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

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

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

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

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

View the FRB of NY's announcement.

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

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

View FinCEN FAQs.

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

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

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

View the CFPB report.

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

View full text of final rule.

The U.S. Board of Governors of the Federal Reserve System announced that it is undertaking a study that will begin this month with respect to fraud in the U.S. payments system.  The study will identify causes and contributing factors to fraud in the U.S. payments system, such as payment security vulnerabilities, and will measure the costs associated with such fraud.  The study was commissioned as part of the Federal Reserve Board’s Next Steps in the Payment Improvement Journey paper that was released last year.  A global management consulting firm will conduct the study, which is expected to last up to six months.  The study is intended to provide data to assist the Federal Reserve with its collaboration with the payments system industry with respect to the security of the payments system.

View the full text of the Federal Reserve Board announcement.

The U.K. Competition and Markets Authority has published the third in a series of working papers on specific aspects of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, which was published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018. The second working paper on asset manager product recommendations was published on March 22, 2018.

The third working paper provides the CMA's initial analysis of competition issues arising when firms offer both investment consultancy and fiduciary management services, in particular, where customers receiving investment consultancy services are directed towards a firm's fiduciary management services. The CMA is concerned that customers may not always receive the solution or deal that is in their best interests. In addition, conflicts of interest may arise between the firm and its clients. The CMA is of the view that it is not clear whether existing regulation fully addresses these potential conflicts of interest.

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Outgoing U.S. Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the importance of attaining meaningful regulatory relief without undermining the safety and soundness of the financial system.  Citing a few historical examples, Vice Chairman Hoenig discussed the similarities among past crises, as well as the deregulatory attitude that has followed these crises once the economy begins to recover.  Vice Chairman Hoenig noted that with a strong regulatory foundation, including strong capital and constraints on the reliance on government bail-outs, a number of costly administrative rules could be minimized or eliminated.

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The European Commission has published a proposed Regulation to amend the Regulation on cross-border payments in the EU. The Regulation on cross-border payments provides, among other things, that charges for cross-border euro payments within the Eurozone must be the same as charges for domestic euro payments. Member States outside of the Eurozone were given the option to extend the application of the Regulation to their domestic currency. Only Sweden opted to do so.

The proposed amending Regulation extends the scope of the fee cap provisions to EU Member States outside of the Eurozone for euro-denominated payments. A payment service providers' charges for cross-border euro payments will be required to be the same as that charged by the PSP for a domestic payment of the same value in the official currency of the customer's Member State. Cross-border transactions in currencies other than the euro are outside of the scope of the fee cap proposals. The proposals aim to put an end to the high cost of intra-EU cross-border transactions in euro.

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The European Central Bank has begun a consultation on the first chapter of a proposed guide to internal models. The Capital Requirements Regulation requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's proposed guide aims to set out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted.

The consultation covers only the first chapter of the proposed guide. This chapter is on general topics comprising overarching principles for internal models, implementation of the internal ratings-based approach, internal model governance, internal validation and audit, model use and change management as well as third-party involvement. The ECB intends to consult on model-specific chapters, including for credit, market and counterparty credit risks, at a later date.

The consultation closes on May 25, 2018.

View the consultation paper.

The European Securities and Markets Authority has published final Guidelines on Internalized Settlement Reporting under the Central Securities Depositories Regulation. The CSDR, which introduces common standards for settlements across the EU, will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and, from January 1, 2025, to all transferable securities. The CSDR requires settlement internalizers to report the aggregated volume and value of all securities transactions that they settle outside of securities settlement systems to their national regulator on a quarterly basis. Settlement internalizers are firms that execute transfer orders on behalf of clients or on own account other than through a securities settlement system. National regulators must, without delay, transmit the information received from settlement internalizers to ESMA and inform ESMA of any resulting potential risk. Regulatory Technical Standards on internal settlement (Commission Delegated Regulation (EU) 2017/391) provide the content of internalized settlement reporting and Implementing Technical Standards (Commission Implementing Regulation (EU) 2017/393) provide the templates and procedures for reporting and transmission of the information.

