The European Commission has published a request to the European Securities and Markets Authority for technical advice on possible delegated acts under the Prospectus Regulation. The Prospectus Regulation has been agreed but is yet to be published in the Official Journal of the European Union. It will enter into force 20 days after publication and apply two years after publication - currently expected to be June 2019. The Prospectus Regulation will replace the existing Prospectus Directive and sets out the requirements for a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The Prospectus Regulation aims to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions.

Read more. 

The US Federal Reserve Board announced the appointment of Ann Misback as its Secretary, effective April 2, 2017.  The Office of the Secretary supports the Federal Reserve Board by providing essential corporate secretary services, including the planning and execution of Federal Reserve Board meetings, as well as related support services.

Ms. Misback succeeds Robert deV. Frierson, who has served as Secretary since July 2012.

View the Federal Reserve Board press release.

The SEC proposed rule amendments to improve investor protection and enhance transparency in the municipal securities market. These proposed amendments are intended to provide timely access to information regarding certain financial obligations incurred by issuers and obligated persons that could impact such entities’ liquidity and overall creditworthiness.

Read more.

The US Department of Labor proposed to extend the applicability dates of the fiduciary rule and related exemptions, including the Best Interest Contract Exemption, from April 10, 2017 to June 9, 2017.

Read more.
 

The SEC adopted rule and form amendments to make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports that were originally provided in previous filings. The final rules will take effect on September 1, 2017.

The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index.  Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing.

View the final rule.

The SEC published a request for public comment on disclosures called for by Industry Guide 3 - Statistical Disclosure by Bank Holding Companies. Stating that the financial services industry has changed drastically since Guide 3 was originally published, the SEC is soliciting public input on whether Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.  The SEC also seeks comment on whether there are new types of disclosures about the activities of bank holding companies that investors would find important.

The request for comment is published on the SEC website and in the Federal Register.  The comment period will remain open until May 8, 2017.

View the request for comment.

The US Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC issued a proposal to remove two items from Schedule B of form FFIEC 101, the report entitled Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework. The two items proposed for removal collect exposure at default (EAD) information related to credit valuation adjustments (CVAs) that already is captured in a separate item on FFIEC 101 Schedule B. No other changes are proposed to the FFIEC 101.  Comments are due by May 1, 2017.

View the Proposal.

The European Commission published a White Paper on the future of Europe. The White Paper outlines possible drivers of change and scenarios in which the current 27 member states could evolve by 2025. The White Paper reviews possible changes that could occur over the next decade, such as the impacts of new technologies on societies and jobs, doubts about globalization, security concerns and the rise of populism. The White Paper outlines a non-exhaustive list of five possible scenarios by which the EU could evolve, entitled: (i) Carrying On; (ii) Nothing But the Single Market; (iii) Those Who Want More Do More: (iv) Doing Less More Efficiently; and (v) Doing Much More Together. The White Paper forms part of the Commission’s contribution to the Rome Summit. Following the Summit, the Commission, the European Parliament and interested Member States will host a series of “Future of Europe Debates” across Europe.  

View the press release. 

View the Annex summarizing the scenarios.

View the White Paper.

The European Banking Authority published a consultation paper on the specification of the nature, severity and duration of an economic downturn under the Capital Requirements Regulation. The CRR requires firms to use loss given default (LGD) and conversion factor (CF) estimates appropriate for an economic downturn if those are more conservative than the respective long-run average. The EBA consultation paper includes proposed draft Regulatory Technical Standards and amended Guidelines on probability of default (PD) and LGD estimation. The proposed draft RTS set out the downturn conditions that firms must use to estimate the downturn LGDs and conversion factors. In addition, the EBA is proposing to amend the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets to include a method for firms to use to reflect the downturn conditions into downturn LGD and CF factors. The consultation closes on May 29, 2017.

View the consultation paper.

View the proposed Guidelines on PD and LGD estimation and the treatment of defaulted assets.

