The Prudential Regulation Authority and the Financial Conduct Authority launched separate consultations on proposals to extend some of their whistleblowing requirements to UK branches of non-EEA banks. The proposals do not apply to UK branches of EEA banks. The regulators are proposing that non-EEA banks should be required to inform their employees about the regulators' whistleblowing services. Moreover, any non-EEA banking group that has both a UK subsidiary and a UK branch should inform branch staff about the subsidiary's whistleblowing arrangements. The PRA is also proposing that all insurers should inform employees about whistleblowing procedures. Since September 7, 2016, UK banks, building societies and credit unions with assets of £250 million or greater, PRA-designated investment firms, insurance and reinsurance firms within the scope of Solvency II or regulated by the Society of Lloyd's, as well as Lloyd's managing agents, have been required to implement internal whistleblowing procedures.They must also inform employees of the internal procedures and the whistleblowing services provided by the PRA and FCA and to ensure that employment contracts and settlement agreements do not deter employees from whistleblowing. Responses to the consultation are requested by January 9, 2017. The final rules are expected to apply from September 2017.

View the PRA's consultation paper.

View the FCA's consultation paper.

The Prudential Regulation Authority and the Financial Conduct Authority published revised rules on regulatory references for banking and insurance firms subject to the Senior Manager and Certification Regime and the Senior Insurance Manager Regime, respectively. Regulatory references are employment references passed between firms when an individual moves roles.

Read more. 

The Financial Conduct Authority published a discussion paper about how and why the legal function currently falls within the Senior Manager & Certification Regimes and whether it should continue to do so. In the lead up to implementation of the SM&CR in March 2016, the FCA became aware of significant uncertainty amongst firms as to whether an individual responsible for the management of a firm's legal function would require approval as a Senior Manager. Where heads of legal are responsible for compliance, there is a clear need to register, but the position is less clear for heads of legal who do not hold this additional function.

Read more. 

Timothy Massad, Chairman of the CFTC, spoke at the SIFMA annual meeting about clearinghouse regulation, technological changes and finishing Dodd-Frank rulemaking. Massad first highlighted ongoing CFTC work regarding stress testing across multiple clearinghouses to study systemic issues and interdependencies, recovery plans for systemically important clearinghouses and CFTC’s involvement in international coordination of clearinghouse recovery and resolution.

He next focused on two technological issues, cyberattack risk and automated trading. He highlighted CFTC rules about cyberdefense testing for market infrastructure firms. He also discussed efforts the CFTC took to address challenges posed by automated trading including working to finalize Regulation AT, which is designed to address the risk of disruption posed by automatic trading.

Chairman Massad discussed CFTC’s work finalizing rules required by Dodd-Frank Act, including margin rules on uncleared swaps effective on September 1, 2016. He noted that the CFTC is considering lowering the de minimis threshold (when an entity’s swap dealing activities require the entity to register with the CFTC) for swap dealing (from $8 billion to $3 billion). He also noted that the CFTC intends to repropose rules on capital requirements for swap dealers and major swap participants and that he expects the CFTC to issue a rule on certain aspects of cross-border application of swaps rules this fall.

View Chairman Massad's remarks.

The G20 published its Anti-Corruption Action Plan for 2017-2018 and called on countries to implement the United Nations Convention against Corruption. The G20 established the Anti-Corruption Working Group in 2010, a body which is guided by rolling two-year action plans. The new Action Plan outlines areas of priority for the G20 and the Working Group, which amongst other things, include seeking to promote concrete and practical action to achieve enforcement of anti-corruption laws by taking steps to improve co-operation between law enforcement and other relevant authorities within and between member countries, implementing the Financial Action Task Force Recommendations on Transparency and Beneficial Ownership of Legal Persons and continuing to focus on combatting bribery and exploring the possible adherence of all G20 countries to the OECD Anti-Bribery Convention. The Working Group has been tasked with preparing a more detailed implementation plan, so that progress with the priorities can be tracked. It will report in 2017, on progress in implementing the commitments.

View the Action Plan.

The Prudential Regulation Authority issued a Policy Statement relating to implementing risk-based levies for the Financial Services Compensation Scheme deposits. The Policy Statement contains final rules amending the Depositor Protection Part of the PRA Rulebook and a final Statement of Policy on the Financial Services Compensation Scheme and the calculation of firm contributions to the Scheme. The final rules and Statement of Policy are relevant to UK banks, building societies, credit unions, overseas firms with PRA deposit-taking permission, and the FSCS (the UK's administrator of its Deposit Guarantee Scheme). The rules applied from October 1, 2016.

Read more.

