The Prudential Regulation Authority has published a consultation paper outlining the Prudential Regulation Authority's proposed changes to the Internal Ratings Based approach. The proposed changes are to clarify the PRA's expectations for UK banks, building societies and PRA designated investment firms applying for IRB approval as outlined in its Supervisory Statement. First, with regard to how a firm can demonstrate that they meet the requirements of the Capital Requirements Regulation on the "prior experience" of using IRB approaches. Second, clarifying the use of external data to supplement internal data for estimating Probability of Default and Loss Given Default for residential mortgages. The PRA has also proposed two reference points for estimating Probability of Possession Given Default for residential mortgages for firms that lack significant possession data. Responses to the consultation are due by June 28, 2017. The PRA aims to publish an updated Supervisory Statement in October 2017.

View the consultation paper.

The European Securities and Markets Authority has published a research Report on securities financing transactions in the European Union and the use of collateral haircuts by firms. The purpose of ESMA's research is to outline the current level and calculation methodologies of haircuts used in the EU by SFT market participants with the overall aim of informing future discussions in the context of global regulatory policy.

Read more.

The Bank of England has published the key elements of its 2017 stress test. The 2017 test will comprise two scenarios, the annual cyclical scenario and, for the first time, a biennial exploratory scenario. The stressed outcome for UK activity and unemployment is the same as in the 2016 annual cyclical scenario. However for the global economy, the stressed outcome is worse than 2016, largely reflecting the continued and rapid growth of credit in China. The current cyclical scenario will incorporate a sudden increase in the rate of return investors demand for holding pounds sterling with an associated fall in the value sterling. This is particularly relevant due to the vulnerability created by the UK's large current account deficit. The 2017 scenario also differs from the 2016 exercise as it incorporates a rise in the bank rate (in 2016 the bank rate was cut to zero). The purpose of the exploratory scenario is to consider how the UK banking system might evolve if the recent headwinds to bank profitability persist or intensify. The Bank of England will publish the results of the stress test sometime between October and the end of December 2017.

View the stress test scenarios and elements.

HM Treasury has published a revised"Banking Act 2009 Special Resolution Regime Code of Practice". The Code aims to encourage financial stability by resolving institutions such as banks, building societies and certain investment firms that are failing, and protecting depositors, taxpayers and the wider economy from the consequences of such failure. The Code was first published in November 2010 and was last updated in March 2015. The Code has been amended to take into account the Bank Recovery and Resolution Order 2016 which came into force on December 16, 2016. The Order amends the Banking Act 2009, the Financial Services and Markets Act 2000 and certain related secondary legislation in order, among other things, to ensure that the Bank of England (as the UK's resolution authority) and the Prudential Regulation Authority and Financial Conduct Authority (as the regulators) have powers to manage the failure of a bank or investment firm and their group companies and to ensure that critical functions continue to be performed. The Order also provides specific powers to the PRA and FCA to replace directors and senior managers and appoint temporary managers, amends provisions relating to triggers of contractual termination rights and adds new provisions relating to the resolution of UK branches of third-country firms. The Code has been updated to reflect the relevant changes, in particular those relating to contractual termination rights and the resolution of UK branches of third-country firms.

View the revised SRR Code of Practice.

The US FDIC and the Federal Reserve Board completed their evaluation of the 2015 resolution plans of 16 domestic banks and separately issued guidance to four foreign banks.

Read more.

The US Federal Reserve System released the 2016 combined annual audited financial statements for the Federal Reserve Banks, as well as statements for the 12 individual Federal Reserve Banks and the Board of Governors. An independent auditing firm engaged by the Federal Reserve Board has issued unqualified opinions on the financial statements and on the Federal Reserve Board’s and the Federal Reserve Banks’ internal controls over financial reporting.

The audited financial statements provide a significant amount of information about the assets, liabilities and earnings of the Federal Reserve Banks and the Federal Reserve Board as of December 31, 2016, including information about the composition, fair value and earnings related to the $4.4 trillion of US Treasury securities, government-sponsored enterprise (GSE) debt securities and federal agency and GSE mortgage-backed securities acquired through open market operations.

