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

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

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

View the Policy Statement (PS17/28).

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

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

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

Read more.

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

Read more.

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

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

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

View the consultation paper.

View the online response form.

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

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

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

View the SRB Policy for 2017.

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

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

Read more.

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

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

Read more. 

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

View joint agency press release.

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

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

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

View the Delegated Regulation.

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

View the full text of H.R. 3312.

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

The STS Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and SSPEs to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

Read more.

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

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

Read more.

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

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

Read more.

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

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

Read more.

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

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

Read more.

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

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

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

View the Order amending the designation of Cheque & Credit.

View the Order for de-recognition of CHAPS.

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

View FRB's final rule repealing Regulation C.

View notice of proposed rulemaking regarding Regulation M.

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

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

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

Read more.

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

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

Read more.

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

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

Read more.

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

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

Read more. 

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

View FRB's notice.

The European Central Bank is consulting on a draft ECB guide on the assessment methodology for the internal model method and the advanced CVA capital charge for counterparty credit risk under the Capital Requirements Regulation. IMM and A-CVA are internal models used by banks to calculate counterparty credit risks for over-the-counter (OTC) derivatives and securities financing transactions.

Read more.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the homogeneity of underlying exposures in securitizations under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, 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 for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The "simple" criterion provides, among other things, that the securitization must be backed by a pool of underlying exposures that are homogenous in terms of asset type and that the underlying exposures must include obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors. The homogeneity requirement in the STS Regulation is designed to better enable investors to assess risk and conduct robust due diligence.

Read more.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the US National Credit Union Administration released interagency examiner guidance regarding financial institutions affected by major disasters. In accordance with the guidance, examiners will continue to assign component and composite ratings for these affected financial institutions, taking into account how the disaster has affected certain of the ratings factors, such as capital adequacy and asset quality. The guidance also notes that examiners should evaluate management capability, but should distinguish between problems intrinsic to the management of the institution, and those problems caused by the major disaster. The guidance notes that a major disaster may result in a lower component or composite rating for an affected institution, but that formal or informal action that would typically be considered for lower-ranked institutions may not be required, taking into account the institution’s disaster recovery plan and policies, which should also be evaluated for reasonableness, among other factors. If action is required, the guidance instructs examiners to appropriately tailor the response to the specific circumstances affecting the institution.

View the interagency supervisory guidance.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on risk retention requirements for originators, sponsors and original lenders under the new EU securitization framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, 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 for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.

Read more.

The Financial Conduct Authority has published a feedback statement on Distributed Ledger Technology, following the discussion paper it issued in April 2017.

Respondents to the discussion paper provided the FCA with details of various use cases for DLT in the context of payments, asset management, securities trading, financial crime and regulatory reporting. The feedback statement summarizes stakeholder feedback and the FCA's response in relation to: the operational risks arising from permissioned and permissionless networks; the risks and legal and regulatory issues associated with digital currencies and initial coin offerings; digital asset trading and smart contracts; the ability of DLT to improve regulatory reporting and the benefits it could bring in tackling financial crime; and whether DLT is compatible with the requirements of the EU General Data Protection Regulation.

Read more.

The European Securities and Markets Authority has published two revised Opinions providing further guidance on the post-trade transparency and position limits requirements relating to transactions on non-EU trading venues under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. ESMA first published the Opinions in May 2017.

The first Opinion sets out ESMA's view on determining third-country trading venues for the purpose of transparency under MiFIR. MiFIR requires EU investment firms to make information on transactions in financial instruments traded on a trading venue public. Details of actual transactions must be made public as close to real time as possible – for equities, within one minute of trading, and for non-equities, within 15 minutes (reducing to five minutes in 2020). The Opinion sets out ESMA's view of which transactions between EU and non-EU firms, and which transactions conducted on third-country trading venues should be subject to these post-trade transparency requirements. The Opinion provides objective criteria for identifying those third-country venues that have similar post-trade transparency requirements as EU trading venues. Trades on third-county venues that satisfy the criteria will not need to be made transparent post-trade.

Read more.