The Bipartisan Policy Center, a US-based non-profit organization, issued a paper entitled “Did Policymakers Get Post-Crisis Financial Regulation Right?” The paper analyzes the effects of financial regulation post-financial crisis and reported that, as a general matter, consumers are better protected than before the crisis but that there were increased barriers to affordable credit. In addition, the paper reported on unintended consequences of increased financial regulation, including the curtailment or shift of certain activities from banks to nonbank providers and a lack of coordination on rulemaking. Finally, the BPC recommended that the next president and Congress instruct regulators and appoint an independent commission to conduct a formal assessment of the post-crisis financial regulatory structure.

View BPC paper.

The US BoG of the Federal Reserve System issued a proposed rule modifying the capital plan and stress testing rules for the 2017 test cycle. The proposed changes include eliminating the qualitative portion of Comprehensive Capital Analysis and Review for certain large and noncomplex firms (generally, firms with less than $250 billion in total consolidated assets), along with reduction in the amount of data that such firms are required to submit on the FR Y-14 regulatory reports. Such institutions however, would remain subject to quantitative CCAR requirements and to normal supervision by Federal Reserve Board regarding their capital planning. The proposed rule would be effective for the 2017 CCAR. Comments on the proposal are due by November 25, 2016.

In a speech given the same day, FRB Governor Tarullo stated that the Federal Reserve Board is considering adoption of a “stress capital buffer approach” to setting post-stress capital requirements whereby the G-SIB capital surcharge would be factored into the estimate of the amount of capital required under stress. However, Governor Tarullo emphasized that this was a preliminary proposal and would not apply to the 2017 cycle of CCAR.

View proposal.

View Govenor Tarullo speech.

A Commission Delegated Regulation outlining Regulatory Technical Standards specifying the information on financial contracts that a firm may be required to maintain was published in the Official Journal of the European Union. The Bank Recovery and Resolution Directive gives resolution authorities the power temporarily to suspend the termination rights of any counterparty to a contract with a firm that is under resolution. Both national regulators and resolution authorities may require a firm to maintain detailed records of financial contracts (generally, these are securities contracts, commodities contracts, futures and forwards contracts, swap agreements and inter-bank borrowing agreements) including as to whether or not they include suspensory provisions. 

The RTS set out the minimum set of information on financial contracts that should be included in the detailed records held by a firm, which includes information such as whether a contract includes contractual recognition of resolution powers, information on value and valuation, collateral, termination rights, maturity and netting arrangements. The RTS also prescribe the circumstances in which the requirement to hold such records should be imposed and take a wide approach by including all firms or entities that might be subject to resolution actions.

Read more.

The US Federal Reserve Board issued a notice of proposed rulemaking to tighten capital and other regulatory requirements on financial holding companies that participate in physical commodity trading activities, to remove copper from the list of metals that bank holding companies are permitted to own and store as an activity closely related to banking and to rescind previous orders authorizing certain FHCs to engage in energy management services and tolling activities. A FRB staff memo on the proposed rule published on the same day identified fourteen FHCs that presently have the authority to engage in various physical commodity activities. As justification for the proposed rule, the FRB stated that legal risks associated with physical commodities activities can, at times, exceed the committed capital and insurance policies of the FHC, and that risk, with other legal and reputational risks, can pose a threat to safety and soundness of an FHC engaged in physical commodity activities.

In addition, the Federal Reserve Board proposed to rescind specific authorization to the five FHCs authorized to participate in energy tolling and energy management services. The FRB is reconsidering whether those activities are complementary to financial activities as is physical commodity trading. The Federal Reserve indicated that these activities do not support and are not directly related to otherwise permissible commodities derivatives activities or other financial activities. Comments on the proposed rule must be submitted by December 22, 2016.

View proposed rule.

View staff memo.

Representative Patrick McHenry (R-NC), introduced a bill entitled “Financial Services Innovation Act of 2016,” that would, among other things, establish Financial Services Innovation Offices (FSIOs) at applicable agencies in order to (i) support the development of financial innovations and (ii) establish procedures to streamline the time and cost of financial innovations. In addition, the proposed legislation includes a petition process through which covered persons (i.e., anyone offering financial services innovation products or services that submits a petition to an FSIO) may request a waiver from any regulation by submitting required information, including an alternative compliance strategy.

View full text of the proposed legislation.

The US Treasury Secretary testified before the US House Financial Services Committee regarding the 2016 FSOC Annual Report. Secretary Lew’s remarks included a discussion of the forward-looking approach taken by FSOC and its efforts to engage with stakeholders and the public and to avoid “one-size fits all” regulations. Members of the House Financial Services Committee questioned Secretary Lew on a variety of topics, focusing on the categorization of “Too Big to Fail” and the designation of systemically important financial institutions. In addition, the committee asked Secretary Lew for his views on the joint Federal Reserve Board, FDIC, and OCC report to Congress which recommended repealing the authority for bank holding companies to engage in merchant banking activities. Secretary Lew distanced himself from the report, stating that the Treasury was not involved in its preparation.