The Guidelines on Internalized Settlement Reporting aim to ensure the consistent application of the requirements under CSDR and the related technical standards. The Guidelines set out the scope of data to be reported to national regulators and the entities responsible for reporting the information. The Guidelines also provide the process for submission of information by national regulators to ESMA.

The Guidelines will apply to national regulators and to settlement internalizers from the date that they are published on ESMA's website in the official languages of the EU.

View the final Guidelines on reporting internalized settlement.

The European Banking Authority has published proposals to extend the Joint Committee Guidelines on complaints-handling for the securities and banking sectors to the new institutions established under the revised Payment Service Directive and the Mortgage Credit Directive. The Joint Committee's Guidelines on complaints-handing for the securities and banking sectors, published in June 2014, apply to national regulators responsible for supervising complaints-handling by credit institutions, investment firms, certain fund managers, payment institutions and electronic money institutions where complaints are made by natural or legal persons about the regulated activities carried out by these entities.

The MCD, which has applied since March 2016, covers non-bank creditors. Similarly, PSD2, in application since January 2018, introduced two new providers of payment services - payment initiation service providers and account information service providers. Complaints-handling by these entities do not currently fall within the scope of the Guidelines.

The EBA is proposing to extend the scope of the existing Guidelines to these entities to ensure that consumers receive the same level of protection when they interact with these new entities as when they interact with in-scope regulated entities. The extended Guidelines would only apply to security-related complaints for account information services provided by account information service providers under PSD2. The EBA proposes that national regulators should apply the extended Guidelines on a proportionate basis, taking into account the nature, scale and complexity of the business of each entity as well as the nature and range of services they offer.

The consultation closes on May 27, 2018.

View the consultation paper.

View the existing Guidelines.

Following the announcement on March 19, 2018 that a transitional period for Brexit had been agreed between the U.K. and the EU, the U.K. regulators have published statements setting out their expectations regarding firms' preparations for the U.K.'s withdrawal from the EU. The agreed transitional period is from March 29, 2019 until December 31, 2020 and EU law will remain applicable in the U.K. during that time. Both the Financial Conduct Authority and the Bank of England have stated that, subject to the ratification of the transitional agreement, firms carrying on regulated activities in the U.K. through an EU passport can plan to continue doing so during the implementation period on the same basis as they do now and that U.K. authorization would only be needed by the end of that period.

The BoE has also confirmed its approach to the authorization and supervision of international banks, designated investment firms and insurers. The Prudential Regulation Authority has published "Dear CEO&" letters addressed to the CEOs and branch managers of banks, insurers and designated investment firms that undertake cross-border activities between the U.K. and the rest of the EU, together with updated Policy Statements and Supervisory Statements on the PRA's approach to the branch authorization and supervision of EEA banks, insurers and designated investment firms. Following consideration of feedback to the PRA's consultation on updating its approach to branch authorization and supervision, the PRA confirms that it has not made any significant changes to the versions it consulted on, except that the threshold for liabilities protected by the Financial Services Compensation Scheme has been increased from £200 million to £500 million. The PRA's new approach for banks, investment firms and insurers comes into effect on March 29, 2018.

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The European Securities and Markets Authority has confirmed that it will use its product intervention powers under the Markets in Financial Instruments Regulation to prohibit the marketing, distribution and sale of binary options to retail investors. It will also impose a number of restrictions on the marketing, distribution and sale of Contracts for Difference to retail investors. Both CFDs and binary options have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by providers and distributors of the products.

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The European Securities and Markets Authority has published finalized Guidelines on position calculation by trade repositories under the European Market Infrastructure Regulation. ESMA consulted on a draft version of the Guidelines at the end of 2017. 

EMIR requires that derivatives contracts are reported to a trade repository by the parties to the contract or by the CCP. Reporting parties do not have to report their trades to the same trade repositories. Instead, trade repositories must take steps to reconcile records among one another.  Trade repositories are required to calculate the positions by class of derivatives and the reporting entity, based on the reports received. Trade repositories are also required to publish aggregate positions by class of derivatives.

