The US OCC announced that it will launch a web-based system for banks to file licensing and public welfare investment applications and notices early next year. The Central Application Tracking System will allow OCC-supervised institutions to draft, submit and track applications and notices online. The system also will allow OCC staff to receive, process and manage those submissions online. The first phase of the system’s rollout will start on January 17, 2017, with the second and third phases set to begin that spring. The new system will replace the current OCC systems, e-Corp and CD-1 Invest. Before the phase 1 rollout, the OCC will provide webinars and resources to explain registration and use of the new system.

View the OCC press release.

The International Organization of Securities Commissions published a consultation paper on the use of non-traditional products or services offered by credit rating agencies. IOSCO considers that these types of products and services are important because market participants use them to make investment and other credit-related decisions and issuers and obligors use them to make decisions about whether to obtain a credit rating from a particular CRA. Examples of the products and services include private ratings, confidential ratings, expected ratings, indicative ratings, prospective ratings, provisional ratings, preliminary ratings, credit default swap spreads, bond indices, research and portfolio assessment tools. IOSCO groups these products and services into six categories, providing descriptions for each category, namely: research, private, non-final, part of rating process, outside rating process and hybrids. IOSCO is seeking views on whether the other CRA products identified in the six groups are consistent with CRAs' and their users' understanding of the CRA industry, including whether the Code of Conduct and IOSCO CRA Principles apply to other CRA products. The consultation closes on December 5, 2016.

View the consultation paper.

The European Banking Authority published a Report on the impact of the adoption into EU legislation of the new international frameworks for counterparty credit risk and market risk. The EBA Report responds to Calls for Advice from the European Commission received in April 2016, as part of the Commission's review of the Capital Requirements Regulation.

As part of its review, the Commission is considering the impact of implementing the Basel Committee on Banking Supervision's framework for market risk, known as the fundamental review of the trading book (FRTB), published in January 2016 and the new standardized approach for the calculation of the exposure value of derivatives, known as SA-CCR, published in March 2014. The Commission asked the EBA to provide technical advice assessing the impact for EU banks resulting from the adoption of the Basel Committee's framework on market risk and whether any adjustments to that framework would be appropriate. The EBA was also asked for advice on the impact of implementing the SA-CCR, including the proportionate application of SA-CCR to smaller firms.

Read more.

The US Financial Crimes Enforcement Network published technical amendments to anti-money laundering (AML) regulations implemented pursuant to the Bank Secrecy Act (BSA). The final FinCEN rule, which became effective November 4, 2016, removes and replaces outdated references to obsolete BSA forms, removes references to outdated forms of recordkeeping storage media and replaces other outdated terms and references.

View text of the final rule.

The CFTC approved the issuance of a notice of proposed rulemaking, seeking to enhance the CFTC’s previous notice of proposed rulemaking for automated trading regulation, which proposed a series of risk controls, transparency measures and other safeguards applicable to automated trading on all designated contract markets. Among other things, the supplemental proposal revises the proposed risk control framework of Reg AT to require pre-trade risk controls at two levels, with all so-called “AT Persons” and with futures commission merchants, rather than three. In addition, the proposed rule would limit access to source code by the Division of Market Oversight to special calls issued by the Commission itself. CFTC Chairman Timothy Massad and CFTC Commissioner Sharon Bowen each issued statements in favor of the supplemental proposal. Commissioner J. Christopher Giancarlo issued a statement of dissent, asserting that the supplemental notice does not go far enough in simplifying and streamlining the regulation.

Read more.

The European Central Bank launched a consultation on proposals to harmonize how Euro member state national regulators of less significant banks exercise the options and discretions available to them under the Capital Requirements Regulation and Capital Requirements Directive. The ECB has already harmonized the application of options and discretions for the banks that it directly prudentially supervises under the Single Supervisory Mechanism. The ECB considers that it is appropriate to develop a harmonized approach of supervision for all banks within the SSM, to ensure the smooth functioning of the whole euro area banking system. To do so, the ECB is intending to adopt a Guideline, which would be legally binding, and a Recommendation, which would not be legally binding. The options and discretions relate to own funds requirements, capital requirements, large exposures, liquidity and transitional provisions. The consultation closes on January 5, 2017.

View the proposed Guideline.