View The Federal Reserve System financial statements.

The CFTC’s Division of Market Oversight (DMO) issued a no-action letter extending relief associated with swap trade confirmation requirements that previously was provided in CFTC Staff Letter 16-25, which expires March 31, 2017.
 
The letter extends the relief until the effective date of any revised CFTC regulations regarding trade confirmation requirements. The relief is subject to terms and conditions in the letter.

Read more.

The UK Payment Systems Regulator has published a Report outlining how it will use the money retained from any financial penalties it imposes. The PSR has decided to adopt the approach as outlined in its consultation paper published on November 11, 2017. The Report notes that a majority of respondents supported the proposals and summarizes the ten responses to the consultation. The PSR will use amounts retained to reduce regulatory fees levied in a particular year from payment service providers. As a result, some of the PSR's enforcement costs would be funded through penalties imposed, rather than through fees. The PSR's enforcement powers under the Financial Services (Banking Reform) Act 2013 allow the PSR to impose penalties for compliance failures on firms subject to regulation.

View the Report.

The US Securities and Exchange Commission adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions.  Currently, the standard settlement cycle for these transactions is three business days, known as T+3.  The amended rule shortens the settlement cycle to two business days, T+2.

The amended rule is designed to enhance efficiency, reduce risk and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle.

Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017.

View the final rule.

View the SEC fact sheet.

The Financial Conduct Authority has issued a press release announcing that Nick Stace had been appointed as a Non-Executive Director Board Member. Mr. Stace commenced his initial three-year term on April 1, 2017. Mr. Stace is also Chief Executive of the Royal College of Veterinary Surgeons.

View the press release.

FINRA issued a notice seeking comment from interested parties regarding its current engagement programs.  The notice provides an overview of the engagement programs, with particular focus on FINRA’s committees, rulemaking process and member relations and related programs.

The notice is part of a new FINRA initiative to evaluate various aspects of its operations and programs to identify opportunities to more effectively further its mission. FINRA’s status as a self-regulatory organization (SRO) requires that FINRA engage effectively with its member firms, as well as investors and other stakeholders, many of whom devote time to these programs.

The comment period expires on May 5, 2017.

View the notice.

Member agencies of the Federal Financial Institutions Examination Council (FFIEC), including the Federal Reserve Board, FDIC, OCC and the National Credit Union Administration issued a joint report to Congress detailing their review of rules affecting financial institutions.  The review was conducted as part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) as part of the agencies’ continued efforts to reduce regulatory burdens while ensuring the safety and soundness of US financial institutions. EGRPRA requires the federal banking agencies, along with the FFIEC, to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations.

The report describes several joint actions planned or taken by the federal financial institutions regulators, including: (i) simplifying regulatory capital rules for community banks and savings associations; (ii) streamlining reports of condition and income (call reports); (iii) increasing the appraisal threshold for commercial real estate loans; and (iv) expanding the number of institutions eligible for less frequent examination cycles.  The report also describes the individual actions taken by each agency to update its own rules, eliminate unnecessary requirements, and streamline supervisory procedures.

View the report.

The Joint Money Laundering Steering Group has published and opened up for consultation its proposed revisions to Part I of its Guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry. The proposed revisions will align the JMLSG Guidance with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, on which the Government recently consulted. The draft Regulations are intended to implement into UK laws the EU Fourth Money Laundering Directive and are due to take effect by June 26, 2017 at the same time as 4MLD.

Read more.

The European Central Bank has published final Guidance to banks on non-performing loans. The Guidance applies immediately to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. The Guidance is not legally binding but a bank will need to explain, upon request, why it does not comply. Any non-compliance could lead to supervisory action being taken. Eurozone banks are expected to apply the Guidance proportionately with those banks that have a high level of NPLs taking greater actions. The ECB emphasizes that an NPL strategy should outline the bank's approach and objectives regarding the effective management and ultimate reduction of NPL stocks in a clear, credible and feasible manner for each relevant portfolio.

View the final Guidance.