The European Securities and Markets Authority has launched a consultation on draft Regulatory Technical Standards under the new EU Prospectus Regulation which entered into force on July 20, 2017. ESMA seeks feedback on the draft RTS in relation to: key financial information for the prospectus summary; data for the classification of the prospectus and how to ensure that such data is machine readable; advertisements; supplements; and publication of the prospectus.

ESMA invites responses to the consultation by March 9, 2018. ESMA will then finalize the draft RTS for submission to the European Commission by July 21, 2018.

View the consultation paper (ESMA31-62-802).

The US Financial Stability Oversight Council published its 2017 annual report. The report addresses topics such as financial and regulatory developments and potential emerging threats and vulnerabilities, and makes a number of recommendations with respect to these topics. The report notes that market conditions have been relatively stable over the last year, and discusses the FSOC’s rescission of its designation of two nonbank financial institutions for supervision by the US Board of Governors of the Federal Reserve System—American International Group, Inc. and General Electric Capital Corporation, Inc. One key issue in the report is the continuing and growing threat that cybersecurity risks pose to the financial system. The report notes that although progress has been made in this area, more work is required to guard against significant cybersecurity events in the future. The report also discusses FinTech initiatives, both in the context of how innovation is changing financial market structure and financial products. The report notes that while these innovations can provide great benefits, they also create new risks to, and potential vulnerabilities in, the financial system.

View the FSOC report.

The EU Single Resolution Board and the US Federal Deposit Insurance Corporation announced that they had signed a cooperation agreement which would provide for information sharing and cooperation in policymaking and resolution planning for cross-border financial institutions. The preamble of the agreement notes that given the interconnectedness of the global financial system, such cooperation is necessary to promote financial stability in the event of an institution’s failure. While not legally binding, the agreement sets forth the general framework of the relationship and the principals designed to advance the resolution goals of each agency.  The agreement also sets forth the policies and procedures that govern the relationship between the SRB and FDIC, including the scope of the agreement, permissible uses of information shared between the agencies and the mechanisms that each agency can use to effectuate consultation, cooperation and information sharing.

View the cooperation agreement between SRB and FDIC.

The Financial Stability Board, the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures and the International Organization for Securities Commissions have jointly launched a review of the regulatory reforms on incentives for central clearing of OTC derivatives. The review forms part of the FSB’s commitment to evaluate the effects of the G20 Financial Regulatory reforms. Qualitative survey forms have been published for participants in the clearing space (CCPs, clients/end-users, clearing members and banks providing clearing services to clients) to complete on a group-wide basis.

The deadline for submitting completed surveys is January 26, 2018. A final report on the impact of the G20 reforms is expected by the end of 2018.

View the surveys and related information.

The European Banking Authority has published standardized data templates for non-performing loans, following calls from the European Commission and the Council of the European Union to develop templates that would assist in developing the NPL secondary markets. The templates are not a supervisory reporting requirement, but a market standard to be used by banks on a voluntary basis.

View the EBA’s press release.

View the templates.

An amending Delegated Regulation has been published in the Official Journal of the European Union which closes a loophole in the Markets in Financial Instruments Directive provisions relating to systematic internalisers. In February this year, the European Securities and Markets Authority highlighted the possibility that investment firms operating broker-crossing networks might try to circumvent the MiFID II requirements by setting up networks of connected SIs which would allow SIs to cross third party buying and selling interests via matched principal trading or other types of back-to-back transactions.

Read more.

The European Banking Authority has published a final report setting out final draft Regulatory Technical Standards and Implementing Technical Standards under the revised Payment Services Directive.

PSD2 requires that the EBA develop, operate and maintain an electronic central register that contains information as notified by national regulators. The EBA consulted earlier in the year on its proposals for the central register and that consultation closed in September 2017.

Read more.

The European Commission has adopted Implementing Decisions for equivalence of the legal and supervisory framework of Australia, Hong Kong and the USA for national securities exchanges and alternative trading systems in accordance with the revised Markets in Financial Instruments Directive.
 

MiFID II requires EU investment firms to ensure that the trades they undertake in shares admitted to trading on regulated markets, or traded on trading venues should take place on regulated markets, multilateral trading facilities or systematic internalisers, or third-country trading venues assessed by the European Commission as equivalent. These latest three equivalence decisions by the European Commission will allow investment firms to comply with MiFID II when shares are traded on trading venues in these three countries.
 