View the proposed Recommendation.

View further information about the ECB's proposals.

The European Banking Authority published a discussion paper on the design for a new framework for applying prudential standards to non-bank investment firms that are not deemed to be systemically important. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second CfA in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them. The EBA published an Opinion on the criteria aspect of the CfA on October 20, 2016.

Read more.

The European Banking Authority published for consultation draft Guidelines on the detailed information required to be submitted with an application for authorization by payment institutions and electronic money institutions, and for the registration of account information service providers. The revised Payment Service Directive sets out the information that must be submitted to national regulators with applications for authorization or registration. The proposed Guidelines cover, amongst other things, information requirements on an applicant's program of operations, business plans, evidence of initial capital, governance and internal control mechanisms and data protection. The consultation closes on February 3, 2017.

View the consultation paper.

The UK Government Department for Business, Energy & Industrial Strategy launched a consultation on the requirement to maintain a central register of beneficial ownership information of corporate and other legal entities under the Fourth Money Laundering Directive. The Fourth Money Laundering Directive requires member states to hold information on beneficial ownership of corporate and other legal entities incorporated in their territory in a central register and that the information should be available to specific EU authorities and organizations. Since April 6, 2016, the UK has required UK companies, limited liability partnerships and societates europaeae to establish and maintain a register of persons with significant control over them and since June 30, 2016, those entities have been required to file such information with Companies House where it is publicly available. The BEIS is consulting on amendments and additions to the UK's current PSC regime that are needed to properly implement the 4MLD requirements, including, requiring entities to update information in the PSC register every six months of a change (instead of every 12 months) and making the proportion of suppressed PSC information which is not publicly available through Companies House available to banks and investment firms. BEIS also propose that the determination of whether an entity is in scope of the Directive is that is must be UK-incorporated and constitutionally capable of having a beneficial owner. The consultation closes on December 16, 2016. Member states are required to transpose 4MLD by June 26, 2017.

View the Discussion Paper.

You may like to view our client now on the current UK PSC Regime.

The CFTC announced that Chairman Massad had signed the Counterpart to a Memorandum of Understanding with the Superintendent of Securities for Newfoundland and Labrador and the Canadian Minister for Intergovernmental Affairs. The MOU was originally executed on March 25, 2014, and the scope of the MOU contemplates cooperation on regulation of markets and organized trading platforms, central counterparties, trade repositories and intermediaries, dealers and other market participants.

View text of Counterpart to MOU.

The Bank of England announced that Dame Clara Furse had stepped down as an external member of the Financial Policy Committee.

View the announcement.

The OCC appointed Morris Morgan as the OCC’s Senior Deputy Comptroller for Large Bank Supervision. In this role, beginning on December 24, 2016, Mr. Morgan will direct the supervisors of the largest national banks and federal branches and agencies of non-US banks.

View OCC press release.

The CFTC issued Orders of Registration (Orders) to the following Foreign Boards of Trade (FBOT): (i) Eurex Deutschland; (ii) CME Europe Limited; (iii) ICE Futures Europe; (iv) The London Metal Exchange; and (v) London Stock Exchange plc. Under the Orders, each of the FBOTs is permitted to provide identified members or other participants located in the US with direct access to its electronic order entry and trade matching system.

The CFTC issued the Orders under part 48 of the CFTC’s regulations, which provides that such Orders may be issued to an FBOT that possesses, among other things, the attributes of an established, organized exchange and is subject to continued oversight by a regulator that provides comprehensive supervision and regulation that is comparable to the supervision and regulation exercised by the CFTC.

Upon review of their applications, the CFTC determined that these FBOTs have demonstrated their ability to comply with the requirements of CFTC regulations, including CFTC regulation 48.8, which outlines the conditions of registration. This regulation also permits any additional conditions that the CFTC deems necessary and may impose after appropriate notice and opportunity to respond. Each FBOT shall also continue to fulfill each of the representations it made in support of its applications for registration.

View CFTC press release.
 

The US Federal Reserve Board, the Farm Credit Administration, the FDIC, the National Credit Union Administration and the OCC issued a joint notice of proposed rulemaking to implement provisions of the Biggert-Waters Flood Insurance Reform Act.