The G20 Leaders have published a Communique from the Summit held in Germany. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda and to conducting a post-implementation evaluation of the reforms. The G20 Leaders have endorsed the Financial Stability Board's recommendations to address structural vulnerabilities arising from asset management activities and have asked the International Organization of Securities Commissions to prepare measures for timely implementation of those recommendations. Monitoring of those risks is to continue and, for the July 2017 Summit, the FSB is to assess the adequacy of monitoring and policy tools to address risks from shadow banking and to consider whether any further policy is needed. The G20 Leaders have called on their members to complete their implementation of the OTC derivatives reforms. The FSB is due to review the implementation and effects of these reforms.

Read more.

The US Consumer Financial Protection Bureau announced that it is seeking feedback from the public regarding the effectiveness of the remittance rule. The remittance rule, which took effect on October 28, 2013, requires, among other things, that companies give accurate disclosures to consumers prior to a remittance transfer. In addition, the rule also requires remittance transfer providers to investigate disputes and remedy certain areas. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act which authorized the CFPB to issue rules governing remittance transfers, the CFPB is also required to conduct an assessment of the rule within 5 years from the date of effectiveness of the rule. Under this requirement, the CFPB will be required to issue a report of the assessment in the fall of 2018.

View the CFPB press release requesting comment.

The Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017 have been published. The Amending Regulations aim to improve the return of client money when an investment firm fails. The changes are in line with the Bloxham Report's recommendations on minimizing the market impact of a failed firm's entry into special administration. The Amending Regulations amend the scope of the SAR regime to include firms that manage an alternative investment fund or Undertakings for the Collective Investment of Transferable Securities or who act as a trustee or depositary for such an AIF or UCITS. The Amending Regulations will make easier the transfer of client assets from a failing firm, as it removes restrictions on transfers, limitations on what may be assigned and requirements to obtain client consent. The Amending Regulations also strengthen the bar date mechanism (which requires a reasonable time to pass before the calculation/submission of claims to the administrator) and provide continuity of safe custody services. The Amending Regulations come into force on April 6, 2017.

View the Amending Regulations.

View the Bloxham Report.

Final EU Implementing Technical Standards on common procedures, forms and templates for the consultation process between national regulators when carrying out prudential assessments relating to proposed acquisitions of qualifying holdings in credit institutions have been published. The Capital Requirements Directive requires regulators to consult each other when assessing a proposed acquirer of qualifying holdings. The ITS supplements the CRD by setting out requirements on the designation of contact points by regulators, and the timeframe and process for submitting the consultation notice and responding. The ITS also prescribes the templates for the response from the regulator from whom information has been requested. It also outlines language requirements, methods of communication and the mutual feedback process. The ITS enter into force on April 6, 2017.

View the ITS.

The US Board of Governors of the Federal Reserve System announced that it was raising the asset threshold for bank mergers that it considers unlikely to pose systemic. In an order approving the merger of People’s United Financial Inc. and Suffolk Bancorp, the Federal Reserve stated that in its experience, proposals involving an acquisition of less than $10 billion in assets, or that result in a firm with less than $100 billion in total assets, were generally unlikely to create institutions that pose systemic risks. The previous thresholds were $2 billion and $25 billion, respectively.  Proposals below the threshold generally receive a more streamlined regulatory review.

View text of Federal Reserve order approving the merger.

The UK Government has published a review of the UK's Anti-Money Laundering and Counter Financing of Terrorism regime. The document summarizes the views and evidence submitted by businesses to the UK Government's Cutting Red Tape review on the impact of the current Regime. Businesses such as banks, financial institutions and businesses who are asked to comply with banks' and financial institutions' requirements under the Regime. The UK Government launched the CRT Review in 2015 seeking evidence of any needless and ineffective burdens associated with the UK AML/CTF Regime.

Read more.

The Financial Conduct Authority has published draft Guidance on the treatment of politically exposed persons under the UK draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The draft Regulations were published by HM Treasury on March 15, 2017. Politically exposed persons or "PEPs" are people who hold high public office. The Money Laundering Regulations 2007 impose an obligation on firms to undertake enhanced due diligence measures when dealing with PEPs who are located outside of the UK, as well as family members and close associates of PEPs. PEPs, as well as their families and persons known to be close associates, have been recognized by the Financial Action Task Force as requiring enhanced scrutiny by firms as PEPs may be in position to abuse their public office for private gain.