The European Banking Authority published a comparative report on recovery planning by EU banks, focusing on recovery options. The Bank Recovery and Resolution Directive requires a bank to prepare recovery plans which set out the measures it could take to restore its financial position if it came under stress. The BRRD and secondary measures provide for the relevant information and detail that recovery plans should cover. The EBA compared the recovery plans of 23 European cross-border banking groups with parent institutions located across 12 different EU countries. The EBA's comparative analysis is intended to assist national regulators and banks in effectively preparing recovery plans. The EBA found that all the recovery plans in the sample provided a good overview of recovery options, and that where plans had previously been submitted, there had been improvements on financial impact analysis, possible interaction with the scenarios and assessment of credibility. However, the analysis also revealed areas where more work is needed. These included linking recovery options to governance by setting out detailed governance, decision-making and implementation for each option; and better coverage and integration of material legal entities. The report also recommends improvements as regards the information backing impact assessments, particularly the detail on which the calculations are based, operational impact and continuity, and whether operational continuity is warranted under each recovery option. The report also recommends including detailed information on the estimated timelines for implementation of each option so that an assessment could be made of whether the timelines are realistic.

View the report.

The Financial Conduct Authority launched a consultation on proposed changes to the availability of information in the UK equity IPO process. The consultation follows the discussion paper published by the FCA in April 2016. The FCA's view is that diverse and independent information is not available early enough in the IPO process. To address this issue, the FCA is proposing to amend the order in which the approved prospectus and connected research is made available to investors and to ensure that analysts from firms not supporting the IPO are provided with access to the issuer's management. In particular, the FCA is proposing that an approved prospectus or registration be published and unconnected analysts have access to the issuer's management before any connected research is released. In addition, the FCA is proposing to clarify, through supplemental guidance, that it would regard any interaction between analysts and issuers or their representatives to be participation in investment banking pitching efforts until the firm has accepted a mandate to carry out underwriting or placing services for the issuer and the firm's position in the syndicate has been determined.

The consultation closes on June 1, 2017. The FCA expects to publish a policy statement setting out the final changes, if any, before the end of 2017.

View the consultation paper.

View the discussion paper.

The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. The legislation delaying the implementation of the MiFID II package also revised MiFIR to specifically require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is no liquid market (unless there is a liquid market for the package order as a whole).

Read more.

The Banking Standards Board has published the Statement of Good Practice 1 on the Certification Regime: fitness and propriety assessment principles and Supporting Guidance for the Statement of Good Practice. The BSB was launched in April 2015 to help raise standards of behavior and competence in the banking sector. The Certification Regime, part of the regulatory reforms introduced in the UK to strengthen individual accountability, requires firms to certify that all individuals in roles which pose a risk of significant harm are "fit and proper". The first certification process was due to be completed by March 7, 2017 and thereafter firms must conduct assessments on an ongoing basis. 

Read more. 

The Financial Conduct Authority has published a letter addressed to the CEOs of firms operating a loan-based crowdfunding platform about concerns that the platforms may be facilitating loans to lending businesses that do not have the requisite regulatory permissions. According to the FCA, a lending business that borrows through a platform and then lends that money to others may be carrying on the regulatory activity of "accepting deposits". If the lending business does not have the regulatory permission to accept deposits, it would be in breach of UK legislation and may be committing a criminal offense. The FCA's view is that a loan-based crowdfunding platform that facilitates this type of behaviour is "acting in a manner inconsistent with [the FCA's] expectations for regulated firms" and may be in breach of regulatory requirements, in particular, breaching the FCA's Principles on treating customers fairly, the threshold conditions and business model requirements. Firms operating loan-based crowdfunding platforms have been asked to assess whether they are facilitating the relevant behaviour, and if so, to desist and consider the appropriate steps that should be taken to avoid facilitating such actions in the future. The FCA also requests the CEOs provide, by March 6, 2017, the details of the firms that they have concluded are accepting deposits without the requisite permission.

View the FCA's letter.

The White House withdrew the nominations of Brian Quintenz and Christopher Brummer to be commissioners of the US CFTC. The CFTC is currently operating with two commissioners.  The full Commission consists of five commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms.

View the US Senate website noting the nominations withdrawn.