View Secretary Lew's opening remarks.

The Financial Policy Committee of the Bank of England released a statement following its meeting on September 20, 2016. The FPC considers that the current outlook for financial stability in the UK remains challenging following the outcome of the referendum in June for the UK to leave the EU. The FPC has reaffirmed that it expects to maintain a countercyclical buffer rate of 0% until at least June 2017 unless any material changes warrant an amendment. The Prudential Regulation Authority's expectation is that banks should not increase dividends and other distributions as a result of the CCyB being maintained at 0%. 

View the statement.

The European Banking Authority published final draft Implementing Technical Standards on the common procedures, forms and templates for the consultation process between the relevant national regulators when carrying out the prudential assessment relating to proposed acquisitions of qualifying holdings in credit institutions.  The Capital Requirements Directive requires regulators to fully consult with each other when carrying out the assessment of a proposed acquirer of qualifying holdings. The final draft ITS supplements this requirement by setting out the requirements for the designation of contact points by regulators, as well as a timeframe and process for submitting the consultation notice and for providing the response. The final draft ITS provide templates for the response from the regulator from whom information has been requested. It also outlines language requirements and means of communication, as well as how mutual feedback would be carried out. The EBA has made certain amendments to the version of the ITS that it consulted on previously to take into account the final draft ITS prepared on a similar topic under the Markets in Financial Instruments Directive II, which was published by the European Securities and Markets Authority in March 2015. Those amendments seek to align the requirements across sectors. The final draft ITS must be submitted to the Commission for adoption before it can enter into force.  

View the final draft ITS.

The European Banking Authority published a consultation paper proposing draft Guidelines on how to stipulate the minimum monetary amount of professional indemnity insurance required for authorization under the Payment Services Directive II. PSD2 entered into force on January 12, 2016, and will apply from January 13, 2018. The PSD2 recognizes new types of payment services that have emerged in the area of internet payments, such as payment initiation services and account information services. The PSD2 sets out the criteria on how to stipulate the minimum monetary amount of professional indemnity insurance or other comparable guarantee to be held by regulated firms. The draft Guidelines also set out the criteria, indicators, calculation methods and a formula that regulators should use when granting authorization or registration. The consultation paper explains the EBA's proposal for the use of a formula to calculate the minimum monetary amount of professional indemnity insurance or any comparable guarantee, when and how the lowest tier (the default value) should be used when calculating the monetary amount, provides details on indicators for the criteria set out in the PSD2 and the proposed methodology for some of the indicators. Responses to the consultation are due by November 30, 2016. 

View the consultation page. 

The European Banking Authority published proposed draft technical standards on fee terminology and disclosure documents under the Payment Accounts Directive. The PAD aims to assist consumers to understand the fees of payment service providers and to make informed decisions about which account is most suitable for customers, by setting common standards for PSPs across EU Member States, harmonising the terminology used by PSPs and introducing fee information templates. The EBA is responsible for preparing draft Regulatory Technical Standards setting out the Union standardized terminology for the most common services linked to a payment account, as well as  Implementing Technical Standards on the standardized presentation format of the fee information document (FID) and the statement of fees (SoF). The EBA's consultation paper sets out its proposed RTS and ITS, the options it has considered and the rationale for choosing the proposed requirements and examples of completed FIDs and SoFs. Responses to the consultation are due by December 22, 2016. 

View the consultation paper.

The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China. 

Read more.

HM Treasury published a consultation paper on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of “investment advice” set out in the Markets in Financial Instruments Directive. The consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority last year, which assessed how consumers could access advice on their finances more easily. The FAMR recommended that the government should consult on amending the definition of regulated advice in accordance with the MiFID definition, to the effect that only advice which makes a personal recommendation would be regulated. The consultation proposes a revised definition and seeks feedback on the costs and benefits of this change and any potential risks by November 15, 2016.

View the consultation page.

A Commission Delegated Regulation identifying high-risk third countries with strategic deficiencies under the Fourth Money Laundering Directive was published in the Official Journal of the European Union, based on deficiencies identified by Financial Action Task Force. 

The Regulation lists high-risk third countries which have provided a written high-level political commitment to address identified deficiencies and have developed an action plan with the FATF; countries listed: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu and Yemen. The Regulation identifies Iran as a high-risk third country that has provided a written high-level political commitment to address identified deficiencies and has decided to seek technical assistance in the implementation of the FATF action plan. The Regulation also identifies the Democratic People's Republic of Korea (DPRK) as high-risk third country which presents ongoing and substantial money-laundering and terrorist-financing risks, having repeatedly failed to address identified deficiencies.