Read more.

The US Office of the Comptroller of the Currency released its proposed FinTech charter supplement to the Comptroller’s Licensing Manual. Among other things, the OCC supplement defends the decision to consider issuing special purpose national bank charters for FinTech companies and provides further guidance on (i) initial steps for applying for an SPNB charter; (ii) standards that would apply to such a charter; (iii) applicable business plan requirements (i.e., inclusion of alternative business strategies, contingency plans and recovery and exit strategies); and (iv) the approval process. Comments on the OCC draft supplement are due by April 14, 2017.

View the OCC supplement.

The UK Government has published draft Money Laundering Regulations 2017 alongside a consultative document. Publication of the draft Regulations follows a consultation launched by HM Treasury on September 15, 2016, entitled "Transposition of the Fourth Money Laundering Directive," where it outlined how the UK Government intended to transpose the 4MLD and the Fund Transfer Regulation. The 4MLD builds on the Third Money Laundering Directive and Money Laundering Regulations, imposing new requirements on businesses and amends some of the existing obligations. The FTR updates the rules contained in the 2006 regulation relating to the information on payers and payees that accompanies transfers of any currency, with a view to preventing, detecting and investigating money laundering and terrorist financing. The FTR applies to the transfer of funds where at least one of the payment service providers involved in the transfer is established in the EU. This consultation outlines the responses submitted to the 2016 consultation and the UK Government's policy decisions following that consultation and requests feedback on further policy questions and the draft Regulations.

Read more.

The Basel Committee on Banking Supervision has published draft Guidelines on the identification and management of step-in risk. The draft Guidelines follow a previous Basel Committee consultation that was launched in December 2015. Step-in risk relates to the risk that a bank might support unconsolidated entities, beyond the bank's contractual obligations, in order to protect itself from any reputational damage that may result from connections to such entities. The materialization of such risk, if not appropriately anticipated, could result in the erosion of bank's capital and liquidity position. The Committee has expanded its identification criteria by building on the comments received during the first consultation to take into account the risk characteristics of entities involved in addition to the banks' relationships with them. The Basel Committee has adopted a tailored approach in formulating its prudential response and is seeking comments by May 15, 2017.

View the consultation page.

View the draft Guidelines.

President Trump made several nominations for key posts in the US Department of Treasury. Specifically, President Trump nominated James Donovan as Deputy Secretary of the Treasury and David Malpass to serve as Under Secretary for International Affairs. Sigal Mandelker was nominated as Under Secretary for Terrorism and Financial Intelligence. Brent James McIntosh was nominated to serve as General Counsel to the Treasury, and Adam Lerrick was nominated as Deputy Under Secretary for International Finance.

View the White House press release on the nominations.

President Donald J. Trump nominated J. Christopher Giancarlo to serve as Chairman of the US Commodity Futures Trading Commission. The nomination of Mr. Giancarlo, who has been a Commissioner of the CFTC since 2014 and has been serving as acting CFTC Chairman since January 20, 2017, was widely expected. In speeches at various industry conferences, Acting Chairman Giancarlo has detailed his agenda for the CFTC, calling for reinterpretation of the CFTC’s regulatory mission to pursue the core goals of (i) fostering economic growth, (ii) enhancing U.S. financial markets and (iii) “right-sizing” its regulatory footprint. In pursuit of these goals, the agenda calls for an agency-wide review of CFTC rules, regulations and practices in order to make them simpler and less burdensome. In addition, the agenda advocates revising the swaps trading rules in order to allow market participants to have greater flexibility in choosing the manner of trade execution. In his remarks, Acting Chairman Giancarlo also called for greater engagement by the CFTC with its overseas regulatory counterparts on the basis of “cross-border comity, not uniformity.”

View the text of the speech.

