The European Banking Authority has published an own-initiative Recommendation on the coverage of entities in banking group recovery plans, with the aim of defining common criteria to identify entities that need to be covered in group recovery plans, as well as the extent of such coverage.

The EBA recommends that entities are covered in a group recovery plan in proportion to their relevance. It recommends that entities be categorized for recovery purposes as; (i) relevant for the group; (ii) relevant for the economy or financial system of a relevant member state; or (iii) not relevant for either of the two. For each category, different levels of information are identified. The Recommendation also provides for an adjustment phase to ensure the smooth migration of recovery planning information currently available at the local level to the group level.

View EBA Final Report.

View EBA Press Release.

The European Banking Authority has published a final Report and final Guidelines on the supervision of significant branches. The Capital Requirements Directive and the Bank Recovery and Resolution Directive provide the EU legal framework for the prudential supervision of branches. The Guidelines set out how the consolidating supervisor, the home supervisor and the host supervisor should cooperate to supervise prudentially and assess recovery planning and coordinate monitoring of significant branches requiring intensified supervision. The Guidelines apply to 'significant-plus' branches of EU firms established in another EU member state, not to branches of third-country firms.

Read more. 

The Financial Stability Board has published a report prepared by experts from its Financial Innovation Network, which examines the potential financial stability implications of the growing use of artificial intelligence and machine learning by financial institutions. Data on the extent of adoption of this technology is still relatively limited, but the FSB considers that, overall, AI and machine learning applications show great promise for the financial services industry, provided that their specific risks are managed properly. Potential risks for financial stability should be monitored over the coming years as this technology is adopted and more usage data becomes available. These potential risks include the possibility of third-party dependencies, which may introduce new systemically important players outside the regulated sector. There is also a risk of new and unexpected forms of interconnectedness developing between financial markets and institutions. The FSB is also concerned that it is not possible to interpret all aspects of AI and machine learning methods and stresses the importance of ensuring adequate testing and training of AI and machine learning applications with unbiased data and feedback mechanisms, to ensure applications behave as intended.

The Report sets out a number of selected use cases and considers the possible effects of AI and machine learning on financial markets, financial institutions, consumers and investors along with a macro-financial analysis of issues such as possible market concentration and interconnectedness. The Report also considers the legal and ethical issues around AI and machine learning and sets out some preliminary thoughts on governance and the development and auditability of models.

View FSB Report.

View Press Release.

The European Banking Authority has launched a consultation on reviewing three Guidelines with the aim of strengthening the Pillar 2 framework. The consultation covers updates to the following:

1. Guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines).

2. Guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines).

3. Guidelines on institutions' stress testing.

The consultation on the three Guidelines is being run in parallel, with feedback on the proposals requested by January 31, 2018.

Read more.

The European Commission has published an Inception Impact Assessment on the possible introduction of legislation for crowdfunding and peer-to-peer lending. The Inception Impact Assessment discusses the need for the EU to develop alternative financing sources as part of the Capital Markets Union and how this might be achieved through strengthening the EU crowdfunding market. The Commission has identified two issues that would need to be addressed - firstly, the relatively small scale of crowdfunding platforms and lack of cross-border activity and secondly, the market's perception of the lack of reliability of crowdfunding and peer-to-peer platforms. The Inception Impact Assessment discusses the policy options that will be included in the impact assessment, if the Commission decides to proceed with the proposal, which are: (i) no EU framework; (ii) a self-regulatory approach with minimum EU standards; (iii) a comprehensive approach that treats crowdfunding platforms like regulated trading venues or payment institutions; and (iv) a standalone opt-in EU framework for platforms wishing to undertake cross-border activity (leaving national regimes for purely domestic platforms). The Inception Impact Assessment is intended to inform stakeholders and market participants of the Commission's intentions and to seek feedback on the intended initiative and any related future consultations. Feedback is requested by November 27, 2017.

View the consultation website.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards under the revised Payment Services Directive concerning the level of co-operation between national regulators in home and host states of a payment institution that operates cross-border in the European Union. PSD2 takes effect from January 13, 2018. The draft RTS specify the framework for the co-operation between the supervisors of payment institutions operating on a cross-border basis, including the method for co-operation and details of information that should be provided between regulators. The draft RTS also specify the means, details and frequency of any reporting that a host national regulator may request from payment institutions of the payment business activities carried out in its territory through agents or branches.

The EBA invites comments on the draft RTS by January 5, 2018.

View the consultation paper.

The U.K. Financial Conduct Authority has published two Policy Statements designed to improve effectiveness of the U.K.'s primary capital markets, and the regulatory framework governing them to ensure they continue effectively to serve issuers and investors. The FCA consulted on proposed changes between February and May 2017.

