The European Banking Authority published translations of its final Guidelines on sound remuneration policies. The final Guidelines are applicable to banks and investment firms and cover all staff with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines will apply from January 1, 2017 and will repeal the existing guidelines produced by the Committee of European Banking Supervisors in December 2010. The Guidelines set out detailed requirements for remuneration policies, the related governance arrangements and processes for implementing remuneration policies. 

View the Final Guidelines.

US Federal Reserve Board Governor Jerome Powell delivered remarks to the Chicago Council on Global Affairs, highlighting the impact of Brexit on the outlook for the US economy.

Governor Powell voiced concern that the Brexit vote has the potential to create new headwinds for economies around the world, including the United States. He noted that while it may be “far too early to judge the effects of the Brexit vote,” it will be important to assess implications for the US economy, and for the stance of policy to foster continued progress towards the objectives of maximum employment and price stability in the United States.

Governor Powell noted that for some time, the principal risks to the US labor market recovery and economic growth have been from abroad. Due to the high and continuously appreciating trade-weighted value of the US dollar, the economy inevitably “imports” trading partners’ weak economic performances and financial volatility. Powell stated that to successfully contain the impact of the British referendum, the Federal Reserve Board is “prepared to provide dollar liquidity through existing swap lines” with central banks to address pressures in global funding markets. Powell also noted that while financial conditions have “tightened” since the Brexit vote, markets have continued to function in an “orderly” manner and the US financial markets remain resilient.

View Governor Powell’s speech.

The US Supreme Court elected not to review a Second Circuit decision that found debt purchased from a national bank by a non-national bank entity to be subject to state usury laws.

Read more.
 

The SEC voted to propose amendments that would increase the financial thresholds in the “smaller reporting company” definition. By expanding the number of companies that qualify as smaller reporting companies, the proposal is intended to “promote capital formation and reduce compliance costs for smaller companies” according to SEC Chairman Mary Jo White. Smaller reporting companies may qualify for scaled disclosures provided in Regulations S-K and Regulations S-X.

The proposed rules would enable a company with less than $250 million of public float to provide scaled disclosure as a smaller reporting company, as compared to the $75 million threshold under the current definition. If a company does not have a public float, it would be permitted to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.

It is important to note, however, that the SEC is not proposing to increase the $75 million threshold in the “accelerated filer” definition. As a result, smaller reporting companies with $75 million or more of public float will be subject to accelerated filer requirements.

View SEC press release.

View the proposed rule.

The CFTC approved a final rule that amends existing swap reporting regulations to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions and to improve the efficiency of data collection and maintenance associated with the reporting of the swaps involved in cleared swap transactions.

The final rule removes uncertainty as to which counterparty to a swap is responsible for reporting creation and continuation data for each of the various components of a cleared swap transaction. For example, it clarifies whose obligation it is to report the extinguishment of a swap upon its acceptance by a derivatives clearing organization for clearing. The CFTC anticipates that the rule will have a number of other benefits, including a reduced likelihood of double counting notional exposures and an improved ability to trace the history of a cleared swap transaction from execution between the original counterparties to clearing novation. The rule was published in the Federal Register on June 27, 2016, and will become effective 180 days from the date of publication.

View Final Rule.

The US Federal Reserve Board released the results of supervisory stress tests for 33 participating BHCs, representing more than 80 percent of US domestic banking assets. According to the Federal Reserve Board, the largest US bank holding companies “continue to build their capital levels and improve their credit quality, strengthening their ability to lend to households and businesses during a severe recession.”

Under the most severe hypothetical scenario, the results project that loan losses at the 33 participating firms would total $385 billion during the nine quarters tested. This “severely adverse” scenario features a severe global recession with the domestic unemployment rate rising five percentage points, accompanied by a heightened period of financial stress and negative yields for short-term US Treasury securities. In addition to results under the severely adverse hypothetical scenario, the Federal Reserve Board also released results from the “adverse” scenario, which features a moderate recession and mild deflation in the United States. In this scenario, the average common equity tier 1 capital ratio of the 33 firms fell from an actual 12.3 percent in the fourth quarter of 2015 to a projected minimum level of 10.5 percent in the first quarter of 2018.

The Dodd-Frank Act supervisory stress tests are one component of the Federal Reserve Board’s analysis during the CCAR, which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. This is the sixth round of stress tests led by the Federal Reserve Board since 2009 and the fourth round required by the Dodd-Frank Act.

