The SEC announced that Keith F. Higgins, Director of the SEC’s Division of Corporation Finance, plans to leave the SEC in early January. Upon Mr. Higgins’s departure, Shelley Parratt, Deputy Director for the Division of Corporation Finance, will become the acting Director. Ms. Parratt has served previously as acting Director.

View SEC’s press release.

The Financial Conduct Authority published a consultation paper setting out its proposals to enhance the conduct of business rules for firms providing contract for difference products to retail clients and to limit the risks of CfDs for retail clients. The FCA is proposing to change its current rules because of increasing evidence of poor conduct by relevant firms and risks posed to retail customers. Amongst other things, the FCA is proposing to require all CfD firms to provide a standardized risk warning and mandatory profit-loss disclosures, to impose lower leverage limits for inexperienced retail clients (i.e. those with less than 12 months of active trading experience) and higher leverage limits for experienced retail clients, and to prohibit bonus and account opening promotions for their retail CfD products and platforms. 

The FCA also sets out its policy proposals for the regulation of binary bets. Binary bets are expected to be brought within the UK regulatory perimeter as part of the UK implementation of the revised Markets in Financial Instruments Directive. The FCA is considering its policy approach for the protection of retail clients in relation to binary bets and is seeking feedback on its approach before it consults on formal proposals. 

The consultation closes on March 7, 2017. The FCA expects to publish a Policy Statement and final rules in Q2 2017, with the expectation that the rules will come into force shortly afterwards. 

View the consultation paper. 

The Prudential Regulation Authority published a Statement of Policy setting out its approach to the implementation of the systemic risk buffer. The SRB is used to prevent and mitigate long term non-cyclical macro-prudential or systemic risks not covered by the Capital Requirements Regulation. It is a firm-specific buffer based on a firm's risk weighted exposures and must be met with Common Equity Tier 1 capital. The Statement of Policy is relevant to ring-fenced bodies under the Financial Services and Markets Act 2000 and large building societies that hold more than £25 billion in deposits. These are jointly referred to as "SRB institutions". The UK Independent Commission on Banking recommended that the UK's systemically important SRB institutions be held to a higher capital standard. In addition to these recommendations, the UK legislation implementing the systemic risk buffer requires that the PRA apply the Financial Policy Committee framework as of January 1, 2019. The FPC's framework for the systemic risk buffer was published in May 2016.

Read more.

The Commodity Futures Trading Commission voted unanimously to repropose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Act. In a separate vote, the CFTC approved final aggregation regulations, which are a key component of the CFTC’s existing position limits regime. The reproposal will be open for public comment for 60 days after publication in the Federal Register.

Read more.

Federal Reserve Board Governor Tarullo gave a speech defending post-financial crisis efforts to strengthen regulation governing the financial system. Governor Tarullo also criticized recent Republican legislative regulatory reform proposals, including the Financial CHOICE Act’s proposal to raise the leverage ratio of banks to 10% in return for relief from many other prudential requirements, including risk-based capital requirements.

View Governor Tarullo’s remarks.

The Comptroller of the Currency, Thomas Curry, announced that the OCC would commence considering applications from financial technology companies that offer bank products and services for a grant of a special purpose bank charter. The ability to obtain a bank charter would eliminate the need for Fintech companies to register in multiple states, each with different laws and restrictions. Although the details of the charter are not final, the OCC released a paper discussing the issues and conditions that will be considered in granting special purpose bank charters. That paper indicates that such institutions would not be required to take FDIC-insured deposits. In a related Fintech development, Federal Reserve Board Governor Brainard gave a speech at a Federal Reserve Board conference on emerging financial technologies. She addressed various developments and the need to address related risks, and she noted the Federal Reserve Board’s earlier establishment of a working group on fintech innovation.

View the OCC press release.

View the OCC paper.

View Governor Brainard’s speech.
 

The CFTC issued a proposed rule establishing minimum capital requirements for Swap Dealers and Major Swap Participants. As required by section 731 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules mandate minimum levels of qualifying capital for certain Swap Dealers and Major Swap Participants that are not subject to the capital rules of a prudential regulator. Under the proposed rule, the calculation of capital may be performed using the alternative approaches method, which are based on existing US bank regulators’ capital requirements or the CFTC’s future commission merchant and the SEC’s broker-dealer net liquid asset capital requirements. In addition, Swap Dealers that predominantly engage in non-financial activities and Major Swap Participants can elect minimum capital requirements based on the tangible net worth of the entities or can use internal models to compute their regulatory capital, subject to CFTC or National Futures Association approval. The proposal also requires some Swap Dealers and Major Swap Participants to satisfy certain liquidity requirements as well as reporting, record-keeping and notification requirements. In a statement issued concurrently with the proposal, CFTC Chairman Timothy Massad expressed support for the rule, stating that the revised rule recognizes the diversity of business models amongst swap dealers. Comments on the proposal are due 90 days following the publication of the proposed rule in the Federal Register.

