2017, the European Banking Authority has issued its full cumulative impact assessment of the impact of the finalized "Basel III" prudential framework on EU banks.

The finalized Basel III framework, announced on December 7, 2017, includes further elements developed with the overall aim of addressing undue variability in the calculation of risk weighted assets and improving the comparability of banks' capital ratios.

Using December 2015 data, the EBA has conducted an analysis of the impact of the December 2017 revisions on the EU banking system. The EBA's impact assessment outlines, at a high level, the effect of the December 2017 revisions on: (i) minimum required capital; (ii) regulatory capital ratios, leverage ratios and capital shortfalls; and (iii) the extent to which banks are constrained by the different metrics of capital requirement in the revised framework, namely the output floor, the leverage ratio and risk weighted assets.

Read more.

The Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority have published consultations and planning considerations affecting international banks, investment firms, insurers and CCPs conducting cross-border activities into and from the UK. The UK Government has also made an announcement that, if necessary, it will legislate to enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after withdrawal. Alongside the temporary permissions regime, it will also legislate, if necessary, to ensure that contractual obligations, such as insurance contracts, which are not covered by the temporary regime, can continue to be met. It will also bring forward secondary legislation to empower UK authorities to carry out functions currently carried out by EU authorities relating to CCPs, central securities depositaries, credit rating agencies and trade repositories.

Read more.

The Basel Committee on Banking Supervision has published proposals on a revised version of the stress testing principles it first published in 2009. The revisions to the principles are the outcome of a review of its current stress testing principles, carried out during 2017.

The proposed new principles have been stated at a higher level than the previous principles, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. Overlaps between principles have also been removed, along with some of the descriptive wording accompanying each principle. While the application of the previous set of principles was split between banks and supervisors, it is intended that each of these new "streamlined" principles will apply to both supervisors and banks. Additional considerations for banks and supervisory authorities are set out within each principle.

Comments on all aspects of the proposed new principles are invited by March 23, 2018. Comments should be submitted using an online response form.

View the consultation paper.

View the online response form.

The Single Resolution Board has published its second policy statement on the minimum requirement for own funds and eligible liabilities (MREL). MREL is the EU equivalent of the minimum amount of loss-absorbing capacity that is also covered by the international standard of total loss absorbing capacity (TLAC) developed by the Financial Stability Board. MREL was introduced in May 2014 by the Bank Recovery and Resolution Directive for all EU banks, including those banks within the SRB's remit. The SRB is the resolution authority for all banking groups and entities as well as cross-border groups that are subject to direct prudential supervision by the European Central Bank (i.e., for banks within the Banking Union).

The SRB's MREL policy for 2017 provides for a multi-year timeframe, with transition periods which will allow individual banks to implement the requirement by progressively building up their MREL capacity. This replaces the preliminary MREL approach used in 2016. The SRB will set bank-specific binding consolidated MREL targets for the majority of the largest and most complex Eurozone banks, including all global systemically important institutions (G-SIIs) and banks with resolution colleges under its remit.

In 2018, the SRB will focus on: (i) enhancing the MREL targets based on the outcome of the SRB’s resolvability assessment; (ii) refining its location policy within groups and developing a framework for individual and internal MREL; and (iii) developing a policy for transfer strategies.

View the SRB Policy for 2017.

The European Commission has adopted an Implementing Decision declaring the two Swiss stock exchanges equivalent for the purpose of the shares trading obligation under the Markets in Financial Instruments Regulation. MiFIR requires EU investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue.

The legal and supervisory framework of SIX Swiss Exchange AG and BX Swiss AG have been assesses as equivalent to the requirements of MiFIR, the revised Markets in Financial Instruments Directive, the Market Abuse Regulation and the Transparency Directive.

Read more.

The European Commission has published legislative proposals to amend the EU framework on the prudential supervision of investment firms. The proposals follow the European Banking Authority's Opinion on revising the regime published in September 2017. The aim of the proposals is to tailor the prudential requirements and supervisory arrangements to the risk profile and business models of investment firms.

The Commission's proposals maintain the EBA's recommendation for three different categories of investment firm.

Read more. 

The US Board of Governors of the Federal Reserve System and the US Federal Deposit Insurance Corporation announced that none of the most recent resolution plans for the eight largest and most complex domestic banking organizations had deficiencies that were so severe as to require resubmission. The agencies did, however, note that half of the resolution plans that were submitted had “shortcomings” that must be addressed in the institutions’ next submissions due July 1, 2019. The Federal Reserve Board and the FDIC also stated that while this round of resolution plans demonstrates that significant progress that has been made in the area of resolution planning, more work needs to be done, especially in the areas of resolvability, internal loss-absorbing capacity, derivatives and payment, clearing and settlement activities. The agencies also noted that institutions should be cognizant of changes to their risk profiles that will need to be accounted for in future resolution plans.  The Federal Reserve Board and the FDIC noted that they continue to explore ways to improve the resolution planning process and are considering extending the cycle for resolution plan submissions from annual to once every two years, to reflect the time needed to prepare and review the plans.

View joint agency press release.

