A Commission Delegated Regulation supplementing the European Market Infrastructure Regulation with regard to Regulatory Technical Standards on the clearing obligation was published in the Official Journal of the European Union. The RTS relates to classes of over the counter (OTC) derivatives that are to be subject to the clearing obligation, and specifies that the following classes will be subject to the clearing obligation under the European Markets Infrastructure Regulation: (a) fixed-to-float interest rate swap classes denominated in NOK, PLN and SEK; and (b) forward rate agreement classes denominated in NOK, PLN and SEK will be subject to the clearing obligation under EMIR. These classes will not include contracts concluded with covered bond issuers or with cover pools for covered bonds, provided that they meet certain conditions set out in the RTS. 

The US Department of the Treasury’s Financial Crimes Enforcement Network issued guidance in respect of its May 2016 final rule governing Customer Due Diligence requirements for financial institutions in the form of responses to frequently asked questions. In particular, FAQ #5 highlights amendments to AML program requirements by clarifying that the CDD rule creates a specific obligation for covered financial institutions to implement and maintain risk-based procedures for conducting ongoing customer due diligence, which procedures should include (i) understanding the nature and purpose of the customer relationship; and (ii) conducting ongoing monitoring to identify and report suspicious transactions, as well as to maintain and update customer information on a risk basis.

View FinCEN FAQs.

A new Directive on cyber security was published in the Official Journal of the European Union. The Directive aims to achieve a common level of security of network and information systems within the EU. It requires all Member States to adopt a national strategy on the security of network and information systems and establishes security and notification requirements for operators of essential services and for digital service providers. The Cyber Security Directive applies to certain credit institutions, any operator of a trading venue and central counterparties. 

Read more.

The European and Securities Markets Authority published its advice to the European Parliament, Council and Commission on the extension of the Alternative Investment Fund Managers Directive passport to non-EU Alternative Investment Fund Managers and Alternative Investment Funds in twelve non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States. ESMA has reviewed whether there are significant obstacles with regard to investor protection, competition, market disruption and the monitoring of systemic risk. 

Read more.

The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards specifying the organisational requirements of investment firms engaged in algorithmic trading. The adopted RTS supplement the revised Markets in Financial Instruments Directive (MiFID II) by specifying the systems, procedures, arrangements and controls to be put in place and maintained by investment firms to address the risks that may arise in financial markets due to the increased use and development of trading technology. The adopted RTS also outlines requirements of systems and controls for investment firms acting as general clearing members (those not involved with algorithmic trading). 

Read more.

The Managing Director of the International Monetary Fund, Christine Lagarde, gave a speech before the Federal Reserve Bank of New York about the struggles facing the global financial market’s smaller players in the aftermath of the financial crisis. Director Lagarde stated that due to heightened post-financial crisis regulations and anti-money laundering rules, many large global banks were prompted to reevaluate their correspondent banking models with smaller countries, and chose to reduce cross-border banking services offered to those entities considered too risky or unprofitable. In connection with those trends, Director Lagarde expressed concern that the global consequences of large banks withdrawing from vulnerable smaller countries, if left unaddressed, could become systemic and disruptive. She urged regulators to collect data and facilitate discussions with banks on this issue. Finally, Director Lagarde emphasized that “a strong and open international financial system is key to restore momentum in the global economy,” and that global banks must avoid “knee-jerk” reactions to increased regulatory costs.

View Director of Lagarde's speech.
 

Senators Tim Kaine (D-Va) (the Democratic vice-presidential nominee), Mark R. Warner (D-Va.), Gary C. Peters (D-Mich.) and Robert P. Casey (D-Pa.) wrote a letter to the heads of the US Federal Reserve Board, the FDIC and the OCC, requesting an exemption for certain large regional banks from the requirements of the liquidity coverage ratio and the advanced approaches risk-based capital rules. In their letter, the senators argue that it would be unfair for large regional banks to be subjected to the same LCR and capital rules requirements as are applied to riskier, more complex, systemically important banks.

Currently, because LCR reporting requirements are based on an asset threshold test, some large regional banks are subject to heightened LCR requirements, which requires, among other things, certain daily reporting of liquidity levels. Large regional banks may also, by virtue of size or foreign exposure, be subject to the “advanced approaches” capital requirements that dictate capital reserves a bank must hold to cover potential losses. The senators argue that regional banks should be exempted from complying with the burdens of both the LCR requirement and the Advanced Approaches requirements because they do not share the “same risk profile or complexity” as systemically important banks. The Senators also stated generally that the regulatory regime should move away from reliance on an internal models approach on the theory that such reliance obscures a bank’s financial status.

View full text of the letter.

