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

View no-action letter.
 

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

View SEC press release.

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

View SEC press release.

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

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

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

Read more.

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

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

View press release.

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

View the EBA's list. 

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

View the proposed New Issue Process Standard.

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

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

Read more.

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

Read more.

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

The comment period will end on February 21, 2017.

View CFPB’s press release.

View Request for Information.

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

View the consultation paper.

View the guidance on the Financial Penalty Scheme. 

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

Read more.

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

View the consultation paper. 

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

View CFTC press release.

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

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

View ESMA’s Final Report.

The European Securities and Markets Authority published an Opinion outlining a common supervisory approach for regulators dealing with central counterparties that seek to extend or change their existing authorization under the European Market Infrastructure Regulation or to adopt a significant change to their risk model and parameters. The purpose of the Opinion is to build a common supervisory culture by creating uniform procedures and consistent approaches throughout the EU. EMIR requires a CCP wishing to extend its business to additional products and services not covered by its initial authorization to apply to its regulator for an extension, and to obtain validation before adopting any significant changes to its risk model and parameters. EMIR does not define or specify what “additional services and activities” are, nor the notion of “significant change.” The Opinion provides indicators to assist regulators to identify when a change is significant and to seek the college’s opinion, as required by EMIR, on the extension of services and activities. 

Read more.

Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs, spoke to the CRA and Fair Lending Colloquium about the role a “healthy culture” plays at regulated financial institutions. She called the Dodd-Frank reforms the process of establishing a “new normal,” warning institutions they cannot return to pre-crisis modes of operation. She highlighted compliance culture as a key element to a healthy institutional culture, noting OCC efforts to improve compliance supervision. She also noted a focus on existing and emerging risks in the fair lending and CRA spaces for the OCC.

View Senior Deputy Comptroller Gardineer’s remarks.

The Government Accountability Office released a report highlighting limitations in the Federal Reserve stress testing programs. The GAO report noted three specific areas that could hinder the effectiveness of stress tests: qualitative assessment disclosure and communication, scenario design and model risk management. Specifically, the GAO faulted the Federal Reserve for not disclosing full information on its qualitative assessment approach, posing challenges to companies that must meet assessment goals and for not analyzing whether the severe scenario used for stress testing adequately reflects a full range of possible outcomes in the event of a crisis. The GAO report makes 15 specific recommendations, which it reported that the Federal Reserve “generally agreed” with and noted specific ongoing and future efforts to implement these recommendations.

View GAO press release.

View the report.

The Board of the FDIC approved a final rule establishing recordkeeping requirements for FDIC-insured institutions with more than two million deposit accounts. Such institutions are required to maintain complete and accurate data on each depositor and to implement information technology systems capable of calculating the amount of insured money for depositors within 24 hours of a failure. The final rule also established alternative requirements for certain deposit accounts with “pass through” deposit insurance coverage, including trust and brokered deposits, allowing for institutions to process these accounts during a longer time period after a failure. The rule will become effective on April 1, 2017.

View FDIC press release.

View final rule.

Guidelines laying down principles for the coordination of the assessment and monitoring by the European Central Bank and regulators of institutional protection schemes pursuant to the Capital Requirements Regulation was published in the Official Journal of the European Union. The Guidelines are applicable to Single Supervisory Mechanism regulators, which includes the ECB and regulators of the participating states. The Guidelines relate to the assessment of IPSs for the purpose of granting prudential permissions and waivers to IPS members pursuant to the CRR and to the monitoring of IPSs that have been recognized for prudential purposes. The Guidelines apply where member institutions simultaneously submit their application for prudential waivers. An IPS is a contractual or statutory liability arrangement that protects its member institutions and ensures that they have the liquidity and solvency needed to avoid bankruptcy where necessary. The CRR requires that regulators must approve and monitor the adequacy of the IPS’s systems for the monitoring and classification of risk and further requires that the IPS conducts its own review. Regulators may allow for certain derogations by an IPS member from certain CRR requirements. The Guidelines outline the process for regulators in making decisions relating to members of the same IPS that consist of both significant and less significant credit institutions. The purpose of the Guidelines is to ensure that regulators apply the same criteria when assessing IPS applications from less significant institutions and consistently monitor ongoing legal requirements. SSM regulators must comply with the Guidelines by December 2, 2016.

View the Guidelines.