The first Policy Statement sets out enhancements to the UK Listing Regime, including a change to the FCA's approach to the suspension of listing for reverse takeovers. The enhancements to the Listing Regime update how premium listed issuers may classify transactions and will enable property companies to better take into account asset values when seeking a premium listing. These proposals received overwhelming support from market participants.

The second Policy Statement sets out rule changes to improve the range, quality and timeliness of information available to investors during the equity IPO process.

Read more.

A Commission Delegated Regulation with Regulatory Technical Standards on information and requirements for the authorization of investment firms under the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union. MiFID II provides the requirements and conditions for authorization of an investment firm. The RTS set out the information that a firm applying for authorization as an investment firm must submit to the relevant national regulator. The information includes general corporate information, information on the applicant's sources of capital and financial situation, information on the applicant's shareholders, management body and persons who direct the business and information on the organization of the firm.

Read more. 

A Commission Delegated Regulation with Regulatory Technical Standards on the information requirements for notification by a proposed acquirer of its proposed acquisition of a qualifying holding of an investment firm under the Markets in Financial Instruments Directive and the revised Markets in Financial Instruments Directive has been published in the Official Journal of the European Union. Both MiFID and MiFID II require that acquisitions of an investment firm or a qualifying holding in an investment firm are subject to prior approval by the relevant regulator. A qualifying holding is a direct or indirect holding in an investment firm of 10% or more of the capital or voting rights. The RTS set out the information that an acquirer must submit to a national regulator so that it can assess the proposed acquisition. The information includes that of the proposed acquirer, the persons who will direct the business of the target entity, the new proposed group structure and its impact on supervision and financing of the acquisition. The RTS also provide for the information requirements to be reduced where the proposed acquirer is an EU authorized entity and where the target entity does not hold client assets, is not authorized to undertake proprietary trading or underwriting of financial instruments and, if the target is authorized as a portfolio manager, the assets under management by the target are less than EUR 500 million.

Read more. 

HM Treasury has published a National Risk Assessment of money laundering and terrorist financing for 2017. The 2017 NRA identifies risks that have changed since the first NRA was published in 2015, assesses the UK's current understanding of these risks and discusses the high-risk areas in more detail. The key findings of the 2017 NRA for the financial services sector include:

1. The steps to address the risks of money laundering and terrorist financing to the financial services sector are starting to take effect but the risk profile has not moved significantly yet. However, there is now an increased understanding of the varying risk profiles across different parts of the sector.

2. The risks of money laundering and terrorist financing to the retail banking sector are both high, mostly due to the criminal intent to exploit retail banking products and the increasing speed and volume of transactions.

Read more.

The Basel Committee on Banking Supervision has published final guidelines for the identification and management of step-in risk, following consultations in December 2015 and March 2017.

The Basel Committee refers to step-in risk as the risk that a bank may provide financial support to an entity that is under financial stress beyond or without any contractual obligations to do so, to protect itself from any adverse reputational risk that may result from its connection to the entity. The aim of the guidelines is to mitigate potential spillover effects from the shadow banking system to banks. The Basel Committee's work on developing the guidelines is part of the G20 initiative to strengthen the oversight and regulation of the shadow banking system to mitigate systemic risks, in particular risks arising due to banks' interactions with shadow banking entities.

Read more.

The U.K. Financial Conduct Authority has published a paper outlining the purpose and scope of its strategic review of retail banking business models. The FCA launched the strategic review in April 2017 in order to deepen its understanding of retail banking business models generally. The FCA also wants to gain an understanding of how changes such as increased use of digital services and reduced use of branches have impacted on banks’ business models and whether this might have implications for the FCA's consumer protection and competition objectives. The strategic review will also help the FCA to understand how free-if-in-credit banking is paid for and whether this gives rise to concerns about the distribution of profits from different types of consumers or different products.

The paper outlines how the FCA uses business model analysis in conduct and competition regulation before discussing how the face of retail banking is changing. A new environment has emerged due to the rise of challenger banks in response to macroeconomic, technological and regulatory changes, the profound effect of technology on costs and customer behaviour, the effect of recent regulatory changes on competition and the expected significant increase in competition that will be brought about by the Competition and Markets Authority's Open Banking initiative and the implementation revised Payment Services Directive.

Read more.

The European Commission has published a Report on the progress made internationally to mitigate risks associated with Securities Financing Transactions and recommendations, if any, for the EU to develop its regulatory framework under the SFT Regulation. The majority of the SFTR came into effect on January 12, 2016, except for the SFT reporting obligation which is in the process of being phased-in according to counterparty type. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy-backs. The SFTR requires, among other things, all SFTs to be reported to EU-recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.

The European Commission's Report assesses the EU's SFTR framework and the recommendations of the Financial Stability Board aimed at enhancing transparency of SFT markets and on haircuts for non-centrally cleared SFTs. The European Commission considers that the SFTR and other EU legislation and guidelines have addressed the FSB's recommendations and that no further regulatory action is needed at this time. An assessment of whether to introduce numerical haircut floors should be undertaken once detailed data on the SFT markets is available, in addition to considering the steps taken in other jurisdictions because the introduction of any numerical haircut floors should be globally coordinated.

