An EU Delegated Regulation containing Regulatory Technical Standards on preventing market abuse and reporting suspicious transactions under the Market Abuse Regulation was published in the Official Journal of the European Union. MAR will apply from July 3, 2016 except for those concepts that will be introduced by the revised Market in Financial Instruments Directive and the Market in Financial Instruments Regulation, which will apply from 3 January 2018.

The RTS impose requirements on operators of trading venues and persons professionally arranging or executing transactions to monitor for and report insider dealing or market manipulation. A template suspicious transaction and order report (known as a STOR) will need to be used for reporting suspicious transactions. The RTS also impose a requirement on operators of trading venues and persons professionally arranging or executing transactions to provide adequate training for their staff involved in monitoring detection and identification of orders and transactions that might be insider dealing or market manipulation, including for staff involved in processing orders and transactions.

View the RTS on preventing market abuse and reporting suspicious transactions.

A Commission Implementing Regulation laying Implementing Technical Standards under the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The ITS outlines the uniform forms, templates and definitions for the identification and transmission of information by regulators and resolution authorities to the European Banking Authority. The BRRD outlines obligations for regulators and resolution authorities on the application of simplified obligations in relation to the contents and details of recovery plans, the date by which the first recovery plans are to be drawn up and the frequency for updating the recovery plans.

Read more.

Two EU Delegated Regulations containing technical standards on the requirements relating to market soundings under the Market Abuse Regulation were published in the Official Journal of the European Union. MAR will apply from July 3, 2016 except for those concepts that depend on the entry into effect of the revised Market in Financial Instruments Directive and the Market in Financial Instruments Regulation, which will apply from January 3, 2018.

Read more.

Director of the US Office of Financial Research (OFR) Richard Berner spoke about financial resilience, including how to define, measure and monitor financial stability or resilience. He noted that resilience has two key aspects: the system’s shock-absorbing capacity and incentives that are aligned to limit excessive risk taking. He noted that the OFR has helped promote financial stability by developing tools to assess and monitor threats to financial resilience and improving the scope and quality of data to measure such threats, including, for example, the Financial Stability Monitor, a tool the OFR uses to measure macroeconomic, market, credit, funding and liquidity, and contagion risk. While in the OFR’s assessment, overall threats to financial stability remain at a moderate level, Berner highlighted macro risks (i.e., low growth rate and inflation), cybersecurity and credit risk as key areas of vulnerability. 

View the speech.

FDIC Chairman Martin Gruenberg provided remarks on the improvements to the US financial system and the economy as a result of the regulatory reforms that have been implemented since the financial crisis. He noted that there has been strong loan growth at US banks, and that it is outpacing GDP growth and other measures of household and business credit, suggesting that banks would be better positioned to extend credit in the event of economic distress.  Gruenberg further noted that bank earnings have improved since the financial crisis and that almost two-thirds of all institutions reported higher earnings in 2015 as compared to 2014, despite economic challenges that the industry has faced, suggesting an improvement in bank profitability. Despite changes in the way corporate and Treasury bond trading is conducted, Gruenberg suggested that post-crisis market liquidity for such bonds has not declined and that liquidity conditions are strong. Gruenberg insisted that bank loan growth suggests the relative importance of banks as the ultimate holder of the credit risk associated with loans despite the increase in nonbank lending activity. He stated that banks are better capitalized and better able to absorb losses, and thus that the financial system is more resilient and more stable than before the crisis.

View the speech.

The European Banking Authority published its annual report which provides a review of the EBA’s work in 2015 and sets out key areas of focus it has forecast for the short term future. The EBA lists its achievements in 2015 in the following categories: (i) completing the Single Rulebook and enhancing consistency in prudential regulation; (ii) concluding the regulatory framework for effective recovery, resolution and deposit guarantee schemes; (iii) strengthening supervisory convergence and ensuring the consistent implementation of supervisory and regulatory practices across the EU; (iv) identifying, analyzing and addressing the key risks in the EU banking sector; (v) protecting consumers monitoring financial innovation and ensuring secure and efficient payment services across the EU; (vi) international engagement; and (vii) working on cross-sectoral issues. 