The CFTC issued an Order extending the designation of DTCC-SWIFT as the provider of legal entity identifiers for entities under its jurisdiction, including swaps and swap counterparties, by another year. The CFTC initially designated DTCC-SWIFT as LEI provider by an Order on July 23, 2012. The CFTC has previously extended such designation. Consistent with the prior CFTC orders, registered entities and swap counterparties subject to the CFTC’s jurisdiction can continue to comply with the CFTC’s swap data recordkeeping and reporting rules by using LEIs issued by DTCC-SWIFT.

View CFTC Order.

A Decision by the European Central Bank on the disclosure of confidential information in the context of a criminal investigation was published in the Official Journal of the European Union. Pursuant to the Single Supervisory Mechanism, the ECB and/or national regulators can receive requests from national criminal investigation authorities for the disclosure of confidential information created or received in the course of their supervisory tasks and responsibilities. EU law has implications for the conditions under which confidential information held by regulators within the SSM, including the ECB, may be disclosed to national criminal investigation authorities. “Confidential information” includes information covered by data protection rules, by the obligation of professional secrecy, including those in the Capital Requirements Directive. The Decision sets out the processes and conditions under which confidential information will be provided to criminal investigation authorities.

The decision entered into force on August 5, 2016.

View the decision.

The European Central Bank published a revised version of its Eurosystem Oversight Policy Framework, which describes the role of the Eurosystem in oversight of financial market infrastructure. Eurosystem promotes the safety and protection of FMIs and acts as the central bank of issues in EU and international cooperative arrangements for securities and derivatives clearing and settlement systems. FMI includes payment systems, and clearing and settlement systems. The revised version of the current framework, which builds on the edition published in September 2015, takes into account the significant regulatory and institutional changes and market developments that have affected Eurosystem’s oversight function since July 2011. This includes the revised and enhanced harmonized international standards and EU law such as the CPSS-IOSCO Principles for Financial Market Infrastructures. 

View the oversight policy.

The European Banking Authority launched a data collection exercise to support its response to the European Commission’s Call for Advice on a new prudential framework for investment firms subject to the Markets in Financial Instruments Directive. In December 2014, the Commission sought technical advice from the EBA and the European Securities and Markets Authority on whether the current prudential framework applicable to MiFID investment firms under the Capital Requirements Directive and Capital Requirements Regulation was appropriate in terms of risk sensitivity, proportionality and complexity. In response, the EBA concluded that the regime was not appropriate for the risks that MiFID investment firms are exposed to and made recommendations. 

Read more.

Chairman of the US FDIC Martin J. Gruenberg testified before the Committee on Oversight and Government Reform of the US House of Representatives regarding de novo banks and industrial loan companies. During his testimony, he provided an overview of recent banking industry performance and condition, discussed trends in de novo bank and ILC formation, and steps the FDIC is taking to support the creation of de novo banks. Chairman Gruenberg testified that there have been few de novo banks formed in recent years, noting that since January 2011, the FDIC has received only ten applications for deposit insurance for de novo institutions and no applications for new ILCs. Of these ten applications, three were approved, five were withdrawn and two are still in process. Gruenberg noted that although community bank earnings have recovered in recent years, low interest rates and narrow net interest margins have kept bank profitability ratios (return on assets and return on equity) well below pre-crisis levels, making it relatively unattractive to start new banks. Gruenberg also noted that the FDIC is continuing to monitor developments with respect to the formation of new banking institutions, and recently announced a number of initiatives to support the efforts of viable organizing groups in creating new institutions. For example, the FDIC has begun a “Questions and Answers” series to help applicants better develop their proposals and has presented an overview of the deposit insurance application process to a conference of state bank supervisory agencies. Moreover, on April 6, 2016, the FDIC reduced the period of enhanced supervisory monitoring of newly insured depository institutions from seven years to three years.

View Chairman Gruenberg's Testimony.

The SEC proposed amendments to eliminate redundant, overlapping, outdated or superseded provisions of its rules, in light of subsequent changes to public disclosure requirements, accounting standards and technology. The amendments, along with comments received on a release seeking information to simplify and improve disclosure requirements under Regulation S-K, are designed to further inform the Commission’s actions to enhance disclosure effectiveness and efficiency. The SEC is also seeking comment on certain disclosure requirements that overlap with US Generally Accepted Accounting Principles (GAAP) to determine whether to retain them or refer them to the Financial Accounting Standards Board for incorporation into GAAP. The proposed amendments are part of a broader staff review of the disclosure requirements that issuers are required to make to investors and the requirements of the Fixing America’s Surface Transportation Act (FAST) to eliminate provisions of Regulation S-K that are duplicative, overlapping, or unnecessary. There will be a 60-day comment period.

View The SEC’s proposed amendments.