Read more.

The G20 Leaders published the Priorities for the 2017 G20 Summit in Hamburg on July 7 and 8, 2017. The document sets out the areas in which the G20 will build on previous work and further areas. The priorities include improving global financial resilience with a focus on cross-border capital flows, continuing work on monitoring and regulating market-based finance (including shadow banking activities) and progressing the global and comprehensive implementation of the recommendations of the Financial Action Task Force on combating terrorist financing and money laundering, including a review of the FATF's structure and governance.

View the document setting out the G20 priorities for 2017.

The US House of Representatives passed a bill (H.R. 6392) that would replace the current supervisory framework under the Dodd-Frank Act that automatically subjects all bank holding companies with $50 billion or more in total consolidated assets to enhanced prudential standards with a system that would authorize the Financial Stability Oversight Council to designate companies on a case-by-case basis if the FSOC makes a final determination that material financial distress at the bank holding company, or the nature, scope, size, scale, concentration, interconnectedness or mix of its activities could threaten the financial stability of the United States. G-SIBs, however, would be treated as if such a determination had been made. In a statement issued in support of the bill, Representative Warren Davidson (R-OH) stated that the bill “prevent[s] the Fed and Treasury from Blindly implementing new regulations proposed by an international entity, whether coming from the [BCBS] or unelected bureaucrats on the Financial Stability Board.” By contrast, Representative Maxine Waters (D-CA) called the legislation the “first step in the Trump agenda to deregulate Wall St.”

View text of HR 6392.

The Office of Financial Sanctions Implementation (OFSI), which is a part of HM Treasury, published the UK Government's proposed approach to imposing financial penalties for breach of financial sanctions. OFSI was established earlier in 2016 and has responsibility for ensuring that sanctions are "properly understood, implemented and enforced in the UK". Financial sanctions may include prohibitions on the transfer of funds to a sanctioned country, freezing of the assets of a government, corporate entities or citizens of a particular country or targeted freezing of assets of individuals or legal entities. Provisions in the Policing and Crime Bill, currently going through Parliament, outline new administrative penalties, civil monetary penalties and an increase in the maximum custodial sentence for breaching financial sanctions to seven years on conviction on indictment (or six months' imprisonment on summary conviction) for breach of financial sanctions. OFSI is seeking feedback on its proposed Guidance on the circumstances in which it may consider that a monetary penalty is suitable and how it will set the penalty amount as well as the process for imposing a penalty and the circumstances in which details of any penalty may be published. The consultation closes on January 26, 2017. OFSI has stated that either interim or final Guidance will be published before the power to impose penalties comes into effect in April 2017. The proposed Guidance is based on the current version of the Bill and may need to be amended as appropriate once the final legislation is published.

View the consultation paper. 

The Commission adopted Regulatory Technical Standards supplementing the revised Markets in Financial Instruments Directive, setting out when an activity is “ancillary” to a firm’s main business. MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business on a group basis and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Adoption of the RTS follows the consultation by the European Securities and Markets Authority on the draft RTS. The Commission proposed changes to ESMA's final draft RTS, which was submitted on September 28, 2015, including a capital test to distinguish a group’s main activates from its ancillary activities. The Commission requested a methodology to specify the allocation of capital between the main business activity and the ancillary activity to enable groups to demonstrate, based on the capital employed, where the group’s main business activity resides. On May 30, 2016, ESMA responded by way of formal opinion and revised draft RTS. Rather than a single capital based methodology, ESMA proposed five options for speculative trading and three for a group’s main activity. ESMA did not stipulate which of the options was to be preferred and did not specify a threshold for determining the percentage of speculative trading by a group‘s main activity that would trigger the requirement for authorization under MiFID II. 

Read more.

In early December 2016, the US Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs released a discussion paper entitled “Distributed Ledger Technology in Payments, Clearing, and Settlement.”

The paper notes how digital innovations in finance, loosely known as Fintech, have garnered a great deal of attention across the financial industry. Distributed ledger technology (DLT) is one such innovation that has been cited as a means of transforming payment, clearing and settlement processes, including how funds are transferred and how securities, commodities and derivatives are cleared and settled. The paper examines how this technology might be used in the area of payments, clearing and settlement and to identify both the opportunities and challenges facing its practical implementation and possible long-term adoption. The authors state that DLT has the potential to provide new ways to transfer and record the ownership of digital assets; securely store information; provide for identity management; and other evolving operations through peer-to-peer networking, access to a distributed but common ledger among participants and cryptography. Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities transactions. These use cases could address operational and financial frictions around existing services.