ESMA has introduced new Guidelines to provide a framework for trade repositories to provide the relevant calculations in a common format and follow a consistent methodology and timeline. This will promote the provision to relevant authorities with more consistent and harmonized position data in relation to derivatives and higher standards as regards the data that is made available to authorities.

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The European Securities and Markets Authority has opened a consultation on proposed supplementary guidance on the application of the endorsement regime under the EU Credit Rating Agencies Regulation. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes where such ratings have been issued by CRAs established in the EU and registered with ESMA. Credit ratings issued in a third country may only be used for such regulatory purposes in the EU under an endorsement regime or an equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA and endorsed by an EU CRA to be used for regulatory purposes in the EU. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes - it does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU. However, the equivalence regime requires an affirmative assessment by ESMA and the Commission as to the legal regime for credit ratings agency in the third country.

In November 2017, ESMA published an updated version of the Guidelines on the endorsement regime, which clarified that ESMA expects an endorsing CRA to verify, and be able to demonstrate, that the third-country CRA has established internal requirements which are at least as stringent as the corresponding requirements in the relevant provisions of the CRA Regulation, or that the third-country CRA fulfills the endorsement requirements under the CRA Regulation.

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The Financial Conduct Authority has launched a consultation on adding a proposed chapter on insider dealing and market manipulation to its Financial Crime Guide. The Financial Crime Guide is not part of the FCA's rules but it is a guide to assist firms in implementing the regulator's rules. A firm that does not comply with the Guide is not necessarily deemed by the FCA to be in breach of the rules. However, the FCA expects firms to use the guide to inform their financial crime systems and controls.

The FCA is proposing to add a new chapter on insider dealing and market manipulation to the Financial Crime Guide. The EU Market Abuse Regulation, which applies directly across the EU, requires firms arranging or executing transactions to establish and maintain effective arrangements, systems and controls to detect and report suspicious transactions. The FCA emphasizes that the U.K. rules extend these obligations under MAR and require firms to also counter the risk of financial crime. The FCA explains that this 'countering' obligation extends to insider dealing and market manipulation.

The consultation paper also covers other minor amendments proposed by the FCA, including updating the Guide to reflect the introduction of the Money Laundering Regulations 2017 and removing outdated references on Sanctions.

Responses to the consultation are due by June 28, 2018. The FCA intends the final revised Guide to come into effect on October 1, 2018

View the consultation paper.

View the existing Financial Crime Guide.

Federal Reserve Bank of New York President William Dudley spoke at the U.S. Chamber of Commerce regarding the role incentives play in ensuring a resilient and robust financial system.  In his remarks, President Dudley noted the considerable progress that has been made since the financial crisis in creating a more robust and resilient financial system, including with respect to the safety and soundness of, and to the resolution process for, systemically important financial institutions.

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The European Money Markets Institute has published a consultation paper seeking views from stakeholders on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

Euribor is currently determined using a survey approach entailing the collection of quotes from contributing panel banks active in the euro money markets, supplemented by expert judgement. In line with the Financial Stability Board's 2014 report, "Reforming Major Interest Rate Benchmarks", EMMI has been working towards a methodology which will strengthen Euribor by underpinning it, to the greatest extent possible, with real transaction data. In 2016, EMMI proposed a new determination methodology for Euribor that was fully anchored in real transactions. However, viability testing of the proposed methodology revealed that a seamless transition from a quote-based to a fully transaction-based methodology was not feasible.

EMMI is now proposing a three-level "hybrid" methodology, under which the calculation of Euribor at particular defined tenors is supported by euro money market transaction data from contributing panel banks whenever available and relies on other related market pricing sources or banks' own appreciation of their funding costs when necessary.

Read more.

The European Securities and Markets Authority has published a final report and final draft amending Regulatory Technical Standards to amend the RTS on the equity transparency obligations of trading venues and investment firms (Commission Delegated Regulation (EU) 2017/587, known as RTS 1). The Markets for Financial Instruments Regulation requires Systematic Internalisers to make public firm quotes in equity instruments. The quotes must: (i) be at least equivalent of 10% of the standard market size for the quoted instrument; (ii) include both a bid and offer price; and (iii) reflect the prevailing market conditions for that instrument. RTS 1 specifies the concept of "prices reflecting prevailing market conditions" as being "close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity".