View Implementing Decision for Australia.
 

View Implementing Decision for Hong Kong.
 

View Implementing Decision for USA.

The US House Financial Services Committee announced that it had approved 13 bills, several of which were focused on regulatory reform for financial institutions. Representative Jeb Hensarling noted in an accompanying press release that the Financial Services Committee remains committed to, among other things, reducing regulatory red tape that burdens and affects financial institutions.

Read more.

The Financial Services and Markets Act 2000 (Markets in Financial Instruments) (No. 2) Regulations 2017 have been published, and will take effect mainly from January 3, 2018. Some technical provisions will come into force a day earlier, on January 2, 2018, for the purpose of making corrections to other legislation in advance of the implementation date for the revised Markets in Financial Instruments Directive.

Read more.

The UK Financial Conduct Authority and Prudential Regulation Authority have issued further consultations on aspects of the extension of the Senior Managers and Certification Regime to all firms authorized under the Financial Services and Markets Act 2000.

The FCA has published three separate consultations, which build on its previous consultation in July 2017 and set out further proportionate proposals to account for the wide differences in the sizes and nature of firms that will be brought within the regime. In the July 2017 consultation, the FCA proposed an extended SM&CR consisting of a standard set of requirements for firms within the "core" regime, and further "enhanced" or simplified "limited scope" requirements for other firms as appropriate. The PRA has published a further consultation supplementing its July 2017 consultation on the PRA's substantive proposals for extension of the SM&CR to insurers.

Read more.

A Commission Delegated Regulation setting out Regulatory Technical Standards for the disclosure of encumbered and unencumbered assets has been published in the Official Journal of the European Union. The RTS supplement the Capital Requirements Regulation by setting out the requirements on firms to disclose balance sheet value per exposure class, broken down by asset quality and the total amount of unencumbered assets on the balance sheet. The final RTS set out the data required to be disclosed, the format and the timing of the disclosure. Additional disclosure requirements are set for larger banks.

The final RTS enter into force on January 2, 2018. The additional disclosure requirements for larger banks will apply from January 2, 2019.

View the final RTS.

The UK Prudential Regulation Authority has published a policy statement setting out final amendments to its supervisory statements on "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and its Statement of Policy "The PRA's methodologies for setting Pillar 2 capital". These changes were proposed in a consultation by the PRA in July 2017, which closed in October 2017. Following feedback to the consultation, the PRA will proceed with the amendments it proposed in July, subject to some minor changes.

Read more.

The European Banking Authority has published finalized guidelines to assist payment services providers to conduct appropriate risk assessment and risk management of operational and security risks. The finalized guidelines contain some changes from the draft guidelines on which the EBA launched a consultation in May 2017.

Read more.

Chairman of the US Securities and Exchange Commission Jay Clayton released a public statement regarding cryptocurrencies and initial coin offerings (ICOs). In the statement, Chairman Clayton notes rapid growth in these areas and how expanding areas of innovation in this space may impact retail consumers and market professionals. With regard to retail consumers, Clayton reiterated that these investments carry with them reduced investor protections in comparison to traditional investments, highlighting that no ICOs have been registered with the SEC to date. For market professionals, Chairman Clayton stressed that, ICOs, while an innovation in the field, may still constitute securities transactions subject to SEC regulation, noting that much of the distinction between ICOs and traditional offerings may be more of a matter of form, rather than substance. Clayton also raised this point as it relates to cryptocurrencies, stating that merely calling a product a “currency” does not change the analysis of whether it is a security. Chairman Clayton further discussed the need for adequate disclosure, processes and investor protections with regard to ICOs, and stated that for cryptocurrencies, market professionals should either be able to demonstrate that the product is not a security, or comply with securities regulations.

View full text of Chairman Clayton’s statement.

The UK Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to authorization and competition. 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.

In the consultation on its approach to authorization, the FCA explains the public value and purpose of requiring authorization to conduct regulated financial services activities and the FCA's current approach to authorizing firms and individuals. The FCA seeks feedback on four questions: (i) understanding of the Threshold Conditions that firms and individuals must meet for authorization, and any areas where the FCA might be more specific; (ii) how the FCA might improve its approach to supporting firms and individuals to meet the minimum standards and how the FCA might better promote competition; (iii) whether the FCA has suggested the correct commitments to firms making authorization applications and what other commitments could be made; and (iv) whether the FCA has prioritized the right strategic goals, and, if not, what additional goals could add the most public value to the FCA's work.