The SEC adopted a series of amendments and related guidance regarding Regulation SBSR, which governs the regulatory reporting and public dissemination of security-based swap transactions. The amendments, among other things, assign reporting duties for platform-executed security-based swaps submitted for clearing and those resulting from the clearing process, establish reporting and publication requirements for certain cross-border security-based swaps, and prohibit swap data repositories from imposing fees or usage restrictions on data that Regulation SBSR requires be made public. The goal of the amendments and guidance is to increase transparency in the security-based swap market by facilitating better public access to transaction information and expanding the scope of Regulation SBSR to cover additional transactions and entities. The amendments and guidance will be effective on October 11, 2016. The rules and guidance also establish a compliance schedule for portions of Regulation SBSR, providing that transaction reporting will not begin until after security-based swap dealers and major security-based swap participants have registered with the SEC.

View the final rule.

The European Securities and Markets Authority launched a consultation on proposals to delay the application of the clearing obligation for financial counterparties and alternative investment funds with a limited volume of derivatives activity. 

The European Market Infrastructure Regulation imposes a clearing obligation on certain classes of derivatives. ESMA has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD NOK, PLN and SEK) and to two classes of credit default swaps indices: iTraxx Europe Main and iTraxx Europe Crossover. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to entities that are clearing members of EU CCPs from June 21, 2016. 
 

US Federal Reserve Board Governor Daniel Tarullo discussed the risks of shadow banking activities at the Center for American Progress and Americans for Financial Reform Conference. He focused his remarks on the characteristics of shadow banking-related financial activities and institutions that are most likely to pose risks to financial stability, namely the risk of “runnable liabilities,” defined as short-term, “pay-on-demand” transactions that are not insured by the federal government. These transactions are thought to pose a severe risk to financial stability since their pay-on-demand feature implies that, in the event of stress caused by credit-risk concerns, wide swings in short-term interest rates, or deteriorations in market liquidity, investors may behave as they would during times of stress and redeem shares, unwind transactions or decide not to roll over positions. Tarullo stated that this type of runnable funding, while less prevalent than before the financial crisis, is a key area for prudential regulators to focus analysis and policy initiatives. He stressed that while liquidity standards, stress testing and resolution planning exist to help curb the risk of runnable funding for prudentially regulated firms, liquidity runs that could threaten financial stability may exist in the non-regulated sector. Governor Tarullo suggested a number of key issues to be considered in creating a regulatory framework for these transactions, including whether one versus multiple agencies should regulate the industry and whether or not regulation should be uniform or should be tailored to take into account the characteristics of the market actors and business models involved in the funding relationship.

View Governor Tarullo’s speech on shadow banking.

The European Central Bank published its Guide on the approach for the recognition of institution protection schemes for prudential purposes.  The Capital Requirements Regulation defines an IPS as a contractual or statutory liability arrangement which protects its member institutions and ensures that they have the liquidity and solvency needed to avoid, where necessary, bankruptcy. Certain waivers or derogations of capital requirements are available for IPS member institutions under CRR.  In particular, CRR provides that the ECB may, subject to certain exceptions, allow credit institutions to apply a 0% risk weight to exposures to other counterparties which are members of the same IPS with the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 and Tier 2 items. The ECB directly supervises the largest Eurozone banks for prudential purposes and overseas the prudential supervision by national regulators of the smaller Eurozone banks. The ECB's Guide sets out how it intends to assess compliance of an IPS and its members with the requirements set out in the CRR to grant such a waiver. 

View the Guide.

View the feedback statement. 

The OCC released its Spring 2016 Semiannual Risk Perspective, reflecting bank financial data as of December 31, 2015. The report identifies credit, strategic, operational and compliance risks as top concerns from a safety-and-soundness perspective. Specifically, strategic risk remains high as banks struggle to execute their strategic plans and faces challenges in growing revenue, and credit risks have increased as banks search for yield in an environment of strong loan growth and easier underwriting standards. With respect to operational risk, greater cyber security threats and increased reliance on third-party service providers have caused operational risk to remain high. Further, as banks struggle to comply with new rules, such as the integrated mortgage disclosure requirements, and the mandates of the Bank Secrecy Act, compliance risk management also continues to pose challenges. Risk issues identified in the Spring 2016 report are largely consistent with those identified in the Fall 2015 Report.

View The OCC Semiannual Risk Perspective for Spring 2016.

The House of Representatives passed three bills aimed at combatting terrorist financing.

H.R. 5594, the “National Strategy for Combatting Terrorist, Underground, and Other Illicit Financing Act,” would require the President, acting through the Treasury Secretary, to develop and submit to Congress annually a national strategy to combat money laundering and terrorist financing and related report. The bill requires the Treasury Secretary to consult with various heads of state and the Federal banking agencies to develop and integrate this terrorist financing strategy into the broader counter-terrorism strategy of the US.

Read more.