ESMA considers that this concept needs to be further elaborated and consulted on proposed amendments last year. ESMA has not made any changes to its proposal.  The final draft amending RTS provide that the quotes of an SI can only adequately reflect prevailing market conditions when the quotes reflect the minimum price increments ('tick sizes') quoted for a financial instrument on a trading venue.

Read more. 

A Commission Delegated Regulation has been published in the Official Journal of the European Union. The Delegated Regulation supplements the Regulation on European Long-Term Investment Funds, setting out Regulatory Technical Standards to specify the criteria for establishing the circumstances in which the use of financial derivative instruments solely serves hedging purposes, the circumstances in which the life of a ELTIF is considered sufficient in length and the criteria to be used for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets and the facilities available to retail investors.

The Delegated Regulation will enter into force on April 12, 2018.

View the Commission Delegated Regulation ((EU) 2018/480).

The Financial Stability Board has launched a survey seeking feedback from financial institutions and other reporting entities on legal barriers that prevent or hinder them from reporting full transaction information on over-the-counter derivatives trades to Trade Repositories.

Legal barriers that can prevent full trade reporting include blocking laws, client confidentiality laws, data protection laws and related requirements or restrictions. Trade reporting is an important component of the comprehensive reforms of OTC derivatives markets agreed by the G20 in 2009.  A thematic peer review of derivative trade reporting conducted by the FSB in 2015 revealed a number of legal barriers to trade reporting. These barriers can hamper national regulators in carrying out their regulatory obligations, such as monitoring and analyzing systemic risk and market activity. The FSB has previously published progress reports in 2016 and 2017 setting out steps FSB member jurisdictions have taken and are planning to take. FSB member jurisdictions have committed to take action to remove legal barriers by June 2018.

Read more.

The European Central Bank has published finalized versions of its guides “Guide to Assessments of Licence Applications” and “Guide to Assessments of FinTech Credit Institution Licence Applications”, following consideration of the responses to consultations on draft versions of the guides, which the ECB ran between September and November 2017.

The ECB has been exclusively competent, since November 2013, to authorize all Eurozone credit institutions and credit institutions established in any other EU Member States that participate in the Single Supervisory Mechanism via close cooperation arrangements.

The ECB exercises its competence in close cooperation with the relevant national regulators. The ECB has developed the Guides, which are not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the SSM. These should serve as practical tools to support applicants and all other entities involved in the process of bank authorization to ensure a smooth and effective procedure and assessment.

Read more.

The European Securities and Markets Authority has published two consultation papers relating to the regulation of EU securitization repositories under the Securitization Regulation (also known as the STS Regulation). The first consultation paper proposes draft technical standards on applications for registration of a securitization repository and draft Guidelines on data portability between securitization repositories. The second consultation paper consults on draft advice to the European Commission on supervisory fees payable by securitization repositories.

The Securitization Regulation requires, among other things, securitization special purpose entities, originators and sponsors of a securitization to make certain information available via a securitization repository to holders of a securitization position, to national regulators and, upon request, to potential investors. ESMA will register and supervise securitization repositories, as it does trade repositories under the European Market Infrastructure Regulation and the Securities Financing Transactions Regulation. Unlike EMIR and SFTR, the Securitization Regulation does not contemplate non-EU firms as securitization repositories.

Read more. 

The Financial Action Task Force has launched an online private sector survey on correspondent banking and the usefulness of its 2016 Guidance on correspondent banking services. The Guidance was published in response to increased concerns about so-called "de-risking," whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The FATF considers that de-risking is inconsistent with FATF Recommendations, that it has negatively impacted correspondent banking and that it may result in financial transactions being directed into less regulated areas, which would reduce transparency and increase exposure to money laundering and terrorist financing risks.

The FATF wants to assess whether its Guidance is helping to address the de-risking issues. The survey is intended to track their understanding of adoption and usefulness of the guidance.

The survey is open until April 16, 2018.

View the survey.

View the 2016 Guidance on correspondent banking. 