View the Regulation.

FDIC Chairman Martin Gruenberg issued a statement on the release of updated data regarding the FDIC’s Deposit Insurance Fund. (DIF) The DIF balance stood at almost $78 billion, leading to a reserve ratio of 1.17%, an eight-year high. Chairman Gruenberg’s statement noted that the FDIC still intends to reach the statutory minimum ratio of 1.35% set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, before September 30, 2020.

View text of Chairman Gruenberg’s statement.

The US Federal Deposit Insurance Corporation released the semi-annual report of the Global Capital Index. In a concurrent statement, Vice-Chairman Thomas M. Hoenig noted that while Global Systemically Important Banks did increase their equity capital, a beyond-proportionate increase in assets led to a net increase in the overall leverage of G-SIBs. Vice-Chairman Hoenig also noted that asset quality in Europe remains an issue in comparison to the United States, with more than three times as many non-performing loans, and that better-capitalized banks trade at a premium when compared to banks with weaker capital positions. Vice-Chairman Hoenig noted that, while banks are better capitalized now, with average leverage ratios of around 5%, such ratio remains inadequate should banks have to withstand losses similar to the last financial crisis.

View text of Vice-Chairman Hoenig’s statement.

View Global Capital Index.

The Center for Capital Markets Competitiveness of the US Chamber of Commerce wrote a letter to Scott Alvarez, General Counsel of the Federal Reserve Board, requesting that the Federal Reserve Board withdraw its report, issued pursuant to Section 620 of the Dodd-Frank Act, advocating for a repeal of merchant banking authority for financial holding companies.

The letter noted that there was no opportunity for stakeholders to comment on the proposed removal of merchant banking authority, and alleged that the Federal Reserve Board, by presenting the contents of the letter as a policy recommendation to Congress, “short-circuited” the notice-and-comment procedure. The Center also alleged that the Federal Reserve Board failed to identify the benefits of repealing merchant banking authority in the report, unjustly presenting a one-sided case for its recommendations to Congress.

The Center also took issue with the substance of the proposal, arguing that repealing merchant banking authority would deny companies access to capital at a time when credit is already difficult to access, particularly in light of what the Center characterized as “hypothetical” risks in comparison to the “real” benefits of merchant banking. The letter concludes by recommending that the Federal Reserve Board withdraw its report and hold a series of public meetings to develop a “more robust” recommendation on merchant banking policy.

View letter.

The Bank for International Settlements' Committee on Payments and Market Infrastructures announced that it had established a task force to review the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions. The CPMI is tasked with setting global standards for payment, clearing and settlement services. The first phase will involve a review of current practices in the area, with future efforts to be determined based on the findings. The task force follows efforts by the CPMI on cyber security and operational risk, including publication of the Guidance on cyber resilience for financial market infrastructures, and the CPMI-IOSCO Principles for Financial Market Infrastructures.

View the press release. 

View the Guidance on cyber resilience.

View the Principles for Financial Market Infrastructures. 

As part of his keynote remarks at the 4th Annual OTC Derivatives Summit North America, US Commodity Futures Trading Commission Chairman Timothy Massad addressed the CFTC’s achievements in the past year and more specifically, the implementation of global rules setting margin for uncleared swaps and the de minimis threshold for swap dealers.

With respect to the rules on margin for uncleared swaps, Massad stressed the importance of harmonizing the substance of the rules with other regulators, including US domestic prudential regulators and international jurisdictions, as well as addressing the cross-border implications of transactions.  Massad pointed to the broad scope of substituted compliance with the rules of other jurisdictions as well as agreed timetables for implementation with international regulators. Massad maintained that despite his disappointment following the European Commission’s announcement of a delay in the implementation of their rules, it was appropriate to maintain the September 1, 2016 initial compliance date for transactions between the largest swap dealers.

Regarding the swap dealer de minimis threshold, Massad stated he will recommend a one-year delay in the scheduled reduction of the de minimis threshold for swap dealer registration in order for the CFTC to have more time to consider the issue.  The current de minimis threshold of $8 billion is scheduled to decrease to $3 billion in December 2017.  Massad also said that he has asked the other CFTC members to consider a reproposed rule setting capital requirements for swap dealers, noting that “[i]t makes sense to finalize this before turning to the threshold" and adding that he hopes it will be done “shortly.”

Chairman Massad Full Remarks.