Read more.

The European Securities and Markets Authority announced the launch of a new database, the European Rating Platform. The ERP provides access to free, up-to-date information on credit ratings that have been issued by a credit rating agency that is registered or certified by ESMA, except for those issued under the investor-pays model. The ERP enables investors and other users of ratings to compare all credit ratings that exist for a specific rated entity or instrument. It holds rating history details from July 1, 2015 onwards, press releases accompanying the rating issuances and research reports for sovereign ratings.

View ESMA's announcement.

Go to the new ERP.

Thomas Curry, Comptroller of the Currency provided remarks at The Clearing House’s Annual Conference, focusing on value of strong capital, the need for liquidity, and importance of effective supervision.

Curry began by highlighting that increased capital requirements, and leverage ratio requirements that supplement these capital standards, have led to large bank holding companies being projected to remain well-capitalized under most severe stress test scenario. He argued against reduction in capital and leverage requirements. He similarly emphasized the importance of strong liquidity requirements that were implemented since the financial crisis and noted that US banks have higher revenues and higher profits than their European counterparts under the new regulations.

Curry discussed the importance of “holistic” supervision, arguing that regulators and banks must continue to improve both metrics and “soft” standards of performance. Curry mentioned a trend in some banks to separate Chairmanship of the Board from the CEO position and noted that the OCC is considering whether it would make sense for all, or all of the largest, federally supervised banks to make the same change. Curry concluded by highlighting the performance of community banks and smaller institutions alongside large institutions and noting the progress made since 2008.

View  Comptroller Curry's remarks.

The Bank of England published its latest Financial Stability report. In the Report, the Financial Policy Committee explains the key risks affecting the UK financial system, how it is addressing these risks and the developments since the Brexit referendum. The Report also includes a summary of the results of the Bank of England's 2016 bank stress test.

The first part of the Report outlines in detail the Committee’s analysis of major risks posed to the stability of the UK economy and the action it is taking in light of such risks. The second part of the Report contains a summary of the Committee’s analysis of those risks and of the resilience of the financial system. The Committee comments that since the Referendum, financial stability in the UK has been maintained despite a challenging period of uncertainty around the domestic and global economic outlook. For example, there have been significant movements in asset prices, including a 12% fall in the sterling exchange rate index. The Committee also comments that the outlook for financial stability in the UK remains challenging as the economy has entered into a period of adjustment. Since July, vulnerabilities that stem from the global economic environment and financial markets have further increased, such as the expected expansionary fiscal policy that could follow the recent US election. The Committee comments that the UK banking system is capitalized to sustain the provision of financial services when faced with severe stresses. Since the global financial crisis, UK banks have built up capital resources with the aggregate common equity Tier 1 capital held by major UK banks now at 13.5% of risk-weighted assets (as at September 2016).  

Read more.

Antonio Weiss, Counselor to the US Treasury Secretary, argued that the FSOC has become a “critical nerve center during episodes of market volatility or stress,” providing a forum to assess system-wide risks, which was missing during the financial crisis. In the speech, Weiss stated that the establishment of FSOC has improved the ability of regulators to share information and collaborate in a way that no single regulator can do on its own.

View text of Weiss’s remarks.
 

The Financial Conduct Authority launched a call for input into its review of high-cost credit, including the high-cost of short-term credit (HCSTC) price caps. The FCA took over regulation of consumer credit in April 2014. High-cost credit includes payday loans, home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor and logbook loans. As part of its policy to address the risk of consumer harm from such products, the FCA has introduced a HCSTC cap and new regulation for HCSTC lenders. The FCA has committed to reviewing the HCSTC price cap while also reviewing high-cost products as a whole to determine whether further policy intervention is required and if so, whether a more consistent approach is necessary. The FCA identifies overdrafts as a priority area for consumer protection and regulation. The FCA is seeking responses on issues with regard to the competition and provision of substitute or alternative high-cost credit products to overdrafts. The HCSTC price cap came into force on January 2, 2015. The FCA is seeking to assess whether there is evidence to suggest that it should consider changing the price cap.  

Read more.

The US Consumer Financial Protection Bureau issued a bulletin warning banks that creating incentives for employees and service providers to meet sales and other business goals can lead to illegal sales practices such as unauthorized account openings, deceptive sales tactics and steering consumers into less favorable products, all practices which may cause consumer harm. In addition, the bulletin outlines the CFPB’s expectation that institutions that choose to utilize incentives should institute effective controls for the risks that these incentives may present. Most importantly, the CFPB emphasizes the need for a robust compliance management system, which includes board of director and management oversight, training, monitoring and independent audits.