The U.S. Federal Financial Institutions Examination Council announced an            update regarding its Examination Modernization Project.  The project initially grew out of the regulatory review process undertaken pursuant to the Economic Growth and Regulatory Paperwork Reduction Act, and is intended to identify potential improvements that can be made in the efficiency and efficacy of the community financial institutions safety and soundness examination processes.  The project has focused primarily on leveraging improved technology to streamline and simplify the examination process for community financial institutions.  As part of the project, the FFIEC has identified four key areas where the supervisory burden can potentially be reduced, including, better communication throughout the examination process, using technology to move examination tasks offsite, tailoring examinations based upon risk and improving electronic file transfer systems. While the FFIEC will first focus on these four areas, the Examination Modernization Project is envisioned as a long-term process, and the FFIEC will continue to identify new parts of the examination process that could benefit from further improvement.  To facilitate improvements in the first key area regarding transparency, the U.S. federal financial regulatory agencies have committed to issue reinforcing and clarifying guidance to examination staff about the importance of being transparent and communicative throughout the examination process.

View full tex of FFIEC press release.

HM Treasury has published a document entitled "FinTech Sector Strategy: Securing the Future of U.K. FinTech" to coincide with the U.K. government's second International Fintech Conference.

The Strategy Paper provides an overview of the work already conducted by successive U.K. governments to support the FinTech sector by promoting competition and removing barriers to entry. Drawing on the findings of the 2017 "UK FinTech Census," which set out a comprehensive review of the sector and the challenges it faces, the government has identified further action it might take to remove barriers to entry and growth faced by FinTech firms. These further actions focus on reducing the cost of regulatory compliance, ensuring access to skilled talent, improving FinTech firms' access to equity finance, improving the take-up of new FinTech services, increasing competition and providing access to new markets.

Read more.

The Basel Committee on Banking Supervision has published updated versions of its frequently asked questions on two aspects of the Basel III prudential framework.

The Basel Committee has updated the FAQ it published in August 2015 on the standardized approach for measuring counterparty credit risk exposures, providing answers to additional questions concerning collateral taken outside of netting sets, the treatment of Eurodollar futures, supervisory delta adjustments for negative interest rates, credit derivatives and effective notional calculations. The Basel Committee has also updated the FAQ it published in January 2017 on market risk capital requirements, with the addition of answers to three new questions on the standardized approach, the internal models approach and the trading book boundary and scope of application.

View the updated FAQ on the standardized approach for counterparty credit risk.

View the updated FAQ on market risk capital requirements.

The U.K. Financial Conduct Authority and the Australian Securities and Investments Commission have signed an enhanced cooperation agreement on FinTech innovation. The new agreement supersedes the previous cooperation agreement entered into by the two countries' regulators in March 2016. It aims to enable public officials and private parties to work together to foster Fintech innovation and help early-stage Fintech firms to expand their businesses. The FCA and ASIC will, through their Innovation Hubs, explore ways to speed up the process of authorization of innovative businesses that are already authorized in the other jurisdiction. The framework agreed between the regulators includes a referral mechanism and mutual access to regulatory sandbox testing environments, enabling the two authorities to refer FinTech businesses between their respective sandboxes. The Authorities also plan to share and use information on innovation in their respective markets.

Commenting on the enhanced cooperation agreement, U.K. Chancellor of the Exchequer Philip Hammond stated that "This is our most ambitious collaboration to date, bringing together regulators, policy-makers and private sector leaders to collaborate on growing our respective fintech markets in tandem."

View the Enhanced Cooperation Agreement.

View the FCA press release.

The U.K. Competition and Markets Authority has published the second in a series of working papers on specific aspects of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, which was published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018.

Read more.

The Basel Committee on Banking Supervision has published a consultation document on a technical amendment to the Pillar 3 disclosure requirements and the regulatory treatment of accounting provisions. The proposals are relevant in jurisdictions implementing an expected credit loss accounting model and for those adopting transitional arrangements for the regulatory treatment of accounting provisions. The Basel Committee is proposing to introduce a new requirement in the Pillar 3 standard to reflect any transitional effects for the impact of ECL accounting on regulatory capital.