Federal flood insurance statutes generally require regulated lending institutions to impose a mandatory purchase requirement for flood insurance in connection with loans secured by improved real property located in areas having special flood hazards. Under the Biggert-Waters Act, regulated lenders must accept, in satisfaction of this requirement, policies issued by private insurers that satisfy the criteria specified in the Biggert-Waters Act, in addition to policies made available by the Federal Emergency Management Agency.

The proposed rule includes provisions to help lenders identify private flood insurance policies they would be required to accept and provides that lenders retain their discretion to accept private flood insurance policies that do not meet the criteria for mandatory acceptance, provided certain conditions are met. Furthermore, the proposed rule would establish criteria to apply in determining that coverage offered by a mutual aid society provides the type of policy or coverage that qualifies as “flood insurance” for purposes of the federal flood insurance laws.

The agencies previously issued a proposal addressing private flood insurance and have decided to issue this second proposal for additional public comment based on comments received in response to the first proposal. Comments are due on or before January 6, 2017.

View proposed rule.

The European Banking Authority published its final Report on the appropriate reference point for setting the target level of resolution financing arrangements required by the Bank Recovery and Resolution Directive. The BRRD provides that when a bank fails, shareholders and creditors of the bank must be the first to bear losses. To ensure the effective implementation of the other resolution tools available, member states are required to have pre-funded resolution financing arrangements, contributions to which are made by the banks in each member state. The BRRD currently provides for contributions of at least 1% of the amount of covered deposits of all the banks in a given member state by December 31, 2024. The EBA launched a consultation on its proposed approach for changing the reference point for resolution funds in July 2016.

The EBA is recommending that the basis should be changed from covered deposits to a total liabilities-based measure, specifically, total liabilities (excluding own funds) less covered deposits. The proposed methodology would align the current target level basis with that of the reference base used for the calculation for individual contributions to national resolution financing arrangements. The EBA is also recommending that if the European Commission proceeds with amending the basis for national resolution financing arrangements through a legislative proposal, it should consider adjusting the percentage of the target level and the target level basis for the Single Resolution Fund. The SRF is the combined fund that banks and investment firms that are in the Banking Union contribute to. The European Commission must now assess the Report and the EBA's recommendations and decide whether to make a legislative proposal.

View the Report.

The Governor of the Bank of England, Mark Carney, announced that he would be extending his term of office at the Bank by a year to the end of June 2019. Mr. Carney commented that the extension of his term of office would go beyond the expected time for Brexit which should help to contribute to a smooth transition to the UK's new relationship with the EU.

View the announcement.

The European Banking Authority launched a consultation on draft revised Guidelines on internal governance for credit institutions and investment firms. The EU Capital Requirements Directive imposes governance requirements on banks and investment firms which include, amongst other things, requirements to have robust governance arrangements, to establish a risk committee and nomination committee and to have adequate risk management processes and internal controls. CRD requires the EBA to develop Guidelines on internal governance. The proposed new Guidelines set out the internal governance arrangements, processes and mechanisms that firms must implement to ensure effective management of the firm. The Guidelines will apply to a firm's governance arrangements, including their organizational structure and processes to identify, manage, monitor and report risks that they may be exposed to, taking into account the three lines of defense model. The EBA's current Guidelines on internal governance, published on September 27, 2011, will be repealed when the new Guidelines enter into force. Responses to the consultation are due by January 28, 2017.

View the consultation paper and proposed revised Guidelines.

View the current Guidelines.

The International Organization of Securities Commissions published a report on the implementation of global securities reforms. The report sets out the progress made by jurisdictions in implementing changes in securities regulation relating to hedge funds, structured products and securitization, oversight of credit rating agencies, measures to safeguard the efficiency and integrity of markets and supervision and regulation of commodity derivative markets.

View the implementation report.

The European Banking Authority and the European Securities and Markets Authority launched a joint consultation on proposed Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders. The revised Markets in Financial Instruments Directive and the Capital Requirements Directive require firms to assess the suitability of members of their management body. Firms subject to CRD must all assess the suitability of all key function holders that have a significant influence over the direction of the firm. The proposed Guidelines provide criteria for assessing the individual and collective knowledge, skills, experience, reputation, honesty, integrity and independence of members of the management body. The proposed Guidelines also include a framework for assessing whether individual members of management commit sufficient time to performing their duties, set out how diversity should be taken into account in the selection process for members of the management body and provide for appropriate financial and human resources to be allocated to induction and training.