The European Central Bank launched a sensitivity analysis of the banking books of directly supervised banks with a focus on interest rate changes. The analysis will be used to inform the ECB’s annual Supervisory Review and Evaluation Process and stress test. Under the Single Supervisory Mechanism, the ECB directly supervises significant banks, and indirectly supervises smaller or “less significant” banks, located in the Eurozone. The ECB is required to organize annual supervisory tests under the Capital Requirements Directive. The ECB will apply six hypothetical interest rate shocks, as set by the Basel Committee on Banking Supervision in the “Standards – Interest rate risk in the banking book”, which was published in April 2016. The ECB notes that the shocks will capture various scenarios with changes in the level and shape of the interest rate curve and will give the supervisors information on how the economic value of the banking book equity and the net interest income projections will change under each shock test. The exercise commenced on February 28, 2017 and the results will be used as part of the SREP assessment in calibrating the Pillar 2 guidance.

View the press release.

View 2017 stress test FAQs.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published Technical Guidance on the harmonization of the Unique Transaction Identifier. The development of a UTI was identified in September 2014 by the Financial Stability Board as a critical element for a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique product identifier and the harmonization of other key data elements. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories. 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 jurisdictions. The aggregation of data from those trade repositories is key to giving authorities a comprehensive view of the OTC derivatives market and activity.

Read more. 

HM Treasury published its response to its late 2016 consultation on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of "investment advice" set out in the Markets in Financial Instruments Directive. HMT is proceeding with the change as consulted on and will lay draft legislation before Parliament to give effect to the change. The Financial Conduct Authority published a statement about the change, setting out what the change will mean for firms advising on investments or providing a personal recommendation.

Read more.

The European Banking Authority announced that the 2018 EU stress test would be launched at the beginning of 2018 and results would be published mid-2018. The EBA is currently preparing the methodology and templates and intends to discuss these with the industry in Q3 2017.

View the EBA's announcement.

The Committee on Payments and Market Infrastructures published a report on distributed ledger technology in payment, clearing and settlement. In the context of payment, clearing and settlement, DLT enables entities to carry out transactions without relying on a central entity to maintain a single ledger. Financial market infrastructures are entrusted by their participants with maintaining a central ledger and, in some cases, managing certain risks on behalf of participants. It has therefore been commented that DLT could reduce the reliance on a central ledger managed by a FMI.

The objective of the report is to provide central banks and authorities with an analytical framework for assessing DLT arrangements, focusing on those that involve restricted ledgers where access is limited to approved users only.

Read more.

A Commission Delegated Regulation amending the Regulatory Technical Standards on margin requirements for uncleared derivatives was published in the Official Journal of the European Union. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement the European Market Infrastructure Regulation. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin should be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as specifying a list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.

Read more. 

The European Commission published a report on accelerating the Capital Markets Union by addressing national barriers to capital flows. The report is addressed to the European Parliament and the Council of the European Union. It focuses on issues that may impede investors' cross-border operations throughout the investment cycle. The report identifies what it sees as the main barriers to investment and sets out a suggested roadmap for Member States to address these barriers, most of which are actionable in 2017. The issues identified in the report include marketing requirements, administrative arrangements, regulatory fees for cross-border marketing, different approaches to crowdfunding, residence requirements, insufficient financial literacy, differences in insolvency regimes and withholding tax relief. Member States are invited to agree on the actions set out in the roadmap although the Commission may also consider whether any legislative proposals are appropriate.

Member States have also been invited to identify other barriers in CMU-relevant areas, such as national reporting requirements imposed in addition to existing EU legislation, barriers to the online distribution of investment funds, obstacles for smaller institutional investors ineligible for a passport under the Markets in Financial Instruments Directive and challenges involved in the distribution of retail financial products.

View the Commission's report.