SEC Commissioner Michael S. Piwowar spoke at the SEC’s Financial Technology Forum, calling for the SEC to take “the lead regulatory role” in the FinTech space, noting that the SEC is “uniquely situated” to do so. Piwowar claimed the current regulatory struggle for financial technology firms is not dealing with any specific regulation, but dealing with navigating multiple regulators and possibly contradictory regulation. He stated that the SEC is the ideal regulator for FinTech companies because many financial technology firms are already SEC registrants and the SEC has a unique mandate and capacity to regulate the emerging industry.

View Commissioner Piwowar’s remarks.

The European Central Bank published for consultation draft Guidance on the fit and proper assessment of members of management bodies of significant banks. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The purpose of the draft Guidance is to outline how the ECB will evaluate the qualifications, skills and proper standing of a candidate for becoming a member of a management body. The draft Guidance builds on the current draft guidance under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive published by the European Securities and Markets Authority and the European Banking Authority on October 28, 2016. The assessment criteria for the fitness and proprietary of members of the management body are outlined in the draft Guidance. The criteria include experience, reputation, conflicts of interest and independence of mind, time commitment and collective suitability. The draft Guidance provides information on the purpose, scope and type of interviews conducted by the ECB of appointees. The draft Guidance highlights how a decision is taken by the ECB after every fit and proper assessment and the various types of decisions that may be taken. The draft Guidance also notes that under the SSM Regulation, the ECB has the power to remove, at any time, members from the management body of a significant supervised entity who do not fulfill the fit and proper requirements, which is provided for in the SSM Regulation. The ECB is seeking feedback on its draft Guidance by January 20, 2017.

View the draft Guidance.

Timothy Massad, Chairman of the CFTC, spoke to the CME Global Financial Leadership Conference regarding derivatives regulation. In light of the election result, he highlighted three areas that his term as Chairman has focused on that he believes will continue to be important: technological changes in markets, the effects of the Dodd-Frank reforms and international concerns.

Read more.

SEC Chair Mary Jo White announced that she will leave the SEC at the end of President Obama’s term.  The press release announcing her departure highlighted the SEC’s increased efforts at investor protection and the SEC’s new enforcement approaches, as well as rulemakings responding to issues raised by the financial crisis.  The SEC completed all of the mandates placed upon it by the JOBS Act, as well as the majority of those under the Dodd-Frank Act under Chair White.  The release also highlighted specific rulemaking initiatives under Chair White, as well as presented enforcement statistics over the past three years.

View SEC release.

The European Banking Authority published a consultation paper proposing revisions to the Implementing Technical Standards on supervisory reporting.The ITS on supervisory reporting collate the prudential reporting requirements of banks under the Capital Requirements Regulation, related technical standards and other financial information required by national regulators. The ITS on supervisory reporting are updated when prudential or supervisory requirements change. The EBA is proposing to revise the ITS in relation to supervisory reporting in order to address weaknesses in the existing supervisory reporting requirements concerning sovereign exposures. The EBA has identified areas where additional information or gaps should be filled. In addition, the EBA is proposing to amend the ITS on supervisory reporting in relation to operational risk so that national regulators can more closely monitor losses due to operational risk events and analyze the drivers behind those events that lead to material losses, in particular for larger banks.

The EBA intends to submit the final draft revised ITS to the European Commission in March or April 2017. The revised reporting requirements are expected to apply from March 1, 2018. Responses to the consultation are requested by January 7, 2017.

View the consultation paper.

The European Banking Authority published a consultation paper on proposed Guidelines on the application of the Internal Ratings-Based approach, in particular, the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. The draft Guidelines focus on the definitions and modelling techniques used in the estimation of risk parameters for both non-defaulted and defaulted exposures. The Guidelines aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms which the EBA raised in its Opinion and Report on the implementation of the regulatory review of the IRB approach to calculating risk-weighted exposure amounts for credit risk, published in February 2016. 

Responses to the consultation are due by February 10, 2017. The EBA is proposing that the Guidelines would apply from the end of 2020 due to the numerous changes to rating systems that the Guidelines would involve.
 
View the consultation paper. 

View the EBA's Opinion and Report on the implementation of the IRB approach.