View the consultation paper.

The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016 was published. The Amendment Order amends the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 and the Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014. The Amendment Order, amongst other things, changes the definition of a UK deposit-taker so that it does not capture UK branches of foreign banks, and amends the duty of a ring-fenced bank to provide specified information so that it only applies where individuals are located in an EEA state and in relation to deposit accounts. The amendments come into force on December 1, 2016.

View the Amendment Order.

The US Board of Governors of the FRS announced the annual indexing of reserve requirement exemption amount and low reserve tranche, two amounts used in determining reserve requirements of depository institutions under Regulation D.

All depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank or as a deposit in a pass-through account at a correspondent institution. Reserve requirements currently are assessed on the depository institution’s net transaction accounts (mostly checking accounts). Depository institutions must also regularly submit reports of their deposits and other reservable liabilities.

For net transaction accounts in 2017, the first $15.5 million, up from $15.2 million in 2016, will be exempt from reserve requirements. A three percent reserve ratio will be assessed on net transaction accounts over $15.5 million up to and including $115.1 million, up from $110.2 million in 2016. A ten percent reserve ratio will be assessed on net transaction accounts in excess of $115.1 million.

The new low reserve tranche and reserve requirement exemption amount will apply to the 14-day reserve maintenance period that begins January 19, 2017. The Federal Reserve Board also announced changes in two other amounts, the nonexempt deposit cutoff level and the reduced reporting limit, that are used to determine the frequency with which depository institutions must submit deposit reports.

View the Federal Reserve Board final rule.

The Prudential Regulation Authority published its final rules for transposing passporting and algorithmic trading aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA also published its responses to the feedback it received on its proposed rules which were included in the consultation paper published on March 24, 2016.

Read more.

The Financial Conduct Authority launched a consultation on its approach to regulation. The consultation document, entitled 'Our future mission', asks a number of questions about the FCA's approach to regulation and aims to obtain feedback to assist in developing the FCA's future strategy. The consultation covers a wide range of topics, including, amongst others, consumer protection, the interaction between public policy and regulation, competition, the scope of regulation and whether the FCA Handbook should be reviewed. The consultation closes on January 26, 2017.

View the consultation document.

The US Securities and Exchange Commission voted to propose amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees. The proposal gives shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person.

The proposed rules would require proxy contestants to provide shareholders with a proxy card that includes the names of both management and dissident director nominees. The rules would apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies. In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.

To further facilitate shareholder voting in director elections, the SEC also voted to propose amendments to the proxy rules to ensure that proxy cards specify the applicable shareholder voting options in all director elections and require that proxy statements disclose the effect of a shareholder’s election to withhold its vote.

Comments should be received on or before January 9, 2017.

View proposed rule.

The SEC adopted final rules that modernize how companies can raise money to fund their businesses through intrastate and small offerings while maintaining investor protections.

The final rules amend Securities Act Rule 147 to modernize the safe harbor under Section 3(a)(11) of the Securities Act, so issuers may continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147. The final rules also establish a new intrastate offering exemption, Securities Act Rule 147A, that further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state.

Read more.

The OCC announced it will establish an office dedicated to responsible innovation and implement a formal framework to improve the agency’s ability to identify, understand and respond to financial innovation affecting the federal banking system.

The Office of Innovation will be headed by a Chief Innovation Officer assigned to OCC Headquarters with a small staff located in Washington, New York and San Francisco. The office will be the central point of contact and clearinghouse for requests and information related to innovation. It will also implement other aspects of the OCC’s framework for responsible innovation, which include: (i) establishing an outreach and technical assistance program for banks and nonbanks; (ii) conducting awareness and training activities for OCC staff; (iii) encouraging coordination and facilitation; (iv) establishing an innovation research function; and (v) promoting interagency collaboration.

The OCC expects the office to begin operations in first quarter 2017. To support implementation of the framework, the agency has named Beth Knickerbocker acting Chief Innovation Officer.

View OCC’s Recommendations and Decisions for Implementing a Responsible Innovation Framework.

