The UK Financial Conduct Authority has issued a public statement on the Packaged Retail and Insurance-based Investment Products Regulation, which took effect on January 1, 2018.

The PRIIPs Regulation requires manufacturers of PRIIPs to prepare and publish a stand-alone, standardized Key Information Document for each of their PRIIPs. Those advising retail investors on PRIIPs, or selling PRIIPs to retail investors, must provide the retail investors with a KID in good time before the transaction is concluded.

Read more.

The UK Financial Conduct Authority has launched a consultation on necessary changes to its Handbook for the functioning of the Money Market Funds Regulation, which came into force on July 21, 2017. Although the MMF Regulation is directly applicable under EU law, some areas of the UK regulatory framework will need to be changed to ensure they align with it. The FCA's consultation sets out proposals to make certain amendments to the Handbook to ensure that it is consistent with the requirements of the MMF Regulation.  The FCA also proposes to introduce application fees for the authorization of MMFs and periodic fees to help meet the cost of supervising MMFs’ adherence to the MMF Regulation.

The MMF Regulation is one of a range of EU policy measures to address risk arising from so-called "shadow banking", which is the term often used to refer to credit intermediation by entities and activities outside the banking sector. The financial crisis revealed that some MMFs were vulnerable during periods of high market turbulence, during which it was difficult for these funds to maintain liquidity and stability, particularly in the face of investor runs. Consequently they could pose a serious risk of contagion in the wider financial system. The MMF Regulation strengthens, in particular, the quality and liquidity of the asset portfolios held by MMFs. It also establishes, for some of these funds, capital buffers in order to cover the gaps in valuation associated with fluctuations in their asset value.

Read more.

The United States Senate Committee on Banking, Housing and Urban Affairs held a hearing for three individuals whose nominations to US federal financial institution regulator positions are pending.  The nominees and their respective positions are:  Ms. Jelena McWilliams to be Chairperson and a Member of the Board of Directors of the US Federal Deposit Insurance Corporation; Dr. Marvin Goodfriend to be a Member of the US Board of Governors of the Federal Reserve System; and Mr. Thomas E. Workman to be a Member of the US Financial Stability Oversight Council.

View transcript of Ms. McWilliam’s prepared statement.

View transcript of Dr. Goodfriend’s prepared statement.

View transcript of Mr. Workman’s prepared statement.

The US Senate voted 84-13 in favor of confirming Jerome Powell as the next Chair of the US Board of Governors of the Federal Reserve System.  During the confirmation vote, Chairman of the US Senate Committee on Banking, Housing and Urban Affairs, Mike Crapo, delivered a statement in favor of Mr. Powell’s nomination.  Mr. Crapo stressed the importance of the position of Federal Reserve Board Chair, and praised Mr. Powell for his prior experience, regulatory and market knowledge and track record.

View Mr. Crapo’s statement at Mr. Powell’s confirmation vote.

The Joint Committee of European Supervisory Authorities has published an Opinion addressed to EU national regulators to develop a common understanding of the appropriate use, by credit and financial institutions, of innovative methods to meet Customer Due Diligence obligations.

All firms that are subject to the Fourth Money Laundering Directive must put in place effective policies and procedures, including effective CDD procedures, to address the risk that their businesses may be used for money laundering or for terrorist financing purposes. 4MLD is "technology neutral" and does not set out specific steps or procedures that must be followed for CDD. There is scope, therefore, for new ways to verify customers' identity, for example non-face-to-face verification using traditional identity documents (such as passports) through portable devices or verification via centralized databases. Innovative means such as artificial intelligence are also increasingly used for monitoring customer relationships, for risk assessment and in decision-making processes.

The ESAs recognize that innovative solutions can improve the effectiveness and efficiency of AML/CFT controls and firms often use innovative solutions to meet demand for improved customer experience and costs savings. The ESAs believe that firms should not be prevented from using such solutions, provided that proper safeguards have been put in place to mitigate the ML/TF risk associated with the firm's business relationships and risk profile. The ESAs' Opinion highlights additional factors that national regulators can take into account when assessing the adequacy of any proposed use of innovative CDD solutions. These include: oversight and control mechanisms; the quality and adequacy of CDD measures; the reliability of CDD measures; delivery channel risk; and geographical risks.

View the Opinion.