The European Securities and Markets Authority published its 2015 annual report. The report reviews ESMA’s mission and objectives for 2015 and measures its achievements against its 2015 objectives.  The report also provides information on ESMA's operations, budget and structure. ESMA is charged with enhancing the protection of investors and promoting stable and orderly financial markets, with various roles under legislation such as EMIR and MiFID. The report states that ESMA has made significant steps in realizing its mission by assessing risks to investors, markets and financial stability, completing a single rulebook for EU financial markets, promoting supervisory convergence and supervising credit rating agencies and trade repositories.
 
View the report.

The CFTC reopened the comment period for certain elements of its notice of the proposed rulemaking regarding Regulation Automated Trading (Regulation AT), initially proposed in December 2015.  The extension comes after a public roundtable meeting on June 10. Comments will be accepted from June 10, 2016 to June 24, 2016 on the topics that were discussed at the roundtable, including items on the discussion points paper released by the CFTC, the agenda for the roundtable discussion, as well as topics that arose during the roundtable.

View the press release.

The CFTC approved a final rule to amend existing swaps reporting regulations in order to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions. The final rule modifies Part 45 of the CFTC’s regulations, by removing uncertainty as to which counterparty to a swap is responsible for reporting data for each of the components of a cleared swap transaction, including to further clarify whose obligation it is to report the extinguishment of a swap once a derivatives clearing organization has accepted the transaction for clearing. The rule also improves the efficiency of data collection and maintenance associated with the reporting of the swaps involved in a cleared swap transaction. Specifically, the CFTC indicated that it expects that it will reduce the likelihood of double counting notional exposures and will improve the ability to trace the history of a cleared swap transaction from execution between the original counterparties to clearing novation. The rule will become effective 180 days after it is published in the Federal Register.  The rule also codifies previous CFTC no-action letters by eliminating the requirement for swap dealer/major swap participant reporting counterparties to report daily valuation data for cleared swaps effective immediately upon publication in the Federal Register.

View the final rule.

View Chairman Massad's statement.

The European Securities and Markets Authority published an updated list of recognized central counterparties based in third countries. Under the European Markets Infrastructure Regulation, third-country CCPs must be recognized by ESMA to operate and offer services in the European Union. The list has been updated to include the Chicago Mercantile Exchange Inc., established in the United States of America.  Inclusion of the CME brings the list of recognized CCPs to nineteen members from countries including Australia, Hong Kong, Japan and Singapore. Such jurisdictions have been deemed by the European Commission to have legal and supervisory provisions for CCPs equivalent to the regime for EU CCPs under EMIR.

View the list and ESMA's update.

The European Commission adopted a Commission Delegated Regulation supplementing the Markets in Financial Instruments Regulation. Under MiFIR, a new trading obligation is introduced for shares and other sufficiently liquid instruments.  Such instruments must be traded on EU regulated exchanges or trading platforms or third country recognized exchanges and trading platforms. The trading obligation applies generally to third country entities that would be subject to the clearing obligation under EMIR if they were established in the Union. The trading obligation will apply to derivatives transactions pertaining to a class of derivatives that has been declared subject to the trading obligation, provided that the contract has a direct, substantial and foreseeable effect within the Union or where such obligation is necessary or appropriate to prevent the evasion of any provision of this Regulation. The adopted Regulation sets out the regulatory technical standards on the direct, substantial and foreseeable effect of derivative contracts within the European Union and the prevention of the evasion of rules and obligations, and therefore establishes when third country counterparties would be subject to the trading obligation mandated by MiFIR. 

The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation with regard to Regulatory Technical Standards on the volume cap mechanisms and the provision of information for the purposes of transparency and other calculations. The adopted Regulation specifies general terms with regards to data submissions and reporting to ensure the consistency of data content, quality and format. 

Read more.

The Securities and Markets Stakeholder Group published advice to the European Securities and Markets Authority in a Position Paper on Supervisory Convergence. The Paper outlines supervisory convergence as one of the key strategies to be pursued by ESMA from 2016 until 2020. The SMSG also outlines the possible role it may take in supporting ESMA to ensure consistent supervisory practice across the European Union.
 

The European Commission published a proposal for a Regulation to provide funding for two financial expertise non-profit organizations: Finance Watch and Better Finance.  The Commission initiated at the end of 2011 a pilot project aimed at providing grants to support the development of a financial expertise center to the benefit of consumers and other end-users and to enhance their capacity to participate in EU financial services policy making. As part of these efforts, operating grants were awarded to Finance Watch and Better Finance. Finance Watch seeks to defend the interests of civil society in the financial sector and Better Finance focuses on the interests of consumers, individual investors and shareholders, savers and other end users in the financial sector. 
 