The Basel Committee on Banking Supervision published an amended Securitization Framework to include alternative regulatory capital treatment for simple, transparent and comparable (STC) securitisations. The Securitization Framework, which was initially published on December 11, 2014, forms part of Basel III. The amendments to the Securitization Framework provide for lower capital charges to apply to STC Securitizations, and include criteria that should be applied to differentiate STC securitizations from other securitizations. The new capital treatment for STC securitizations should be read in conjunction with the criteria for identifying STC securitizations (published by the Basel Committee and the International Organization of Securities Commissions in July 2015).  The Securitization Framework, as amended, is due to come into effect in January 2018.

View the updated Securitization Framework.

The Financial Conduct Authority launched a call for input into its review of the implementation of its crowdfunding rules. The FCA implemented rules regulating FCA-authorized firms operating crowdfunding services on April 1, 2014 and committed to reviewing these rules in 2016. The FCA is seeking views on changes in the market since the rules were implemented, emerging risks for consumers, and areas where the FCA might consider adapting its rules. 

Read more.

The Prudential Regulation Authority published a Policy Statement on operational continuity in resolution. The Appendices to the Policy Statement set out a final Supervisory Statement and the PRA Rulebook: CRR Firms: Operational Continuity Instrument 2016. 

The Policy Statement provides feedback to responses to the PRA consultation on this topic in December 2015. Based on responses received, the PRA concluded that no significant changes were required to its proposals. The Supervisory Statement sets out its expectations of firms to ensure operational continuity of critical services to facilitate recovery actions, orderly resolution and post-resolution restructuring. Compared to the draft Supervisory Statement, the PRA has amended the financial resilience expectations by removing the capital expectation and stating that the Bank of England will consider whether a loss absorbing capacity should be allocated within groups to ensure operational continuity as part of the minimum requirement for own funds and eligible liabilities (MREL) regime. 

The Operational Continuity Instrument 2016 sets out the final text of the new Operational Continuity Part of the PRA Rulebook and will come into effect on January 1, 2019.

View the Policy Statement.

View the Supervisory Statement.

View the Operational Continuity Instrument 2016. 

The UK Prudential Regulation Authority published a Policy Statement on the implementation of ring-fencing, covering prudential requirements, intragroup arrangements and the use of financial market infrastructures. The policy statement summarizes feedback received to the consultation paper published in October 2015. The PRA states that it does not consider that the responses received to the consultation paper have necessitated any significant changes to its proposals. 

Read more.

The US Federal Reserve Board extended until July 21, 2017, the conformance period for banking entities to divest ownership in certain legacy investment funds and terminate relationships with funds that are prohibited under section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule. This order formalizes the Federal Reserve Board’s December 2014 announcement that it would make this extension to provide for orderly divestitures and to prevent market disruptions.

This extension would permit banking entities additional time to divest or conform only “legacy covered fund” investments, such as prohibited investments in hedge funds and private equity funds that were made prior to December 31, 2013. This extension does not apply to investments in and relationships with a covered fund made on or after December 31, 2013, or to proprietary trading activities; banking entities were required to conform those activities to the final rule by July 21, 2015.

This is the final of the three one-year extensions that the Federal Reserve Board is authorized to grant. Additionally, upon the application of a banking entity, the Federal Reserve Board is permitted under section 619 to provide up to an additional five years to conform investments in certain illiquid funds, where the banking entity had a contractual commitment to invest in the fund as of May 1, 2010. The Federal Reserve Board expects to provide more information in the near term as to how it will address such applications.

View Federal Reserve Board order approving extension.

The CFTC Division of Swap Dealer and Intermediary Oversight issued a staff advisory to remind futures commission merchants and introducing brokers of their compliance obligations to report suspicious activities to the Financial Crimes Enforcement Network. In addition, the staff advisory reminds all CFTC registrants of their compliance obligations regarding economic sanctions programs against countries and groups of individuals administered by the Office of Foreign Assets Control. The staff advisory provides a brief outline of the requirements of suspicious activity reporting and the requirements of OFAC.

View CFTC staff advisory.

A Commission Implementing Regulation setting out the Implementing Technical Standards on the provision of information to national resolution authorities for the purpose of developing resolution plans was published in the Official Journal of the European Union. The Bank Recovery and Resolution Directive provides that resolution authorities must prepare a resolution plan for each bank and empowers resolution authorities to require firms to provide information for that purpose. The ITS set out the procedure for the provision of that information, as well as the templates to be used which will capture the minimum set of information required, including, for example, organizational structure, critical counterparties and pledged collateral. 

The ITS entered into force on July 26, 2016.

View the ITS on provision of information for resolution plans.

The European Commission published proposed revisions to the EU Fourth Money Laundering Directive. The Commission is proposing to bring virtual currency exchange platforms and custodian wallet providers within the scope of 4MLD so that they would, among other things, be required to apply customer due diligence and establish place policies and procedures to detect, prevent and report money laundering and terrorist financing. The Commission is also proposing to lower, from EUR 250 to EUR 150, the thresholds for non-reloadable pre-paid payment instruments to qualify for the exemption from customer due diligence requirements. It further proposes to require all EU member states to set up automated centralised mechanisms to enable swift identification of holders of bank and payment accounts and to harmonize the regime on enhanced customer due diligence for countries that have weak AML & CFT regimes. Public access to information on beneficial ownership of companies and trusts engaged in commercial activities is also proposed and Financial Intelligence Units are to be given greater powers to request information from entities that are subject to 4MLD. 
 