The Financial Conduct Authority published a Policy Statement and final changes to rules on delaying the disclosure of inside information in the Disclosure Guidance and Transparency Rules. Minor changes have been made since the FCA's consultation last year. The Market Abuse Regulation requires issuers publicly to disclose inside information which directly concerns them as soon as possible. MAR obliges the European Securities and Markets Authority to prepare Guidelines which further specify when an issuer might delay disclosure of inside information. ESMA's Guidelines, published on November 20, 2016, explain what would be considered a "legitimate interest", allowing an issuer to delay disclosure of inside information. It also provides a non-exhaustive indicative list of legitimate interests of the issuer that are likely to be prejudiced by the immediate disclosure of inside information and the situations in which delay of disclosure is likely to mislead the public, which include situations where the inside information which the issuer intends to delay disclosure of is materially different from the issuer's previous public announcement. ESMA's Guidelines have applied directly across the EU since January 10, 2017. The FCA has confirmed that it will comply with ESMA's Guidelines and the changes to the FCA's rules ensure that compliance. The final rules have been in force since February 24, 2017.

View the Policy Statement and final rules.

View ESMA's Guidelines.

President Trump signed the Enforcing the Regulatory Reform Agenda executive order that will establish a task force and regulatory reform officer at each US federal agency, appointed by agency heads. The purpose of these new roles will be to enforce the President’s agenda going forward, including the President’s previous executive order that requires agencies to repeal two rules for every new rule that they issue. The task forces are responsible for reviewing existing regulations within 90 days to determine if any can be repealed or amended.

View the Executive Order.

The Prudential Regulation Authority launched a consultation on proposed changes to the Pillar 2A capital framework. The Pillar 2A framework is effectively a layer of regulatory capital beyond standard requirements based on firm-specific quantitative requirements rather than regulatory discretion.

The PRA is proposing to revise the IRB benchmark, adjust the Pillar 2A approach for firms using the standardized approach for credit risk and include additional considerations for firms using both the standardized approach and IFRS as their accounting framework. The proposals are relevant to banks, building societies and PRA-designated investment firms. Responses to the consultation are due by May 31, 2017. The proposed implementation date for the updated Pillar 2A capital framework is January 1, 2018. The PRA will consider whether further changes are needed to the Pillar 2 framework as a result of the Basel Committee on Banking Supervision and the European Commission's related proposals.

View the consultation paper.

The US SEC published information and guidance for investors and the financial services industry on the use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online. Because of the unique issues raised by robo-advisers, the SEC’s Division of Investment Management issued a Guidance Update for robo-advisers that contains suggestions for how they can meet their disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940. Robo-advisers, as registered investment advisers, are subject to the substantive and fiduciary obligations of the Advisers Act. The Guidance Update notes that there may be a variety of means for a robo-adviser to meet its obligations to clients under the Advisers Act, and that not all of the issues addressed in the Guidance Update will be applicable to every robo-adviser.

Read more.

The European Banking Authority published final draft Regulatory Technical Standards on the requirements of strong customer authentication and secure communication under the revised Payment Services Directive (known as PSD2). PSD2, which will apply from January 13, 2018, requires payment service providers to apply strong customer authentication measures where the payer accesses its payment account online, initiates an electronic payment transaction or carries out any action through a remote channel, which may imply a risk of payment fraud or other abuses.

The final draft RTS supplement PSD2 with requirements for: (i) strong customer authentication; (ii) exemptions from the authentication requirements depending on: the level of risk involved in the service provided, the amount, the recurrence of the transaction, or both or the payment channel used for the execution of the transaction; (iii) security measures to protect the confidentiality and the integrity of payment service users' personalized security credentials; and (iv) common and secure open standards of communication between account servicing payment service providers, Payment Initiation Services providers, Account Information Services providers, payers, payees and other payment service providers.

The EBA consulted on the draft RTS during 2016. Following consultation feedback, the EBA made changes to the final draft RTS. The final draft RTS have been submitted to the European Commission for consideration and adoption. It is proposed that the final RTS would apply 18 months after it comes into effect, therefore the earliest the requirements would apply from is November 2018.

View the final draft RTS.

The European Supervisory Authorities, the Financial Conduct Authority, the US prudential regulators, including the Federal Reserve Board and the Office of the Comptroller of the Currency, and the International Organization of Securities Commissions issued guidance as to the March 1, 2017 implementation of variation margin requirements on uncleared swaps. The guidance indicates how the respective supervisory authorities and regulators will approach compliance with the variation margin requirements.