As part of its Work Plan for the fourth quarter, the Federal Reserve Board’s Office of Inspector General announced that it will audit the Federal Reserve Board’s oversight of cybersecurity threats to financial institutions. According to the OIG, the growing sophistication and volume of cybersecurity threats presents a serious risk to all financial institutions. The OIG will focus its review on how the Federal Reserve System’s examination process has evolved and whether it is providing adequate oversight of financial institutions’ information security controls and cybersecurity threats.

View OIG Work Plan.

A Commission Delegated Regulation supplementing the Market Abuse Regulation was published in the Official Journal of the European Union. The Regulation lays down Regulatory Technical Standards for the content of notifications to be submitted to regulators and the compilation, publication and maintenance of the list of notifications. 

The Markets in Financial Instruments Regulation requires on-going submissions of reference data for financial instruments admitted to trading. By contrast, the MAR requires trading venues to notify regulators only once of details of financial instruments which are the subject of a request for admission to trading, admitted to trading or traded and where a financial instrument ceases to be traded or admitted to trading. The Regulatory Technical Standards require that notifications of financial instruments pursuant to the reporting obligations in MAR include all of the data set out in table 2 annexed to the Regulatory Technical Standards, such as the instrument identification code, instrument full name and trading venue.

Read more.

The Federal Reserve Board and the FDIC announced that they are permitting certain foreign banking organizations with limited US operations to file “reduced content” resolution plans for their next three resolution plans.  All of the 84 firms that are permitted to file the reduced content plans have less than $50 billion in total US assets and have submitted prior plans that provide the agencies with an understanding of their US operations.  The agencies noted that the decision is intended to create more certainty around future filling requirements. The ability for these firms to file such plans over the next three years is contingent on their maintaining less than $50 billion in US assets, and not experiencing any material events. The agencies said the reduced content plans should focus on changes the firms have made to their prior resolution plans, actions taken to improve the effectiveness of those plans and actions to ensure any subsidiary insured depository institution is adequately protected from the risks of nonbank subsidiaries of the institution, where applicable. The first round of reduced content plan submissions is due by December 31, 2016. 

View the press release.

The US Commodity Futures Trading Commission issued a no-action letter extending the relief provided in CFTC Letter No. 15-24, which expires on June 15, 2016. That no-action letter provides relief to swap execution facilities (SEFs) and designated contract markets (DCMs) to correct clerical or operational errors that caused a swap to be rejected for clearing and thus become void, as well as errors discovered after a swap has been cleared.

Specifically, if, within one hour after a trade has been rejected for clearing, the SEF or DCM corrects an error by permitting a new, pre-arranged trade with terms and conditions that match the terms and conditions of the original trade, other than any such error and time of execution, the trade will be permitted.  Moreover, if an error is discovered after a trade has been cleared, the SEF or DCM is permitted to enter into a pre-arranged trade between the original parties that offsets the swaps carried on the derivative clearing organization’s books. The SEF or DCM may also permit the original or intended counterparties to enter into a pre-arranged transaction that reflects the correct terms to which the parties agreed.

The no-action letter extends relief to the earlier of June 15, 2017 or the effective date of revised CFTC regulations that establish a permanent solution to addressing clerical or operational errors. 

View the press release.

A Commission Delegated Regulation supplementing the Market Abuse Regulation was published in the Official Journal of the European Union. The Regulation lays down Regulatory Technical Standards on the criteria, procedures and requirements for regulators when establishing an accepted market practice and the requirements for maintaining it, terminating it or modifying the conditions for its acceptance. The RTS are made pursuant to MAR, which exempted the application of the prohibition of market manipulation to certain activities, provided that, amongst other things, the person's behavior confirms with an accepted market practice established by a regulator, in compliance with RTS.

Read more.

The Institute of International Finance, the International Swaps and Derivatives Association and the Global Financial Markets Associations jointly issued an open letter to the Basel Committee on Banking Supervision. The letter outlines the collective views of the Associations on the Basel Committee's Consultative Document on Pillar 3 Disclosure Requirements which was published on March 11, 2016. The consultation was a second phase review of the proposed consolidated and enhanced framework for Pillar 3 disclosures under Basel III.