View the Commission's Report.

The UK Financial Conduct Authority has launched phase one of its new Asset Management Authorization Hub, which is a new FCA resource designed to assist new firms entering the market and help them better understand the FCA as an organization.

The hub is based on four broad objectives: (i) clarifying the expectations of new entrants by providing updated guidance on regulations and processes; (ii) fostering better engagement between the FCA and new entrants; (iii) making information more accessible by introducing, as part of the FCA's website, a dedicated portal for investment managers; and (iv) providing "end-to-end" support for start-up firms, by supporting the transition from pre-authorization discussions to authorization and ongoing supervision.

The FCA plans to roll out further phases of the hub throughout 2018.

View the FCA press release.

View the Authorization Hub webpage.

The Bank of England has announced the implementation date for the reformed Sterling Overnight Index Average Interest Rate Benchmark, known as SONIA. The BoE took over as administrator of SONIA on April 25, 2016. SONIA is currently based on a market for brokered deposits which has limited transaction volumes. From April 23, 2018, the methodology will change to a volume-weighted trimmed mean. The BoE will also take on the remaining aspects of administration, including the calculation and publication of SONIA. The reformed benchmark will cover overnight unsecured transactions negotiated bilaterally as well as those arranged via brokers, using the Bank's Sterling Money Market Data Collection as the data source. The BoE also published the Key features and policies for SONIA which is a summary of how SONIA will be calculated and administered, including the governance arrangements. The BoE intends to assess the benchmark's compliance with the Principles for Financial Benchmarks in due course.

View the SONIA Key Features and Policies document.

View the BoE's announcement.

The European Securities and Markets Authority has announced the launch of the second phase of its Financial Instrument Reference Database (FIRDS). FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism. With the launch, ESMA is providing access to the database holding the currently available reference data that market participants will use to identify instruments subject to the reference data reporting requirements. The aim of the launch is to assist market participants in preparing their systems in advance of the obligation coming into effect on January 3, 2018.

View ESMA's announcement.

The Wolfsberg Group has published two new standards, the Correspondent Banking Due Diligence Questionnaire (CBDDQ) and the revised Payment Transparency Standards. The Wolfsberg Group was established in 2002 and comprises thirteen banks. Its objective is to develop frameworks and guidance for the management of financial crime risks. Both of the new standards are intended to support the work on de-risking in correspondent banking by the Financial Stability Board, the Financial Action Task Force and the Committee on Payments and Market Infrastructure.

View the CBDDQ.

View the revised Payment Transparency Standards.

A Commission Implementing Decision declaring equivalence of the US legal, supervisory and enforcement arrangements for risk mitigation techniques and exchange of collateral has been published in the Official Journal of the European Union. The European Market Infrastructure Regulation requires counterparties to uncleared derivatives to comply with requirements on timely confirmation, portfolio compression, procedures for reconciliation of disputes and the exchange of collateral, collectively known as the risk mitigation techniques. The European Commission is empowered to adopt an equivalence decision declaring that the requirements of a third country are equivalent to the EMIR requirements on risk mitigation.

The Implementing Decision applies to swaps regulated by the Commodity Futures Trading Commission that are not cleared by a CCP where at least one of the counterparties to the swap is established in the US and is registered with the CFTC as a swap dealer or a major swap participant, and for collateral exchange, where the US counterparty is subject to CFTC margin requirements. This Decision means that where an EU counterparty that is subject to the requirements of EMIR enters into an uncleared derivatives contract with a US swap dealer or major swap participant, the EU counterparty will be deemed to have complied with its obligations under EMIR by complying with the US requirements.

This is the first equivalence decision under EMIR relating to the risk mitigation techniques for uncleared derivatives. Equivalence decisions relating to the supervision and regulation of CCPs are already in place. The Implementing Decision enters into force on November 3, 2017.

View the Implementing Decision.

The European Commission and the US Commodity Futures Trading Commission have published a joint statement announcing a common approach for recognizing certain derivatives trading venues authorized in the EU and the US for the purposes of the trading obligation. The Markets in Financial Instruments Regulation imposes a trading obligation on EU financial counterparties and non-financial counterparties for transactions in 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 or organized trading facility) or a third-country equivalent trading venue; and (iii) are sufficiently liquid. The European Commission may adopt an equivalence decision declaring that certain third-country trading venues are subject to an equivalent legal, supervisory and enforcement regime to the EU requirements under MiFID II and the Market Abuse Regulation. The common approach signifies that it is intended that the European Commission will adopt an equivalence decision for swap execution facilities and designated contract markets regulated by the CFTC. Similarly, the CFTC will exempt MTFs and OTFs from the requirement to register as SEFs.