The ESAs expect national regulators to apply their risk-based supervisory powers in day-to-day enforcement of the applicable legislation, including taking into account the size of the exposure to the counterparty and its default risk. The ESAs expect firms to document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained. The ESAs are not delaying application of the rules but are signaling that compliance will be evaluated on a case-by-case basis and they expect any compliance issues to be overcome in the next few months. This is a not dissimilar to the approach taken to reporting under EMIR, when practicalities prevented many persons from being able to connect to a trade repository on time, and no prosecutions were made for late compliance.

Read more. 

US House Financial Services Committee Chairman Jeb Hensarling and the other 33 Republican members of the Committee sent a letter to US Board of Governors of the Federal Reserve System Chair Janet Yellen. Although Chair Yellen had stated in recent testimony that the Federal Reserve Board would abide by President Trump’s January 30, 2017 regulatory freeze, the letter further urged the Chair to refrain from proposing or adopting any new rules, absent an emergency, until the Senate confirms a Vice Chairman for Supervision of the Federal Reserve Board. The letter stated that if the Federal Reserve Board proceeded with adopting rules prior to the confirmation of a Vice Chairman, the lawmakers would work to “ensure that Congress scrutinizes the Federal Reserve’s actions - and, if appropriate, overturns them - pursuant to the Congressional Review Act.”

View the letter.
 

The US Federal Reserve Board announced the annual adjustment to the asset-size threshold in Regulation I, which determines the dividend rate that certain member banks earn on their Federal Reserve Bank stock. The updated total consolidated asset threshold is $10,122,000,000.

The Fixing America’s Surface Transportation (FAST) Act of 2015 provides that depository institution stockholders with total consolidated assets above the asset-size threshold shall receive a dividend on paid-in capital stock equal to the lesser of (i) 6 percent or (ii) the most recent 10-year Treasury auction rate prior to the dividend payment. The dividend rate for other member banks remains at 6 percent.

View notice.

The International Organization of Securities Commissions published a report on the findings of the survey on loan funds that was carried out during 2016. The report covers loan funds in the area of investment funds and includes open-ended and close-ended funds, retail and professional investor funds. However, the report does not cover any type of securitization position or securitization special purpose vehicle. IOSCO concludes that further work on loan funds is not required at this stage because the loan fund market is a small, niche market and most jurisdictions consider that the rules already in place for funds are sufficient to address the specificities of loan funds, including the liquidity, credit and systemic risks that loan funds may pose. IOSCO will continue to monitor the loan fund market and will consider whether further work is required as the market develops.

View the report.

The European Supervisory Authorities published a joint Opinion on the risks of money laundering and terrorist financing affecting the EU’s financial sector. The ESAs - the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority - are required by the Fourth Money Laundering Directive to prepare the Opinion. The Opinion is intended to inform the European Commission's assessment of the AML and CFT risks affecting the EU financial market, inform the ESA's work on enhancing supervisory convergence and assist national regulators applying the risk-based approach to AML/CFT supervision. The Opinion sets out the AML/CFT risks that the EU financial sector is exposed to which include, amongst other things, ineffective systems and controls, regulatory arbitrage, lack of access to intelligence on terrorist suspects and the movement of high-risk transactions out of the regulated sector. The ESAs conclude that more is needed to ensure that the EU's AML and CFT defenses are effective, particularly as Member States move to a more risk-based AML/CFT regime. Some existing initiatives will help to address the risks, such as the proposed amendments to the Fourth Money Laundering Directive and the relevant Guidelines issued by the ESAs. However, the ESAs consider that enforcement agencies could assist by ensuring that financial institutions have timely access to relevant information, that national regulator could proactively raise awareness of supervisory expectations, including by providing targeted guidance, that national regulators should collect AML/CFT data in a more consistent manner to facilitate comparisons and track progress and that the EU authorities should identify ways to ensure that the EU's AML/CFT laws and guidelines are implemented effectively and consistently across the EU.

View the Opinion.