The UK Financial Conduct Authority has published a Policy Statement and final rules to introduce changes to its client money rules to amend the existing 30-Day Rule, under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The client money rules require firms to deposit client money in an account opened with an authorised bank, a central bank or in a qualifying money market fund. An unbreakable deposit is one where the firm placing the deposit has no contractual ability to request the return of the monies prior to the end of the agreed term.

The rule changes have been made following feedback from firms that banks have been increasingly reluctant to provide 30-day unbreakable deposits. This reluctance appears to have been due to the interaction of the client money and prudential regimes. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient for banks.

Read more.

New York State Department of Financial Services Superintendent Maria Vullo issued a press release reminding regulated entities and licensed persons of the NYDFS’s upcoming February 15, 2018 compliance certification deadline under New York’s cybersecurity regulation that was implemented in March of 2017.  New York’s cybersecurity regulation generally requires (i) that regulated entities establish, review and assess cybersecurity policies and procedures designed to protect consumer data, (ii) that regulated entities have a Chief Information Security Officer, and (iii) that the policies and procedures are approved by an entity’s board of directors or a senior officer.  Covered entities and individuals will be required to submit the certification, which attests to compliance with New York’s cybersecurity regulation for 2017, through the NYDFS’s cybersecurity portal.  The press release also provides a link to a series of frequently asked questions regarding the cybersecurity regulation generally, and the upcoming filing deadline, including which subparts of the regulation are applicable to this year’s certification, and those that will be applicable to the 2019 certification.  Superintendent Vullo also announced that the cybersecurity evaluation will be incorporated into all NYDFS examinations of regulated entities.

View full text of the press release.

Vice Chairman of the US Board of Governors of the Federal Reserve System, Randal Quarles, delivered remarks at the American Bar Association Banking Law Committee’s annual meeting. In his remarks, Mr. Quarles discussed his approach as Vice Chair of Supervision and outlined a number of items that were areas of focus. Mr. Quarles noted that the post-crisis regulatory framework was largely complete—with the exception of the implementation of the Basel III framework—and noted that this provided an opportunity to reflect on these regulations and assess their utility and move towards efficient and transparent regulation. Mr. Quarles reiterated the need to reduce the regulatory burden for smaller financial institutions and echoed prior comments from Federal Reserve Board Chairman-nominee Jerome Powell that key regulatory areas that need improvement include resolution planning, stress testing and simplification of the Volcker Rule. Specifically, he noted that the relevant agencies have begun work on a proposal to streamline the Volcker Rule and “congeal around a thoughtful Volcker rule 2.0.”  Mr. Quarles also discussed a few emerging areas for consideration, including (i) tailoring regulation to match    an institution’s size, footprint, risk profile and business model, (ii) a re-evaluation of loss absorbency requirements, (iii) a recalibration of the leverage ratio and (iv) the Federal Reserve Board’s framework for control determinations under the Bank Holding Company Act, which he generally views as too opaque.

View full text of VC Quarles' speech.

The US House Financial Services Committee announced that it had advanced 15 bills, many of which would alter the regulatory framework for financial institutions.

Read more.

The US Federal Reserve Board issued a notice finalizing its revisions to the Form FR Y-7 (Annual Report for Foreign Banking Organizations), regarding how a foreign banking organization should certify its compliance with US risk committee and home country capital stress testing requirements under Regulation YY.

Read more.

The European Commission has published a Communication to the European Parliament, the Council of the European Union and the European Central Bank, setting out its first progress report on the implementation of the "Action Plan To Tackle Non-Performing Loans in Europe" that was adopted by the Council in July 2017. The Communication discusses addressing NPLs as part of risk reduction in the financial sector and reports that the general improvement in NPL ratios over recent years continued in 2017. The ratio of NPLs is at its lowest level since Q4 2014. The Communication concludes by stressing the importance of maintaining the pace of NPL reduction and the need, not only for continued action by individual banks and by Member States, but also for concerted action at EU level by the Commission and other EU institutions, including the ECB.

A Commission Staff Working Document, published jointly with the Communication, provides further detail on the workstreams identified as necessary to deliver the Action Plan and on developments in selected Member States.

Read more.