The Bank of England published its latest Financial Stability Report in which the Bank's Financial Policy Committee sets out the key risks to the UK's financial system and weighs them against the resilience of the system. In March 2016, the FPC had identified areas through which there could be increased risk to the UK's financial stability as a result of the vote by the UK public to leave the EU. Such areas include financing of the UK's large current account deficit, the commercial real estate market, the high level of household indebtedness, limited growth in the global economy and vulnerabilities in the functioning of the financial markets. The FPC states that there is evidence that some of these risks have begun to crystallize and that the current outlook for financial stability is challenging. The FPC is monitoring closely the risks of, amongst other things, further deterioration in investor appetite for UK assets, adjustments in commercial real estate markets tightening credit conditions and reduced and fragile liquidity in core financial markets.

To support the supply of credit and in support of market functioning, the FPC has reduced the UK countercyclical capital buffer rate from 0.5% to 0% of banks' UK exposures with immediate effect. This rate is expected to remain in effect until June 2017, and will reduce regulatory capital buffers by £5.7 billion. The FPC continues to monitor the risks closely.

View the report.

You may like to view our client publications and webinar materials on the impact of Brexit, available here.

The European Banking Authority published a comparative report on recovery plan governance and indicators. Banks and certain large investment firms are required by the Bank Recovery and Resolution Directive to prepare recovery plans and to submit them to their national regulator. The national regulator must assess the credibility of the recovery plans. The BRRD requires firms to include appropriate conditions and procedures for the timely implementation of any recovery actions and a framework of indicators that identify the points at which certain recovery actions may be taken. The EBA compared the recovery plans of 26 European cross-border banking groups with parent firms located across 12 EU countries. The aim of the analysis is to assess how firms are implementing the requirements of the BRRD as well as draft technical standards on the content of recovery plans and EBA Guidelines on recovery indicators and to consider the credibility and effectiveness of governance arrangements across the sample banks. The EBA hopes that the analysis will assist regulators in their assessments of recovery plans, in particular, in identifying crucial elements to be considered by institutions when designing credible governance arrangements and effective indicator frameworks. 

Read more.

The European Banking Authority published its second report analyzing the level of asset encumbrance across EU banks. The analysis aims to assist EU supervisors in assessing how banks manage funding stress as well as the impact that switching from unsecured to secured funding might have on banks in conditions of stress. The report is based on data received for December 2014 and December 2015 further to a requirement under the Capital Requirements Regulation for banks to report levels of repurchase agreements, securities lending and all forms of asset encumbrance to national regulators and for the EBA to prepare annual reports based on that data. The analysis shows that there has been no significant increase in the overall weighted average encumbrance ratio over the last year. The report noted that high levels of asset encumbrance in some countries (notably Denmark and Sweden) were driven by large covered bond markets or by high central bank funding in countries affected by the sovereign debt crisis (e.g. Greece) or by high levels of repo financing and collateral requirements for OTC derivatives (e.g. UK and Belgium). 

View the report.

The Federal Financial Institutions Examination Council approved revisions to the Consolidated Reports of Condition and Income (Call Report) that will take effect on September 30, 2016 and March 31, 2017. The revisions were proposed by the three US federal banking agencies in September 2015 (see FIL-39-2015, dated September 18, 2015), and included certain burden-reducing changes, a number of instructional clarifications and certain new and revised Call Report data items (e.g., a new item on “dually payable” deposits in foreign branches of US banks). After considering comments received on the proposal, FFIEC and the banking agencies are proceeding with most of the proposed reporting changes, with some modifications.

The Call Report revisions are part of an initiative launched by the FFIEC in December 2014 to identify potential opportunities to reduce burden associated with Call Report requirements for community banks, such as the costs arising from the Call Report preparation process.

View summary of the revisions.

The European Securities and Markets Authority submitted two amendments to the European Commission on the final draft regulatory technical standards on transaction reporting obligations under the Markets in Financial Instruments Regulation. The draft RTS were first submitted on September 25, 2015. The final draft RTS outlines transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other financial instruments such as bonds and derivatives.

Read more.

A Commission Delegated Regulation in the form of Implementing Technical Standards on the means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information was published in the Official Journal of the European Union. The Market Abuse Regulation requires an issuer to inform the public as soon as possible of information which directly concerns the issuer. An issuer may delay disclosing the information in certain circumstances, for example, if immediate disclosure is likely to prejudice the legitimate interests of the issuer. The ITS set out the technical means for issuers to publicly disclose inside information and the means for delaying the public disclosure of inside information. The ITS also requires an issuer bank or investment firm that wishes to delay disclosure of inside information to notify its regulator in writing to obtain the regulator's consent to the delay. The ITS applied from July 3, 2016.