View CFPB bulletin.

The European Commission published a legislative proposal for a Regulation on the recovery and resolution of CCPs. The aim of the proposed Regulation is to set up a framework for the orderly recovery of a CCP through implementation of recovery plans. Under the proposal, a CCP's recovery plan will need to be agreed between the CCP and its clearing members. If the recovery measures do not restore the CCP’s viability, the CCP's resolution authority will have the power to take action to ensure the continuity of the CCP's critical functions and, if needed, resolve the CCP.  This includes setting up bridge CCPs. In the event of losses arising under a resolution, these will be borne by a CCP's owners, creditors and counterparties in line with the hierarchy of claims in insolvency.  Managers of a CCP will be capable of being replaced and held accountable for wrongdoing under the applicable national laws. The CCP recovery and resolution framework would apply to all CCPs established in the EU. It is not proposed that the recovery and resolution framework would apply to the wider group of a CCP, but a resolution authority would be able to decide on a case-by-case basis whether a recovery plan should include a parent company.

Read more.

The CFTC extended the relief granted under No-Action Letters 15-62 and 15-63 until December 31, 2017. The extended no-action relief in CFTC Letter No. 16-80 exempts inter-affiliate swaps from the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act, subject to certain requirements. In addition, CFTC Letter No. 16-81 extends temporary relief from the trade execution requirement to certain affiliate counterparties.

View text of CFTC Letter No. 16-80.

View text of CFTC Letter No. 16-81.

The Financial Conduct Authority published a consultation paper on proposed changes to its Disclosure Guidance and Transparency Rules sourcebook in the Handbook on delaying the disclosure of inside information. The Market Abuse Regulation requires issuers to inform the public as soon as possible of inside information which directly concerns them. MAR mandates the European Securities and Markets Authority to prepare Guidelines which further specify when an issuer might delay disclosure of inside information. ESMA's Guidelines, published on November 20, 2016, outline the legitimate interests of issuers to delay disclosure of inside information and provide a non-exhaustive indicative list on the legitimate interests of the issuer that are likely to be prejudiced by the immediate disclosure of inside information and the situations in which delay of disclosure is likely to mislead the public. ESMA's Guidelines will apply directly across the EU from January 10, 2017. The FCA has confirmed that it intends to comply with ESMA's Guidelines and is consulting on the consequential changes to its rules. The consultation closes on January 6, 2017. 

Read more.

The Prudential Regulation Authority launched its second consultation on implementing certain 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 consultation relates to requirements for a firm's management body and organizational requirements as well as to the new regulated activity of operating an Organised Trading Facility and the new financial instrument of "emission allowances" and structured products. The PRA consulted on its approach to passporting and algorithmic trading earlier in 2016 and has published its final rules for those areas. The PRA will consult on other aspects related to MiFID II in due course.

Read more. 

The European Banking Authority announced the launch of a second impact assessment on the implementation of International Financial Reporting Standard 9. The second impact assessment builds on the findings in the first impact assessment that was published by the EBA in a report on November 10, 2016. The Report analyzes the estimated impact of implementing IFRS 9 on firms and their regulatory capital and assesses the interaction between IFRS 9 and other prudential requirements. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 on January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9.

The second impact assessment will include questions focused on specific aspects around the main topics and findings from the first impact assessment. The EBA expects more detailed and accurate information from banks relating to their implementation of IFRS 9 than the previous assessment, as the information previously given reflected that banks were at an early stage of implementation.

Read more. 

The European Banking Authority published translations of the final Guidelines on implicit support for securitization transactions under the Capital Requirements Regulation. The substantive content of the Guidelines is unchanged since the final Guidelines were published in August 2016. The publication of the translations triggers the application of the Guidelines which will apply from March 1, 2017.

Examples of relevant transactions include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR places restrictions on providing implicit support to securitizations. These rules apply in addition to the so-called "skin in the game" requirements on originators to retain part of the risk on securitizations. To prevent uncapitalized risks of implicit support, the CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR also states that a transaction is not considered to provide support to a securitization if it is executed under arm’s-length conditions and taken into account in the assessment of significant risk transfer. The CRR requires a sponsor or originator institution that has failed to comply with this requirement to, at a minimum, hold own funds against all of the securitized exposures as if they had not been securitized.

Read more.

The US Federal Reserve Board issued a final rule, amending Regulation I to implement provisions of the Fixing America’s Surface Transportation (FAST) Act, a five-year bill that reauthorized, at then-current levels, the core programs providing federal transportation funding to the states. The final rule adopts substantively all of the provisions of the interim final rule issued in February of this year. The rule will reduce the dividend rate for banks with total assets of more than $10 billion to the lesser of 6% or the most recent 10-year Treasury auction rate prior to the dividend payment. The rule also adjusts the treatment of accrued dividends when a Federal Reserve Bank issues or cancels capital stock owned by a large member bank.