The European Securities and Markets Authority issued detailed reporting instructions and XML schema under its Financial Instruments Reference Data System. FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism.

View ESMA's announcement.

On October 25, 2016, FinCEN issued an Advisory and related Frequently Asked Questions (FAQs) regarding the reporting of cyber-events, cyber-enabled crime and cyber-related information through Suspicious Activity Reports (SARs).

According to FinCEN, while suspicious transactions may not always involve a cyber-event, relevant cyber-related information should still be included in SARs when available (e.g., Internet Protocol (IP) addresses and accompanying timestamps associated with fraudulent wire transfers being reported). Similarly, the FinCEN guidance provides that when suspicious transactions do involve cyber-events, a financial institution should include in SARs all relevant and available information regarding the suspicious transactions and the cyber-event - including the type, magnitude and methodology of the cyber-event as well as signatures and facts on a network or system that indicate a cyber-event. The advisory also encourages collaboration between in-house BSA/AML and cybersecurity units and sharing information with other financial institutions to the extent permitted under Section 314(b) of the USA PATRIOT Act.

Read more
 

The OCC announced the appointment of Charles M. Steele as the agency’s Deputy Chief Counsel. Mr. Steele will supervise the Administrative and Internal Law, Community and Consumer Law, Enforcement and Compliance and Litigation divisions. He will also supervise the district counsel staffs in the OCC’s Southern District and Western District offices.

View the OCC press release.
 

The Secure Payments Task Force, a 160-member task force convened by the US Federal Reserve Board to advance the safety, security and resiliency of the national payment system, requested comments from payment system industry participants in connection with its efforts to enhance three priority areas: (i) payment identity management; (ii) data protection and (iii) information sharing related to payments risk and fraud. For each of these focus areas, working group members have been meeting to document the current environment, the attributes of a more effective environment, the desired outcomes in each area and the barriers to implementation of recommended solutions.

The Secure Payments Task Force has been working across payment industry segments to define challenges and develop potential solutions. An online survey has been created to gather comments on how the task force is addressing challenges related to the three focus areas. The goal is to help ensure that the solutions being pursued will meet industry needs.
The survey was open for comment through November 8, 2016.

View Informatin regarind the survey.

The US Federal Reserve Board announced the approval of fee schedules, effective January 3, 2017, for payment services the Federal Reserve Banks provide to depository institutions (priced services). The Monetary Control Act of 1980 requires that the Federal Reserve Board establish fees to recover the costs of providing priced services, including imputed costs, over the long run, to promote competition between the Reserve Banks and private-sector service providers.

The Reserve Banks project that they will recover 100 percent of their priced services costs in 2017. The Reserve Banks expect to fully recover actual and imputed expenses, including profit that would have been earned if a private business firm provided the services. Overall, the Reserve Banks estimate that the price changes will result in a 3.2 percent average price increase. In particular, the Reserve Banks estimate that the price changes will result in: (i) a 5.3 percent average price increase for FedACH® customers; (ii) a 3.3 percent average price increase for Fedwire® Funds customers; (iii) an 18 percent average price increase for Fedwire Securities Service customers; and (iv) an 8.1 percent average price increase for FedLine® customers. The fees will remain unchanged for the Reserve Banks’ National Settlement Service and check service. The 2017 fee schedule for each of the priced services is available on the Federal Reserve Banks’ financial services website at FRBservices.org.

View the Federal Register notice.
 

The US Federal Reserve Board announced that it had voted to affirm the countercyclical capital buffer at the current level of zero percent. The release notes that the CCyB is a macroprudential tool that can be used to raise capital requirements on internationally active banking organizations when such organizations are exposed to an elevated risk of above-normal future losses. In such circumstances, the CCyB would be available to help banking organizations absorb higher losses and to moderate credit supply fluctuations.

The Federal Reserve Board’s release noted that the Federal Deposit Insurance Corporation and the OCC were consulted before the Federal Reserve Board voted on this decision. Should the Federal Reserve Board in the future modify the CCyB amount, banking organizations would have twelve months before an increase becomes effective unless the Federal Reserve Board decides on an earlier effective date.

View the Federal Reserve Board press release.