Read more. 

The European Banking Authority has published an Opinion on issues relating to Brexit where a UK firm seeks to establish an entity within the EU27. The Opinion is addressed to the European Commission, national regulators of member states, the European Central Bank in its role as bank prudential supervisor for entities established in the eurozone and to national regulators in Norway, Lichtenstein and Iceland (as per the EEA Agreement). The Opinion is intended to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage issues that may arise as firms consider establishing entities within the EU27 before the date of the UK's exit from the EU. The Opinion covers areas such as the authorization process, equivalence access for investment services, internal model approvals, resolution and deposit scheme issues and internal governance and risk management. In particular, the Opinion addresses outsourcing and risk transfers using back-to-back or intragroup transactions. The EBA states that 'letter-box' or 'empty shell' entities do not meet the existing regulatory requirements and that national regulators should assess whether outsourcing is being used solely as a means of obtaining an EU passport. The EBA also considers that a group with a new EU27 entity that uses back-to-back or intragroup transactions to transfer risk must have enough capital, risk management and operational capabilities to absorb any material unhedged or unsecured portfolio in the event of the default of the group entity to which the risks have been transferred.

View the EBA's Opinion.

The European Banking Authority has published final Guidelines on complaints procedures for alleged infringements by payment service providers of the Payments Services Directive 2. PSD2 provides for payment service users and other interested parties, including consumer associations, to submit complaints to national regulators regarding alleged infringements of the PSD2 requirements by payment service providers. National regulators will be required to make available two different means by which a complaint can be submitted and to publicly disclose information on their procedures for complaints of alleged infringements. National regulators will also be required to provide complainants with certain information in response to their complaint. Furthermore, national regulators will need to have procedures in place to collate and analyze aggregated complaints information so that they can assess, for example, the nature of the most common types of complaints and the identity of the payment service providers subject to the most complaints. The final Guidelines will apply from January 13, 2018 and will be updated on a regular basis thereafter.

View the Final Report and Guidelines.

The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the Single Supervisory Mechanism. The Banking Union is made up of the SSM, the Single Resolution Mechanism and the deposit guarantee scheme. The SSM is the first pillar of the Banking Union, which the European Authorities are aiming to complete by the end of 2019. The SSM is made up of the European Central Bank and national regulators of Eurozone Member States, and implements the prudential policy and requirements of all banks in the euro area. The ECB directly supervises the larger firms, classified as significant institutions, and national regulators directly supervise the less significant institutions, subject to the oversight of the ECB.

Read more.

The European Commission has published a Communication in which it calls for completion of the Banking Union by 2019 and provides a path on how that could be achieved. The Banking Union is made up of the Single Supervisory Mechanism, the Single Resolution Mechanism and the deposit guarantee scheme. The Communication is addressed to the European Parliament, the Council of the European Union, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. The Communication sets out the Commission's view on the steps needed to complete the Banking Union.

Read more.

The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards on the forms and templates to be used by institutions when providing information to resolution authorities for the purpose of drawing up and implementing resolution plans. The EBA proposes to amend the ITS to account for evolution in the policy and practices applied by authorities in the development of plans for financial institutions since the issue of the ITS in 2015. The amendments include content changes to many of the templates and deletion of some others. A new template has been added, which will collect information on deposit guarantee scheme arrangements. The consultation also sets out proposals to clarify the scope of the reporting framework in line with the EU Bank Recovery and Resolution Directive and to specify minimum procedural and technical reporting requirements. There are also proposals for the application of simplified reporting obligations for small institutions.

Comments on the proposals are invited by December 11, 2017 and must be made using an online submission form.

View EBA consultation paper.

View the annexes, response form and other related information.

On October 11, 2017, Eurasian Natural Resources Corporation was granted permission by the Court of Appeal to appeal the High Court's ruling articulating a significant restriction on the scope of legal professional privilege (in particular, litigation privilege). The Law Society of England & Wales - which has expressed concern about the High Court's ruling and its implication for when and how companies and their employees are protected by privilege - has since announced that it has applied to the Court for permission to intervene in the appeal.

Although the ENRC case was brought by the UK Serious Fraud Office, the High Court's ruling - and the future decision by the Court of Appeal - will impact upon the way investigations are conducted in the context of (prospective) criminal prosecutions by the UK Financial Conduct Authority as well.

Read more. 

The International Organization of Securities Commission has published a final report on the non-traditional products and services offered by credit rating agencies. The report follows IOSCO's consultations and other panel discussions with CRAs, users of other CRA products and other market participants.

Read more.