A Commission Implementing Regulation laying down Implementing Technical Standards on the form and content of the description of group financial support agreements in accordance with the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The BRRD sets rules for agreements under which financial support is provided among an EU parent firm and its subsidiaries in other Member States or third countries that are firms covered by the consolidated supervision of the parent undertaking. The entity receiving the support must meet certain conditions for early intervention. Under the implementing technical standards, firms party to the group financial support agreement are required to disclose certain terms on their website in a form that ensures accessibility to the public, in the same form as established for non-quantitative information included in the firm's financial statements. Minimum terms to be disclosed include the form the support may take, the principles for calculation of the consideration for the provision of the support, a general description of the seniority, maturity profile and the maximum term of loans provided as support. 

The implementing regulation will enter into force June 30, 2016.

View the implementing Regulation.

The European Securities and Markets Authority published a final report containing draft regulatory technical standards supplementing the Regulation on European Long-Term Investment Funds. The draft RTS set out the criteria to establish the circumstances in which the use of financial derivative instruments solely serves hedging purposes. The criteria are based on those set out in the CESR guidelines on Risk Management and the Calculation of Global Exposure and Counterparty Credit Risk for Undertakings in Collective Transferable Securities on risk measurements. The draft RTS also outlines the circumstances in which the life of an ELTIF is considered sufficient in length.  The “life” should be determined with reference to the individual asset within the ELTIF portfolio which has the longest investment horizon. Additionally, the draft RTS provides criteria for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets, costs disclosure and outlines the facilities available to investors.  ESMA has submitted the additional final draft RTS to the European Commission for endorsement.

View the draft RTS.

The European Parliament adopted at first reading the European Commission’s proposals for a new Directive and Regulation to extend the implementation of MiFID II by one year to January 3, 2018. In addition, the provisional text of the Directive adopted by the European Parliament clarifies the exemption for persons dealing on own account with respect to market makers. An expanded exemption would apply for direct electronic access and own account dealing activities, when this is done for hedging or treasury management purposes. The provisional text of the Regulation adopted by the European Parliament excludes securities financing transactions from transparency requirements for trading venues, systematic internalisers and investment firms trading OTC, specifies the circumstances in which pre-trade transparency requirements do not apply to certain package transactions and amends the Market Abuse Regulation and the Central Securities Depositories Regulation. The proposed Directive and Regulation will now be put forward to European Council under the normal legislative procedure. 

View the provisional text of the Directive.

A Commission Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions was adopted by the European Commission. MiFID II requires that, for financial instruments subject to the trading obligation, each trading venue and systematic internaliser (and for other financial instruments, each execution venue) make data available to the public relating to the quality of execution of transactions on that venue on at least an annual basis. The adopted Regulation specifies the content, format and periodicity of data relating to quality of the execution to be published by execution venues. 

Read more.

The European Securities and Markets Authority published a discussion paper on how distributed ledger technology (including, for example, "blockchains") applies to the securities markets. ESMA is assessing the risks posed by DLT as well as the benefits and key challenges of DLT for securities markets. ESMA’s paper provides an analysis of the applicable EU regulatory framework, focusing on legislation for post-trading activities, which include the European Market Infrastructure Regulation, the Settlement Finality Directive, and the Central Securities Depositories Regulation. Responses to the discussion paper are invited by September 2, 2016. ESMA will assess the feedback to develop its position on the use of DLT in the securities markets and to assess the need for a regulatory response. 

View the discussion paper. 

The Federal Reserve Board and the FDIC announced that they are giving four foreign banking organizations a one-year extension for the submission of their next US resolution plans. Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS AG will be required to submit their next plan on July 1, 2017, with the 2016 annual resolution filing requirement being satisfied by submission of the 2017 plans. The agencies’ press release indicates that the extension was granted in light of the fact that these firms are undergoing significant restructuring to come into compliance with the intermediate holding company requirement by July 1, 2016. The agencies also stated that they expect to provide feedback to the four foreign banking organizations in respect of their 2015 plans, as well as provide additional guidance to the firms for their 2017 plans.

View the press release.