View Supervisory Stress Test Methodology and Results.

The CFTC requested public comment on 34 submissions CFTC received in past several years from seven registered derivatives clearing organizations pursuant to section 2(h)(2)(B) of Commodity Exchange Act and CFTC regulation 39.5(b). Submissions cover certain interest rate swaps, credit default swaps, foreign exchange non-deliverable forwards, energy swaps, agricultural and inflation swaps. Public comments will inform CFTC as it considers whether to propose swap clearing requirement pursuant to section 2(h)(2)(D) of CEA.

In posting these submissions, CFTC is not proposing swap clearing requirement, as CFTC did most recently on June 9, 2016, regarding certain interest rate swaps. Submissions do not include swaps subject to this recent proposal or swaps currently required to be cleared under the CFTC’s existing clearing requirements. If CFTC decides to propose a clearing requirement determination for any of the swaps covered by the submissions posted on June 23, then, at that time, the CFTC will invite further public comment in response to a notice of proposed rulemaking, similar to the one published in the Federal Register on June 16, 2016 (81 Fed. Reg. 39506).

Comments may pertain specifically to a single submission or generally to several or all submissions. The CFTC is particularly interested in comments that provide data and analysis and discusses the swaps in terms of the five factors that CFTC is required to consider in determining whether to issue a clearing requirement determination under section 2(h)(2)(D) of the CEA. The comment period ended on July 25, 2016.

View CFTC press release.

US Comptroller of the Currency Thomas J. Curry delivered remarks as part of the US OCC’s Forum on Responsible Innovation, highlighting the OCC’s efforts to develop a framework for identifying and evaluating responsible innovation. Comptroller Curry defined a responsible innovation as one that meets the changing needs of consumers, businesses and communities, is consistent with sound risk management and aligns with the company’s business strategy. Within the context of a federal banking system, a responsible innovation is one that would help institutions achieve their public purpose without compromising their safety or soundness. During his remarks, Comptroller Curry made references to the OCC White Paper on responsible innovation that was released in March 2016.

In addition to Comptroller Curry’s remarks, the forum brought together thought leaders from banks, financial technology companies, academia, community and consumer groups and the OCC to discuss developments, opportunities and challenges related to financial innovation. The forum examined questions such as whether financial technology companies and banks could coexist and learn from one another and what the impact of innovation on consumers and communities may be.

View Comptroller Curry’s remarks.

The OCC announced that Beverly F. Cole will become its Deputy Comptroller for Compliance Supervision. In this new role, Ms. Cole will serve as the operational executive responsible for developing and promulgating compliance operational protocols, examination strategies and schedules. She will oversee a staff implementing bank supervision policy for compliance and establish programs to ensure efficient bank supervision for compliance. She will report to the Senior Deputy Comptroller for Compliance and Community Affairs. She took on these duties in July 2016.

View The OCC press release.

As part of his remarks at the Riksbank Macroprudential Conference in Stockholm, US Federal Reserve Board Vice Chairman Stanley Fischer responded to criticisms of the Dodd-Frank Act’s orderly liquidation authority and the Federal Reserve Board’s proposed total loss-absorbing capacity, or TLAC, requirement.

The proposed TLAC requirement mandates that systemically important firms maintain a minimum level of long-term, outstanding debt that could be used to absorb losses and recapitalize the firm in an orderly resolution under either the Bankruptcy Code or the orderly liquidation authority.

In his remarks, Fischer addressed the three most common criticisms of the TLAC proposal, starting with whether TLAC is a redundant backup OLA because the Bankruptcy Code provides an adequate framework for the resolution of any financial company. He also assessed whether OLA provides for a taxpayer bailout of systemically important funds through the orderly liquidation fund, concluding that it does not since OLA allows for liquidity support, and that any losses incurred by the fund would be covered by assessments imposed on large financial firms. Finally, he set forth reasons why TLAC requirements should not lead to GSIBs increasing their leverage and thereby their probability of failure.

View Vice Chairman Fischer’s speech.
 