Commission Delegated Regulation (EU) 2017/2361 on the final system of contributions to the administrative expenditures of the Single Resolution Board has been published in the Official Journal of the European Union. The SRB is the resolution authority for all banking groups and entities as well as cross-border groups that are subject to direct prudential supervision by the European Central Bank (i.e., for banks within the Banking Union).

The Delegated Regulation sets out a final system for the determination and raising of the contributions to administrative expenditures of the SRB, which will replace the provisional system introduced in 2014. While the provisional system covered only a limited subset of entities, namely entities which are considered significant by the European Central Bank, the final system will apply for all entities that are subject to the Single Resolution Mechanism.

The Delegated Regulation will take effect from January 8, 2018.

View the Delegated Regulation.

The US House of Representatives voted 288-130 in favor of the Systemic Risk Designation Improvement Act of 2017 (H.R. 3312). The bill, introduced on July 19, 2017 and sponsored by Representative Blaine Luetkemeyer, removes the $50 billion asset-threshold under the Dodd-Frank Act. In place of this automatic designation, certain Dodd-Frank provisions will now apply only to institutions designated as global systemically important bank holding companies and other bank holding companies that have been designated by the US Board of Governors of the Federal Reserve System as warranting enhanced supervision and/or enhanced prudential standards.

View the full text of H.R. 3312.

The European Securities and Markets Authority has issued three consultations on technical standards under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2019, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS 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 STS Regulation allows (but does not require) originators, sponsors and SSPEs 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.

Read more.

The UK Financial Conduct Authority has issued a statement confirming that it will comply with the Guidelines published by the European Banking Authority on December 12, 2017 on security measures for operational and security risks of payments services under the revised Payment Services Directive.

PSD2 takes effect on January 13, 2018. All Payment Services Providers will be expected to comply with the EBA Guidelines. The FCA reminds businesses wishing to apply for authorization or registration under PSD2, and any PSPs that are re-applying, that applications must contain a statement of the applicant’s security policy, taking into account the Guidelines. The statement of the applicant's security policy must also contain a description of the applicant's measures to comply with the provisions of the Payment Services Regulations 2017 that relate to the management of operational and security risks.

Read more.

The European Securities and Markets Authority has published a revised procedure and a harmonized template to be used by national regulators in reporting to ESMA the parameters to halt or constrain trading used by the trading venues under their jurisdiction. The revised Markets in Financial Instruments Directive places obligations on national regulators to require a regulated market in their jurisdiction to be able to temporarily halt or constrain trading if there is significant price movement in a financial instrument on that market or a related market during a short period and, in exceptional cases, to be able to cancel, vary or correct any transaction. The regulated market must report the parameters for halting trading and any material changes to those parameters to the national regulator and the national regulator must in turn report them to ESMA.

The ESMA procedure and template is designed to establish a common format for national regulators to use for the reports they make to ESMA. However, national regulators can, if they wish, require trading venues to report to them the parameters using a different and/or more granular format.

Read more.

The European Banking Authority has published a Final Report and final draft Regulatory Technical Standards for the criteria to be used to determine whether institutions should be subject to simplified obligations for recovery and resolution planning under the Bank Recovery & Resolution Directive.

Under the BRRD, national regulators and resolution authorities may apply simplified obligations for institutions if the failure of such institutions would not be likely to have a significant negative effect on financial markets, on other institutions, on funding conditions or on the wider economy. National regulators and resolution authorities must make an assessment of an institution's eligibility for simplified obligations by reference to: the nature of the institution’s business; its shareholding structure; its legal form; its risk profile; its size; its legal status; its interconnectedness to other institutions or to the financial system in general; the scope and the complexity of its activities; its membership of an institutional protection scheme or other cooperative mutual solidarity system; and any exercise of investment services or activities.

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The European Banking Authority has published an Opinion on the transition from the current Payment Services Directive to the revised Payment Services Directive, which takes effect from January 13, 2018.

Not all the provisions of PSD2 or technical standards and guidelines the EBA has been mandated to prepare under PSD2 will be applicable on January 13, 2018. This delay has led to a number of transitional issues that both market participants and national regulators have approached the EBA about. The Opinion provides clarification on the issues that have been raised and considers the implications for Payment Service Providers and national regulators of the delayed finalization and/or adoption of some of the technical standards and guidelines the EBA has been preparing under PSD2.

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HM Treasury has made two Orders which take effect from December 20, 2017.

The first Order amends the designation Order in force since April 2015 designating Cheque & Credit as a regulated payment system. The changes relate to the specification of the arrangements constituting Cheque & Credit, allowing for development in the Cheque & Credit Rules relating to the processing of the images of cheques and other paper instruments. The Order also makes references to participants as well as members of Cheque & Credit.

The second Order revokes the recognition order of January 5, 2010 specifying CHAPS as a recognized payment system under the Banking Act 2009.

View the Order amending the designation of Cheque & Credit.

View the Order for de-recognition of CHAPS.