View text of the rule.

The Basel Committee on Banking Supervision launched a consultation on proposed revisions to the correspondent banking and account opening annexes of its Committee Guidelines on sound management of risks related to money laundering and financing of terrorism. The Guidelines describe how banks should include money laundering and financing of terrorism risks within their overall risk management. The Basel Committee is seeking to confirm regulatory expectations on the assessment of money laundering and financing of terrorism risks in correspondent banking and its proposals follow the publication by the Financial Action Task Force of its Guidance on correspondent banking on October 21, 2016. The proposed revisions to the Guidelines develop the application of the risk-based approach for correspondent banking relationships, including recognizing that not all correspondent banking relationships carry the same level of risk. The proposed revisions also clarify expectations regarding the quality of payment messages and the conditions for using “know your customer” (KYC) services. Responses to the consultation are requested by February 22, 2017.
 
View the consultation paper.

View the Sound Management of Risks Related to Money Laundering and Financing of Terrorism.

View the FATF's Guidance.

The European Commission published a Communication to the European Parliament, the Council of the European Union on the follow-up to its Call for Evidence on the EU regulatory framework for financial services. The European Commission launched its Call for Evidence on the EU regulatory framework in September 2015 alongside its Action Plan for a Capital Markets Union. The Call for Evidence sought feedback on unnecessary regulatory burdens, inconsistencies, gaps and unintended consequences of EU financial services legislation.  Following an analysis of the feedback received, the Commission has concluded that targeted action is required to address some of the shortcomings that have been highlighted. Where possible, the Commission has integrated the feedback into existing initiatives such as the review of the Capital Requirements Regulation and the European Market Infrastructure Regulation or the future development of the CMU but there are some instances where new policy action will be needed. The Communication includes an action plan indicating how the issues are intended to be addressed. 

View the Communication. 

The European Commission published a Report assessing the issues arising from the implementation of the requirements of the European Market Infrastructure Regulation. EMIR imposes reporting and clearing obligations, risk mitigation techniques for derivatives that are not cleared and requirements on CCPs and trade repositories. The Report summarizes the issues that stakeholders and market participants have raised in response to the Commission's public consultation on EMIR, as well as input from EU authorities such as the European Securities and Markets Authority. The Report does not propose any legislative changes but sets out particular areas where future legislative amendments might be needed or which are to be studied further. The Commission is proposing a legislative review of EMIR in 2017.

Read more.

The European Commission published a package of proposed legislative amendments in relation to the Bank Recovery and Resolution Directive, the Single Resolution Mechanism Regulation, the Capital Requirements Regulation and the Capital Requirements Directive. The amendments aim in part to introduce some of the revised global prudential standards from latest FSB/Basel developments, to apply a more proportionate approach to regulating banks and investment firms depending on their size and complexity and to remove some of the options and discretions that are currently available to EU Member States.

The changes to CRR and CRD IV include a new requirement on non-EU G-SIBs (or non-EU banking groups that have EU firms with total assets of at least EUR 30 billion) that have two or more EU firms to establish an EU intermediate holding company.  This controversial proposal does not square well with US or other third country bank structural laws nor will it be reflected in banks' existing resolution and recovery plans, and so will doubtless be a contentious issue as it is developed further.

Read more.

The European Banking Authority published a Report and the final draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the final draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. When finalizing the final draft RTS, the EBA took into account, to the extent possible under the existing CRR, the Fundamental Review of the Trading Book that the Basel Committee on Banking Supervision published in January 2016. The final draft RTS have been submitted to the European Commission for consideration.

View the final draft RTS.

The European Banking Authority published a response to the European Commission’s request for further information on the EBA’s Opinion on the application of the principle of proportionality to remuneration provisions in the Capital Requirements Directive. On December 21, 2015, the EBA published its first Opinion, recommending a possible set of exemptions from some of the remuneration principles, specifically the variable elements of remuneration. The EBA's proposed amendments included: (i) the application of deferral arrangements; (ii) the pay out in instruments for small and non-complex institutions; and (iii) for identified staff that receive only a low amount of variable remuneration when specific criteria are met. The Commission requested further information from the EBA through a letter dated April 21, 2016 on the issue of proportionality. The EBA responded on May 27, 2016, noting the scope of its then-planned analysis and the limitations on such a response given the timing and available data resources.

The EBA found that all but five Member States allow for waivers in the areas of remuneration, that most Member States permit the application of waivers through thresholds based on balance total or by making case-by-case assessments. The EBA concluded that the extent to which banks and identified staff benefit from waivers differs significantly across the EU. 