View the RTS on Disclosing or Delaying Disclosure of Inside Information.

A Commission Delegated Regulation in the form of Implementing Technical Standards on the means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information was published in the Official Journal of the European Union. The Market Abuse Regulation requires an issuer to inform the public as soon as possible of information which directly concerns the issuer. An issuer may delay disclosing the information in certain circumstances, for example, if immediate disclosure is likely to prejudice the legitimate interests of the issuer. The ITS set out the technical means for issuers to publicly disclose inside information and the means for delaying the public disclosure of inside information. The ITS also requires an issuer bank or investment firm that wishes to delay disclosure of inside information to notify its regulator in writing to obtain the regulator's consent to the delay. The ITS applied from July 3, 2016.

View the RTS on Disclosing or Delaying Disclosure of Inside Information.

The European Securities and Markets Authority published an Opinion, dated June 23, 2016, on a Denmark-based pension scheme that is to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinion was requested by Finanstilsynet (the Danish financial supervisory authority) and relates to life insurer personal schemes. ESMA published a positive opinion for three other types of Danish pension schemes in April this year: life insurer occupational schemes, labor market related life insurer and multi employer pension fund. Transitional exemptions from the clearing obligation under EMIR can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must then seek an Opinion from ESMA before making a final exemption decision. This follows the extension of the transitional exemption period from the clearing obligation for pension funds to August 16, 2017 which is the revised date by which pension funds must comply with the EU clearing obligation under EMIR.

View ESMA's Opinion.

The New York State Department of Financial Services issued its Transaction Monitoring and Filtering Program Requirements and Certifications final rule, which includes several notable departures from the proposal issued by DFS on December 1, 2015. The issuance of the final rule is another example of DFS enforcing anti-money laundering and sanctions requirements applicable to banks under US federal law. Like the proposed rule, the final rule requires covered institutions to maintain a transaction monitoring program for potential Bank Secrecy Act/anti-money laundering violations and suspicious activity reporting, maintain a filtering program to prevent transactions prohibited by the Office of Foreign Assets Control and submit to the DFS annually a confirmation regarding compliance with the DFS’ transaction monitoring and filtering program requirements.

Perhaps most significantly, and apparently in recognition of serious concerns raised by the industry during the comment period, the final rule does not include the proposed “annual certification” by an institution’s chief compliance officer attesting to a covered institution’s compliance with the rule, nor does it include a reference to criminal penalties for filing an incorrect or false certification. Instead, the final rule requires an annual board resolution or senior officer compliance finding confirming that the covered institution is in compliance with the regulation “to the best of the [individual’s] knowledge.” The final rule also introduced “reasonably designed” standard into the transaction monitoring and filtering programs that institutions must establish.

View DFS final rule.

The US Federal Reserve Board released its annual determination of the aggregate consolidated liabilities of financial companies as required by section 622 of the Dodd-Frank Act, which prohibits a financial company from combining with another company if the resulting company’s liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies.

Financial companies subject to the limit include insured depository institutions, bank holding companies, savings and loan holding companies, foreign banking organizations, companies that control insured depository institutions and nonbank financial companies designated for Federal Reserve Board supervision by the FSOC.

As of July 1, 2016, aggregate consolidated liabilities equal $21,786,571,865,000, which is the average of the year-end financial sector liabilities of the preceding two years and will be the measure of aggregate consolidated liabilities for purposes of section 622 of the Dodd-Frank Act for the time period from July 1, 2016 through June 30, 2017.

View Federal Reserve Board announcement.

The US FDIC finalized updates to its Frequently Asked Questions regarding identifying, accepting and reporting brokered deposits. In general, brokered deposits are treated less favorably than nonbrokered deposits for various supervisory purposes, including a prohibition on accepting such deposits if an insured depository institution’s capital falls below certain thresholds under the Prompt Corrective Action (PCA) framework.

In November 2015, the FDIC released for comment proposed updates to the FAQs that were originally issued in January 2015. After consideration of the comments received, the agency retained a majority of the proposed updates, with certain clarifications and the addition of new FAQs.

The FAQs are based on the statute, regulation and explanations of the requirements for identifying and accepting brokered deposits provided to the industry through published advisory opinions and the FDIC’s Study on Core Deposits and Brokered Deposits issued in July 2011, as well as on comments received since publication of the FAQs. The FAQs provide plain language information about categorizing brokered deposits.

Key updates since the FAQs were issued in January 2015 address matters related to: (i) business professionals and deposit referral programs; (ii) deposits gathered through “dual hatted,” “dual” and “call center” employees (as explained in the FAQs) or contractors; (iii) deposits underlying government-sponsored prepaid or debit card programs; (iv) whether certain non-maturity deposits are brokered; and (v) actions an insured depository institution should take if it holds certain brokered deposits and falls below “well capitalized” for PCA purposes.