The Comptroller of the Currency Thomas J. Curry addressed how the US federal banking system has progressed since the Great Recession and the 2008 financial crisis, the strength of US banks today and the need for continued vigilance to manage risks. Among other things, the Comptroller discussed leverage ratios and their role as an additional line of defense, or backstop, to the risk-based capital measures.  Curry criticized the proposals of some to “water down” the ratios by manipulating what is included or excluded from consideration and stressed the need for clear definitions that accurately and transparently capture the leverage of regulated banks.  Curry argued that “weakening the ratio through special exclusions only undermines our original intent and weakens the protection against excessive leverage.” He further noted that while some wish to exclude certain assets from measures of leverage on the grounds that it could affect certain business lines’ profitability, “the essence of assessing a bank’s leverage is about comparing its equity to its assets, and carving out various assets would cut against the very meaning of leverage.”

View the Comptroller's full remarks.

The Federal Reserve Bank of New York announced that Alberto G. Musalem, executive vice president and head of the Integrated Policy Analysis Group (IPA), will resign from the New York Fed effective January 6, 2017. On October 1, 2016, Mr. Musalem will assume the role of senior advisor to the president of the New York Fed, William C. Dudley.

A successor for Mr. Musalem will not be named. The work of IPA will continue, but as of October 1, 2016, its responsibilities and staff will be reassigned to the Markets, Research and Statistics, and Supervision Groups, as well as to the Executive Office.

View The New York Fed press release.

The UK Payment Systems Regulator published a decision designating the Current Account Switch Service operated by BACS Payment Schemes Limited as an alternative arrangement under the Payment Accounts Regulations 2015. This follows an application from BACS to the PSR on June 9, 2016, for the Current Account Switch Service to be designated as an alternative arrangement pursuant to the PARs.  The PARs make provision for the switching of a consumer’s payment account to a new account at the consumer’s request. Switching services must meet certain requirements, unless the PSR designates the service as an alternative arrangement. In order to be designated as an alternative arrangement, the scheme must meet certain criteria set out in the PARs, such as clearly being in the interests of consumers. 

View the Decision.

The US Office of the Comptroller of the Currency released its bank supervision operating plan for fiscal year (FY) 2017.  The plan sets forth the foundation for policy initiatives and for supervisory strategies applicable to individual banks. OCC staff members will use this plan to guide their supervisory priorities, planning and resource allocations.

Of note, the agency indicated that it will focus on Bank Secrecy Act/anti-money laundering compliance management in 2017.  Additional supervisory strategies for FY 2017 will focus on: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; and (iv) change management processes to address new regulatory requirements.

The OCC will provide periodic updates about supervisory priorities through the Semiannual Risk Perspective in the spring and fall of 2017, and with a mid-cycle operating plan status report in the third quarter of FY 2017.

View the OCC's Fiscal Year 2017 Operating Plan.

The European Commission established a task force to prepare and conduct negotiations with the United Kingdom. The Task Force will assist the Commission on all strategic, operational, legal and financial issues related to the negotiations. Sabine Weyand, currently Deputy Director-General in the Commission's trade department (DG TRADE) will become the Deputy Chief Negotiator as of 1 October 2016.  The announcement follows the appointment of Michel Barnier as Chief Negotiator on July 27, 2016. Mr. Barnier will commence his role from October 1, 2016. The Commission noted that once the UK triggers the process to leave the EU, Mr. Barnier will then make the necessary contacts with the UK authorities. 

View the press release.

You might like to view our Brexit resource page, which is available here. 

The OCC issued a proposed rule setting forth a framework for placing uninsured national banks regulated by the OCC into receivership.  While the National Bank Act and Federal Deposit Insurance Act specify the Federal Deposit Insurance Corporation as receiver for insured banks and savings associations, the law grants the Comptroller of the Currency broad authority to choose a receiver for uninsured national banks. The proposal would not apply to federal savings associations, all of which are insured, or to uninsured US branch offices of foreign banks.

The proposed rule describes:  (i) the appointment of a receiver and required federal notice; (ii) the process for submitting claims against the receivership; (iii) the order of priorities for payment of administrative expenses and claims; (iv) the powers and duties of the receiver; (v) the payment of dividends on claims; (vi) the sources of funds for payments and claims; and (vii) the status of fiduciary and custodial assets and accounts.

While the OCC has not appointed a receiver for an uninsured national bank in many years, the agency believes that clarifying the framework, process and authority promotes the orderly resolution of such institutions if required and contributes to the broader stability of the federal banking system.

All uninsured national banks are currently trust banks.  However, the OCC noted that it retains discretion to grant new charters for uninsured banks, and the OCC specifically stated that an uninsured federal bank charter may be an appropriate entity for delivering banking procedures in a new way in light of technological innovations in financial services.

The deadline to submit comments on the proposed rule is November 14, 2016.

View the proposed rule.