The Financial Stability Board has published a progress report on reforms to existing interest rate benchmarks and on the construction and implementation of alternative near risk-free interest rates (RFRs). This follows the FSB's recommendations for reforms in this area, published in July 2014. The report examines the progress made towards achieving those recommendations. The FSB's recommendations in the July 2014 report called for a strengthening of existing interest rate benchmarks, such as LIBOR, EURIBOR and TIBOR, collectively coined "IBORs," and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transaction data. In addition, the FSB proposed steps to develop alternative near risk-free interest rate benchmarks.

On the progress to fortify the IBORs the FSB notes that challenges remain. In particular, the FSB is concerned that the underlying reference transactions are limited for some maturities and that as a result some submissions remain based on various factors, including transactions and judgement of the submitters.

The FSB’s view is that good progress has been made with the second strand of the recommendations relating to the identification of RFRs. Alternative RFRs have been identified or selected in Australia, Brazil, Canada, Hong Kong, Japan, Switzerland, the United Kingdom and the United States and headway has been made in reforming EONIA in the Euro area. The FSB encourages other member jurisdictions, such as Mexico and South Africa, to accelerate their intended measures. Furthermore, the FSB notes that limited advancement has been made towards transitioning the existing benchmarks to the RFRs and that impetus should be maintained to achieve the FSB recommendations.

The FSB will publish a further progress report in 2018.

View the progress report.

The European Securities and Markets Authority has published a briefing on the Legal Entity Identifier for compliance with the revised Markets in Financial Instruments package. MiFID II has applied across the EU since January 3, 2018. The LEI provides a clear and unique identification of legal entities participating in financial instruments. Firms need an LEI to ensure compliance with their reporting obligations under a number of existing EU regulations and directives, including the European Market Infrastructure Regulation, the Market Abuse Regulation and the Securities Financing Transactions Regulation. The purpose of ESMA's briefing is to flag to investment firms, investment firm clients, trading venues, issuers and Approved Reporting Mechanism firms that they will need an LEI to fulfil their obligations under MiFID II. In addition, the use of the LEI is required, or is in the process of being implemented, in other jurisdictions, including the United States, Canada and Asia-Pacific.

View the briefing.

A Commission Delegated Regulation amending the Regulatory Technical Standards on data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data was published in the Official Journal of the European Union. The amending Delegated Regulation revises the original RTS by further specifying the operational standards that trade repositories must have in place to aggregate data so that data can be compared across trade repositories and regulators can have direct and immediate access to the data.

The amending Delegated Regulation enters into force on October 27, 2017, and will apply from November 1, 2017.

View the Amending Delegated Regulation.

A Commission Delegated Regulation exempting compliance with the pre- and post-transparency requirements for non-equity transactions with the Bank for International Settlements and the central banks of 12 third countries has been published in the Official Journal of the European Union. The Market in Financial Instruments Regulation, which applies from January 3, 2018, exempts transactions from the trade transparency rules where a member of the European System of Central Banks is a counterparty to the transaction, provided that the transaction is entered into in the performance of monetary, foreign exchange or financial stability policy and the central bank notifies its counterparty that the exemption applies. The exemption does not apply to transactions entered into by a member of the ESCB in the performance of their investment operations. MiFIR allows the European Commission to extend the exemption to other central banks. The Delegated Regulation provides for the exemption to be extended to the BIS and to central banks in Australia, Brazil, Canada, Hong Kong, India, Japan, Mexico, the Republic of Korea, Singapore, Switzerland, Turkey and the US. The list may be amended in the future to add or remove a central bank. The Delegated Regulation enters into force on October 27, 2017, and will apply from January 3, 2018.

View the Delegated Regulation.

The Financial Stability Board has published a press release summarizing the outcome of its plenary meeting in Berlin on October 6, 2017, at which it considered potential vulnerabilities in the financial system and discussed a number of areas from its workplan.

Read more.

The Basel Committee on Banking Supervision has announced that it has agreed to allow jurisdictions discretion to lower the Net Stable Funding Ratio's treatment for derivatives liabilities. The discretion will allow jurisdictions to lower the required 20% stable funding factor for derivatives liabilities to a floor of 5%. The NSFR measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. Implementation of the NSFR is expected to begin on January 1, 2018 and this agreement is intended to facilitate implementation. The Committee is considering whether any further revisions to the treatment of derivative liabilities are warranted and will carry out a public consultation on any further proposed changes.

View the announcement.

The Prudential Regulation Authority has published a consultation on proposed changes and clarifications to requirements relating to intragroup transactions in the Large Exposures (LE) Part of the PRA Rulebook. The PRA is making the proposals following its review of its framework for the prudential treatment of financial groups.

The LE framework complements the capital framework by aiming to protect firms from large losses resulting from the sudden default of a single counterparty or a group of connected counterparties. The consultation proposals aim to simplify the overall intragroup LE framework, improve the consistency of the process of granting intragroup permissions and facilitate the orderly resolution of banking groups.