The FSB launched a consultation on proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The FSB recommendations aim to address four structural vulnerabilities from asset management activities that could cause financial stability risks. Those vulnerabilities are: (i) liquidity transformation by investment funds; (ii) leverage within funds; (iii) operational risk and challenges in transferring investment mandates in stressed conditions; and (iv) securities lending activities of asset managers and funds. The FSB makes 14 recommendations and seeks feedback on the proposals by September 21, 2016. The FSB intends to finalize the recommendations by the end of 2016.

View the consultation paper. 

The Banking Supervision arm of the European Central Bank published a Single Supervisory Mechanism supervisory statement on governance and risk appetite. In 2015, a thematic review was undertaken of all significant firms in the euro area to assess their management bodies and their risk appetite frameworks. The supervisory statement reports on the findings from that review, identifies good practices and sets out supervisory expectations for a bank's board and risk appetite framework, aiming to guide banks on their implementation of international best practices. 

View the supervisory statement.

The FDIC issued a notice of proposed rulemaking to remove and modify references to credit ratings with respect to permissible activities for certain foreign banking organizations, consistent with section 939A of the Dodd-Frank Act and the FDIC’s authority under section 5(c) of the Federal Deposit Insurance Act. Specifically, the proposed rule amends subparts A and B of the FDIC’s international banking regulations (12 C.F.R. Part 347). The proposed rule would delete references in Subpart A to nationally recognized statistical rating organization credit ratings in the definition of “investment grade” and replace such references with alternative standards for determining the creditworthiness of securities and other financial instruments. Subpart B would be amended in a similar fashion to eliminate references to credit ratings in respect of the eligibility criteria for assets that foreign banks may pledge in order to satisfy the FDIC’s asset pledge requirement. Comments on the proposed rulemaking were due by August 29, 2016.

View FDIC notice of proposed rulemaking.

The FDIC released a final rule revising the Securitization Safe Harbor Rule (12 C.F.R. Part 360.6) to clarify that its requirement that servicers of securitized assets take loss mitigation action within 90 days after an asset becomes delinquent does not conflict with the Consumer Financial Protection Bureau’s Regulation X (12 C.F.R. Part 1024), which prohibits a mortgage loan servicer from initiating foreclosure notices or filings unless a mortgage loan is more than 120 days delinquent. Specifically, the Securitization Safe Harbor Rule is being revised to clarify that documents governing a securitization transaction need not require the servicer of securitized assets to take any action that would be prohibited by Regulation X in order to satisfy the 90-day loss mitigation requirement of the securitization safe harbor. The final rule is effective July 27, 2016.

View the FDIC final rule.

The US FDIC approved a final rule developed jointly by the FDIC, the OCC, the Federal Reserve Board, the Farm Credit Administration and the Federal Housing Finance Agency that, pursuant to Title III of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), exempts certain non-cleared swaps and non-cleared security-based swaps with certain financial and non-financial end users from initial and variation margin requirements required pursuant to Sections 731 and 765 of the Dodd-Frank Act. Specifically, the final rule exempts from the margin requirements certain swaps with counterparties that are commercial end users, certain captive finance affiliates, treasury affiliates, cooperatives and small financial institutions. The final rule is effective October 1, 2016.

View FDIC final rule.

As part of her remarks at the Managed Funds Association Forum, CFTC Commissioner Sharon Bowen outlined various proposals to improve governance in CFTC-regulated entities.

Commissioner Bowen emphasized maintaining independent, high-caliber boards of directors. She suggested that the boards of CFTC-regulated entities “craft qualitative and quantitative standards for directors” to ensure individuals meet expected fitness standards, “create a strong company ethos” to improve the culture of compliance and limit the tenure of independent audit and compensation committee members to protect director independence.

Commissioner Bowen also proposed swap execution facility reform, calling for the centralized oversight of SEF surveillance and enforcement functions. She proposed that “all SEFs should be under one self-regulatory organization . . . whether that is the NFA or some other SRO,” so as to increase the efficiency of enforcement mechanisms, standardize rules and increase transparency.

Finally, with regards to swap intermediaries, Commissioner Bowen stated that “the CFTC should also require registration and testing of all swap intermediaries.” Registration would allow the CFTC to obtain more information about those entities intermediating trades in the market, and assess whether their actions are appropriate. Moreover, having robust testing standards for swap intermediaries would serve as a quality control check.

View Commissioner Bowen’s remarks.