New York’s Department of Financial Services issued FAQs on its new cybersecurity requirements. Among other things, the updated guidance confirms that a financial services firms that are regulated by the DFS, referred to as a “covered entity”, may adopt an affiliate’s cybersecurity program, in whole or in part, so long as the covered entity’s overall cybersecurity program meets the requirements under DFS regulations. In addition, to the extent that an entity relies on an affiliate’s cybersecurity procedures in whole or in part, those policies and procedures must be made available for examination by the DFS.

View the FAQs.

The CFTC announced that it was extending the comment period for the proposed rule on capital requirements applicable to swap dealers and major swap participants. In addition to proposing minimum capital and financial reporting requirements for swap dealers and major swap participants, the proposed rule would also establish specific capital requirements for futures commission merchants that engage in swaps or security-based swaps that are not cleared by a clearing organization. The original comment period was due to expire on March 16, 2017. The new comment period will expire on May 15, 2017.

View text of federal register notice extending the comment period.

Comptroller of the Currency Thomas J. Curry gave a speech at the Institute of International Bankers’ Annual Washington Conference, discussing the value of international collaboration and bank supervision. In his comments, Comptroller Curry noted that “the fundamentals of [sound] banking remain the same—strong capital, ample liquidity, controlled leverage, and limited concentrations.”

View the text of speech.
 

The Financial Stability Board began a consultation on draft governance arrangements for the Unique Transaction Identifier. The UTI is a critical element for the production and sharing of global aggregated derivatives reporting data. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories, thus minimizing the potential for the same transaction to be counted more than once. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date, 26 trade repositories have been established in 16 countries. 

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published Technical Guidance on the harmonization of the Unique Transaction Identifier on February 28, 2017. That Guidance has implications for the governance of the UTI because it envisages that the UTI will be generated by a wide range of entities in a decentralized way and that there is not likely to be a requirement for a central registry for those entities.

Read more.

Charlotte Hogg has formally offered her resignation to the Bank of England, which was publicly accepted on March 14, 2017. Ms. Hogg held the positions of both Deputy Governor Markets & Banking and Chief Operating Officer. She joined the Bank in 2013 and assumed the additional position of Deputy Governor on March 1, 2017. Ms. Hogg's resignation follows information being made public through hearings of the House of Commons Treasury Select Committee noting that Ms. Hogg failed to correctly disclose a conflict of interest relating to her brother holding a senior executive position at Barclays. As a consequence, during Ms. Hogg's tenure she was not compliant with the Bank's Code of Conduct which Ms. Hogg had assisted in drafting. The Treasury Select Committee has also announced that the Bank is reconfiguring reporting lines and internal structures with a view to safeguarding the governance of the Bank's Code of Conduct, Compliance and disciplinary processes.

View the letter of resignation.

View the Bank of England's response.

View the Treasury Committee second report on the appointment of Ms. Hogg.
 

Regulatory Technical Standards supplementing the Central Securities Depositories Regulation setting out the prudential regime for central securities depositories was published in the Official Journal of the European Union. A distinction is made in CSDR between CSDs that offer banking-type ancillary services and are also authorized as credit institutions (i.e. banks) and CSDs that are not permitted to offer ancillary banking services. The RTS cover: (i) the capital requirements applicable to all CSDs; (ii) the additional risk-based capital surcharge which takes into account the risks, including intra-day credit and liquidity risks that arise from the ancillary banking services of CSDs; and (iii) the framework and tools for monitoring, measuring, managing, reporting and disclosing the intra-day credit and liquidity risks. CSDs that carry out ancillary banking services will also need to comply with the Capital Requirements Regulation and the RTS impose stricter requirements than those in CRR in some respects.

Read more.
 

A Commission Delegated Regulation on the content of the reports on internalised settlements was published in the Official Journal of the European Union. The Delegated Regulation will supplement the Central Securities Depositories Regulation. The CSDR requires settlement internalisers to report on settlements that they internalise. The Delegated Regulation specifies the content of such reporting, stating that reports should provide for detailed information on the aggregated volume and value of settlement instructions settled by settlement internalisers outside of securities settlement systems. The reports must specify, among other things, the asset class, type of securities transactions, type of clients and issuer CSD.