Read more.

The Financial Stability Board published an updated list of global systemically important banks. The 2016 list of G-SIBs includes the same banks as those in the 2015 list. However, some banks have moved to a higher or lower bucket due to improved data quality, changes in underlying activity and/or the use of supervisory judgement. 

View the 2016 list of G-SIBs.

The Prudential Regulation Authority published a consultation paper on proposals to reset the deposit protection limit at £85,000. The purpose of the update is to provide depositors with PRA-authorized firms commensurate protection to that of depositors with firms authorized by regulators in other EU Member States. The Deposit Guarantee Schemes Directive requires non-Euro Member States to adjust their deposit protection limits every five years to ensure they are equivalent to the euro limit of EUR100,000. The DGSD also requires that such countries, including the UK, must adjust their deposit protection limit to take into account currency fluctuations. Following the Brexit referendum on June 23, 2016, the PRA considers that a structural shift in the exchange rates has occurred and to comply with the DGSD, the PRA is proposing that the depositors’ protection level be raised to £85,000 from January 30, 2017. This will require an increase of £10,000 pounds from the limit that was set in 2015. The PRA is also proposing a five month transitional period until June 30, 2017 for firms to implement changes to their disclosure materials, advertising materials and Single Customer View (SCV) and Continuity of Access (CoA) systems to accurately reflect the new deposit protection limit. Prior to June 30, 2017, firms will be required to notify the PRA if they are ready to implement the rule changes and will become subject to the new rules from the next business day following notification.  Separate notifications are available for: (i) SCV and CoA systems; and (ii) disclosure and advertising materials. The PRA notes that it will seek to maintain a stable deposit protection limit through uncertainty in foreign exchange markets resulting from the referendum, but will seek to avoid making further adjustments to the limit. Responses to the proposals are due by December 16, 2016.

View the Consultation Paper. 

The CFTC released a no-action letter extending further no-action relief from swap data reporting requirements for swap dealers and major swap participants established under the laws of Australia, Canada, the EU, Japan or Switzerland that are not part of an affiliated group in which the ultimate parent is a US swap dealer, major swap participant, bank, bank holding company or financial holding company for an additional year, from December 1, 2016 to December 21, 2017. In a December 20, 2013 no-action letter, the CFTC had exempted such registered swap dealers and major swap participants from these jurisdictions from the swap data reporting rules in Parts 45 and 46 of the CFTC’s regulations, an exemption which it later extended in 2014 and 2015. As the CFTC had not yet made comparability determinations as to whether the regulatory requirements of the foreign jurisdictions are comparable to and as comprehensive as its own, it believed that the extension of no-action relief is appropriate. The no-action relief will expire at the earlier of: (1) 30 days following the issuance of a comparability determination with respect to the reporting rules of the non-US swap dealer or non-US major swap participant’s jurisdiction; or (2) December 1, 2017.

View no-action letter.
 

The SEC announced that Stephen Luparello, Director of the Division of Trading and Markets, will leave the SEC by the beginning of 2017.

View SEC press release.

The SEC announced that Matthew C. Solomon, the Chief Litigation Counsel for the SEC’s Enforcement Division, will leave the SEC early December 2016.

View SEC press release.

Regulatory Technical Standards on the required information for registration of third country firms and the format of information provided to clients was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation on the provision of services and performance of activities by third country firms following an equivalence decision with or without a branch. The RTS specifies the information necessary for registration with the European Securities and Markets Authority. The RTS requires firms to update ESMA, within 30 days, of any changes to the information provided in its application.  MiFIR requires third country firms, before providing investment services for clients in the EU, to inform such clients that they are not permitted to perform services for clients other than eligible counterparties and professional clients within the definition of the revised Markets in Financial Instruments Directive and, furthermore, that they are not subject to supervision in the EU. The RTS provides that the notice must be provided in a “durable medium” (which includes electronic media); such that, amongst other things, it is in English or the in the official language, or one of the official languages, of the Member State where the services are to be provided. 

View the RTS on application by third country firms for permission to provide investment services.