The US Securities and Exchange Commission adopted a final rule requiring security-based swap dealers and major security-based swap participants to provide trade acknowledgments for security-based swap transactions.  The trade acknowledgment must contain all the terms of the transaction and be provided to the transaction counterparty no later than the end of the first business day after the transaction is executed, as well as promptly verify or dispute the terms of any trade acknowledgment it receives as a counterparty. Covered entities are also required to establish, maintain and enforce written policies and procedures that are reasonably designed to obtain prompt verification of the terms of all trade acknowledgments that they provide. The final rule provides exemptions for certain transactions that are processed through a registered clearing agency or executed on a security-based swap execution facility or national securities exchange. There is also an exemption from the requirements of Exchange Act Rule 10b-10 for broker dealers that satisfy the trade acknowledgment and verification requirements of the final rule. The final rule is effective 60 days after it is published in the Federal Register. 

View the final rule.

The Federal Reserve Board issued supervisory guidance for supervised institutions with total consolidated assets of less than $50 billion for assessing risk management. The guidance notes that sound risk management principles should apply to all risks facing an institution, including, but not limited to, credit, market, liquidity, operational, compliance and legal risk. The guidance states that in evaluating an institution’s risk management framework, examiners should evaluate four key areas: board and senior management oversight of risk management, policies, procedures and limits, risk monitoring and management information systems and internal controls. The guidance provides additional considerations that examiners should look for in connection with each of these areas, but notes that the considerations listed therein are not a checklist. The guidance explicitly recognizes that risk management processes and control functions for the US operations of foreign banking organizations may be implemented domestically or outside of the United States. However, in cases where the functions are performed outside of the United States, the guidance states that the oversight function, policies and procedures, and information systems need to be sufficiently transparent to allow US supervisors to assess their adequacy.  

View the guidance.

A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation was published in the Official Journal of the European Union. The authorization process for existing CCPs established in the European Union is on-going but will not be completed by the June 15, 2016 deadline. There are still two CCPs established in the Union that await authorization. The implementing Regulation extends the transitional period by an additional six months to December 15, 2016. 

The implementing Regulation entered into force on June 11, 2016.

View the Regulation. 

The US Federal Financial Institutions Examination Council issued a statement to remind financial institutions to actively manage risks associated with interbank messaging and wholesale payments networks in light of recent terror attacks. The statement does not contain new regulatory expectations related to IT risk management, but rather, alerts financial institutions as to specific risk mitigation techniques to prevent such attacks. The statement encourages financial institutions to review their risk management practices and controls, including authentication, authorization, fraud detection, and response management systems and processes.

View the statement.

US House Financial Services Committee Chairman Jeb Hensarling provided remarks regarding proposed legislation to replace the Dodd-Frank Act. The Executive Summary and additional details were subsequently released, and the full bill is expected to be released later this month. Under the proposal, banks that maintain a leverage ratio of at least 10 percent and a composite CAMELS rating of 1 or 2 would be deemed well-capitalized and able to elect able to opt out of many regulatory requirements, including capital and liquidity requirements and limits on capital distributions and mergers or acquisitions.  The proposal would also repeal Title II of the Dodd-Frank Act (the orderly liquidation authority) and replace it with a new subchapter of the US Bankruptcy Code, remove the authority of the Financial Stability Oversight Council, to designate firms as systemically important and certain payments and clearing organizations as systemically important financial market utilities, and reform the Securities and Exchange Commission and Consumer Financial Protection Bureau. 

View the Executive Summary of the Financial Choice Act and Representative Hensarling’s speech. 

The Bank of England and Financial Services Act 2016 (Commencement No. 3) Regulations 2016 were made. The Regulations bring a majority of the provisions in The Bank of England and Financial Services Act 2016 into force. Such provisions cover topics such as financial stability strategy, Financial Policy Committee: status and membership, Monetary Policy Committee: membership and procedure, audit, activities indemnified by Treasury, appointment of Financial Conduct Authority chief executive, Treasury recommendations to the Financial Conduct Authority, administration of senior managers regime, rules of conduct, decisions causing a financial institution to fail: meaning of insolvency, enforceability of agreements relating to credit, illegal money lending and banks authorized to issue banknotes in Scotland and Northern Ireland. 

The provisions will enter into force on July 6, 2016.

View the Regulations.

The US Commodity Futures Trading Commission announced the signing of a Memorandum of Understanding with the European Securities and Markets Authority regarding cooperation with respect to recognized central counterparties. Pursuant to the MOU, derivatives clearing organizations established in the United States may apply to ESMA for recognition as central counterparties, known as “Recognized CCPs.”
 
View the text of the MOU.