The New York State Department of Financial Services issued its final cybersecurity regulation for financial services companies. The final regulation, which takes effect March 1, 2017, requires banks, insurance companies, and other financial services institutions regulated by the NYSDFS to establish and maintain a cybersecurity program designed to protect consumers’ private data based on an assessment of its risk profile. The NYSDFS initially proposed the regulation in September 2016 and then revised and re-proposed the regulation in December 2016. The final rule requires that the program be adequately funded and staffed, overseen by qualified management, and reported on periodically to the most senior governing body of the organization. Additionally, the officer of each covered financial services companies must annually certify their compliance to the NYSDFS. The final rule contains several changes from the original proposal including clarification on the ability of a covered financial services company to rely on an affiliate’s cybersecurity program to satisfy the rule and expanded exemptions including for entities with limited activities in New York.

View the final rule.

The OCC issued a revised version of the “Changes in Directors and Senior Executive Officers” booklet of the Comptroller’s Licensing Manual. This revised booklet replaces the prior version which was issued in October 2009, and incorporates updated regulations that became effective July 1, 2015, addressing changes in directors and senior executive officers of national banks, federal savings associations, and federal branches of non-US banks. Specifically, the revised booklet explains when prior notice for changes in directors and senior executive officers is required, provides institutions with information regarding the contents of complete notices and addresses the 90-day review period.

View the updated booklet.
 

The Bank of England published a supplementary consultation paper on its revised proposed averaging methodology to be used for the 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. In October 2016, the BoE consulted on its proposals to reform SONIA in four areas, including the SONIA calculation methodology. The Bank proposed to switch the current calculation to measuring the average rate using a volume-weighted median, rather than a volume-weighted mean. Following feedback to that proposal, the BoE is now proposing that SONIA be calculated as the volume-weighted trimmed mean rate of eligible transactions. This is calculated by removing transactions at outlying rates and calculating the mean of the remaining transactions.

Responses to the consultation are due by March 16, 2017. By the end of March 2017, the BoE intends to publish its final approach to the design of SONIA and the transition and publication arrangements in a summary and response to feedback document which will cover both this consultation and the October 2016 consultation. The BoE had intended to transition from the current benchmark to the proposed reformed SONIA between October and December of 2017. However, the BoE now expects that the transition will take place in March or April 2018.

View the consultation paper.

The European Banking Authority published for consultation draft Guidelines on complaints procedures for alleged infringements of the Payments Services Directive 2 by payment service providers. The 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.

The proposed Guidelines will apply to national regulators of payment service providers. The proposed Guidelines require national regulators to have 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 be required to request certain information from complainants and also 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. Responses to the consultation are due by May 16, 2017. The final Guidelines will apply from January 13, 2018 and will be updated on a regular basis thereafter.

View the consultation paper.

The US Securities and Exchange Commission adopted amendments to the expiration dates in its interim final rules that provided exemptions for certain securities-based swaps. The July 2011 interim final rules provided for exemptions under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 for security-based swaps that were security-based swap agreements prior to July 16, 2011 but are defined as “securities” under the Securities Act of 1933 and the Securities Exchange Act of 1934 solely because of Title VII of the Dodd-Frank Act. Under the July 2011 interim final rules, the exemptions were set to expire on February 11, 2013. The SEC has previously extended the exemption, first to February 11, 2014, then to February 11, 2017, and now to February 11, 2018. In its release, the SEC noted that the extension was being granted to avoid disruption in the security-based swaps market while the SEC continues to consider the impact of Title VII and whether regulatory action is appropriate.

View the interim final rule.

The Financial Conduct Authority published a research paper summarizing its most recent research into liquidity conditions in the UK corporate bond market. The report concludes that there has been a general decline in liquidity since mid-2014. This stands in contrast to previous research undertaken by the FCA for the period between 2008 and 2014 which found little evidence of a quantifiable deterioration in liquidity. The publication extends the analysis to include the period after 2014 incorporating new data about orders and quotes with a finding that there has been a moderate decline in transaction-based proxies for liquidity. The research also highlights that there has been an increase in the amount of failed or rejected trades, an increase in the amount of time taken to fill an order, decline in dealer quote rates on electronic bond trading platforms as well as a slight widening of some quoted and effective bid-ask spreads. The paper concludes that the combination of the information suggests that trading conditions in the UK have become more difficult over the past 18-24 months, however, the market is still relatively robust. 
 