The US Consumer Financial Protection Bureau released a report highlighting market innovations with the potential for consumer benefits as part of its Project Catalyst, a collaborative effort for the CFPB to research and encourage new or emerging projects that are consumer-friendly. The CFPB highlighted how Project Catalyst has led to the regulator engaging with companies and entrepreneurs that are developing new financial products—the report highlighted how the placing of the CFPB’s “trial disclosure waiver” program and no-action letter policy under the auspices of Project Catalyst has led to the CFPB better supporting innovation.

Read more.

The European Banking Authority published a report outlining its response to the Commission's call for advice, published on April 26, 2016, on the review of the large exposures framework laid down in the Capital Requirements Regulation. The Commission is considering whether to implement the agreed Basel Committee on Banking Supervision framework for measuring and controlling large exposures by modifying the CRR through a legislative proposal before the end of 2016. The EBA's Report analyzes the impact of aligning certain aspects of the large exposures framework pursuant to the CRR.

Read more.

Katharine Braddick was appointed Director General of Financial Services at HM Treasury. Ms. Braddick was previously Director for Financial Services (International and EU) at HM Treasury but has taken up her new post immediately. Ms. Braddick replaces Charles Roxborough who, in June of this year, was appointed Permanent Secretary to the Treasury.

The Financial Services (Banking Reform) Act 2013 (Consequential Amendments) (No. 2) Order 2016 was made. The Order amends secondary legislation as a result of updates to the Financial Services and Markets Act 2000 relating to disciplinary powers for the Financial Conduct Authority and Prudential Regulation Authority applying to the misconduct of individuals and the senior manager’s regime. The Order also amends FSMA secondary legislation which specifies a "qualifying EU provision" applied for the purposes of determining whether a person has been knowingly concerned in a contravention of a relevant requirement by an authorized person under the new section of FSMA relating to FCA and PRA powers. The Order will enter into force on November 21, 2016.

View the Order.

The European Banking Authority published for consultation draft Implementing Technical Standards on the reporting requirements of the minimum requirements for own funds and eligible liabilities. The ITS set out the procedures and templates for the identification and transmission of information by resolution authorities to the EBA on the MREL that has been set for each firm. The Bank Recovery and Resolution Directive requires national resolution authorities to set individual levels of MREL for each firm. MREL is the EU equivalent of US Total Loss-Absorbing Capacity (TLAC). The consultation closes on November 21, 2016.

View the consultation paper.

CFPB Director Richard Cordray delivered a speech at Money 20/20, focused on how financial innovation can better serve consumers. Cordray noted that CFPB, as a new agency, feels an affinity towards innovators in finance. Cordray highlighted how FinTech companies and financial institutions are developing products that “cut across” regulatory frameworks and pledged that CFPB will continue to work with companies to encourage innovation, while ensuring laws are complied with—he cited enforcement actions CFPB has taken focused on deceptive conduct, while noting that the agency is not looking to punish actors for “raising novel issues” or questions that fall into “unforeseen cracks in regulatory framework.”

The majority of Cordray’s remarks focused on 2 points: (i) how innovation can facilitate access to financial markets and products to underserved populations and (ii) how technology can help consumers better manage their own finances. He noted that technology is giving customers who remain “locked out” of traditional banking system options beyond an all-cash economy. He also highlighted automatic or motivational tools that help encourage consumers to save and talked about various CFPB policies, including its no-action letter program that allows programs to hold promise for consumers but would be held back by regulatory uncertainty to proceed for a defined period. Cordray concluded that the interests the CFPB and FinTech firms are aligned at a deep level, as they both require a focus on service to consumers.

View Cordray's remarks.
 

The US Federal Reserve Board announced that it plans to begin collecting data on Treasury security secondary market transactions from banks. The Federal Reserve Board intends to negotiate with the Financial Industry Regulatory Authority to potentially act as the collection agent for this data on behalf of the Federal Reserve Board. These plans are intended to complement a recent FINRA rule change, approved by the SEC, requiring broker-dealers to report secondary market transactions in Treasury securities. The release cited the Inter Agency Working Group’s report on the market events of October 15, 2014, as recommending enhanced data collection activities. The Federal Reserve Board intends to seek public comment on the proposal.

View Federal Reserve Board release.