Regulatory Technical Standards on access in respect of benchmarks was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation. MiFIR provides for non-discriminatory access to benchmarks for the purposes of clearing and trading for central counterparties and trading venues. This includes access to the licenses of, and information relating to, benchmarks which are used to determine the value of some financial instruments for trading and clearing purposes. The RTS specifies that a person with proprietary rights to a benchmark must, upon request, make available to CCPs and trading venues the information necessary to perform their clearing or trading functions. For CCPs, the functions include the appropriate risk management of relevant open positions in exchange-traded derivatives, including netting, and compliance by the CCP with its obligations under the European Market Infrastructure Regulation. For trading venues, such functions include the initial assessment of the characteristics of the benchmark, the marketing of the relevant product and the support of the price formation process for the contracts admitted or being admitted to trading. The RTS state that the provision of price and data feeds must include the feed of the benchmark’s values and the prompt notification of any inaccuracy in the calculation of the benchmark values and of the updated or corrected benchmark values.  The RTS also sets out general conditions on the provision of information through licensing and the minimum conditions that a benchmark owner must set for licensing agreements. 

Read more.

The US Federal Reserve Board announced that it was broadening the scope of post-employment restrictions applicable to senior examiners and officers of Federal Reserve Banks. The revised rule broadens the one-year bar on accepting paid work from a financial institution from applying to only examiners who are “central points of contacts” (CPCs) to include deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers and supervisory team leaders. The new policy also prohibits former Federal Reserve Bank officers from representing third parties before current Federal Reserve employees for one year after leaving their position, and imposes a one-year ban on current employees discussing official business with these former officers.

The restriction on former officers became effective on December 5, 2016, and the restriction on senior examiner employment will become effective on January 2, 2017.

View press release.

The European Banking Authority published a list of public sector entities that may be treated as regional governments, local authorities or central governments when firms are calculating their capital requirements to EU public sector entities for credit risk purposes under the Capital Requirements Regulation. Exposures to the public sector entities that are included in the EBA's list will attract the same risk weight as the respective regional governments, local authorities or central governments. The EBA has compiled the list on its own initiative to enhance harmonization across the EU in this area.

View the EBA's list. 

The Fixed Income, Currency and Commodities Markets Standard Board launched a consultation on a proposed New Issue Process Standard for the Fixed Income markets. The FMSB was established in 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the Financial Conduct Authority. The FMSB has created Standards to improve conduct in the FICC markets. The draft New Issue Process Standard is intended to improve existing practices so that the new issue process is further streamlined for all participants, including issuers, investors and lead managers. The proposed Standard builds on the ICMA recommendations for Investment Grade primary markets issuance. However, it is wider in scope as it will apply to syndicated offerings of fixed income bonds in the wholesale markets, including investment grade, high yield, securitization and emerging market debt offerings. Once published in final form, the Standard will apply to FMSB member firms who are expected to comply with it on a global basis, subject to regulatory restrictions in certain jurisdictions. Responses to the consultation are due by January 17, 2016. 

View the proposed New Issue Process Standard.

The Financial Conduct Authority published an interim report following its Asset Management Market Study. As per The Terms of Reference, the FCA investigated three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA also looked at whether there are any barriers to innovation that prevent investors from obtaining better results.

The FCA found that, based on the evidence produced, a weak price competition exists in a number of areas of the asset management industry. The lack of competition has a material impact on the investment returns of investments as a consequence of their payments for asset management services. The FCA reviewed product development and innovation in the asset management market and concluded that there is some evidence of innovation and limited evidence of any significant structural or regulatory barriers to entry. The FCA is of the view that despite the interim finding raising concerns about how effectively competition drives value for investors in the asset management sector, there are also some competitive pressures building in parts of the market and this is likely to continue. 

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Chair of the Securities and Exchange Commission Mary Jo White discussed the SEC’s enforcement program, focusing on white collar crime in particular. She detailed the SEC’s “Investigate to Litigate” philosophy, where SEC staff are instructed to conduct all investigations with litigation in mind. She also discussed a number of measures the SEC has to detect misconduct, from advanced data analysis to whistleblowers. In particular, she highlighted the SEC’s focus on individual wrongdoers and its policy of requiring admissions as a condition for certain settlements.

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The CFPB launched an inquiry into the challenges consumers face in accessing, using and securely sharing financial records. The CFPB is asking the public to report how much choice they are given about the use of their records, how secure it is to share them and to what extent they have control over them. The CFPB’s release noted that the Dodd-Frank Act gave consumers rights to electronically access their financial records, with the CFPB having rulemaking authority over the area.

The comment period will end on February 21, 2017.

View CFPB’s press release.

View Request for Information.

The UK Payment Systems Regulator published a consultation paper and proposed guidance on the Financial Penalty Scheme that is applicable to penalty payment amounts retained by the PSR. The PSR’s enforcement powers under the Financial Services (Banking Reform) Act 2013 allow the PSR to impose penalties for compliance failures on firms subject to regulation. The PSR pays penalties it receives to HM Treasury whilst retaining an amount to cover enforcement costs. The PSR proposes to use the amount retained to reduce regulatory fees levied in a particular year from payment service providers. As a result, some of the PSR’s enforcement costs would be funded through penalties imposed, rather than through fees. The consultation paper outlines a number of situations that might arise and how the scheme could apply. For example, where payment service providers have become liable to pay penalties in the previous year and are also fee payers, the PSR would ensure that such parties do not receive any returned retained amounts under the Financial Penalty Scheme. Responses to the consultation are due by January 13, 2017.