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The US Federal Reserve Board announced that it is seeking comments regarding a proposed change to its Payment System Risk Policy.  In a related action, the Federal Reserve Board has also announced that it is eliminating the strength of support assessment (SOSA) ranking used for FBOs because the information that informs such rankings (such as information on parent banks, home country accounting practices and financial systems, and international regulatory developments) has become more readily available to U.S. supervisors.  The proposed changes to the PSR Policy would affect US branches and agencies of foreign banking organizations, and result in changes to the methods used in determining the net debit cap of an FBO and its ability to request a streamlined procedure with regard to the FBO’s maximum daylight overdraft capacity. The calculation method currently takes into account whether the FBO is a financial holding company, as well as the FBO’s SOSA ranking. The Federal Reserve Board notes that the changes to the PSR Policy may result in a reduction of the net debit cap for some FBOs, but contends that the changes will not constrain the US operations of FBOs generally, while more accurately reflecting the usage of intraday credit by FBOs. Comments to the proposal are due on or before February 12, 2018.

View the FRB's PSR Policy Proposal.

View FRB's SR Letter regarding SOSA.

The European Banking Authority has published its final draft Regulatory Technical Standards on central contact points under the revised Payment Service Directive. The RTS will apply where a payment institution or electronic money institution with its head office in one member state provides payment services on a cross-border basis, under the right of establishment, through agents in another (host) member state. PSD2 gives the national regulators in the host member state the option of requiring that payment institutions or electronic money institutions operating through agents must establish a central contact point in the host territory, to ensure adequate communication and information reporting and effective supervision.

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Following its consultation earlier this year on its expectations on recovery planning, the Prudential Regulation Authority has published a Policy Statement which sets out the PRA's final revised expectations on the content of recovery plans and the approach to recovery planning for groups which include a ring-fenced body. Alongside the Policy Statement, the PRA has published a new Supervisory Statement on recovery planning and an updated Supervisory Statement on RFBs. The PRA decided to publish the new Supervisory Statement because its experience in assessing firm's plans showed that there was a need to improve the quality of recovery plans and to increase the prospect of plans being credible. The new Supervisory Statement on recovery planning therefore supersedes the previous one, SS-18/13.

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The U.K. Government has published a U.K. Anti-Corruption Strategy 2017 to 2022 setting out how the U.K. Government intends to combat corruption over the next five years. The Strategy identifies the following six priorities:

1. Reduce the insider threat in high risk domestic sectors;

2. Strengthen the integrity of the United Kingdom as an international financial centre;

3. Promote integrity across the public and private sectors;

4. Reduce corruption in public procurement and grants;

5. Improve the business environment globally; and

6. Work with other countries to combat corruption.

In strengthening the United Kingdom’s position as an international financial centre, the Government intends to ensure greater transparency over ownership and control of legal entities, stronger enforcement, enhanced anti-money laundering and counter-terrorist financing measures and a better means for sharing information between the public and private sectors.

View the strategy.

​The Prudential Regulation Authority has published an updated Supervisory Statement, “The minimum requirement for own funds and eligible liabilities (MREL) - buffers and Threshold Conditions”. 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 updated Supervisory Statement set out the PRA’s expectations on the relationship between the minimum requirement for MREL and both capital and leverage ratio buffers. It follows the PRA’s consultation earlier this year clarifying that it did not intend to create a different buffer requirement from that which is usable in the going-concern regime. The Supervisory Statement also discusses the implications that a breach of MREL would have for the PRA’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions. The PRA has confirmed that it expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the capital buffer requirements.
 
The Supervisory Statement applies to PRA-regulated banks, building societies and PRA-designated investment firms. 

View the updated Supervisory Statement. 

The Federal Reserve Bank of New York announced the appointment by the Federal Reserve Board of Dr. Rosa Gil as a Class C director of the FRBNY.

View the Federal Reserve Bank of Richmond press release regarding the appointment.