The European Securities and Markets Authority published a Report recommending that the clearing obligation for financial institutions with low trading volumes be delayed until June 21, 2019. 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 clearing obligation is being phased in, with those with the largest derivatives trading activity becoming subject to the obligation first. 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.

ESMA's Report includes draft Regulatory Technical Standards which would amend the timing of the clearing obligation for financial institutions with a low volume of derivatives trading activity (namely those in category three). ESMA is proposing that the clearing obligation for these financial institutions would apply from June 21, 2019 for the clearing of OTC IRS and CDS. The European Commission has three months to decide whether to endorse the amending RTS.

View the final report.

HM Treasury published a consultation paper on rules for a financial market infrastructure special administration regime. A form of special administration for certain financial market infrastructure companies, excluding central counterparties, was introduced by The Financial Services (Banking Reform) Act 2013, known as FMI administration. CCPs are already subject to the special resolution regime in the Banking Act 2009. The entities covered by the FMI administration regime are non-CCP operators of payment systems and central securities depositories. HM Treasury is seeking views on new rules, and modifications to existing general insolvency rules, required to facilitate the effective functioning of an FMI administration. The proposed rules outline the application procedure for an FMI administration order and specify the application of the Insolvency (England and Wales) Rules 2016 with modifications.

Read more.

The US Commodity Futures Trading Commission announced its unanimous approval of a final rule amending CFTC regulation 3.3 to provide for a 90-day window after the end of an institution’s fiscal year for the filing of chief compliance officer annual reports.  The amendment applies to futures commission merchants, swap dealers and major swap participants.  The amendment also clarifies the filing requirements for swap dealers and major swap participants in jurisdictions for which the CFTC has granted a comparability determination on the reports’ contents.  The rule will be effective upon publication in the Federal Register.

View final rule.

The European Securities and Markets Authority issued a public Statement on the implementation of IFRS 9. The purpose of the Statement is to promote consistent application of European securities and markets legislation, and more specifically, International Financial Reporting Standards. ESMA notes that issuers of securities admitted to trading on regulated markets and their auditors should take the public statement into consideration during the implementation of IFRS 9; in particular, when disclosing and auditing its effects on such financial statements. ESMA is of the view that in most cases it would be appropriate to provide disclosures about changes in accounting policies and impacts on an entity’s financial statements in the period of initial application already prior to the entity’s 2017 annual financial reports.  ESMA highlights that IFRS 9 is expected to have significant impacts on firms and, in particular, on credit institutions, due to the new classification for financial assets as well as implementation of the new impairment model based on the ECL. ESMA's Statement provides an illustrative timeline for implementation and a non-exhaustive list of good practices of disclosure when issuers (in general, and not limited to financial institutions) expect the application of IFRS 9 to have a significant impact on their financial statements. ESMA notes that each individual issuer should take into account materiality and its individual circumstances to ensure that relevant and transparent financial information is provided to users of its financial statements. 

View ESMA’s Statement.

The European Banking Authority published a Report outlining observations from its impact assessment on the implementation of International Financial Reporting Standard 9.  The report analyzes the estimated impact of implementing IFRS 9 on firms and assesses the interaction between IFRS 9 and other prudential requirements. The impact assessment was launched in January 2016 on a sample of approximately 50 firms. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 from January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9. The EBA is proposing further steps to assist in monitoring the implementation of IFRS 9, including a second exercise on the impact of IFRS 9, ongoing dialogue on the implementation issues outlined in the Report through engagement with the EBA, firms and auditors and considering additional regulatory guidance on the interaction between existing prudential requirements and the applicable accounting framework, including any guidance on transitional arrangements for the application of revised accounting frameworks and clarifications regarding the current regulatory technical standards for specifying specific credit risk adjustments and general credit risk adjustments.

View the Report.

The European Securities and Markets Authority launched a consultation on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. When the legislation delaying the implementation of the MiFID II package was published, MiFIR was revised specifically to require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is not a liquid market (unless there is a liquid market for the package order as a whole).

ESMA is required to prepare draft Regulatory Technical Standards by February 28, 2017, setting out the methodology for determining the package orders for which there is a liquid market. ESMA is required to assess whether packages are standardized and frequently traded in preparing the RTS.

ESMA's consultation paper considers the treatment of packages for transparency purposes, taking into account the pre-trade transparency regime for package orders in the EU and the US and sets out ESMA's proposed methodology for determining package orders for which there is a liquid market. The consultation closes on January 3, 2017. ESMA will finalize the draft RTS for submission to the European Commission by the end of February 2017.