View the research paper.

The European Securities and Markets Authority published a letter, dated February 1, 2017, from it to the European Commission about the potential for loopholes to be exploited in the revised Markets in Financial Instruments package, known as MiFID II. MiFID II comes into effect on January 3, 2018. Part of the aim of MiFID II is to close some of the loopholes that were identified in the existing MiFID I legislation, including by ensuring that investment firms that operate internal matching systems and execute client orders on a multilateral basis become authorized as a trading venue. ESMA expresses the concern that certain investment firms that currently operate broker-crossing networks might seek to circumvent the provisions of MiFID II by setting up networks of interconnected systematic internalisers. ESMA commits itself to monitoring developments closely and states that it may consider clarifying the scope of the permitted activities of SIs as well as the characteristics of multilateral systems via Q&As. ESMA requests the Commission to consider whether it should adopt any legislation that might further clarify the definitions and concepts in MiFID II to prevent the loophole being exploited. 

View the letter. 

The Financial Conduct Authority has published a consultation paper proposing amendments to the Listing Rules of the FCA's Handbook. The FCA is proposing to, among other matters, (i) clarify the premium listing eligibility requirements and introduce new technical notes and additional guidance to give more context to the rules; (ii) introduce a new concessionary route to premium listing for certain property companies that cannot meet the track record requirements so that a property valuation report may be used to assess the company's eligibility for a premium listing; (iii) introduce new technical notes on the concessionary routes; (iv) amendments to the profit test within the class tests which are used to determine which governance requirements a premium listed issuer must comply with for certain large transactions; and (v) in the context of reverse takeovers, reversing the assumption of insufficient information being available to the market where a target issuer cannot provide that information so that the assumption will be that the market can operate smoothly on the basis of information that listed companies make publicly available as part of their disclosure of inside information requirements under MAR.

The FCA's discussion paper on the review of the effectiveness of the UK primary markets should be read in conjunction with the consultation paper. Responses to the FCA's proposed rule changes are requested by May 14, 2017. The FCA intends to publish its final rules in a Policy Statement in the second half of 2017.

View the consultation paper. 

View the discussion paper. 

The Financial Conduct Authority launched its review into the effectiveness of primary markets by publishing a discussion paper on the UK primary markets landscape. The FCA is seeking views on how the UK primary capital markets can meet the needs of investors and operate effectively. It includes an overview of the UK's primary markets, how the listing regime fits in, the FCA's regulatory role and key trends in the UK's primary equity markets. 

Read more.

The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued a time-limited no-action letter (CFTC staff letter 17-11) which provides that, from March 1, 2017 to September 1, 2017, DSIO will not recommend an enforcement action against a swap dealer for failure to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date. The no-action letter does not postpone the March 1, 2017 compliance date for variation margin, rather it allows market participants a grace period to come into compliance. DSIO believes that without a sufficient transition period, there could be a significant impact on the ability to hedge positions for pension funds, asset managers and insurance companies that manage Americans’ retirement savings and financial security. This sort of phased compliance has been used many times in the implementation of the swaps rules contained in the Dodd-Frank Act.

Read more.

H.R. 1018 was introduced in the US House of Representatives which would alter the current governance structure of the Bureau of Consumer Financial Protection. Like a comparable bill that was introduced in the US Senate (S. 105), H.R. 1018 would replace the role of director of the Bureau with a 5-person commission. Other notable provisions that members of the commission will serve staggered terms, and that no more than 3 members can be from a single political party.

On February 17, 2017, H.R. 1031 was introduced in the US House of Representatives which seeks to repeal the Bureau of Consumer Financial Protection. A corresponding version of the bill, which calls for the Bureau to be eliminated by repealing title X of Dodd-Frank, was introduced in the US Senate (S. 370).

View H.R. 1031.

View H.R. 1018.