The European Commission adopted a Delegated Regulation on RTS setting out the standards for non-discriminatory access for central counterparties and trading venues to licenses of, and information relating to, benchmarks. The Markets in Financial Instruments Regulation provides for such access so as to allow for the determination by a CCP or trading venue of the value of certain financial instruments for trading and clearing purposes. The adopted RTS provide the list of information to be provided by a benchmark owner to a trading venue or CCP requesting access. The information requested must be necessary for the CCP or trading venue to perform its clearing or trading function. The adopted RTS provide that, for trading venues, those functions are, at least: (i) an initial assessment of the characteristic of the benchmark, (ii) the marketing of the relevant product and (iii) the support of the price information process for contracts admitted or being admitted to trading. For CCPs, the relevant functions are (i) risk management of relevant open positions in exchange-traded derivatives, including netting, and (ii) compliance with the requirements under the European Market Infrastructure Regulation. The adopted RTS also set out the price and data feed information to be provided as well as the composition, methodology and pricing information required to allow a CCP or trading venue to understand how each benchmark value is created and the actual benchmark values. 

Read more.

The European Commission published a consultation paper on how the cross-border distribution of funds could be improved in the context of the Capital Markets Union. The CMU is intended to mobilize capital in Europe and channel it to companies and infrastructure projects to create jobs and economic expansion. The Commission believes that cross-border investment funds have an important role to play in achieving this aim. The consultation is aimed at stakeholders such as fund managers, investors and consumer representatives; the Commission also welcomes comments from investors to build a fuller picture of the barriers to distribution. 

The Commission welcomes specific examples of barriers and quantitative and financial evidence on the financial impact of the barriers, including the impact of marketing rules, administrative arrangements imposed by host countries and distribution networks. This includes online platforms, regulatory fees and notification procedures and the most pertinent features of the tax environment. Eliminating unjustified barriers would support fund managers to engage in cross-border marketing of their funds, increase competition and choice and reduce costs for investors. The Commission will use information gathered in its assessment to address the barriers, supporting the development of the CMU and increasing choice.  

Responses to the consultation are due by October 2, 2016.

View the Consultation Paper. 

The US Consumer Financial Protection Bureau issued a lengthy proposed rule to regulate so-called “pay day loans.” Specifically, the proposed rule would impose restrictions on “covered loans,” defined as (i) loans with a term of 45 days or less and (ii) loans with a term greater than 45 days that (a) have an all-in annual percentage rate greater than 36% and (b) are either repaid directly from the consumer’s account or income or are secured by the consumer’s vehicle. For these covered loans, the proposed rules would deem it an abusive and unfair practice for a lender to make such a loan without “reasonably determining that the consumer has the ability to repay the loan.” In addition, the proposal would restrict lenders of covered loans from making such loans when a consumer has, or recently has had, certain outstanding loans (in general, certain loans that the consumer has had difficulty repaying). 

The European Banking Authority published a decision, dated May 31, 2016, on data for supervisory benchmarking under the Capital Requirements Directive. The CRD requires that regulators monitor the range of risk-weighted exposure amounts or own funds requirements, as applicable, except for operation risk, for the exposures or those relating to transactions in benchmark portfolios resulting from the internal approaches adopted by firms. Regulators are also required to assess, at least annually, the quality of the relevant approaches adopted by institutions. In performing this function, regulators receive benchmarking information and data in accordance with the Benchmarking Implementation Regulation. The EBA is required under the CRD to assist regulators in their assessment with regard to supervisory benchmarking. The Decision follows publication of the amended technical standards on benchmarking of internal approaches and requires regulators to submit data for the 2016 benchmarking. Following delay in the EU’s adoption of the Benchmarking Implementation Regulation, the EBA has repealed its previous decision on the topic and replaced it with this decision. 

The Federal Reserve Board announced that it would release results from the latest supervisory stress tests on Thursday, June 23, 2016. Results from the Comprehensive Capital Analysis and Review will be released on Wednesday, June 29, 2016. The stress tests, conducted pursuant to requirements in the Dodd-Frank Act, and the CCAR exercises aim to help large bank holding companies assess the sufficiency of their capital and capital planning processes, taking into account the unique risks of the institutions and the companies’ risk measurement and risk management procedures.

View the Federal Reserve Board’s press release regarding the stress testing and CCAR results.