The European Securities and Markets Authority has issued a call for evidence on the possible use of its product intervention powers under the Markets in Financial Instruments Regulation to impose restrictions and/or prohibitions on the marketing, distribution and sale of contracts for difference and binary options to retail investors.

Read more.

Four Commission Delegated Regulations supplementing the Benchmark Regulation have been published in the Official Journal of the European Union. The Benchmark Regulation regulates the provision of benchmarks, contributions of data to a benchmark and the use of benchmarks within the EU. It sets out the authorization and registration requirements for benchmark administrators, including third country entities, and stipulates requirements for governance and control of administrators. The Benchmark Regulation establishes different rules for different categories of benchmarks, depending on the risks involved, and imposes additional requirements on benchmarks considered to be critical. It also sets out the powers of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.

Read more.

The UK Prudential Regulation Authority has announced that it is postponing by six months the introduction of a new liquidity reporting template, PRA110. PRA110 is intended to capture information on cashflow mismatch risk within the Pillar 2 framework.

The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework involves additional capital requirements set through regulatory discretion and complements the Pillar 1 Liquidity Coverage Ratio requirements, by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. The PRA consulted in July 2017 on a draft liquidity reporting template for CFMR, to be numbered PRA110. PRA110 will build on the European Banking Authority's maturity ladder reporting template, which will apply from March 2018, by including additional columns and rows to capture additional information. The PRA originally proposed that the PRA110 template would be implemented on January 1, 2019 and that, on implementation of PRA110, it would terminate the old FSA047 and FSA048 returns.
 

Read more.

A Commission Delegated Regulation amending the Regulatory Technical Standards on authorization, organizational requirements and the publication of transactions for data reporting services providers under the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union.

MiFID II requires consolidated tape providers to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products.

The amending Regulation adds provisions to the existing RTS to set out the scope of the consolidated tape for non-equity products (i.e., bonds, structured finance products, emission allowances and derivatives). In particular, the amending Regulation:

•  permits non-equity CTPs to specialize in one or more asset classes to increase the likelihood of a viable business case for non-equity consolidated tape provision;

•  specifies the APAs and trading venues that have to be included in the non-equity consolidated tape, based on the required consolidated tape coverage ratio of 80% of all transactions published in an asset class in the EU; and

•  requires CTPs to reach minimum coverage ratios by January 1, 2019.

The amending Regulation applied from January 3, 2018. However, the provisions relating to CTPs will apply from September 3, 2019. The amending Regulation does not differ substantively from the final draft RTS submitted to the European Commission on March 31, 2017.

View the amending Regulation.

The Joint Committee of the European Supervisory Authorities has published final Guidelines on preventing terrorist financing and money laundering in electronic fund transfers under the EU Wire Transfer Regulation. The Wire Transfer Regulation, which applied from June 26, 2017, requires payment service providers, among other things, to have effective procedures to detect transfers of funds that lack the required information on the payer and the payee and to determine whether to execute, reject or suspend a transfer of funds that lacks that information.

The Guidelines set out the factors that payment service providers should consider when establishing and implementing procedures to detect and manage transfers of funds which do not have the required payer and payee information to ensure that their procedures are effective. The Guidelines also specify what a payment service provider should do to manage the risk of money laundering or terrorist financing where that information is missing or incomplete. Further, the Guidelines will assist payment service providers to determine which fund transfers fall within the scope of the Wire Transfer Regulation and how the exemptions might apply. National regulators are required to use the Guidelines when assessing the adequacy of a payment service provider's procedures.

The Guidelines will apply to all payment service providers and intermediary payment service providers as well as their national regulators from July 16, 2018.

View the Guidelines.

The European Banking Authority has published a final Report and final Guidelines on uniform disclosures under the Capital Requirements Regulation regarding the transitional period for mitigating the impact of the introduction of International Financial Reporting Standard 9 (known as IFRS 9) on own funds.

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 application of IFRS 9 could lead to a sudden significant increase in expected credit loss provisions and consequently to a sudden decrease in an institution's Common Equity Tier 1 capital. For this reason, institutions that prefer not to recognize the full impact of IFRS 9 (or analogous ECL models) immediately have the option of phasing in implementation of IFRS 9 over a transitional period.