View the consultation paper.

The European Securities and Markets Authority published its final Technical Advice to the European Commission on certain aspects of the EU Benchmark Regulation. The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks. The European Commission requested the Technical Advice from ESMA in February 2016. The Technical Advice covers: (i) the definition of benchmarks; (ii) measurement of the reference value of benchmarks; (iii) criteria for the identification of critical benchmarks; (iv) endorsement of a benchmark or family of benchmarks provided in a third country; and (v) transitional provisions.

The majority of the Benchmark Regulation will apply from January 1, 2018. Certain provisions, giving powers to ESMA to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016. ESMA intends to publish its final draft technical standards due under the Benchmark Regulation by April 1, 2017.

View the Technical Advice.

The New York Fed released a statement of its policies towards managing its open market operations counterparty relationships with private entities, which includes primary dealers in US Treasury securities. Generally, the New York Fed seeks to transact with regulated banks and broker-dealers of a sufficient scale that do not cause an undue level of credit risk exposure. The policy contains a series of expectations that the New York Fed has for counterparties, which includes following Treasury Market Practices Group or Foreign Exchange Committee best practices, providing insights and information to the New York Fed, meeting regulatory requirements and having a sound compliance program in place. The policy also discusses the behavioral expectations the New York Fed has for counterparties, which include that the firm participates competitively in operations where the firm is selected as a counterparty, maintains the required scale and continues to meet the standards of the New York Fed in terms of legal services, transaction support and resiliency and continuity. Under the revised standards for primary dealers, the amount of required regulatory net capital (as computed in accordance with the net capital rule of the SEC) for a broker-dealer has been reduced from $150 million to $50 million.

View the New York Fed's policy.

The Prudential Regulation Authority published its final Supervisory Statement on the relationship between a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) and capital and leverage buffers as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. The PRA also provided feedback on the responses to its consultation on its proposed approach. The PRA is maintaining its proposed approach without any substantive changes but has amended the Supervisory Statement to provide clarity to firms. The PRA's approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's Supervisory Statement should be read in conjunction with the Bank of England's policy documents on setting MREL. The PRA will apply the MREL buffer and Threshold Conditions policies in line with the interim and end-state MREL dates set by the BoE. A firm that cannot meet its MREL requirement should notify the PRA promptly.

View the PRA's Policy Statement on buffers and capital requirements for MREL.

View the PRA's Supervisory Statement on buffers and capital requirements for MREL.

The Bank of England published the final rules on implementing the EU Minimum Requirement for own funds and Eligible Liabilities (MREL). This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the Bank Recovery and Resolution Directive and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms.

Read more.

The European Banking Authority published a consultation paper on proposed technical standards on the information to be provided by applicant banks to national regulators in support of their applications for authorization. The Capital Requirements Directive requires a bank to obtain authorization before it begins its operations. Member states set out the requirements for the authorization in their country which means that different standards apply across the EU. At the moment, national regulators stipulate the information required to be submitted in support of a bank's application for authorization and the requirements around the application process. CRD IV requires the EBA to prepare Regulatory Technical Standards setting out the information to be provided in support of an application for bank authorization, requirements applicable to shareholders and qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers by a national regulator. The EBA is also required to prepare Implementing Technical Standards setting out the forms, templates and procedures relating to an authorization application. Once the RTS and ITS enter into force, the requirements will be directly applicable across the EU, largely replacing the existing national regimes on information requirements for authorization applications. However, the proposed RTS do allow some flexibility for national regulators to require additional information from an applicant and provide that information is not required where a national regulator has waived a certain authorization requirement for a particular applicant bank. The EBA is proposing that an application for authorization includes, amongst other things, information on a bank's identification and history, own funds, the proposed activities the bank intends to carry out, shareholders and close links, organizational structure and internal audit policies and infrastructure.

Read more. 

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

View the OCC press release.

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

View the consultation paper.

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

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

Read more.

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

View text of the final rule.

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

Read more.

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

View the proposed Guideline.

View the proposed Recommendation.

View further information about the ECB's proposals.

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

Read more.

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

View the consultation paper.

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

View the Discussion Paper.

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

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

View text of Counterpart to MOU.

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

View the announcement.