The European Commission adopted a Delegated Regulation on RTS which set out the requirements for trading venues to provide pre- and post-trade transparency data. MiFIR requires data to be publicly available in an unbundled format. The adopted RTS set out the level of disaggregation by which trading venues should offer data - by asset class, by country of issue, by the currency in which the financial instrument is traded and whether the data comes from scheduled daily auctions or continuous trading. Market operators and investment firms operating a trading venue should also offer any combination of disaggregation on a reasonable commercial basis on request and may offer bundles of data. Where it is not possible to determine the asset class to which an instrument belongs unambiguously, market operators and investment firms operating a trading venue should determine which criteria the relevant financial instrument meets. 
 

The European Commission adopted a Delegated Regulation on Regulatory Technical Standards on the authorization and organizational requirements for, and publication of transactions by, Data Reporting Services Providers. The revised Markets in Financial Instruments Directive will introduce requirements for DRSPs to be authorized and supervised for their data reporting services, including the operation of Approved Publication Arrangements, Consolidated Tapes and Approved Reporting Mechanisms. The adopted RTS set out the requirements for authorization and ongoing supervision of DRSPs, including the provision of information to be provided to a national regulator when a DRSP is applying for authorization under MiFID II and the organizational requirements covering, amongst others, conflicts of interest, outsourcing, business continuity, IT security and connectivity. The adopted RTS also provide for the publication arrangements that a DRSP must have in place relating to machine readability, scope of data to be provided, non-discrimination and non-duplication. 

The Treasury Committee of the UK Parliament announced that Andrew Tyrie MP, Chairman of the Treasury Committee, had written to Financial Conduct Authority and the Prudential Regulation Authority requesting further information about the risks and opportunities presented by crowdfunding (also known as peer-to-peer lending). The letter to the FCA focuses on conduct risk and consumer protection and the letter to the PRA requests information about the resilience of crowdfunding platforms to economic stress.

View the letter to the FCA.

View the letter to the PRA.

A Commission Delegated Regulation further specifying the circumstances in which exclusion from the application of write-down or conversion powers is necessary under the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. Under the BRRD, the bail-in tool may be applied to all liabilities unless they fall within the list of liabilities explicitly excluded. The new Regulation provides that regulators may only exclude a liability if the obstacles invoked for such exercise do not allow for it to take place within a reasonable time. The BRRD only allows regulators to exclude a liability from bail-in, if it considers that it is not possible to bail-in the liability within a “reasonable time,” which is determined by assessing when the write-down amount ultimately has to be determined; and then assessing, the time by which all tasks needed to bail-in those liabilities would need to be performed in order to meet the resolution objectives. The new Regulation specifies that regulators may exclude liabilities on the basis of it being necessary and proportionate to preserve critical functions and core business lines under the BRRD. The Regulation will apply from June 21, 2016. 

View the delegated regulation.

A Commission Delegated Regulation was published in the Official Journal of the European Union correcting two Commission Delegated Regulations under the Capital Requirements Regulation and Capital Requirements Directive. The Regulation corrects a previous Commission Delegated Regulation supplementing the CRR with regard to the Regulatory Technical Standards for non-delta risk of options in the standardized market risk approach. Under the CRR, the EBA is empowered to develop a range of methods to reflect non-delta risks in the own funds requirements of firms in a manner proportionate to the scale and complexity of firms’ activities in options and warrants. One approach to measure non-delta risks of options and warrants is the “simplified approach”. The EBA developed draft RTS accordingly, under which institutions that exclusively purchased options and warrants were obliged to use the simplified approach and did not prevent other institutions from using this approach. The correction states that only institutions that exclusively purchase options and warrants may use the simplified approach, which removes the obligation on such firms to only use the simplified approach and prevents other firms from using it.

Read more.

The US Board of Governors of the Federal Reserve System adopted a proposal to extend various regulatory reporting requirements to US intermediate holding company (IHC) subsidiaries of foreign banking organizations. The final reporting requirements are generally the same as the proposal, with a few adjustments and clarifications.  Under the final requirements, the Federal Reserve noted that it will consider requests to modify the financial data for previous years that an IHC would be required to report, or extend the time period by which an IHC would have to report the historical data on the applicable Form FR Y-14. The FR Y-14 series of reports generally collects data for stress-testing purposes. The Federal Reserve Board also clarified that it is not requiring at this time that the FR Y-14 attestation requirement apply to IHC subsidiaries of US bank holding companies subject to the Large Institution Supervision Coordinating Committee. The Federal Reserve Board also extends the IHC’s first filing date of the FR Y-15 form to December 5, 2016 to allow institutions time to facilitate accurate reporting.  