The FSOC released its 6th annual report to Congress. The FSOC reports annually to Congress on a range of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States and the activities of the FSOC. The report also makes recommendations to promote market discipline, maintain investor confidence and enhance the integrity, efficiency, competitiveness and stability of US financial markets.

This year, in particular, the report focused on cyber security, as well as risks associated with asset management products and activities, capital and liquidity, central counterparties and reforms of wholesale funding markets. The report also made recommendations about promoting market discipline, maintaining investor confidence and enhancing the competitiveness and efficiency of the US financial markets.

View the Report.

The European Securities and Markets Authority published an updated document on its approach to waivers to certain pre-trade transparency requirements under the current Markets in Financial Instruments Directive. MiFID I allows national regulators to grant waivers to regulated markets and multilateral trading facilities from certain pre-trade transparency requirements for shares based on the market model or the type and size of orders. ESMA first published the document in August 2015, setting out examples of pre-trade waivers under MiFID I. The document is intended to assist national regulators in ensuring that their supervisory practices are in line with ESMA’s opinions and to assist firms by clarifying the content of the MiFID I requirements.

View ESMA's document.

US Senators Elizabeth Warren (D-Mass.) and Joe Donnelly (D-Ind.) sent a letter to the Federal Reserve Board and the FDIC encouraging the agencies to use “all statutory tools at their disposal” if banks’ resolution plans, also known as living wills, are found not credible. The Senators expressed concern that, eight years after the financial crisis, and “after a multi-year review process, the living wills of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy.” The Senators further noted that Section 165 of the Dodd-Frank Act provides the Federal Reserve Board and the FDIC “the authority to impose more stringent prudential requirements on, or even ultimately restructure, large financial institutions unable to craft credible resolution plans on their own.”

Earlier this year, the Federal Reserve Board and the FDIC jointly determined that five large financial institutions had submitted living wills that were not credible. The agencies have required those five firms to address the deficiencies and submit revised plans by October 1 of this year.

View the text of the letter.

The Federal Reserve Board, the US Federal Deposit Insurance Corporation, the US Office of the Comptroller of the Currency and the US National Credit Union Administration released a joint statement providing information about the new Financial Accounting Standards Board statement regarding credit loss estimation. The joint statement provides supervisory views regarding the recently introduced standard which introduces the current expected credit losses methodology for estimating credit losses. This standard applies to all banks, savings associations, credit unions and financial holding companies, regardless of their asset size. Early application is permitted for fiscal years after December 15, 2018, but the rule becomes effective in 2020 for public business entities that are US Securities and Exchange Commission filers, and in 2021 for public business entities that are not SEC-filers and private companies.
 

The European Securities and Markets Authority published its Opinion on the proposed requirements for Emission Allowance Market Participants to disclose inside information under the Market Abuse Regulation. ESMA's Opinion is in response to the European Commission's notification that it intended to endorse, subject to certain amendments, ESMA's Implementing Technical Standards on the public disclosure of inside information by issuers and EAMPs and on the means for delaying public disclosure of inside information. The European Commission is concerned that the ITS will lead to EAMPs being subject to duplicative disclosure requirements under the EU Regulation on wholesale energy market integrity and transparency, known as REMIT. The Commission's view is that the ITS should deem the REMIT disclosure requirements sufficient for the purposes of disclosure requirements under MAR, so as to avoid imposing duplicative requirements on EAMPs.

Read more.

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

The RTS set out the technical arrangements for objective presentation of investment recommendations and for disclosure of particular interests or conflicts of interest.  The RTS require that a firm producing a recommendation must disclose its identity, as well as the names and identities of the individuals involved in preparing a recommendation. Firms that disseminate recommendations will be subject to similar disclosure obligations and must also indicate on a recommendation the date on which it was first disseminated. Firms producing recommendations must also disclose relevant interests or conflicts of interest.

View the RTS on investment recommendations.

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

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

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

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

Read more.

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

Read more.

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

View the speech.

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

View the speech.

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

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

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

View the press release.

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

View the final rule.

View Chairman Massad's statement.

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

View the list and ESMA's update.

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

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

Read more.

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

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

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

View OIG Work Plan.

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

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

Read more.

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

View the press release.

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

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

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

View the press release.

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

Read more.

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

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

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

View the implementing Regulation.

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

View the draft RTS.

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

View the provisional text of the Directive.

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

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

View the discussion paper. 

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

View the press release.

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

View the final rule.

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

View the guidance.