In addition, Implementing Technical Standards on templates and procedures for the reporting and transmission of information on internalised settlements was published in the Official Journal of the European Union on March 10, 2017. The ITS provide the templates and forms that CSDs must use when reporting the required information to their national regulator.

Read more.
 

Regulatory Technical Standards supplementing the Central Securities Depositories Regulation on the authorization, supervisory and operational requirements for CSDs was published in the Official Journal of the European Union. The RTS cover, among other things: (i) the authorization and identification requirements for applicant CSDs; (ii) recognition of a third-country CSD; (iii) risk monitoring tools and governance arrangements that a CSD must establish; (iv) record keeping systems, policies and procedures that a CSD must establish; and (v) rules for CSDs to participate in other entities.

In addition, Implementing Technical Standards on the standard forms, templates and procedures for authorization were published in the Official Journal of the European Union on the same day. The ITS cover the forms, templates and procedures for authorization, review and evaluation of CSDs, for the cooperation between home and host national regulators, for the consultation of authorities involved in the authorization to provide banking-type ancillary services, for access involving CSDs, and the format of the records to be maintained by CSDs.

Read more.
 

A Commission Delegated Regulation on the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States was published in the Official Journal of the European Union. The Delegated Regulation will supplement the Central Securities Depositories Regulation. The CSDR requires CSDs to impose cash penalties on participants to their securities settlement systems that cause settlement fails. The Delegated Regulation sets out the methodology, penalty rates and reference prices that CSDs should use to calculate those penalties.

Read more.

The CFPB proposed to delay the effective date of the “prepaid account rule” by six months, from October 1, 2017 to April 1, 2018. The rule generally extends Regulation E (Electronic Funds Transfers) and Regulation Z (Truth in Lending) to “prepaid accounts,” such as prepaid cards and mobile wallets that can store and transfer funds. The proposed delay was open for public comment until April 5, 2017. While the proposed delay would not make any changes to the prepaid account rule, the CFPB noted the delay would allow the CFPB to consider possible further amendments to the rule to address other concerns raised by industry participants.

View the CFPB’s proposal.

President Trump met with community bankers at a National Economic Council "listening session" at the White House. President Trump discussed the February 3, 2017 Executive Order, “Core Principles for Regulating the United States Financial System,” and how excessive regulation is threatening US community banking. According to a White House readout, President Trump promised to work to tailor the nation’s regulatory framework so that it accounts for the unique challenges faced by community banks.

Following the meeting, US House Financial Services Committee Chairman Jeb Hensarling released a statement noting that it is “encouraging to have a president who is listening to the concerns of community bankers who have been buried under an avalanche of burdensome regulations as a result of Dodd-Frank. Republicans on the Financial Services Committee are eager to work with the President and his administration this year to fulfill the pledge to dismantle Dodd-Frank and unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”

Read the White House readout.

Read the Statement from Representative Hensarling.

US Federal Reserve Bank of New York General Counsel and Executive Vice President Michael Held provided remarks on the role that lawyers should play in reforming culture and conduct in the financial services industry. Held noted that reform of culture has long been a priority issue for the FRBNY. His primary recommendation was that lawyers can play an important role in advising, not just on whether an action is legal or illegal, but on matters dealing with culture as well. He argued that lawyers can identify and help combat troublesome silos of behavior and should support clients with healthy skepticism, providing “effective challenge” of assumptions that are conveyed by the institution in the course of representation. Held also supported the creation of a database of bankers with records of misconduct, thus preventing them from moving from firm to firm and spreading bad practices. He suggested that the database, originally proposed by FRBNY President Bill Dudley, would be complemented by a law requiring two duties: a duty to report misconduct and a duty to check the database before an employee begins work.

View the full text of the speech.