The Financial Action Task Force published Guidance on correspondent banking services, which it has developed in collaboration with the Financial Stability Board. The Guidance is in response to increased concerns about so-called "de-risking", whereby financial institutions avoid, rather than manage, the risks associated with money laundering or terrorist financing by terminating business relations with entire regions or classes of customers. The FATF considers that de-risking is inconsistent with FATF Recommendations, that it has negatively impacted correspondent banking and that it may result in financial transactions being directed into less regulated areas which would reduce transparency and increase exposure to money laundering and terrorist financing risks.

Read more.

The Financial Action Task Force published Guidance to assist countries on the content required to comply with the obligation to criminalize terrorist financing. The Guidance builds on FATF Recommendation 5, which provides measures to assist countries in fulfilling their legal requirements under the International Convention for the Suppression of the Financing of Terrorism 1999 and relevant United National Security Council Resolutions. The Guidance outlines various aspects that offenses relating to terrorist financing must cover when implemented by national legal systems. For example, a terrorist financing offense must cover all types of willful terrorist financing activity. The Guidance specifies that the requirement of willful conduct is largely based on the Terrorist Financing Convention and requires a mental element or mens rea, such that the conduct is deliberately committed with an unlawful intention. The Guidance also sets out the bases and rationale of the Convention and Resolutions to assist countries in the implementation of such requirements. The Guidance focuses on the specific elements of the Recommendation that have most commonly been identified as creating particular implementation challenges and provides examples of how such requirements have been implemented by differing legal systems.

View the Guidance.

View the FATF Recommendations.

William Dudley, President of the Federal Reserve Bank of New York, delivered opening remarks at the New York Fed’s third conference on culture in the financial industry. Dudley opened by citing “pervasive” evidence that the financial services industry faces deep-seated cultural and ethical problems and an erosion of trustworthiness that impedes the ability of the industry to do its job. Dudley argued that a trustworthy financial industry would also be a more productive industry, avoiding spending time on reputational or legal problems and better attracting top talent.

Dudley also argued that incentive structures and accountability will do more to improve the culture of the industry than “statements of virtues,” citing the need for real consequences rather than aspirational ideals. He argued that firms need to assess their incentive regimes to be consistent with good conduct, and supervisors should monitor compensation to see if incentive structures must be changed. Dudley also noted the role of the public sector and new rules in overcoming collective action and first-mover problems. Dudley concluded by arguing that an effort to air previously silent issues and discuss what had not been discussed before could be an effective tool in reforming the culture of the financial industry.

View President Dudley’s remarks.

The European Banking Authority published an Opinion on the criteria for identifying investment firms to which the EU regulatory capital requirements legislation should apply. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second Call for Advice in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them.

Read more.

The European Securities and Markets Authority published updated translations of its final Guidelines on the implementation of the Market Abuse Regulation for persons receiving market soundings and on delayed disclosure of inside information. ESMA had published the translations on October 20, 2016 but due to a linguistic issue with the Polish version had to re-publish all of the translations. The substantive content of the Guidelines is unchanged. The publication of the translations triggers the application of the Guidelines and so the Guidelines will now apply from January 10, 2017 instead of December 20, 2016. ESMA consulted on the draft Guidelines in January 2016 and published final versions of the Guidelines in July 2016.

Read more.

The US Federal Reserve Board issued letters to two banks, granting relief from certain US risk committee requirements under Regulation YY in light of certain home country corporate governance requirements and practices of the banks involved. Regulation YY requires foreign banking organizations with combined US assets of more than $50 billion but US non-branch assets of less than $50 billion to establish a US risk committee as a committee of the global board of directors, on a standalone basis, or as a joint committee with its enterprise-wide risk committee. One member of the committee must not be an officer or employee of the company or its affiliates (or an immediate family member of a person who is an executive officer of the company or its affiliates).

Read more.

The US Federal Reserve Board, OCC and FDIC jointly released an advanced notice of proposed rulemaking seeking comments on enhanced cybersecurity risk-management and resilience standards. The new rule would apply to any depository institution or holding company with consolidated assets of at least $50 billion, foreign banking organizations with total US assets of at least $50 billion and financial infrastructure companies and nonbank financial companies supervised by the Federal Reserve Board.