 

Implementing Technical Standards listing the main indices and recognized exchanges for the use of eligible collateral in accordance with the Capital Requirements Regulation was published in the Official Journal of the European Union.
 
The CRR states that equities or convertible bonds included in a main index may be used by institutions as eligible collateral for credit risk mitigation purposes. One of the eligibility criteria for collateral is that it should be sufficiently liquid. To be considered as main indices for the purposes of the CRR, equity indices should consist mainly of equities that can reasonably be expected to be realizable when an institution needs to liquidate them. Equity indices listed include STOXX Asia/Pacific 600, TSX60, Hang Seng Mainland 100 Index (China), FTSE Europe Index, S&P BMI France, Nikkei 300 and the OMXS60. The convertible bond indices listed as main indices are Exane ECI-Europe, Jefferies JACI Global and Thomson Reuters Global Convertible. 

Read more.

The New York State Department of Financial Services proposed regulations requiring banks, insurance companies and other NYDFS-regulated institutions to promptly adopt a cybersecurity program and setting forth certain minimum standards with respect to such program. As part of the establishment of a cybersecurity program, each covered entity would be required to, among other things, adopt a written cybersecurity policy, designate a chief information security officer responsible for implementing, overseeing and enforcing its new program and policy and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties.  Institutions would also be required to comply with additional requirements in order to protect the confidentiality, integrity and availability of information systems.  The proposed regulations would also require senior management of covered entities to file an annual certification confirming compliance with the regulations, beginning in January 2018.

The NYDFS notes that while these regulatory minimum standards are warranted, it is not the intention that such standards be overly prescriptive so that cybersecurity programs can match the relevant risks and keep pace with technological advances. The proposed regulations are subject to a 45-day notice and public comment period before their final issuance.

View proposed regulations.

As part of the inaugural Marketplace Lending Policy Summit 2016, US Comptroller of the Currency Thomas J. Curry discussed marketplace lending’s risks and associated policy questions. Of note, Comptroller Curry addressed the OCC’s work around responsible innovation and feedback it has received to date on potentially granting federal banking charters to fintech firms.  Curry noted that if the OCC does decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness and fairness that other federally chartered institutions must meet.

View Comptroller Curry's remarks.

The Bank of England announced the departure of Minouche Shafik, Deputy Governor for Markets and Banking. Ms. Shafik will relinquish her position in February 2017, taking up the role of Director at the London School of Economics in September 2017. Ms. Shafik's successor has not yet been named. 

View the news release.

The Financial Conduct Authority published a consultation paper on proposed updates to the current appropriate qualification examination standards.  Individuals within regulated firms that, for example, advise on securities, derivatives or retail investment products, are required to have appropriate qualifications. The FCA will seek to amend the appropriate exams standards to ensure that exam content is current and reflects the knowledge that the FCA considers necessary for individuals to perform their roles competently. The proposed changes do not alter the FCA's policy on appropriate qualification requirements, introduce new appropriate qualification requirements or change the level of achievement required to meet the FCA rules on appropriate qualifications. The FCA is also proposing amendments to the Training and Competence Sourcebook of its Handbook to clarify how to read and use the appropriate qualification tables as well as seeking views on a standalone equity release qualification which relates to the UK mortgage market and the provision of advice on alternative sale and lease back arrangement (home reversions) accounts. Responses to the consultation are due by December 13, 2016.
 
View the consultation paper.

The European Central Bank published proposed draft Guidance on non-performing loans. The proposed Guidance addresses the main aspects of strategy, governance and operations for resolving NPLs. Once finalized, the Guidance will apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. Eurozone banks will be expected to apply the Guidance proportionately with those banks that have a high level of NPLs taking greater actions. The ECB Banking Supervision emphasizes that an NPL strategy should outline the bank’s approach and objectives regarding the effective management and ultimate reduction of NPL stocks in a clear, credible and feasible manner for each relevant portfolio. The ECB also published the results of a survey which it undertook with eight national supervisory authorities. The survey assesses the legal and supervisory practices of eight of the Eurozone countries. The ECB considers that some of those countries should revise and strengthen the legal framework on NPLs. Responses to the consultation are due by November 15, 2016.
 
View the draft Guidance and related information.
 
View the draft Guidance. 

The European Commission published a Communication calling for implementation of the Capital Markets Union to be accelerated. The CMU is part of the third pillar of the Commission Investment Plan for Europe. The CMU Action Plan was published in September 2015.  It outlined a program for implementation by 2019 and set out changes to strengthen EU capital markets. The Commission stated that due to the changing political context in the EU, it would be taking forward priority areas to complete the CMU and undertaking a mid-term review in 2017.  Priorities include proposals to reduce differences in European insolvency regimes, the removal of withholding tax barriers, simplification of the EU personal pension products, improving the use of European savings and increasing the performance of the EU economy.  The Commission called for European Parliament and Member States to do everything within their power to deliver the measures proposed under the CMU Action Plan as soon as possible.