The European Commission published a report on market developments over the past year that would potentially have created the need for stricter requirements for the level of banks' own funds, large exposures and public disclosure. The Capital Requirements Regulation allows the Commission to impose stricter conditions if measures are necessary to address changes in micro-prudential and macro-prudential risks arising from market developments, in or outside the EU, affecting all Member States, and if the tools provided for in the CRR and the Capital Requirements Directive are not sufficient to address these risks. Such stricter requirements could be based on the recommendation or the opinion of the European Stability Risk Board or the European Banking Authority. The Commission's report concludes that no such circumstances have transpired.  The EU financial stability risks identified in the report include: (i) the possible risk re-pricing of risk premia in global financial markets, amplified by low liquidity; (ii) risks of further weakening of banks’ and insurers’ balance sheets; (ii) risks of deterioration of debt sustainability in sovereign, corporate and household sectors; and (iv) risks posed by contagion and exposures to shadow banking entities.

View the report. 

The European Banking Authority published final Guidelines on liquidity coverage ratio disclosure to complement the disclosure requirements of liquidity risk management under the Capital Requirements Regulation. The CRR provides a general disclosure framework for firms for each category of risk where liquidity risk should be considered. The disclosure of key ratios and figures to regulators required under the CRR specifies the liquidity coverage ratio. The LCR is the only regulatory ratio to cover liquidity and is crucial for disclosure, as it provides essential information for the assessment of liquidity risk management and for the decision-making processes of market participants.

The Guidelines set out the general disclosure framework of risk management in relation to liquidity risk, providing a harmonized structure for the disclosure of information and detailing the information on the LCR that is required to be disclosed within the key ratios and figures. The Guidelines include: (i) a qualitative and quantitative harmonized table for the disclosure of key information; and (ii) quantitative and qualitative harmonized templates for the disclosure of the LCR composition and levels. 

Read more.

The European Banking Authority published an Opinion on improving the decision-making framework for supervisory reporting requirements under the Capital Requirements Regulation. The CRR imposes an obligation on the EBA to prepare Implementing Technical Standards on supervisory reporting requirements. Once the final draft ITS is sent to the European Commission, there are timeframes (usually three months, extendable by one month) built into the relevant EU legislation for the Commission to endorse the ITS. However, there has often been a gap between the EBA providing the final draft ITS and the Commission’s final endorsement. The ITS on supervisory reporting requirements needs to be updated regularly and corrections and clarifications are needed too. The delayed finalisation of changes made to the ITS have caused problems for financial institutions, national regulators and the EBA. 

Read more.

The CFTC announced that Daniel J. Davis has been named the agency’s General Counsel, effective immediately.

View the CFTC press release.

The CFTC announced that Daniel J. Davis has been named the agency’s General Counsel, effective immediately.

View the CFTC press release.

The European Commission launched a new portal through which feedback can be provided on proposed EU legislation and initiatives. The portal is part of the Commission’s Better Regulation agenda. The portal is intended to provide individuals and stakeholders with the opportunity to provide input on new EU legislation from the preparation phase through to proposals for new laws and evaluations of how existing laws are performing.

View the European Commission’s portal.
 

The Financial Conduct Authority published a statement on the use of dealing commission by investment management firms, including asset managers and wealth managers. The FCA conducted a review of firms' practices from 2012 and 2015 and found that the majority of firms are falling short of the FCA's rules and expectations on their use of dealing commission. Some firms have made improvements and the result has been a reduction in dealing commission spent on research and better investment performance for their consumers. The FCA intends to continue focusing on the use of dealing commission, in particular during the implementation of MiFID II which applies from January 3, 2018. Where the FCA identifies a breach of the requirements, it will take appropriate action, including referring firms, individuals or practices for further investigation.

View the FCA's statement.

The Financial Conduct Authority published a statement on best execution compliance by investment firms. The statement sets out the FCA's findings from supervisory work on how investment managers deliver best execution for their clients. Best execution refers to the requirement on firms to obtain the best possible result for their clients when executing client orders. The FCA has found that many firms have not conducted a robust gap analysis since 2014 and have not addressed the issues highlighted in the FCA's thematic review on best execution and payment order flows (published in 2014). The FCA stated that it expects firms to take into account the findings in its thematic review as well as the asset management market study. The FCA intends to reconsider best execution in 2017 and will assess the steps that firms have taken to address gaps in achieving compliance with best execution requirements and how firms are intending to show that funds and client portfolios are not paying too much for execution. The FCA will consider taking further action against firms and/or individuals where best execution obligations are not being fulfilled.