Under the LE framework, firms can apply to the PRA for intragroup permissions, under which exposures to certain group members (entities within a firm's core UK group (CUG)) are exempt from the LE limit and are also excluded from a firm's leverage ratio. The LE framework also permits a firm to apply to the PRA to increase its total exposures to certain cross-border group entities (known as non-core LE group (NCLEG) entities) from 25% to 100% of its own eligible capital.

Read more. 

The Prudential Regulation Authority has published a consultation on proposals to amend the Groups policy framework it has in place for the application of prudential standards to firms on an individual and consolidated basis within banking groups. The consultation proposals are being put forward following a review by the PRA of its Groups policy framework to ensure that it remains coherent and fit for purpose in light of post-crisis financial reforms such as ring-fencing and the Basel III reforms.

The PRA proposes to amend relevant Statements of Policy and Supervisory Statements and the Internal Capital Adequacy Assessment part of the PRA rulebook to implement changes that will enable: (i) assessment and mitigation of the risks to group resilience due to the use of "double leverage" (which occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally); (ii) assessment and mitigation of the risks highlighted by prudential requirements applied by local national regulators on overseas subsidiaries of UK consolidation groups; and (iii) improved monitoring of the distribution of financial resources across different group entities. The consultation paper also sets out some further policy proposals to refine the Groups policy framework.

Comments on the proposals are invited by January 4, 2018. The resulting policy will be implemented fully from January 1, 2019. The PRA also requests that, where practical and applicable, firms should aim to incorporate the consultation proposals in their 2018 ICAAP/Individual Liquidity Adequacy Assessment Process (ILAAP) submissions ahead of full implementation.

View the PRA consultation paper on groups policy and double leverage (CP19/17).

The European Central Bank has published for consultation an Addendum to its Guidance for banks on non-performing loans. The ECB published its final Guidance for banks on NPLs on March 20, 2017. The proposed Addendum sets out the ECB's proposal to supplement its Guidance with quantitative supervisory expectations concerning the minimum levels of prudential provisions expected for new NPLs. The ECB notes that the proposed measures should be regarded as prudential backstops which are intended to prevent the excessive future build-up of non-covered aged NPLs on banks' balance sheets. The ECB is proposing that banks would be expected to provide full coverage for the unsecured portion of new NPLs after two years at the latest and for the secured portion after seven years at the latest.

As with the Guidance, the proposed Addendum would be non-binding but would apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. If a bank did not comply with the Addendum, then it would need to explain its non-compliance. Any non-compliance could lead to supervisory action being taken. The ECB intends the Addendum to become applicable as soon as it is finalized and for the backstops to apply to new NPLs classified as non-performing from January 2018.

The consultation closes on December 8, 2017. 

View the ECB's proposed Addendum.

View the ECB's Guidance on NPLs.

The UK Prudential Regulation Authority has published a Policy Statement setting out refinements to the Pillar 2A Capital Framework, under which the PRA sets capital requirements for risks that are either not captured or not fully captured under the Capital Requirements Regulation. The PRA consulted on the Pillar 2A refinements in a February 2017 consultation which closed on May 31, 2017. The PRA's proposals will be implemented largely as consulted on, save for minor amendments.

The PRA has made the following changes to the Reporting Pillar 2 Part of the PRA Rulebook:

· adjustments to the PRA’s Pillar 2A approach for firms using the standardised approach (SA) for credit risk;

· revisions to the PRA’s internal ratings-based (IRB) benchmark used for assessing credit risk; and

· additional considerations the PRA will make, as part of the SREP, for SA firms using International Financial Reporting Standard (IFRS) as their accounting framework.

The PRA has also made consequential changes to update:

· its Supervisory Statements "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and "Pillar 2 reporting, including instructions for completing data items FSA071 to FSA082"; and

· its Statement of Policy "The PRA’s methodologies for setting Pillar 2 capital".

The revised Pillar 2A framework, which will affect banks, building societies and PRA-designated investment firms, takes effect from January 1, 2018.

View the Policy Statement (PRA PS22/17).

The Financial Stability Board has launched a consultation on governance arrangements for the unique product identifier. The development of a UPI was identified in September 2014 by the FSB as a critical element for a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique transaction identifier and the harmonization of other key data elements. The receipt of aggregated derivatives reporting data will enable national regulators to better assess systemic risk and perform other market oversight functions. In the UPI system envisaged, a unique UPI Code would be assigned to each distinct OTC derivative product and map to a set of reference data elements having specific values that together describe the product. The collection of reference data elements and their values for each product would reside in a corresponding UPI Reference Data Library that would be administered by either one UPI Service Provider or one of a number of UPI Service Providers.

The consultation paper outlines the potential governance functions that the FSB anticipates should be performed (such as ongoing UPI generation and oversight of the UPI System) and key criteria the FSB has preliminarily identified to assess UPI governance arrangements. The consultation also sets out considerations for using one or many UPI Service Providers.