The consultation closes on May 4, 2018.

View the consultation paper.

The Basel Committee on Banking Supervision has published a consultation on proposed revisions to the standard it published in January 2016 on the minimum capital requirements for market risk. The Basel Committee has been monitoring the implementation of the standard and its impact on banks' market risk capital requirements since the standard was published and has identified several issues.

Read more.

The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 has been published. This Amendment Order amends the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 to clarify the position of borrowers who raise funds through peer-to-peer lending platforms.

The Amendment Order provides that, subject to a number of conditions, if a borrower using peer-to-peer lending uses the capital of, or interest on, money received by way of deposit solely to finance its other business activities, this is to be regarded as evidence indicating that the borrower is not carrying on the business of accepting deposits. This clarifies 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 Amendment Order resolves uncertainty for businesses borrowing via peer-to-peer platforms (and for the platforms themselves) by clarifying the circumstances in which those borrowers would be considered to be carrying on the regulated activity of accepting deposits.

The Amendment Order comes into force on March 22, 2018.

View the Amendment Order (S.I. 2018 No. 394)..

View the explanatory memorandum.

The European Banking Authority has published a compliance notification form on its website, seeking confirmation, by May 21, 2018, of compliance (or intention to comply) with the Final Guidelines on Internal Governance it published in September 2017.

The EBA was mandated under the Capital Requirements Directive to provide guidelines on the corporate governance arrangements, processes and mechanisms required under that Directive. CRD IV requires that institutions must have robust governance arrangements, which include a clear organizational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures and remuneration policies and practices that are consistent with and promote sound and effective risk management. The EBA consulted in October 2016 on proposed updates to its previous guidelines on internal governance, which were published in September 2011.

Read more.

The European Banking Authority has published a report following its assessment of the credit risk mitigation framework under the Capital Requirements Regulation. Credit risk mitigation is defined in the CRR as a "technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold". The incentive for institutions in using CRM techniques is that CRM can attract a reduction in capital requirements.

This CRM report forms the fourth and final phase of the EBA's roadmap for the implementation of the regulatory review of the internal models based approach. That roadmap, launched in February 2016, favoured continued use of the IRB approach (that is, the Foundation IRB Approach and the Advanced IRB Approach) and set out plans for the introduction, in four phases, of changes which aim at harmonizing definitions and supervisory practices in the definition of default, the estimation of risk parameters and treatment of defaulted assets, credit risk mitigation techniques and disclosure in four phases.

The EBA considers that increased clarity of the CRM framework is an integral part of the IRB review and the EBA has analyzed, in the CRM report, whether an overhaul of the CRM framework as presented in the CRR would be beneficial.

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Following consultation in late 2017, the European Securities and Markets Authority and European Banking Authority have jointly published final Guidelines on the assessment of the suitability of members of management bodies and key function holders in credit institutions, investment firms, financial holding companies and mixed financial holding companies. These assessments are required under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive.

Under the CRD and MiFID II, an assessment of the suitability of members of a management body should take into account factors such as sufficiency of time commitment, honesty, integrity and independence of mind of a member of the management body. The management body must have adequate collective knowledge, skills and experience among its members.  Firms should devote adequate human and financial resources to the induction and training of such members. Diversity is also to be taken into account when selecting members of the management body. In the case of key function holders, the Guidelines also specify requirements regarding the suitability of the heads of internal control functions and the chief financial officer of credit institutions and certain investment firms. The Guidelines apply to any other persons assessed as key function holders under the firm's risk-based approach. An Annex is provided as a template for firms to record the results of relevant assessments.

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The U.K. Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to supervision and enforcement. The two documents, once finalized, will form part of a series of formal "approach documents" explaining the FCA's approach to regulation in more depth. They should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.

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The European Securities and Markets Authority has published an Opinion on the treatment of package orders in the context of the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation requires that the trading of certain derivatives must take place on a regulated market, multilateral trading facility, organised trading facility or on an equivalent third-country trading venue.