View the Commission press release.

View the Communication.

View the Action Plan.

The US Federal Financial Institutions Examination Council issued a revised Information Security booklet, which is part of the FFIEC’s IT Examination Handbook. The Information Security booklet summarizes the factors necessary to an effective information security program. The booklet sets forth updated guidelines for examiners evaluating the adequacy of information security programs of financial institutions and describes the following aspects of effective information security operations, which include (i) effective threat identification, assessment and monitoring and (ii) incident identification assessment and response. In addition, the booklet discusses assurance reports (addressing IT system design and operation) and testing of information security programs as methods to assess and achieve the effectiveness of such programs.

View FFIEC's IT Handbook.

The European Banking Authority published a report analyzing the core funding ratio across the EU. The report comes in response to a call for advice from the European Commission to explore the possibilities of the core funding ratio as a potential alternative metric for the assessment of EU banks’ funding risk, taking into account proportionality. 

Read more.

The U.S. Commodity Futures Trading Commission approved a final rule instituting system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories and derivatives clearing organizations. In addition, the CFTC also issued a comparability determination for certain of Japan’s margin requirements for uncleared swaps. The CFTC’s determination would permit substituted compliance with Japan’s uncleared swap margin rules in place of the uncleared swap margin provisions of Title VII of the Dodd-Frank Act.

View full text of CFTC final rule on system safeguards testing requirements.

View full text CFTC comparability determination.

On September 8, 2016, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the OCC jointly issued, pursuant to a requirement under Section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a study on the scope of permissible activities and investments engaged in by banking entities, and the associated risks of those activities. The banking entities covered in the study include insured depository institutions and any company that controls an insured depository institution or is treated as a bank holding company.

The report recommends changes to mitigate risks associated with banking activities, including (i) repealing the authority of financial holding companies to engage in merchant banking and commodities activities, (ii) reviewing certain activities to determine whether changes in regulations are needed and (iii) clarifying certain prudential rules and regulations.  If enacted, the Federal Reserve Board’s recommendations relating to merchant banking and commodities activities would significantly restrict the permissible activities of FHCs established under the Gramm-Leach-Bliley Act in 1999.  The Federal Reserve Board also recommended the repeal of exemptions available to owners of industrial loan companies and grandfathered savings and loans.

View the text of the Report.
 

The Federal Reserve Board issued a policy statement setting forth the framework for setting the Countercyclical Capital Buffer for private-sector credit exposures in the United States. The CCyB is a macroprudential tool that is intended to assist banking organizations in absorbing shocks associated with fluctuations in credit conditions. As a general matter, the CCyB applies to large internationally active banking organizations that are subject to the advanced approaches capital rules (i.e., those with more than $250 billion in assets or $10 billion in on-balance-sheet foreign exposures), and to any depository institution subsidiary of such banking organizations. The policy statement describes the types of financial system vulnerabilities and other factors that the Federal Reserve Board may take into account as it evaluates settings for the buffer, which may include: leverage in the nonfinancial and financial sectors, maturity and liquidity transformation in the financial sector and asset valuation pressures.  However, the range of indicators and models that may be considered will likely change over time. Once activated, the CCyB imposes heightened capital requirements on such covered institutions, which heightened requirements may be removed or reduced by the Federal Reserve Board upon determination that financial conditions that led to the activation of the CCyB have abated or lessened. In addition, the policy statement notes that the Federal Reserve Board will provide notice and seek comment from the public on the proposed level of the CCyB as part of making any final determination to change the CCyB.

View Federal Reserve Board policy statement.

The US Board of Governors of the Federal Reserve System adopted revisions to the FR Y-9C reporting form, a standardized financial statement for consolidated bank holding companies. The Federal Reserve Board revised the FR Y-9C to, among other things, delete existing data items, increase existing thresholds for certain data items, and clarify certain instructional items. The changes were originally proposed to take effect on March 31, 2016.  In response to comments, the Federal Reserve Board is generally delaying the effective date for implementation for certain changes to September 30, 2016, while others will become effective March 31, 2017.

View the text of adopting release

A Commission Delegated Regulation amending the Regulatory Technical Standards specifying the methodology for the identification by national regulators of global systemically important institutions and the definition of subcategories of GSIIs was published in the Official Journal of the European Union. The RTS specify quantifiable indicators forming the five categories to be used when measuring the systemic significance of a bank. The RTS is based on international standards developed by the Basel Committee on Banking Supervision to assess global systemically important banks and on the higher loss absorbency requirement. This methodology is regularly updated. The Amending Regulation updates the reporting templates and reporting instructions for the data collection for 2016 as well as the current values of the indicators that are to be determined.
 