The US Board of Governors of the Federal Reserve System announced publication of a final rule repealing Regulation C. This regulation had been promulgated to implement provisions under the Home Mortgage Disclosure Act. However, pursuant to the Dodd-Frank Act, all rulemaking authority under the HMDA was transferred to the US Consumer Financial Protection Bureau. The CFPB implemented its own Regulation C in 2016, after publishing an interim final rule in 2011. The repeal of the Federal Reserve Board’s Regulation C is effective January 22, 2018. On the same day, the Federal Reserve Board also published a notice of proposed rulemaking and request for public comment regarding revisions to Regulation M, which implements the Consumer Leasing Act. Similar to Regulation C, most, but not all, of the Federal Reserve Board’s rulemaking authority under the CLA was transferred to the CFPB under Dodd-Frank. As such, the Federal Reserve Board’s proposal seeks to tailor Regulation M to reflect only the rulemaking authority under the CLA still vested with the Federal Reserve Board. Comments to the proposal are due March 5, 2018.

View FRB's final rule repealing Regulation C.

View notice of proposed rulemaking regarding Regulation M.

The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk.

Feedback gathered by the EBA from institutions and national regulators suggest that changes to the ITS on benchmarking of internal models are needed to provide clearer instructions of reporting requirements, better data validation and more relevant portfolios for which benchmark values can be calculated. The changes proposed by the EBA relate to both market risk and credit risk. Minor changes are also proposed to the reporting templates and instructions, to keep the portfolios up to date and ensure the reported data is relevant for the 2019 assessment.

Comments on the proposals are invited by January 31, 2018. The EBA also plans to hold a public hearing to discuss the proposals on January 23, 2018.

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The European Banking Authority has published a discussion paper seeking early-stage feedback on potential implementation issues arising from proposed revisions to the Capital Requirements Regulation to incorporate new international standards for counterparty credit risk and market risk. These international standards, developed by the Basel Committee on Banking Supervision, comprise: (i) the SA-CCR framework, a new standardized approach for measuring exposure at default for counterparty credit risk, which will replace both current non-internal models approaches, namely the Current Exposure Method and the Standardised Method; and (ii) the Fundamental Review of the Trading Book framework, which makes a number of revisions and enhancements to the framework for market risk following the fundamental review of the trading book undertaken by the Basel Committee.

The CRR 2 proposal published by the European Commission in December 2016 is still being discussed by the Council of the European Union and the European Parliament as part of the normal EU legislative procedure. However, the EBA has considered its draft mandates under those proposals and identified a number of issues that banks implementing the SA-CCR and/or the FRTB frameworks are likely to face, due to the need to introduce changes to infrastructures, IT systems, data management, pricing models or approximating techniques.

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The Joint Committee of the European Supervisory Authorities has published a final report containing final draft Regulatory Technical Standards amending the requirements for risk-mitigation techniques for uncleared OTC derivative contracts where those contracts relate to physically settled FX forwards. The European Market Infrastructure Regulation requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The RTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. The variation margin requirements have applied to all counterparties since March 1, 2017 although they will only be applicable for physically-settled FX forwards from January 3, 2018.

Market participants have experienced difficulties in exchanging VM, in particular, in transactions with end-users. In addition, the EU's implementation of the international standards on margin exchange is more extensive than that in some other jurisdictions.

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The European Commission has published a consultation paper in which it seeks views on the main challenges for SME-dedicated markets and possible changes to EU legislation that might help build the EU high-growth SME markets. The consultation paper follows previous consultations and papers relating to the Capital Markets Union Action Plan.

The consultation focuses on SME Growth Markets, a new type of trading venue introduced under the Markets in Financial Instruments package. The consultation paper is split into two sections, the first of which considers the main drivers behind the downward trend of SME initial public offerings and bond issuances. The second section considers specific regulatory barriers to SME markets, small issuers and the local ecosystems surrounding SME markets. In particular, the Commission is seeking views on the MiFID II provisions which set the scope of SME Growth Markets, the market requirements for SME issuers to be assisted by a key adviser, delisting rules on SME Growth Markets and transfer of listings. 

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The US Board of Governors of the Federal Reserve System announced the finalization of revisions to certain aspects of its Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) programs.. The Federal Reserve Board had originally requested public comment on modifications to the information collected as part of the FR Y–14A/Q/M reports applicable to bank holding companies with total consolidated assets of $50 billion or more and US intermediate holding companies on June 9, 2017. As finalized, the “global market shock” component of CCAR will now include firms that (i) are not “large and noncomplex firms” under the Federal Reserve Board’s capital plan rule and (ii) that have aggregate trading assets and liabilities of $50 billion or more, or aggregate trading assets and liabilities equal to 10 percent or more of total consolidated assets. Notably, this would include certain US intermediate holding companies of foreign banking organizations. Firms that were not previously subject to the global market shock component will not      be subject to the requirement until the 2019 CCAR/DFAST cycle. The revisions also result in an elimination or modification of certain schedules to the FR Y-14A/Q/M reports, including clarifying certain aspects of the reports. Under the initial request for comment, certain of these changes would take effect on September 31, 2017 or December 31, 2017, although the Federal Reserve Board’s final announcement extends the effective date for a number of these revisions to December 31, 2017 or March 31, 2018.

View FRB's notice.