Comments on the consultation are invited by November 17, 2017.

Read more.

Following positive feedback to a combined consultation issued in June 2017, the Bank of England's Financial Policy Committee and the Prudential Regulation Authority are proceeding with proposed changes to the UK leverage ratio framework. The aim of the proposals (summarized below) was to ensure that the leverage ratio framework does not act as a barrier to the effective implementation of any monetary policy action that leads to an increase in central bank reserves.

In the June 2017 consultation, the FPC consulted on a draft Recommendation to the PRA that the PRA amend its rules on the leverage ratio to: (i) allow firms to exclude from the calculation of the total exposure measure (which serves as the denominator for the leverage ratio) those assets constituting claims on central banks, where they are matched by deposits accepted by the firm that are denominated in the same currency and of identical or longer maturity; and (ii) require a minimum leverage ratio of 3.25%. Central bank claims include reserves held by a firm at a central bank, banknotes and coins constituting legal currency in the jurisdiction of the central bank, and assets representing debt claims on the central bank with a maturity of no longer than three months.

Read more.

The Bank of England has published a consultation paper setting out proposed changes to the Statement of Policy it issued in November 2016 on its approach to setting a minimum requirement for own funds and eligible liabilities (MREL). MREL is the requirement for firms to maintain a minimum amount of loss-absorbing resources to ensure that, should the firm fail, the resolution authority can use the firm's own financial resources to absorb losses and recapitalize the business so it can continue to provide critical functions without the need to rely upon public funds. 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 BoE's 2016 Statement of Policy focused on "external" MREL, i.e. the calibration of the MREL of UK resolution entities. This consultation sets out the BoE's proposals on "internal" MREL, i.e. instruments that are issued to the resolution entity from other legal entities in a group. The consultation paper sets out the scope of internal MREL, how it should be calibrated, which instruments are eligible and the proposed transitional period for the application of the requirements. Internal MREL is intended to cover UK-headquartered banking groups as well as UK subsidiaries of overseas banking groups.

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The Bank of England has published an update to its 2014 approach to resolution. The BoE is the resolution authority responsible for the resolution of financial institutions in the UK. The document describes the key features of the UK resolution regime, how the BoE would be likely to implement a resolution and the BoE's overall responsibilities as the UK's resolution authority. The annexes to the document set out how the BoE is addressing certain barriers to resolvability, such as Loss-absorbing capacity (TLAC and MREL), valuation and the bail-in process and ensuring the continuity of contracts through resolution. The BoE intends to improve transparency on the steps being taken by firms to remove barriers to resolvability by publishing, from 2019, summaries of firms’ resolution plans and its summary assessments of their effectiveness. This approach mirrors the approach taken by the US regulators.

View the BoE's approach to resolution.

The European Central Bank's Advisory Group on Market Infrastructures for Securities and Collateral has published a report on the potential impact of Distributed Ledger Technologies on securities post-trading harmonisation and on the wider EU financial market integration.

The wide-ranging Report is divided into three parts. Part I of the Report considers the impact of DLT on accounts and account structures, the issuance of securities and Delivery Versus Payment. Part II of the Report considers the impact of DLT on settlement,  collateral management, asset servicing and regulatory and business reporting. The final part of the Report considers cyber-resilience, digital identity in DLT networks, data protection and professional secrecy, interoperability in a DLT environment and the impact of DLT adoption on TARGET2-Securities harmonization activities and on the wider EU financial integration agenda.

View the Report.

The European Securities and Markets Authority has launched a consultation on proposed Guidelines on the obligations applying to the provision of and contribution to non-significant benchmarks under the Benchmarks Regulation. The Benchmarks Regulation requires administrators of all benchmarks to establish a permanent and effective oversight function for the provision of their benchmarks. The proposed Guidelines detail the composition, characteristics, positioning and governance arrangements of the oversight function. The draft Guidelines also detail the governance and control requirements for supervised contributors. The proposed Guidelines would apply to administrators of benchmarks, supervised contributors of benchmarks and to the relevant benchmark national regulators.

The Benchmarks Regulation will apply in full from January 1, 2018. The consultation closes on November 30, 2017. ESMA intends to publish its final Guidelines after the European Commission has published its Delegated Regulations that also relate to these topics.

View the consultation paper.

The European Banking Authority has published an Opinion on the design of a new EU prudential framework for non-bank, non-systemically important investment firms. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate and for which a separate prudential regime should be established. The Commission issued a second CfA in June 2016 asking for: (i) advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them; and (ii) advice on the new prudential regime for investment firms that should not be subject to CRD IV. The EBA published an Opinion on point (i) on October 19, 2016 concluding that investment firms that have been identified, according to the current EU regulatory framework contained in the relevant technical standards and EBA Guidelines, as global systemically important institutions (G-SIIs) or other systemically important institutions (O-SIIs) should be subject to the full requirements of CRD IV although these criteria might need to be revised through technical standards to take into account the specificities of investment firms. This latest Opinion is in response to the second part of the Cfa and follows the EBA's November 2016 Discussion Paper on its proposals.