In January 2017, the European Securities and Markets Authority stressed the importance of continued efforts to reach a high level of supervision with regards to best execution requirements, and urged national regulators to make every effort to ensure that firms would be compliant with the revised best execution requirements under MiFID II. MiFID II applies from January 3, 2018.

View the FCA's announcement.

View the FCA's thematic review on best execution and payment order flows.

View the FCA's asset management market study.

View ESMA's follow-up report.

The European Banking Authority has published a report and final draft Regulatory Technical Standards on the disclosure of encumbered and unencumbered assets. The final draft RTS will supplement the Capital Requirements Regulation. The CRR requires the EBA to develop draft RTS on 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 draft RTS set out the data required to be disclosed, the format, and timing of the disclosure. In developing the final draft RTS, the EBA has taken into account the European Systematic Risk Board's recommendations, which included that the EBA and regulators should monitor the level, evolution and types of asset encumbrance. The final draft RTS prescribes a harmonized definition of encumbrance. This will enable market participants to compare firms in a clear and consistent manner. The final draft RTS provides four disclosure templates and a box for narrative information to be completed by firms on the importance of the encumbrance in their funding model. The final draft RTS have been submitted to the European Commission for endorsement.

View the report and final draft RTS.

The European Commission published a report on the international treatment of Central Banks and public entities managing public debt with regard to OTC derivatives transactions. The European Market Infrastructure Regulation imposes clearing, reporting and risk mitigation obligations for derivatives. EU central banks and EU public bodies managing public debt are exempt from EMIR. The European Commission may exempt central banks and public bodies managing public debt from other countries following analysis of the international treatment of the relevant entities in a particular country. In the first of these reviews conducted in 2013, the Commission added central banks and public bodies responsible for the management of debt in the United States and Japan to the list of exempted bodies through a Commission Delegated Regulation.

The Commission has concluded in its second report that central banks and public bodies managing debt in Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland should also be exempt from certain parts of EMIR. These new exemptions will come into effect once the new Commission Delegated Regulation is published in the Official Journal of the European Union. The Commission will continue to monitor the progress of other countries in implementing similar requirements for OTC derivatives.

View the Commission's report.

The US Federal Reserve Board announced that it will not object to a resubmitted capital plan from Morgan Stanley given the progress made by the firm in addressing deficiencies identified by the Federal Reserve Board in last year's Comprehensive Capital Analysis and Review (CCAR).

Following its review of Morgan Stanley's plan last June, the Federal Reserve Board required the firm to resubmit its capital plan to address certain qualitative deficiencies in its capital planning processes, such as weaknesses in the way the firm identifies and incorporates its material risks into its capital planning scenarios, key modeling practices and governance and controls related to both of those areas. The Federal Reserve Board will continue to evaluate the firm's progress in addressing those deficiencies in its assessment of this year's CCAR submission.

View Morgan Stanley’s resubmission.

The European Banking Authority has launched a consultation on proposed recommendations on the coverage of legal entities in a group recovery plan. The Bank Recovery and Resolution Directive requires a Union parent undertaking to prepare a recovery plan that covers the parent as a whole and identifies measures that are needed at the level of the parent and each individual subsidiary. The EBA has identified that several group recovery plans are predominantly drafted from the parent undertaking's perspective and have little information relating to the other entities in the group. Such plans, in its view, do not comply with applicable legal requirements and are of limited credibility and effectiveness. In addition, the EBA has found that because some national regulators have historically asked for plans from entities established in their jurisdiction, there are information asymmetries between the overall group plan and the plan for a given subsidiary. These asymmetries are impeding the making of joint decisions for group recovery plans by home and host regulators. The EBA is therefore consulting on proposed recommendations which specify how legal entities and branches should be covered in a group recovery plan, including a transitional regime so that recovery planning information available at local level can be migrated to the group level by 2019. Responses to the consultation are due by June 2, 2017. The EBA is proposing that the recommendations would apply from July 1, 2017.

View the consultation paper.