The Amending Regulation entered into force on September 9, 2016. 
 
View the Regulation.

View the original RTS.

As it indicated it would do in the Joint Report on Banking Activities and Investments, the OCC issued a proposed rule that would prohibit national banks and federal savings associations from dealing and investing in industrial or commercial metal. If finalized, the prohibition would cover metal, including alloy, in a physical form primarily suited to industrial or commercial use (including, for example: copper cathodes, aluminum T-bars and gold jewelry).  The proposal states that such metals do not constitute “exchange, coin, and bullion” under 12 USC 24(Seventh), nor would buying or selling such metals for the purpose of dealing or investing in that metal be part of or incidental to the business of banking.  By operation of various federal laws, the prohibition would also apply to FDIC-insured state banks and to US branches and agencies of foreign banks.  Comments must be submitted 60 days from the date of the proposed rule’s publication in the Federal Register.

View Text of OCC Proposed Rule

The Joint Committee of the European Supervisory Authorities published an Opinion on the European Commission's proposed amendments to the final draft Regulatory Technical Standards on risk mitigation techniques for uncleared OTC derivatives under the European Markets Infrastructure Regulation. The Joint Committee is made up of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Opinion includes a revised version of the final draft RTS.

Read more.

US Federal Reserve Bank Presidents Esther George (Kansas City) and Dr. Jeffrey Lacker (Richmond) testified before the US House of Representatives Financial Services Subcommittee on Monetary Policy and Trade, in a hearing entitled “Federal Reserve Districts: Governance, Monetary Policy, and Economic Performance.” Addressing the appearance of conflicts of interest arising from the presence of bankers on Reserve Bank boards of directors, President George noted that the Federal Reserve Board in Washington, D.C. is ultimately responsible for bank supervision and that Reserve Bank directors do not participate of bank supervisory matters.  President Lacker noted that Reserve Bank directors have no formal role in crafting banking regulations.  Each president also addressed the structure of the Federal Reserve System in the context of the role played by monetary policy in the economy.

View Details regarding the hearing.

The G20 Leaders published the Communiqué from the Hangzhou Summit. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda, including, for example, finalization of Basel III by the end of 2016, full implementation of the OTC derivatives reforms and removing legal and regulatory obstacles to the reporting of OTC derivatives trades, developing effective cross-border resolution regimes and implementing the total loss absorbing capacity (TLAC) standard. The G20 Leaders also noted the importance of monitoring emerging systemic risks including those derived from shadow banking and asset management. For the continued protection of the global financial system, and with a focus on anti-money laundering, counter terrorism and tax evasion, the G20 have asked the Financial Action Task Force and the Global Forum to prepare initial proposals by October 2016 to improve implementation of transparency standards in the international financial system, including the collection of beneficial ownership information of legal persons and legal arrangements and international information sharing arrangements.

View the Communiqué.

The US CFTC requested public comment on proposed amendments to the Whistleblower Rules found in Part 165 of the CFTC’s regulations. The amendments would improve the process for reviewing whistleblower claims and clarify staff authority to administer the whistleblower program. The proposal would also strengthen the CFTC’s authority to protect whistleblowers from retaliation through CFTC enforcement action under the Commodity Exchange Act.

The amendments would also make changes to eligibility requirements, the award claims process (and review of that process), whistleblower identifying information and the treatment of employer confidentiality provisions. Comments to the proposed amendments were due on September 29, 2016.

View proposed Whistleblower Rule Amendments.

The Financial Stability Board published a second progress report on its workplan to reduce misconduct risk. The workplan was first agreed in May 2015 and the FSB published its first progress report in November 2015. The workplan involves: (i) reviewing the effectiveness of reforms to compensation tools in reducing the risk of misconduct; (ii) examining whether the global standards of conduct in the fixed income, commodities and currency (FICC) markets need to be improved; and (iii) reforming the major financial benchmarks. The FSB's second progress report sets out the progress made to date as well as the expected dates for finalization of some of the work. By the end of 2016, the International Organization of Securities Commissions will publish final guidance for benchmark administrators on the content of the statements of compliance that administrators will be conducting a follow-up review of WM/Reuters 4 pm London Closing Spot Rate. The report also noted current reforms to the key IBOR benchmarks with a final report to be released in the course of 2017. Other items that are in the pipeline include publishing recommendations on the application of regulatory compensation tools to reduce misconduct risk by the end of 2017 and a wide-ranging FX Global Code for the wholesale foreign exchange market is expected to be finalized by May 2017. 

View the progress report.