The Financial Conduct Authority has published draft Guidance on the treatment of politically exposed persons under the UK draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)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.

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.

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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.

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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.

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