View updated FAQs.

The FICC Markets Standards Board published a draft standard for Reference Price Transactions for the fixed income markets. This is the first standard that the FMSB has published since it was established in June 2015 in response to the Fair and Effective Markets Review conducted by the HM Treasury, the Bank of England and the Financial Conduct Authority. The FMSB’s objective is to improve conduct in the wholesale Fixed Income, Currency and Commodities markets. Feedback on the proposed standard was due by September 8, 2016. The standards serve as a supplement to applicable law, rules and regulation and seek to deal with traders’ conflicts of interests where hedging entered into by the liquidity provider could influence the reference price transaction. Once finalized, the standard will apply to all FMSB member firms (just over 30 firms to date) on a global basis. 

View the proposed standard.

EU legislation postponing the implementation date of the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation was published in the Official Journal of the European Union. The MiFID II package will now formally not apply until January 3, 2018 instead of 2017. The postponement includes all of the technical standards and national laws although member states will need to transpose the requirements into national laws by July 3, 2017. In addition to the provisions delaying the implementation date, certain substantive amendments have also been made to the original texts of MiFID II. For example, Securities Financing Transactions, as defined in the new Securities Financing Transactions Regulation, will be excluded from the pre- and post-trade transparency obligations under MiFID II and there are revisions to specifically require the public disclosure of bid and offer prices for package orders.

Read more.

The Prudential Regulation Authority published final amendments to its rules on the contractual recognition of bail-in. The Bank Recovery and Resolution Directive requires EU banks and certain investment firms to include clauses in certain contracts governed by non-EU law by which the creditor agrees to recognise that the liability may be bailed in by the national resolution authority. In November 2015, the PRA issued a Modification by Consent which disapplied the requirement for unsecured liabilities that are not debt securities (known as "phase 2 liabilities") where compliance would be impracticable until June 30, 2016. The PRA published its final rules and extended the Modification by Consent until July 31, 2016. The amended rules applied from August 1, 2016. The PRA also published a Supervisory Statement which provides guidance on the meaning of the term "impracticable" by providing a list of non-exhaustive examples of impracticability such as it is illegal in the third country to include contractual recognition language in agreements or instruments creating liabilities governed by the laws of that third country and the creation of liabilities is governed by international protocols which the firm has no power to amend. The onus will be on firms to demonstrate that compliance with the contractual recognition requirement would be impracticable.

View the amended rules, final Policy Statement and Supervisory Statement.

The European Commission published a report on the appropriateness of the inclusion of credit claims as collateral in the Financial Collateral Directive, including the appropriateness of the restriction on member states to require any formal act for the creation of or validity of such collateral unless the formal act was necessary for the purposes of perfection, priority, enforceability or admissibility in evidence against the debtor or third parties. The Commission assessed the laws that member states implemented across the EU and concluded that, although there is not full harmonization on implementation of the option, the option to include credit claims as collateral should not be removed from the Financial Collateral Directive without further work being undertaken to assess the related impacts. In addition, the Commission considers that action taken within the Capital Markets Union to remove barriers to cross-border clearing and settlement will likely improve the current uncertainty in cross-border exchange of collateral.

View the report.

The US Federal Reserve Board announced that it has not objected to the capital plans of 30 of the 33 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve Board objected to two firms’ plans and while one other firm’s plan was not objected to, it is being required to address certain weaknesses and resubmit its plan by the end of 2016.

CCAR evaluates the capital planning processes and capital adequacy of the largest US-based bank holding companies (including US BHC subsidiaries of non-US banking organizations), including the firms’ planned capital actions such as dividend payments and share buybacks and issuances. When considering a firm’s capital plan, the Federal Reserve Board analyzes, and may object to a capital plan based on, quantitative factors (e.g., a firm’s projected capital ratios under a hypothetical scenario of severe economic and financial market stress) and qualitative factors (e.g., the strength of the firm’s capital planning process, which incorporate the risk management, internal controls and governance practices that support the process). If the Federal Reserve Board objects to a capital plan, a firm may not make any capital distribution unless expressly authorized by the Federal Reserve Board.

Since the first round of stress tests led by the Federal Reserve Board in 2009, the common equity capital ratio, which compares high-quality capital to risk-weighted assets, of the 33 bank holding companies in the 2016 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 12.2 percent in the first quarter of 2016. This reflects an increase of more than $700 billion in common equity capital to a total of $1.2 trillion during the same period.

View CCAR 2016 assessment framework and results.