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The European Securities and Markets Authority has published final Guidelines on the requirements for the management body of market operators and Data Reporting Services Providers. The revised Markets in Financial Instruments Directive requires all members of the management body of any market operator to be of sufficiently good repute, possess sufficient knowledge, skills and experience to perform their duties, to commit sufficient time to perform their functions and to act with honesty, integrity and independence of mind. Market operators must also promote diversity and allocate adequate human and financial resources to the induction and training of the management body. Similar requirements are placed on the management body of DRSPs, but DRSPs are not required to promote diversity and allocate adequate human and financial resources to the induction and training of the management body.

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The Committee on Payments and Market Infrastructures is consulting on a possible strategy to improve the security of wholesale payments involving banks, financial market infrastructures and other financial institutions. The CPMI is a global standard setter, mandated to promote the safety and efficiency of payment, clearing, settlement and related arrangements. It formed a task force in 2016, to look into the evolving threat and increasing sophistication of wholesale payments fraud. The CPMI taskforce undertook a stocktake of current practices. The resulting discussion note highlights for consultation seven elements relating to preventing, detecting, responding to and communicating about wholesale payments fraud.

Stakeholders are invited to provide input on the proposed strategy by November 28, 2017. Consultation responses will contribute to guidance on the seven elements, which the CPMI aims to develop by early 2018.

View the CPMI Discussion Note.

The European Securities and Markets Authority has published a final Report and final draft Regulatory Technical Standards on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. 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 will apply to financial counterparties and to non-financial counterparties. Where ESMA determines that a class of derivatives should be subject to the MiFIR trading obligation, third country trading venues would only be permissible for trading by EU entities when determined to be equivalent by the European Commission.

The final draft RTS on the trading obligation provide for the trading obligation to apply to fixed-to-float interest rate swaps denominated in euros, US dollars and pound sterling and to index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover). The trading obligation for both IRS and CDS will apply from January 3, 2018, unless the clearing obligation for a particular class of derivatives has not yet entered into force.

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The European Securities and Markets Authority has made a public statement on the joint work plan of ESMA and national regulators for opinions on pre-trade transparency waivers and position limits under the revised Markets in Financial Instruments package. MiFID II will apply from January 3, 2018.

MiFID II introduces a new position limit regime for commodity derivatives. National regulators will be required to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits will apply to the size of a position that a person can hold. Position limits set by a national regulator must be confirmed in an opinion issued by ESMA.

The pre-trade transparency obligations require market operators and investment firms operating a trading venue to make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for equity and non-equity financial instruments.

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Following its consultation earlier this year, the Prudential Regulation Authority has published a final Supervisory Statement on compliance with the European Banking Authority's Guidelines on disclosure.

The EBA published final Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation on December 14, 2016. The EBA's Guidelines aim to ensure harmonized implementation of the Basel III Pillar 3 requirements that were released in January 2015. The Guidelines introduce specific guidance and formats for Pillar 3 disclosures, including tables and templates. The Guidelines apply to Globally and Other Systemically Important Institutions. However, national regulators are able to require other firms to apply the Guidelines when complying with their Pillar 3 disclosure obligations under CRR.

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The European Commission, the European Central Bank, the European Securities and Markets Authority and the Belgian Financial Services and Markets Authority have announced that a new working group will be established which will be tasked with identifying and recommending alternatives to the benchmark rates currently used in the EU – the EURIBOR and EONIA. The working group, in consultation with market participants, will recommend an alternative risk-free reference rate and develop plans to transition from the existing benchmarks to the new RFR.

The European Central Bank also announced that it will start providing an overnight unsecured index before 2020 to provide further options for the choice of alternative rates for the euro area.

View the joint press release.

View the ECB’s press release.

Following a market investigation reference from the Financial Conduct Authority, the Competition and Markets Authority has published the issues statement for the market investigation it is carrying out into the supply of investment consultancy services and fiduciary management services to, or the acquisition of such services by, institutional investors and employers.

The CMA's issues statement sets out its general approach to the market investigation and outlines potential issues and possible remedies that might be put in place if competition issues are found. In particular, the CMA focuses on: (i) whether difficulties in customers' ability to assess, compare and switch investment consultants means that investment consultants have little incentive to compete for customers; (ii) whether conflicts of interest on the part of investment consultants reduce the quality and/or value for money of services provided to customers; and (iii) whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive , which could lead to worse outcomes for customers.

The CMA is requesting feedback on the issues statement by October 12, 2017.

View the Statement of Issues.

View the CMA Case Page.

View the CMA Press Release.