View the consultation paper.

View the guidance on the Financial Penalty Scheme. 

Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, gave a speech to the Exchequer Club laying out a potential financial regulatory agenda for the Trump Administration and Congressional Republicans to pursue. He began by calling for thwarting the Department of Labor’s fiduciary rule, as well as preventing the Consumer Financial Protection Bureau from regulating small dollar, “payday” loans.

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The European Banking Authority published for consultation draft amending Implementing Technical Standards to amend the current ITS on supervisory reporting of firms as amended by the ITS on additional monitoring metrics for liquidity reporting. Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements. The ITS on supervisory reporting include provisions on a firm's liquidity reporting requirements. Additional monitoring metrics for liquidity were added to the ITS in March 2016. The EBA's final draft ITS on those additional monitoring metrics included a maturity ladder templates and instructions which were removed by the European Commission before it adopted the ITS. The European Commission has since requested the EBA to update the maturity ladder in line with the detailed information of liquid assets as set out in the Delegated Act on the Liquidity Coverage Ratio. The EBA's proposed amending ITS are mostly concerned with reintroducing a maturity ladder in line with the reporting requirements provided for in the LCR Delegated Act. The EBA is due to submit the final revised draft ITS in March/April 2017. It is expected that the revised reporting requirements would apply from March 2018. The consultation closes on January 2, 2016. 

View the consultation paper. 

The CFTC released the results of supervisory stress tests of five major clearinghouses in the US and UK. The tests included eleven scenarios focusing on the most highly traded products at each clearinghouse. The tests focused on the largest clearing members at each clearinghouse, analyzing both their house and customer accounts. The CFTC noted three key findings: (1) clearinghouses have the pre-funded resources to remain resilient through a variety of extreme market price changes; (2) risk was diversified across the clearinghouses tested; and (3) clearing member risk was also diversified — no single scenario of the eleven accounted more than 19% of the worst outcomes.

View CFTC press release.

The Joint Committee of the European Supervisory Authorities published joint Guidelines on the characteristics of a risk-based approach to anti-money laundering and terrorist financing supervision. The ESAs consist of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Guidelines build on the ESA’s previous “Preliminary report on anti-money laundering and counter financing of terrorism Risk Based Supervision” that was published in October 2013. The Guidelines outline steps to be taken by regulators when conducting AML/CTF supervision on a risk-sensitive basis. The Fourth Anti-Money Laundering Directive, amongst other things, aims to bring European legislation in line with the Financial Action Task Force’s International Standards on Combating Money Laundering and the Financing of Terrorism. The ESAs emphasize that AML-and CFT-related risk-based supervision is ongoing and cyclical and the Guidelines outline four requisite steps that national regulators should apply. Step 1 involves the regulator identifying the money laundering or terrorist financing risk factors by obtaining information of both domestic, foreign and sector-wide threats. Step 2 requires the information to be used by the regulator to conduct a risk assessment and obtain a holistic view of the risks associated with each firm. Step 3 requires the allocation of supervisory resources factoring in issues such as the required focus, depth, duration and frequency of the on-site and off-site activities and supervisory staffing needs. Step 4 requires regulators to ensure that the risk assessment and level of allocated supervisory resources remains commensurate to AML/CFT risks through ongoing monitoring and reviewing processes. The Guidelines will apply one year after the Guidelines have been issued.
 
View the joint Guidelines.

The European Securities and Markets Authority published its final Report on Guidelines on how Credit Rating Agencies should review and validate their methodologies. The CRA Regulation requires CRAs to review their methodologies, as well as quantitative and qualitative techniques used as part of the validation of the methodologies, to ensure that they are rigorous, systematic and continuous and subject to validation based on historical experience. The Guidelines clarify ESMA’s expectation that a CRA must review its credit ratings and methodologies on an ongoing basis and at least annually. The Guidelines focus in particular on quantitative measures, and the purpose of the Guidelines is to increase the quality of such quantitative measures used by requiring CRAs to review their methodologies and to support the Regulatory Technical Standards on ratings methodologies. The Report follows a consultation published by ESMA on July 13, 2016. The Report provides a summary of the responses received and a qualitative assessment of the potential costs and benefits of the Guidelines. The Guidelines are to be translated into the official languages of the EU and will apply two months after the date of publication of those translations on ESMA’s website.

View ESMA’s Final Report.