IFRS 9 is being implemented in the EU through a regulation amending the CRR which sets out transitional provisions. The amending Regulation applied directly across the EU from January 1, 2018. A firm that uses the transitional arrangements must publicly disclose its own funds, capital ratios and leverage ratios both with the application of the transitional arrangements and also on a "fully-loaded" basis, i.e., as if the transitional arrangements had not been applied.

Read more.

The Financial Action Task Force has published a Report on the financing of recruitment for terrorist purposes, as part of its strategy on combating terrorist financing. The Report has been compiled using input from relevant authorities and country experts from jurisdictions within the FATF Global Network, including the Asia Pacific, Eurasian, Middle-East and North African regions.

The Report examines the typical methods of recruitment to terrorist organizations and the costs associated with those methods. Recruitment methods vary from region to region. Techniques include recruitment via religious groups in some regions and online recruitment via social media in others. The Report also presents case study data on the sources of funds available to terrorist recruiters and the general expenditures involved in the recruitment process.

The Report concludes by recommending improved inter-agency and international co-operation to share information and analyze suspected recruiters and financial supporters of terrorist organizations. The Report recommends that national operational and security agencies engage more with the private sector, non-profit organizations and social media and other internet providers, by providing better contextual information and guidance to enable those providers to identify the financial flows associated with terrorist recruitment.

View the Report.

The European Securities and Markets Authority has published a Thematic Report, following its supervisory review of the current fee structures in the credit rating and trade repository industries. The CRA Regulation requires CRAs to ensure that fees for the credit rating and ancillary services are not discriminatory and are based on actual costs. Similarly, the European Market Infrastructure Regulation requires TRs to provide non-discriminatory access and charge publicly disclosed and cost-related fees.

ESMA has compiled its Thematic Report using information from publicly available resources, periodical submissions to ESMA and dedicated requests for information from supervised entities. It has also used information gained from users of CRA and TR services. The Thematic Report identifies three areas in which CRAs and TRs need to improve their fee practices and to which ESMA proposes to give supervisory priority. These are: transparency and disclosure, the fee-setting process and interaction with entities related to CRAs and TRs.
The Thematic Report is accompanied by factsheets summarizing ESMA's findings on TRs' and CRAs' fees.

View the Thematic Report.

View Factsheet on Trade Repositories' Fees.

View Factsheet on CRAs' Fees.

The US Board of Governors of the Federal Reserve System announced its 2018 chair and deputy chair appointments for Federal Reserve Banks. Each year, the Federal Reserve Board appoints one member from each Federal Reserve Bank’s nine-member board of directors to serve as chair, and one member to serve as deputy chair.

View the Federal Reserve Board press release announcing the appointments.

The Financial Conduct Authority has published a "Dear CEO" letter that was sent to firms that offer contracts for difference products to retail customers on either an advisory or discretionary portfolio management basis (including pursuant to limited power of attorney). The "Dear CEO" letter follows a review conducted by the FCA which assessed internal processes, policies, controls and oversight arrangements at a sample of 19 providers and 15 distributors of CFD products to retail customers. The "Dear CEO" letter identifies a number of areas of concern: target market identification and alignment of the target market to the characteristics of the product; communication, oversight and challenge; the process for taking on new distributors; management of conflicts of interest; the use of management information and key performance indicators; client categorisation; and remuneration arrangements.

The FCA considers that there is a high risk that firms across the sector are not meeting its rules and expectations when providing and distributing CFDs and that consumers are likely to experience poor outcomes unless these poor practices are addressed. The letter highlights the need for firms overall to improve a number of oversight and control arrangements to reach the standard required by FCA rules and guidance. The FCA will conduct further work on CFDs and firms may be asked to take part in a follow-up review to assess how they have responded to the feedback in the Dear CEO letter. The FCA will also be assessing firms' compliance with the new Product Intervention and Product Governance sourcebook, which came into effect on January 3, 2018, implementing as rules the product governance requirements of the revised Markets in Financial Instruments Directive.

View the "Dear CEO" letter.

The US Board of Governors of the Federal Reserve System announced a final rule adjusting the maximum amount of its civil money penalties. This adjustment is made to account for inflation, and is required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The announcement contains a table reflecting each adjusted civil money penalty, organized by statute. The adjusted civil money penalties took effect on January 10, 2018.

View text of the final rule.

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.

Read more.

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.

Read more. 

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.

Read more.

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.

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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.

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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.

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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.

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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.

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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.