Package orders are used by investment firms and their clients to conduct trades for risk management and hedging purposes. They are composed of two or more financial instruments that are priced as a single unit. The execution of each component is simultaneous and contingent upon on the execution of all the other components. Under MiFIR, the trading obligation is designed to apply at instrument level, not package level – the obligation attaches to the components of a package, but not to the package as a whole. Difficulties may arise where a package order contains a mixture of instruments, where some are subject to the trading obligation while others are not. ESMA considers that the components of a package need to be executed on a trading venue only where it is feasible to do so without creating undue operational or execution risk.

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The Wolfsberg Group has published a set of Frequently Asked Questions on financial crime country risk. Country risk is the additional risk created by investing in, or lending cross border to, a foreign country in the context of credit facilities.

The FAQs cover: (i) the meaning of country risk in the context of financial crime compliance; (ii) the data sources that should be considered when developing a methodology to assess country risk; (iii) the frequency with which data sources should be refreshed; (iv) how sanctions should be considered in country risk methodologies; (v) the models or methodologies available to financial institutions to measure country risk, and how (and how frequently) financial institutions should test and validate their effectiveness; (vi) matters to be considered when purchasing and using an off-the-shelf commercial product to determine financial crime country risk ratings; (vii) whether there is standard or conventional methodology to assess country risk; (viii) how missing data points should be dealt with; (ix) whether overrides or discretionary risk rating changes should be allowed; (x) who should maintain ownership of the organization's FCCR Methodology; (xi) who uses the assessment results and how are the ratings disseminated; (xii) how the FCCR rating methodology should drive customer due diligence and enhanced due diligence requirements; and (xiii) whether a financial institution should have a country risk assessment expressed as a country risk rating.

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The Financial Stability Board has published a Progress Update on its work on the creation of a common lexicon of terms to support the work of the FSB, standard-setting bodies, authorities and private sector participants to address cyber-security and cyber-resilience in the financial sector.

The FSB explains in the Progress Update that the cyber lexicon is not intended as a comprehensive lexicon of all cyber-security and cyber-resilience related terms. Its scope will be limited and focused on the core terms necessary to support the objective of the lexicon, which is to support the work of the above bodies, in particular by creating a cross-sector common understanding of relevant cyber security and cyber resilience terminology and by facilitating assessment and monitoring of financial stability risks in cyber-risk scenarios. It is expected that the lexicon will assist in the work of the FSB and standard-setting bodies to provide guidance related to cyber-security and cyber resilience.

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The European Commission and the U.K. government have jointly published the latest draft withdrawal agreement for the U.K.'s departure from the EU which, among other things, reflects the agreement reached on the post-Brexit transition period.

The draft withdrawal agreement includes some sections which are agreed (subject to legal drafting) and others which remain to be finalized. It includes final wording concerning an agreed "transition" or "implementation" period, that will run until December 31, 2020. The draft agreement departs from the previous draft circulated by the European Commission on March 15, 2018, by providing that the U.K. will be free to negotiate, sign and ratify international agreements in its own capacity during the transition. Any agreements negotiated by the U.K. must not enter into force or apply during the transition period, unless authorised by the EU.

The draft agreement also contains the agreed legal text for citizens' rights and concerning the financial settlement, as well as agreed text on a number of other provisions. Financial services and other services remain among issues that are not addressed by any agreed text. The U.K. and EU negotiators aim to finalize the entire withdrawal agreement by October 2018.

View the draft withdrawal agreement.

The G20 has published a Communiqué following the meeting of Finance Ministers & Central Bank Governors in Buenos Aires on March 19 – 20, 2018.

Among other things, the Communiqué states that the G20 welcomes the finalization of Basel III and remains committed to full, timely and consistent implementation and finalization of the reforms. The G20 looks forward to the outcome of the evaluation of the reforms to identify and address any unintended consequences, which is being led by the Financial Stability Board.

The G20 also commits to continue to address the decline in correspondent banking relationships. It welcomes the FSB's March 2018 progress report on correspondent banking and calls on the FSB to monitor, with the FATF, the International Monetary Fund, the World Bank Group and the Global Partnership for Financial Inclusion, the adoption of the recommendations in the FSB's March 2018 report "Stocktake of Remittance Service Providers' Access to Banking Services."