Steven T. Mnuchin was sworn in to serve as the 77th Secretary of the US Treasury. In this role, Secretary Mnuchin will be the principal economic advisor to President Trump on domestic and international financial, economic and tax issues. Secretary Mnuchin succeeds Jacob J. Lew, who served in the position under President Obama.

View Treasury’s press release.

Daniel K. Tarullo submitted his resignation as a member of the US Federal Reserve Board, effective on or around April 5, 2017. He has been a member of the Federal Reserve Board since January 28, 2009.

View copy of Tarullo’s resignation letter.

The Joint Committee of the European Supervisory Authorities launched a consultation on proposed Regulatory Technical Standards on the criteria for when a central contact point is appropriate and the functions of the central contact point. The Fourth Money Laundering Directive requires electronic money issuers and payment service providers with their headquarters in one EU member state and one or more establishments in other EU member states (other than as a branch) to appoint a central contact point in those other member states to ensure compliance with anti-money laundering and counter-financing terrorism rules and to facilitate supervision by the national authorities, including by providing documents and information on request. The ESAs (comprised of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) have published a proposed draft RTS which supplements those requirements by setting out the criteria that member states should consider when deciding whether a central contact point should be established and what functions it should carry out. If a member state does not require a central contact point to be established, the draft RTS would not apply. Each member state will be required to decide who the central contact point should be and how it should be set up. 

View the consultation paper. 

The US Federal Reserve Board, the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation each released revised economic scenarios for use by certain financial institutions with total consolidated assets of more than $10 billion for the 2017 stress tests as required under the Dodd-Frank Act. The agencies had previously issued scenarios on February 6, 2017 however, these scenarios contained incorrect historical values for the BBB corporate yield in 2016.

The scenarios represent baseline, adverse and severely adverse scenarios and include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates and other relevant aspects of the economy and financial markets. While the baseline scenario represents expectations of private sector economic forecasters, the adverse and severely adverse scenarios are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions.

View Federal Reserve Board’s revised stress test scenarios.

View OCC’s stress test scenarios.

View FDIC’s revised stress test scenarios.
 

HM Treasury published a paper summarizing responses to its consultation on the transposition of the revised Markets in Financial Instruments Directive and three draft statutory instruments to facilitate transposition. Member States are required to adopt measures transposing MiFID II by July 3, 2017 and to apply the provisions from January 3, 2018. HM Treasury consulted on MiFID II transposition in March 2015 and sought feedback on draft legislation to facilitate transposition and its proposed policy approach to access for third country firms, data reporting services, position limits and reporting, unauthorised persons, structured deposits, the power to remove board members, organised trading facilities and binary options. Most respondents broadly agreed with the proposed measures for transposition. However, further guidance has been provided on numerous aspects of the proposed legislation. Since the consultation, a number of further issues in MiFID II requiring further legislative amendments as part of transposition have been identified and are included in the draft legislation and detailed in the report. HM Treasury notes that despite the UK voting to leave the EU, until exit negotiations are concluded, the UK remains a full member of the EU and must comply with MiFID II accordingly. 
 

The European Securities and Markets Authority published revised final draft Implementing Technical Standards on the format of position reports by market operators and investment firms. The revised Markets in Financial Instruments Directive requires national regulators 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, including any other positions held on behalf of that person by group entities. Market operators and investment firms will be subject to certain position reporting requirements. The position reporting regime is intended to support the application and enforcement of position limits.

ESMA has revised the ITS that it submitted to the European Commission for endorsement in December 2015 because of difficulties experienced in implementing the original ITS in practice. Among other things, the revised ITS remove the obligation for positions to be reported gross. ESMA has submitted the revised ITS to the European Commission for endorsement. The MiFID II package will apply from January 3, 2018. 

View the revised ITS.

HM Treasury announced that Charlotte Hogg had been appointed Deputy Governor for Markets and Banking at the Bank of England, effective March 1, 2017. Ms. Hogg will take over the role in addition to continuing her current role as Chief Operating Officer of the Bank of England. Ms. Hogg is replacing Minouche Shafik, who is taking up the role of Director at the London School of Economics in September 2017.

View the news release.