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The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published a joint consultative report on the harmonization of a second batch of key OTC derivatives data elements. The report is in response to the 2009 G20 agreement that all OTC derivatives contracts would be reported to trade repositories - part of the G20’s overall commitment to reforming the OTC derivatives markets to improve transparency, mitigate systemic risk and prevent market abuse. This consultation complements the consultation on Harmonization of key OTC derivatives data elements (other than UTI and UPI), published in September 2015 and other reports on the Harmonization of the Unique Product Identifier. The purpose of this consultation is to develop guidance for regulators on definitions for the second batch of critical data elements that are important for global consistency and the meaningful aggregation of trade repository OTC derivatives transactions data. The consultation seeks views on matters including: (i) proposed definitions of key data elements; (ii) whether the proposed definitions cover different market practices globally; (iii) whether any alternative approaches to those mentioned in the report would better achieve the stated objectives; and (iv) whether the consultative guidance is unambiguous. A consultation on the third batch of key data elements is expected in 2017. Responses to the proposals are due by November 30, 2016.

View the consultation paper.

View the consultative report on the first batch of OTC derivatives data elements. 

The European Commission published a report on reporting obligations under the Credit Rating Agencies Regulation. The Report reviewed references to external credit ratings in EU legislation and in private contracts among financial markets counterparties and outlines potential alternatives to credit ratings produced by credit rating agencies that are currently used by market participants across the EU. The alternatives examined include the use of market-based credit risk assessments, internal credit risk assessment tools and third-party credit risk assessments. The Commission concluded that there are currently no feasible alternatives to replace external credit ratings entirely. The Report reviews the credit ratings market and provides an assessment of provisions in the CRA Regulation aimed at increasing competition in the credit rating market. The Implementing Technical Standards on the mapping of External Credit Assessment Institutions (published in the Official Journal of the European Union on October 12, 2016) is highlighted as promoting competition as it enables European banks and insurers to use smaller CRAs. The Commission commented that such mapping could create future opportunities for the use of smaller CRAs and possibly stimulate market development. The Report also examined the impact and effectiveness of the provisions in the CRA Regulation on governance and internal procedures; such as the prevention of conflicts of interests and alternative remuneration models. 

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The Financial Stability Board published methodology for assessing the implementation of the Key Attributes of Effective Resolution Regimes for financial institutions in the banking sector. The methodology sets out the criteria to guide the assessment of a jurisdiction’s bank resolution framework and its compliance with the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions with the aim of promoting consistent assessments across jurisdictions. The Key Attributes were adopted in October 2011 and were endorsed as a new international standard for resolution regimes by the G20 Leaders at the Cannes Summit. They were supplemented in 2014 with new Annexes containing sector-specific guidance on, amongst other things, how the Key Attributes apply to insurers, financial market infrastructure and the protection of client assets in resolution. The Key Attributes apply to resolution regimes for any financial institution that could be viewed as systematically significant or critical in the event of failure. The Key Attributes also cover the resolution of financial groups and conglomerates; including holding companies of and non-regulated operational entities within a financial group or conglomerate. The Methodology would be used for the assessments performed by regulators of existing resolution regimes in their jurisdiction and any reforms to such regimes to implement the Key Attributes.  It can also be applied to peer reviews of resolution regimes conducted within the FSB framework to monitor implementation by member jurisdictions. Assessments should include, amongst other things, a summary view of whether the resolution regime has the necessary scope and reflects the Key Attributes. 

View the Methodology.

View the Key Attributes.

The UK Government announced that it would not be taking forward its plans to create a secondary market for consumers to sell their annuity income.  The market was to extend the recently introduced pension freedoms and flexibilities to individuals, who retired prior to April 2015. In December 2015, the Government announced that tax changes would come into effect from April 2017, which would allow individuals to receive all of the proceeds following the sale of an annuity as a taxable lump sum, arrange for the buyer to pay all of the proceeds into a flexi-access drawdown fund or arrange for the proceeds to be used to buy a new ‘flexible’ annuity. In April this year, the UK Government and the Financial Conduct Authority consulted on the proposed regulatory framework for the secondary annuities market. The UK Government’s view is that a balance between creating conditions for a competitive market with multiple buyers and sellers of annuities combined with sufficient consumer protections could not be achieved. 

View the press release. 

View the HM Treasury consultation.

View the FCA consultation.