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The Financial Action Task Force has published its report to G20 Finance Ministers and Central Bank Governors, in advance of their meeting in Buenos Aires scheduled for March 19 – 20, 2018. In the report, the FATF reiterates its commitment to tackle all sources, techniques and channels used in terrorist financing and to continue its work to increase financial transparency and improve the environment for remittances.

The report gives an overview of the FATF's recent work by providing stock-takes on the following workstreams:

• strengthening the FATF's institutional basis, governance and capacity;
• countering the financing of terrorism and proliferation;
• improving transparency and the availability of beneficial ownership information;
• supporting financial inclusion and access to regulated financial services;
• bank de-risking and the impact on remittances;
• FATF engagement with judges and prosecutors to improve the effectiveness of the criminal justice system; and
• the risks and opportunities of FinTech, RegTech and virtual currencies.

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The Financial Stability Board has published two reports relating to its actions to address the decline in correspondent banking. The first report is a progress report addressed to the G20 Finance Ministers and Central Bank Governors on the FSB's four-point action plan to assess and address the decline in correspondent banking relationships. It sets out the actions taken since the FSB's July 2017 progress report and describes the work that remains to be completed at international level and implemented at national level by regulators and banks. That work includes:

• Implementing the recommendations and action plan on access to banking services by remittance providers (set out in the second report, which is described below);
• National implementation of the new Financial Action Task Force and revised Basel Committee guidance on correspondent banking, which the FSB thinks can mostly be achieved by national regulators issuing statements to clarify their expectations so that they are reflected in supervisory practices as well as banks' risk management practices;
• Improving efficiencies in and enhancing standardization of Know Your Customer utilities, including encouraging the use of the Wolfsberg Correspondent Banking Due Diligence Questionnaire; and
• Progressing the enhancement and further development of solutions to capture the trade finance components of correspondent banking.

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The Bank of England has published a report entitled "Stress testing in the U.K. banking system: key elements of the 2018 stress test," providing details of the Annual Cyclical Scenario, which is the only stress test that the BoE will conduct in 2018. The report is accompanied by detailed guidance for participating banks and building societies.

The ACS will examine the impact on participant banks and building societies of three types of severe stress, which will be assumed to be synchronized. These are: (i) a U.K. and global macroeconomic stress; (ii) a traded risk stress (linked to a financial market scenario consistent with the macroeconomic scenario); and (iii) an independent misconduct costs stress. Seven banks and building societies will participate in the 2018 ACS. The report states that these participants account for around 80% of the outstanding stock of lending to the U.K. real economy by banks regulated by the Prudential Regulation Authority.

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The European Commission has opened an exploratory consultation on implementing the final aspects of Basel III into EU law, which will require changes to the Capital Requirements Directive and the Capital Requirements Regulation. Basel III was finalized on December 7, 2017. The final package revises the standardized and Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards are due to take effect from January 1, 2022 and will be phased in over five years. The European Commission is seeking feedback on the various elements of the Basel III package, including how the revisions will impact the EU banking sector and wider economy, how they compare to the current EU requirements and whether they pose any particular implementation challenges.

The Commission's consultation closes on April 12, 2018.

View the consultation paper and response form.

View the final Basel III package.

Following its consultation in late 2017, the European Central Bank has published the final Addendum to its Guidance for Eurozone banks on non-performing loans. The ECB published its final Guidance for banks on NPLs on March 20, 2017. The Addendum sets out the ECB’s supervisory expectations on the minimum levels of prudential provisions expected for new NPLs. It is intended to function as a starting point for dialogue between the ECB and individual institutions. As with the Guidance, the Addendum is not legally binding but would apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. An institution that does not comply with the ECB’s supervisory expectations, as set out in the Addendum, would be able to provide its rationale to the ECB as part of the dialogue. The supervisory expectations in the Addendum will be incorporated into the 2021 Supervisory Review and Evaluation Process. In the meantime, firms are expected to review their credit underwriting policies and begin provisioning for any loan classified as a NPL.

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