View the Final Rule.

The US Securities and Exchange Commission approved a final rule, implementing a provision of the Fixing America’s Surface Transportation Act, amending Form 10-K disclosure requirements. The interim final rule allows Form 10-K filers to provide a summary of business and financial information contained in the annual report, provided that the summary also contains hyperlinks to the more detailed disclosure in the form. 
The SEC also requested comment on whether the interim rule should provide more guidance on the form and content of the summary as well as the applicability of the amended rule to other annual reporting forms. 

Comments on the interim final rule must be received on or before 30 days after publication in the Federal Register.
 
View the full text of the interim final rule.  

The European Securities and Markets Authority published an Opinion specifying the criteria for establishing, under the revised Markets in Financial Instruments Directive, when the activity of a firm is to be considered “ancillary” to the main business of the firm at a group level. Under the current MiFID, eligible firms trading commodity derivatives can rely on exemptions, for ancillary activities, avoiding the need to become regulated as an investment firm. MiFID II narrows the ancillary activity exemption considerably. ESMA is required to develop RTS to specify the criteria which must be taken into account for the revised exemption. They have specified at least the following two elements: (i) the need for ancillary activities to constitute a minority of activities at a group level; and (ii) the size of their ancillary trading activity compared to the overall market trading activity in that asset class. ESMA submitted draft RTS to the Commission on September 28, 2015. On March 14, 2016, the Commission indicated its intention to endorse the draft RTS, subject to a number of changes. In particular, the Commission requested that ESMA include, when proportionate and appropriate, a capital-based test for groups that have undertaken significant capital investments, relative to their size, in the creation of infrastructure, transportation or production facilities or groups that undertake activities or investments which cannot be hedged in financial instruments. The Opinion published is in response to the Commission’s request.

The European Securities and Markets Authority launched a consultation on its proposed technical advice to the European Commission on delegated acts due under the EU Benchmarks Regulation. ESMA consulted in February this year on its initial approach to the technical advice and the draft technical standards that it is required to prepare. The consultation on draft technical standards will be held separately in the second half of 2016. ESMA’s advice will cover: (i) certain definitions, including the definition of benchmarks and “use”; (ii) criteria for the identification of critical benchmarks; (iii) endorsement of a benchmark or family of benchmarks provided in a third country; (iv) the measurement of the use of critical and significant benchmarks; and (v) transitional provisions. 

Read more.

On May 27, 2016, the Financial Conduct Authority announced that Megan Butler had been appointed to the role of Director of Supervision for the Investment, Wholesale and Specialists team. Ms. Butler has been on secondment at the FCA from the Prudential Regulation Authority as Temporary Head of Supervision. Ms. Butler was previously Executive Director of the International Banks Directive at the PRA and has also worked at the Financial Services Authority and the London Stock Exchange.

View the FCA announcement.

The US Financial Crimes Enforcement Network, pursuant to authority contained in the USA PATRIOT ACT, found “reasonable grounds” to conclude that the Democratic People’s Republic of Korea is a jurisdiction of primary money laundering concern. In its notice, FinCEN cited several factors that contributed to this conclusion, including evidence that organized criminal groups, international terrorists or entities involved in the proliferation of weapons of mass destruction have transacted business in North Korea, evidence that North Korea has been found to have repeatedly failed to address the deficiencies in its AML regime and the extent to which North Korea has demonstrated high levels of institutional and official corruption. 

Read more.

The European Commission published a consultation paper on the implementation of the NSFR at European Union level. The Net Stable Funding Ratio measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. The CRR introduced reporting requirements for the NSFR without setting any more detailed requirements. The EBA published a report in December 2015 on whether, and how, it would be appropriate to ensure that institutions use stable sources of funding, supporting the Basel Committee NSFR at a European level but with some specificities regarding its calibration. To supplement the Commission’s analysis of the EBA’s report and Call for Evidence published in September 2015, the Commission is calling for a more nuanced treatment of specific business models and some transactions.  The consultation seeks views on the treatment of specific aspects of the NSFR, derivative and short-term transactions (less than six months) with financial institutions and the application of the proportionality principle, in particular, the appropriate level of NSFR application and the criteria for defining institutions with a “low liquidity risk profile”. 

Responses to the consultation are due by June 24, 2016.

View the consultation on implementation of NSFR.

View the EBA report on NSFR.