The Bank for International Settlements' Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published Guidance on cyber resilience for financial market infrastructures. The Guidance supplements the CPMI-IOSCO Principles for Financial Market Infrastructures and aims to assist FMIs to improve their cyber resilience. The Guidance is not intended to impose additional standards on FMIs, but rather to provide FMIs with further detail on how they can enhance their cyber resilience capabilities and limit the increasing risks that cyber threats pose to financial stability. FMIs are expected to take a risk-based approach to implementing the Guidance and to act immediately to improve their cyber resilience, taking the Guidance into account. In particular, FMIs are expected to develop plans by June 2017 to improve their capability to meet the two-hour return to operations requirements.

View the Guidance on cyber resilience for financial market infrastructures.

The European Banking Authority launched a consultation proposing Guidelines on compliance with the regulatory disclosure requirements in the Capital Requirements Regulation. The EBA aims to ensure harmonized and timely implementation of the Basel III Pillar 3 requirements that were released in January 2015. The proposed Guidelines will introduce specific guidance and formats for disclosure, using tables and templates. Responses to the consultation are due by September 29, 2016. The Guidelines are set to apply for year-end disclosures 2017. However, the EBA recommends that Globally Systemically Important Institutions implement a limited subset of disclosures relating to risk-weighted assets and capital requirements for the year-end 2016 disclosures.

View the consultation paper.

US Senator Elizabeth Warren (D-Mass), along with US Senator Mark Warner (D-Va), introduced a new derivatives regulation bill. The Derivatives Oversight and Taxpayer Protection Act proposes to strengthen federal oversight of the derivatives market and ensure that big financial firms, instead of taxpayers, will be held responsible for derivative losses.

If enacted, Senator Warren’s bill would greatly expand the regulatory capacities and powers of the CFTC. It proposes to provide the CFTC with a stable funding stream and allows the agency to impose penalties large enough to impact the bottom lines of even the largest financial firms. The bill also proposes to place certain cross-border and foreign exchange swaps under CFTC jurisdiction, changes how derivatives are treated in bankruptcy, requires posting of initial margin for inter-affiliate swaps, limits the use of netting in calculating risk-based capital and leverage limits relating to derivatives transactions and requires regulators to review derivatives clearinghouses.

View text of the bill.

The FSOC announced the rescission of its designation of GE Capital Global Holdings LLC (GE Capital) as a systemically important financial institution (SIFI). The FSOC unanimously decided that GE Capital no longer meets the standards for SIFI designation. Therefore, GE Capital will not be subject to enhanced prudential standards or supervision by the Board of Governors of the Federal Reserve System.

FSOC originally designated GE Capital as a SIFI in 2013 after identifying a number of key concerns, including the company’s reliance on short-term wholesale funding and its leading position in a number of funding markets. Since then, GE Capital made strategic changes to decrease its total assets by over 50%, reduce its interconnectedness with large financial institutions and have more stable funding. In order to become less systemically important, it has undergone a corporate reorganization, a series of divestitures and a transformation of its funding model.

View the public explanation of the basis for the FSOC’s rescission.

View FSOC press release.

An EU Regulation extending the exemption for commodity dealers from large exposures requirements and own fund requirements was published in the Official Journal of the European Union. The exemption has been extended from December 31, 2017 to December 31, 2020 or until a revised framework for the application of the Capital Requirements Regulation to commodity dealers and investment firms comes into force, whichever is the earlier. The European Council announced in March this year that it had agreed to the extension. 

Read more.

The final EU Regulation on Benchmarks was published in the Official Journal of the European Union. The Benchmark Regulation has been introduced in response to the numerous instances of benchmark manipulation that have emerged in recent years. In addition, the Benchmark Regulation is intended to harmonize across the EU the rules that have implemented the International Organization of Securities Commissions Principles for Financial Benchmarks and Principles for Oil Price Reporting Agencies. 

The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third country entities, requirements for governance and control of administrators, provides for different categories of benchmarks depending on the risks involved and imposes additional requirements on benchmarks considered to be critical, powers of national regulators to mandate, under certain conditions, contributions to or the administration of a critical benchmark.

Read more.

The SEC proposed a rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The new rule requires investment advisers to prepare in advance for significant disruptions in their operations—whether temporary or permanent (such as a natural disaster, cyber-attack, technology failures, etc.)—thereby mitigating client and investor harm.

The proposed rule would require an adviser’s plan to be based on the particular risks associated with its operations, but also include policies and procedures addressing specified components, such as the maintenance of systems and protection of data, pre-arranged alternative physical locations, communication plans and review of third-party service providers. The rule would allow advisers to tailor the detail of their plans to the complexity of their business operations.

SEC Chair Mary Jo White commented that this rule was “the latest action in the Commission’s efforts to modernize and enhance regulatory safeguards for the asset management industry.” In addition to the proposed rule, the SEC staff issued related guidance addressing business continuity planning for registered investment companies, including oversight of operational capabilities of key fund service providers.

View the SEC press release.

View the proposed rule.

View SEC staff guidance.